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Financing and Other Debt | 12 Months Ended
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Dec. 31, 2020
Debt Disclosure [Abstract] |
Financing and Other Debt |
16. | Financing and Other Debt
The following table summarizes the Company’s total outstanding debt by type:
| Year ended December 31,
(In thousands) | 2020 |  | 2019
Tranche A term loan | 873,777 |  |  | 923,707 |
Tranche B term loan | 1,442,368 |  |  | 1,457,048 |
Term loans under 2016 Credit Agreement 1 | 2,316,145 |  |  | 2,380,755 |
Notes outstanding 1 | 400,000 |  |  | 400,000 |
Convertible Notes outstanding 1 | 310,000 |  |  | — |
Securitized debt | 85,945 |  |  | 104,261 |
Participation debt | — |  |  | 50,000 |
Borrowed federal funds | 20,000 |  |  | 34,998 |
WEX Latin America debt | — |  |  | 2,660 |
Total gross debt | $ | 3,132,090 |  |  | $ | 2,972,674 |
1 See Note 19, Fair Value, for more information regarding the Company’s 2016 Credit Agreement, Notes and Convertible Notes. The following table summarizes the Company’s total outstanding debt by balance sheet classification:
| Year ended December 31,
(In thousands) | 2020 |  | 2019
Current portion of gross debt | $ | 170,556 |  |  | $ | 256,529 |
Less: Unamortized debt issuance costs/debt discount | (17,826) |  |  | (7,998) |
Short-term debt, net | $ | 152,730 |  |  | $ | 248,531 |
Long-term portion of gross debt | $ | 2,961,534 |  |  | $ | 2,716,145 |
Less: Unamortized debt issuance costs/debt discount | (87,421) |  |  | (29,632) |
Long-term debt, net | $ | 2,874,113 |  |  | $ | 2,686,513 |
Supplemental information under 2016 Credit Agreement: |  |  |
Letters of credit 1 | $ | 51,628 |  |  | $ | 51,314 |
Remaining borrowing capacity on revolving credit facility 2 | $ | 818,372 |  |  | $ | 768,686 |
1 Collateral for lease agreements, virtual card and fuel payment processing activity at the Company’s foreign subsidiaries. 2 Contingent on maintaining compliance with the financial covenants as defined in the Company’s 2016 Credit Agreement. 2016 Credit Agreement On July 1, 2016, the Company entered into a credit agreement by and among the Company and certain of its subsidiaries from time to time party thereto, as borrowers, WEX Card Holding Australia Pty Ltd., as specified designated borrower, Bank of America, N.A. as administrative agent, swing line lender and letter of credit issuer and the lenders from time to time party thereto (the “2016 Credit Agreement”). As of December 31, 2020, the 2016 Credit Agreement, as amended through that date, provided for a senior secured tranche A term loan facility in an original principal amount of $1,030.0 million (the “Tranche A Term Loan”), a senior secured tranche B term loan facility in an original principal amount of $1,485.0 million (the “Tranche B Term Loan” and together with the Tranche A Term Loan, the “Term Loans”), and an $870.0 million secured revolving credit facility (the “Revolving Credit Facility”), with a $250.0 million sublimit for letters of credit and $20.0 million sublimit for swingline loans. As of December 31, 2020, the Company had an outstanding principal amount of $873.8 million on the Tranche A Term Loan, an outstanding principal amount of $1.4 billion on the Tranche B Term Loan and outstanding letters of credit of $51.6 million drawn against the Revolving Credit Facility. As of December 31, 2020, the Revolving Credit Facility and the Term Loans bear interest at variable rates determined by using (a) a variable reference rate, selected by the Company, if applicable, from a prescribed set of variable reference rates including (x) the Eurocurrency Rate (as defined in the 2016 Credit Agreement), or (y) the highest of (1) the federal funds effective rate plus 0.50%, (2) the rate of interest in effect for such day as publicly announced from time to time by Bank of America, N.A. as its “prime rate”, and (3) the Eurocurrency Rate plus 1.00% (the “Base Rate”), plus (b) an applicable margin. The applicable margin with respect to the Revolving Credit Facility and Tranche A Term Loan, is determined based on the Company’s Consolidated Leverage Ratio (as defined in the 2016 Credit Agreement). The applicable margin with respect to the Tranche B Term Loan is equal to 1.25 percent for loans accruing interest at the Base Rate and 2.25 percent for loans accruing interest at the Eurocurrency Rate. Starting in June 2020, revolving credit facility borrowings were subject to a 75 basis point LIBOR floor. As of December 31, 2020 and December 31, 2019, amounts outstanding under the 2016 Credit Agreement bore a weighted average effective interest rate of 2.3 percent and 4.0 percent per annum, respectively. The Company maintains interest rate swap agreements to manage the interest rate risk associated with its outstanding variable-interest rate borrowings under the 2016 Credit Agreement. See Note 12, Derivative Instruments, for further discussion. In addition, the Company has agreed to pay a quarterly commitment fee at a rate per annum ranging from 0.30% to 0.50% of the daily unused portion of the Revolving Credit Facility (which was 0.40% at December 31, 2020) determined based on the Consolidated Leverage Ratio. The Revolving Credit