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Debt | 9 Months Ended
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Sep. 30, 2017
Debt Instruments [Abstract] |
Debt Disclosure | DEBT Debt consists of the following (in thousands):
| September 30, 2017 |  | December 31, 2016
Convertible senior notes - unsecured (net of discount of $3,637 and $4,717) | $ | 183,938 |  |  | $ | 195,283 |
Revolving credit facility - unsecured | 167,000 |  |  | 158,000 |
Bank term loan - unsecured | 250,000 |  |  | 250,000 |
Private placement term loans - unsecured | 400,000 |  |  | 400,000 |
HUD mortgage loans (net of discount of $1,423 and $1,487) | 43,824 |  |  | 44,354 |
Fannie Mae term loans - secured, non-recourse | 78,084 |  |  | 78,084 |
Unamortized loan costs | (11,554 | ) |  | (9,740 | )
| $ | 1,111,292 |  |  | $ | 1,115,981 |
Aggregate principal maturities of debt as of September 30, 2017 for each of the next five years and thereafter are as follows (in thousands):
Twelve months ended September 30, |
2018 | $ | 814 |
2019 | 842 |
2020 | 871 |
2021 | 188,475 |
2022 | 417,931 |
Thereafter | 518,973 |
| 1,127,906 |
Less: discount | (5,060 | )
Less: unamortized loan costs | (11,554 | )
| $ | 1,111,292 |
On August 3, 2017, we amended our unsecured $800,000,000 credit facility, originally scheduled to mature in June 2020, consolidating our three bank term loans into a single $250,000,000 term loan and providing for an extension of the maturity of the term loan and the $550,000,000 revolving credit facility to August 2022. The amended facility provides for floating interest on the term loan and revolver to be initially set at 30-day LIBOR plus 130 and 115 bps, respectively, based on current leverage metrics. Additional significant amendments to the facility include the refinement of the collateral pool, imposition of a 0% floor LIBOR base, movement from the payment of unused commitment fees to a facility fee of 20 basis points and the composition of creditors participating in our loan syndication. The employment of interest rate swaps to fix LIBOR on our bank term debt leaves only our revolving credit facility exposed to variable rate risk. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.” Our existing interest rate swap agreements collectively will continue through June 2020 to hedge against fluctuations in variable interest rates applicable to the $250,000,000 term loan. Some new hedge inefficiency will result from introducing to the debt instrument a LIBOR floor that is not present in the hedges. To better reflect earnings, in the first quarter of 2018 we expect to adopt the proposed ASU discussed in Note 12 to the condensed consolidated financial statements, below among whose provisions is expected to be the requirement to reflect the entire change in the fair value of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is presented. At September 30, 2017, we had $383,000,000 available to draw on the revolving portion of our credit facility. The unsecured credit facility agreement requires that we maintain certain financial ratios within limits set by our creditors. To date, these ratios, which are calculated quarterly, have been within the limits required by the credit facility agreements. Pinnacle Bank is a participating member of our banking group. A member of NHI’s board of directors and chairman of our audit committee is also the chairman of Pinnacle Financial Partners, Inc., the holding company for Pinnacle Bank. NHI’s local banking transactions are conducted primarily through Pinnacle Bank. Our unsecured private placement term loans are summarized below (in thousands):
Amount |  | Inception |  | Maturity |  | Fixed Rate
$ | 125,000 |  |  | January 2015 |  | January 2023 |  | 3.99%
50,000 |  |  | November 2015 |  | November 2023 |  | 3.99%
75,000 |  |  | September 2016 |  | September 2024 |  | 3.93%
50,000 |  |  | November 2015 |  | November 2025 |  | 4.33%
100,000 |  |  | January 2015 |  | January 2027 |  | 4.51%
$ | 400,000 |  |  |  |  |  |  |
On August 8, 2017, we amended our private placement term loan agreements to largely conform those agreements with the amendment to our bank credit facility which was noted above. In March 2015 we obtained $78,084,000 in Fannie Mae financing. The term debt financing consists of interest-only payments at an annual rate of 3.79% and a 10-year maturity. The mortgages are non-recourse and secured by thirteen properties leased to Bickford. The notes are secured by facilities having a net book value of $108,573,000 at September 30, 2017. As of September 30, 2017, we had outstanding $187,575,000 of 3.25% senior unsecured convertible notes due April 2021 (the “Notes”). Interest is payable April 1st and October 1st of each year. As adjusted for terms of the indenture, which, at inception in March 2014, initially called for a conversion rate and price of 13.93 shares and $71.81, respectively, the Notes are convertible at a conversion rate of 14.20 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $70.42 per share for a total of 2,663,745 underlying shares. The conversion rate is subject to adjustment upon the occurrence of certain events, as defined in the indenture governing the Notes, but will not be adjusted for any accrued and unpaid interest except in limited circumstances. The conversion option is considered an “optional net-share settlement conversion feature,” meaning that upon conversion, NHI’s conversion obligation may be satisfied, at our option, in cash, shares of common stock or a combination of cash and shares of common stock. Because we have the ability and intent to settle the convertible securities in cash upon exercise, we use the treasury stock method to account for potential dilution. For the nine months ended September 30, 2017, dilution resulting from the conversion option within our convertible debt is 186,545 