Facility and the Tranche A Term Loan mature, and the commitments under the Revolving Credit Facility will terminate, on July 1, 2023. The Tranche B Term Loan matures on May 17, 2026. The Tranche A Term Loan and the Tranche B Term Loan require, prior to maturity, scheduled quarterly payments of $12.5 million and $3.7 million, respectively. The 2016 Credit Agreement also requires the Term Loans to be prepaid with the net cash proceeds from certain debt incurrences or issuances and asset dispositions, subject to certain exceptions, thresholds and reinvestment rights. The 2016 Credit Agreement also requires the Tranche B Term Loan to be annually prepaid with a variable percentage of the Company's Excess Cash Flow (as defined in the 2016 Credit Agreement), ranging from zero% to 50% determined based on the Company's Consolidated Leverage Ratio. As of December 31, 2020, this prepayment percentage was 25%. The Company may voluntarily prepay outstanding loans from time to time, subject to certain conditions, without premium or penalty other than customary “breakage” costs. The obligations of the borrowers under the 2016 Credit Agreement are guaranteed by the Company and certain direct and indirect wholly-owned domestic subsidiaries of the Company and the obligations of foreign borrowers under the Revolving Credit Facility are guaranteed by certain direct and indirect foreign subsidiaries of the Company, subject to certain exceptions. Under the 2016 Credit Agreement, the Company has granted a security interest in substantially all of the assets of the Company and the guarantors, subject to certain exceptions including, without limitation, the assets of WEX Bank and certain foreign subsidiaries. The 2016 Credit Agreement, as amended, contains customary representations and warranties, as well as affirmative and negative covenants, as further described under the following “Debt Covenants” heading. See Note 26, Supplementary Regulatory Capital Disclosure, for further discussion. Notes Outstanding As of December 31, 2020 and 2019, the Company had $400.0 million of 4.75 percent fixed-rate senior notes (the “Notes”) outstanding, which will mature on February 1, 2023. Interest is payable semiannually in arrears on February 1 and August 1 of each year. The Company may redeem the Notes with no premium due upon redemption. As discussed in Note 28, Subsequent Events, the Company delivered a notice of redemption to the holders of the Notes, calling for redemption on March 15, 2021. The Notes are guaranteed on a senior secured basis by each of the Company’s restricted subsidiaries and each of the Company’s regulated subsidiaries that guaranteed the Company’s obligations under the 2016 Credit Agreement. WEX Bank, is not a guarantor and is not subject to many of the restrictive covenants in the indenture governing the Notes. The Notes and guarantees described above are general senior secured obligations ranking equally with the Company’s existing and future senior debt, senior in right of payment to all of the Company’s subordinated debt, and effectively equal in lien priority to the Company’s 2016 Credit Agreement. In addition, the Notes and the guarantees are structurally subordinated to all liabilities of the Company’s subsidiaries that are not guarantors, including WEX Bank. Convertible Notes Pursuant to a purchase agreement dated June 29, 2020, on July 1, 2020, the Company closed on a private placement with an affiliate of Warburg Pincus LLC (together with its affiliate, “Warburg Pincus”), pursuant to which the Company issued $310.0 million in aggregate principal amount of the Convertible Notes due 2027 (the “Convertible Notes”) and 577,254 shares of the Company's common stock for an aggregate purchase price of $389.2 million, of which $90.0 million constituted the purchase price for the shares, reflecting a purchase price of $155.91 per share. The issuance of the Convertible Notes provided the Company with net proceeds of approximately $299.2 million after original issue discount. The Convertible Notes have a seven-year term and mature on July 15, 2027, unless earlier converted, repurchased or redeemed. Interest on the Convertible Notes is calculated at a fixed rate of 6.5% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, with the first interest payment due January 15, 2021. At the Company's option, interest is either payable in cash, through accretion to the principal amount of the Convertible Notes, or a combination of cash and accretion. The Convertible Notes may be converted at the option of the holders at any time prior to maturity, or earlier redemption or repurchase of the Convertible Notes, based upon an initial conversion price of $200.00 per share of common stock. The Company may settle conversions of Convertible Notes, at its election, in cash, shares of the Company’s common stock, or a combination thereof. The initial conversion price is subject to adjustments customary for convertible debt securities and a weighted average adjustment in the event of issuances of equity and equity linked securities by the Company at prices below the then applicable conversion price for the Convertible Notes or the then market price of the Company’s common stock, subject to certain exceptions, including exceptions with respect to underwritten offerings, Rule 144A offerings, private placements at discounts not exceeding a specified amount, issuances as acquisition consideration and equity compensation related issuances. The Company will have the right, at any time after July 1, 2023, to redeem the Convertible Notes in whole or in part if the closing price of WEX's common stock is at least 200% of the conversion price of the Convertible Notes for 20 trading days (whether or not consecutive) out of any 30 consecutive trading day period prior to the time the Company delivers a redemption notice, (including at least one of the five trading days immediately preceding the last day of such 30 trading day period), subject to the right of holders of the Convertible Notes to convert its Convertible Notes prior to the redemption date. In the event of certain fundamental change transactions, including certain change of control transactions and delisting events involving the Company, holders of the Convertible Notes will have the right to require the Company to repurchase its Convertible Notes at 105% of the principal amount of the Convertible Notes, plus the present value of future interest payments through the date of maturity. No such repurchase occurred during the year ended December 31, 2020. The $389.2 million of proceeds from this private placement was allocated on a relative fair value basis, with $94.0 million allocated to the sale of the Company's common stock and $295.2 million to the Convertible Notes. As the Convertible Notes permit the Company to settle the conversion in cash, pursuant to ASC 470-20, the proceeds attributed to the Convertible Notes are allocated between a liability and equity component. The carrying amount of the liability component of the Convertible Notes was calculated by measuring the fair value of a hypothetical debt instrument with a similar tenor without a conversion feature. The fair value was determined utilizing a combination of a binomial lattice-based model and a discounted cash flow model that includes assumptions such as implied credit spread, expected volatility, and the risk-free rate for notes with a similar term. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the total proceeds allocated to the Convertible Notes. Applicable transaction costs of $4.0 million have been allocated between the Convertible Notes and shares of the Company's common stock sold in the transaction based on relative fair value and further allocated between the liability and equity component of the Convertible Notes consistent with the initial allocation resulting in $2.5 million classified as debt issuance costs capitalized as a direct reduction to the face value of the Convertible Notes and $1.5 million deducted from the amounts recorded within stockholders' equity. The debt discount and debt issuance costs will be amortized to interest expense using the effective interest rate method over the seven-year contractual life of the Convertible Notes. The effective interest rate on the liability component of the Convertible Notes was 11.2% at the date of loan origination. Based on this, the Convertible Notes were recorded at a debt discount with an initial carrying value of $237.5 million, with the residual $54.7 million recognized within additional paid-in capital on the Company's consolidated balance sheet. This equity component will not be remeasured as long as it continues to meet the conditions for equity classification. Based on the closing price of the Company’s common stock as of December 31, 2020, the "if-converted" value of the Convertible Notes exceeds its principal amount by $5.5 million. The Convertible Notes consist of the following:
(In thousands) |  | December 31, 2020
Principal |  | $ | 310,000 |
Less: Unamortized discounts |  | (66,755) |
Less: Unamortized issuance cost |  | (2,358) |
Net carrying amount of Convertible Notes 1 |  | $ | 240,887 |
Equity component 2 |  | $ | 54,689 |
1 Recorded within long-term debt, net on our consolidated balance sheet. 2 Represents the proceeds allocated to the conversion option, or debt discount, recorded within additional paid-in capital on the consolidated balance sheet. Additional paid-in capital on the consolidated balance sheet is further reduced by $0.6 million of issuance costs and $13.6 million in taxes associated with the equity component. The following table sets forth total interest expense recognized for the Convertible Notes:
(In thousands) | Year Ended December 31, 2020 |  |
Interest on 6.5% coupon | $ | 10,019 |  |  |
Amortization of debt discount and debt issuance costs | 3,414 |  |  |
| $ | 13,433 |  |  |