shares. If NHI’s current share price increases above the adjusted $70.42 conversion price, further dilution will be attributable to the conversion feature. On September 30, 2017, the value of the convertible debt, computed as if the debt were immediately eligible for conversion, exceeded its face amount by $18,306,000. The embedded conversion options (1) do not require net cash settlement, (2) are not conventionally convertible but can be classified in stockholders’ equity under Accounting Standards Codification (“ASC”) 815-40, and (3) are considered indexed to NHI’s own stock. Therefore, the conversion feature satisfies the conditions to qualify for an exception to the derivative liability rules, and the Notes are split into debt and equity components. The carrying value of the debt component is based upon the estimated fair value at the time of issuance of a similar debt instrument without the conversion feature and is now estimated to be approximately $181,503,000. The $6,072,000 difference between the contractual principal and the carrying value of the debt represents unamortized debt issuance costs and discount. The initial value allocated to the debt was recorded as the equity component, represented the estimated value of the conversion feature of the instrument at issuance, and was offset by a like amount recorded as the discount on the Notes, which is being amortized to interest expense over the estimated term of the Notes. The effective interest rate used to amortize the debt discount and the liability component of the debt issue costs was approximately 3.9% based on our estimated non-convertible borrowing rate at the date the Notes were issued. The total cost of issuing the Notes was $6,063,000, $275,000 of which was allocated to the equity component and $5,788,000 of which was allocated to the debt component and subject to amortization over the estimated term of the notes. The remaining unamortized balance at September 30, 2017, was $2,435,000. During the nine months ended September 30, 2017, we undertook targeted open-market repurchases of certain of the convertible notes. Payments of cash negotiated in the transactions were dependent on prevailing market conditions, our liquidity requirements, contractual restrictions, individual circumstances of the selling parties and other factors. The total balance of notes repurchased and retired through September 30, 2017, net of unamortized original issue discount and associated issuance costs, was $12,003,000, resulting in the recognition of losses on the note retirements for the three and nine months ended September 30, 2017, of $495,000 and $591,000, respectively, calculated as the excess of cash paid over the carrying value of that portion of the notes accounted for as debt. For the retirement of that portion of the outlay allocated to the fair value of the conversion feature, $1,744,000 was charged to additional paid-in capital during the nine months ended September 30, 2017. Our HUD mortgage loans are secured by ten properties leased to Bickford and having a net book value of $53,016,000 at September 30, 2017. Nine mortgage notes require monthly payments of principal and interest from 4.3% to 4.4% (inclusive of mortgage insurance premium) and mature in August and October 2049. One additional HUD mortgage loan assumed in 2014 requires monthly payments of principal and interest of 2.9% (inclusive of mortgage insurance premium) and matures in October 2047. The loan has an outstanding principal balance of $8,962,000 and a net book value of $7,539,000, which approximates fair value. The following table summarizes interest expense (in thousands):
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2017 |  | 2016 |  | 2017 |  | 2016
Interest expense on debt at contractual rates | $ | 10,225 |  |  | $ | 9,138 |  |  | $ | 30,570 |  |  | $ | 26,486 |
Losses reclassified from accumulated other |  |  |  |  |  |  |
comprehensive income into interest expense | 695 |  |  | 975 |  |  | 2,129 |  |  | 2,993 |
Ineffective portion of cash flow hedges | (350 | ) |  | (26 | ) |  | (350 | ) |  | 113 |
Capitalized interest | (301 | ) |  | (144 | ) |  | (462 | ) |  | (460 | )
Loss on bond retirement | 495 |  |  | — |  |  | 591 |  |  | — |
Charges taken on restructuring credit facility | 584 |  |  | — |  |  | 584 |  |  | — |
Amortization of debt issuance costs and debt discount | 893 |  |  | 873 |  |  | 2,668 |  |  | 2,613 |
Total interest expense | $ | 12,241 |  |  | $ | 10,816 |  |  | $ | 35,730 |  |  | $ | 31,745 |
Interest Rate Swap Agreements Our existing interest rate swap agreements will collectively continue through June 2020 to hedge against fluctuations in variable interest rates applicable to our $250,000,000 bank term loan. The introduction to the debt instrument of a LIBOR floor not present in the hedges resulted in hedge inefficiency of approximately $350,000, which we credited to interest expense. During the next twelve months, approximately $1,546,000 of losses, which are included as a component of accumulated other comprehensive income, are projected to be reclassified into earnings. As of September 30, 2017, we employ the following interest rate swap contracts to mitigate our interest rate risk on the $250,000,000 term loan (dollars in thousands):
Date Entered |  | Maturity Date |  | Fixed Rate |  | Rate Index |  | Notional Amount |  | Fair Value
May 2012 |  | April 2019 |  | 2.84% |  | 1-month LIBOR |  | $ | 40,000 |  |  | $ | 15 |
June 2013 |  | June 2020 |  | 3.41% |  | 1-month LIBOR |  | $ | 80,000 |  |  | $ | (886 | )
March 2014 |  | June 2020 |  | 3.46% |  | 1-month LIBOR |  | $ | 130,000 |  |  | $ | (1,606 | )
See Note 10 for fair value disclosures about our variable and fixed rate debt and interest rate swap agreements.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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