Debt Issuance Costs During the year ended December 31, 2020, the Company completed four amendments (the Eighth, Ninth, Tenth and Eleventh Amendments) to the 2016 Credit Agreement, largely in connection with its acquisition of eNett and Optal. The Eighth Amendment was superseded by the Ninth Amendment (other than with respect to the consent fees payable in connection with the Eighth Amendment) and the Eleventh Amendment modified terms that were only applicable if the Company was required to finance the acquisition of eNett and Optal. However, the Ninth Amendment, among other things, amended certain provisions of the 2016 Credit Agreement relating to financial maintenance covenants and pricing terms and the Tenth Amendment increased the commitments under the Revolving Credit Facility by $50.0 million. The Company accounted for the Ninth, Tenth and Eleventh Amendments as debt modifications. As part of these transactions, the Company incurred and expensed an insignificant amount of third party costs, which are classified within general and administrative expenses in our consolidated statements of operations. In association with the Ninth Amendment, the Company incurred and capitalized $4.3 million of lender fees. Consent fees incurred pursuant to the Eighth Amendment and payable upon a consummation of the eNett and Optal acquisition of $2.9 million were capitalized during December 2020. During the year ended December 31, 2019, the Company entered into the Fifth, Sixth and Seventh Amendments to the 2016 Credit Agreement. The Company accounted for the Fifth Amendment to the 2016 Credit Agreement as a debt modification. The Company accounted for the Sixth Amendment to the 2016 Credit Agreement, which was completed in 2019, as both a debt modification and a partial debt extinguishment, and consequently recorded a loss on extinguishment of debt of $1.3 million related to the write-off of unamortized debt issuance costs during 2019. The Company incurred and expensed $10.6 million of third party costs associated with the Fifth and Sixth Amendments, which are classified within general and administrative expenses in the consolidated statements of income during 2019. We expensed as incurred an insignificant amount of costs resulting from the Seventh Amendment to the 2016 Credit Agreement. During 2019, the Company also incurred and capitalized lender costs of $3.4 million associated with the Fifth Amendment and a debt discount of $11.0 million associated with the Sixth Amendment. During the year ended December 31, 2018, the Company entered into the Third and Fourth Amendments to the 2016 Credit Agreement. The Third Amendment was accounted for as both a debt modification and partial debt extinguishment, which caused us to record a loss on extinguishment of debt of $1.1 million related to the write-off of unamortized debt issuance costs, while the Fourth Amendment was accounted for as a debt modification. The Company incurred general and administrative expenses of $3.8 million related to third-party costs associated with the Third and Fourth Amendments. The loss on extinguishment and third-party costs are reflected as financing interest expense and general and administrative expenses, respectively. In addition, the Company incurred and capitalized $5.8 million of new debt issuance costs related to the Third and Fourth Amendments. Debt issuance costs incurred and capitalized in conjunction with the 2016 Credit Agreement and its amendments are being amortized into interest expense over the remaining term of the Term Loans and Revolving Credit Facility, as applicable, using the effective interest method. Debt Covenants The 2016 Credit Agreement and the indenture governing the Notes contain various affirmative and negative covenants that, subject to certain customary exceptions, limit the Company and its subsidiaries’ including, in certain limited circumstances, WEX Bank and the Company’s other regulated subsidiaries, ability to, among other things (i) incur additional debt, (ii) pay dividends or make other distributions on, redeem or repurchase capital stock, or make investments or other restricted payments, (iii) enter into transactions with affiliates, (iv) dispose of assets or issue stock of restricted subsidiaries or regulated subsidiaries, (v) create liens on assets, or (vi) effect a consolidation or merger or sell all, or substantially all, of the Company’s assets. Additionally, the indenture governing the Convertible Notes contains customary negative and affirmative covenants that, subject to certain customary exceptions, limit the Company and its subsidiaries', but excluding WEX Bank and the Company's other regulated subsidiaries, ability to, among other things, incur additional debt. These covenants are subject to important exceptions and qualifications. At any time that the Notes are rated investment grade, which is not currently the case, and subject to certain conditions, certain covenants will be suspended with respect to the Notes. WEX Bank and the Company’s other regulated subsidiaries will not be subject to some of the restrictive covenants in the Indenture that place limitations on the Company and its restricted subsidiaries’ actions, and where WEX Bank and the Company’s regulated subsidiaries are subject to covenants, there are significant exceptions and limitations on the application of those covenants to WEX Bank and the Company’s regulated subsidiaries. The 2016 Credit Agreement also requires, solely for the benefit of the lenders of the Tranche A Term Loan and lenders under the Revolving Credit Facility, that the Company maintain at the end of each fiscal quarter the following financial ratios: •a Consolidated Interest Coverage (as defined in the 2016 Credit Agreement) of no less than 2.75 to 1.00 at December 31, 2020 and through March 31, 2021, after which the ratio reverts back to no less than 3.00 to 1.00; and •a Consolidated Leverage Ratio (as defined in the 2016 Credit Agreement) of no more than 7.50 to 1.00 through March 31, 2021, 7.00 to 1.00 for the quarter ending June 30, 2021, 6.50 to 1.00 for the quarter ending September 30, 2021, 6.00 to 1.00 for the quarters ending December 31, 2021 through September 30, 2022, and 5.00 to 1.00 thereafter. Australian Securitization Facility The Company has a securitized debt agreement with MUFG Bank Ltd., which expires in April 2021. Under the terms of the agreement, each month, on a revolving basis, the Company sells certain of its Australian receivables to the Company’s Australian Securitization Subsidiary. The Australian Securitization Subsidiary, in turn, uses the receivables as collateral to issue asset-backed commercial paper (“securitized debt”) for approximately 85 percent of the securitized receivables. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available for general corporate purposes. The Company pays a variable interest rate on the outstanding balance of the securitized debt, based on the Australian Bank Bill Rate plus an applicable margin. The interest rate was 0.97 percent and 1.80 percent as of December 31, 2020 and 2019, respectively. The Company had securitized debt under this facility of $62.6 million and $78.6 million as of December 31, 2020 and 2019, respectively, recorded in short-term debt, net. European Securitization Facility The Company maintains a five-year securitized debt agreement with MUFG Bank Ltd., which expires in April 2021. Under the terms of the agreement, the Company sells certain of its receivables from selected European countries to its European Securitization Subsidiary. The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available for general corporate purposes. The amount of receivables to be securitized under this agreement is determined by management on a monthly basis. The interest rate was 0.98 percent and 0.63 percent as of December 31, 2020 and 2019, respectively. The Company had securitized debt under this facility of $23.4 million and $25.7 million as of December 31, 2020 and 2019, respectively, recorded in short-term debt, net. Participation Debt From time to time, WEX Bank enters into participation agreements with third-party banks to fund customers’ balances that exceed WEX Bank’s lending limit to individual customers. Associated unsecured borrowings generally carry a variable interest rate of 1 month to 3 month LIBOR plus a margin of 225 basis points. The following table provides the amounts outstanding under the participation debt agreements in place:
|  | December 31, 2020 |  | December 31, 2019
(In thousands) |  | Amounts Available 1 |  | Amounts Outstanding |  | Remaining Funding Capacity |  | Amounts Available |  | Amounts Outstanding 2 |  | Remaining Funding Capacity
Participation debt |  | $ | 60,000 |  |  | — |  |  | 60,000 |  |  | $ | 80,000 |  |  | 50,000 |  |  | $ | 30,000 |
Average interest rate on participation debt outstanding |  |  |  | Not applicable |  |  |  |  |  | 4.17 | % |  |
1 Amounts available includes up to $60 million under an agreement that terminates on December 31, 2021. 2 Amounts outstanding are recorded in short-term debt, net. Borrowed Federal Funds WEX Bank borrows from uncommitted federal funds lines to supplement the financing of the Company's accounts receivable. Federal funds lines of credit were $376.0 million and $355.0 million, respectively, as of December 31, 2020 and 2019. There were $20.0 million and $35.0 million of outstanding borrowings as of December 31, 2020 and 2019, respectively. The average interest rate on borrowed federal funds was 1.01 percent and 2.36 percent for the years ended December 31, 2020 and 2019, respectively. WEX Latin America Debt WEX Latin America debt was comprised of credit facilities and loan arrangements related to its accounts receivable, which had a 35.04 percent interest rate as of December 31, 2019. The Company sold WEX Latin America on September 30, 2020 and no longer has this debt obligation. Other As of December 31, 2020, WEX Bank pledged $249.8 million of fleet receivables held by WEX Bank to the Federal Reserve Bank as collateral for potential borrowings, through the Federal Reserve Bank Discount Window. Amounts that can be borrowed are based on the amount of collateral pledged and were $188.4 million as of December 31, 2020. WEX Bank had no borrowings outstanding on this line of credit through the Federal Reserve Bank Discount Window as of December 31, 2020 and December 31, 2019. Debt Commitments The table(1) below summarizes the Company’s annual principal payments on its total debt for each of the next five years:
2021 | $ | 170,556 |
2022 | $ | 64,611 |
2023 | $ | 1,188,598 |
2024 | $ | 14,681 |
2025 | $ | 14,681 |
(1) Table is based on contractual maturities and, therefore, unadjusted for the Company's intention to early redeem its Notes during March 2021, as discussed further in Note 28, Subsequent Events.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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