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Royalty Financing Obligation
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
Royalty Financing Obligation Long-Term Debt
Long-term debt is summarized as follows:
Exchangeable Senior Notes:September 30, 2023December 31, 2022
Principal amount of 4.50% exchangeable senior notes due October 2023
$21,187 $117,375 
Principal amount of 4.50% exchangeable senior notes due February 2023
— 17,500 
Less: unamortized debt discount and issuance costs, net — (5,593)
Net carrying amount of debt21,187 129,282 
Less: current maturities, net of $0 and $1,019 unamortized debt discount and issuance costs, respectively
(21,187)(37,668)
     Long-term debt$— $91,614 

For the three months ended September 30, 2023 and 2022, the total interest expense for exchangeable senior notes was $574 and $3,564, respectively, with coupon interest expense of $238 and $1,646 for each period, respectively, and the amortization of debt issuance costs and debt discount, totaling $336 and $1,918 for each period, respectively.

For the nine months ended September 30, 2023 and 2022, the total interest expense for exchangeable senior notes was $6,128 and $9,087, respectively, with coupon interest expense of $3,332 and $4,852 for each period, respectively, and the amortization of debt issuance costs and debt discount of $2,796 and $4,147 for each period, respectively.

February 2023 Notes

On February 16, 2018, the Issuer issued $125,000 aggregate principal amount of its 4.50% exchangeable senior notes due February 2023 (the “February 2023 Notes”) in a private placement (the “Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act. In connection with the Offering, the Issuer granted the initial purchasers of the February
2023 Notes a 30-day option to purchase up to an additional $18,750 aggregate principal amount of the February 2023 Notes, which was fully exercised on February 16, 2018. Net proceeds received by the Company, after issuance costs and discounts, were approximately $137,560. The February 2023 Notes were the Company’s senior unsecured obligations and ranked equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness and effectively junior to any of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness.

October 2023 Notes

On April 5, 2022, the Issuer completed the exchange of $117,375 of its February 2023 Notes for a new series of its October 2023 Notes (the “2022 Exchange Transaction”). The remaining $26,375 aggregate principal amount of the February 2023 Notes were not exchanged and maintained a maturity date of February 1, 2023. On November 4, 2022, the Company repurchased $8,875 of its February 2023 Notes and on the maturity date of February 1, 2023, the Company repaid, with cash on hand, the remaining $17,500 aggregate principal amount of its February 2023 Notes.

The Company accounted for the October 2023 Notes as a modification to the February 2023 Notes. The Company paid $4,804 in fees to note holders of the October 2023 Notes that are amortized over the remaining term of the October 2023 Notes. The Company paid approximately $5,450 in fees to third parties that were expensed as part of the completed 2022 Exchange Transaction. Additionally, the fair value of the unseparated, embedded conversion feature increased by $5,508, which reduced the carrying amount of the convertible debt instrument as an unamortized debt discount, with a corresponding increase in additional paid-in capital. The $5,508 is amortized over the remaining term of the October 2023 Notes as a component of interest expense.

The October 2023 Notes were exchangeable at the option of the holders at an initial exchange rate of 92.6956 ADSs per $1 principal amount of October 2023 Notes, which was equivalent to an initial exchange price of approximately $10.79 per ADS. Such an initial exchange price represented a premium of approximately 20% to the $8.99 per ADS closing price on The Nasdaq Global Market on February 13, 2018. Upon the exchange of the October 2023 Notes, the Issuer paid a combination of cash and ADSs at the Issuer’s election.

The Company had the option to redeem for cash all of the October 2023 Notes if the last reported sale price (as defined by the indenture) of the ADSs was at least 130% of the Exchange Price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending on, and including, the trading day immediately preceding the date on which the Company provided notice to redeem the October 2023 Notes.

Over the course of April 3 and April 4, 2023, the Issuer completed an exchange of $96,188 of its $117,375 October 2023 Notes for $106,268 of new April 2027 Notes. The remaining $21,187 aggregate principal amount of the October 2023 Notes matured on October 2, 2023. The Issuer settled, with a combination of cash and ADSs, the remaining $21,187 aggregate principal amount of the October 2023 Notes in October 2023. The aggregate amount of cash and ADSs delivered to holders for the October 2023 Notes and accrued and unpaid interest was $21,641 and 408 ADSs, respectively.

April 2027 Notes

The Company accounted for the exchange of the October 2023 Notes for the April 2027 Notes as an extinguishment of $96,188 of its October 2023 Notes. The Company recorded a loss on the extinguishment of $13,129 as a result of the exchange.

On June 26, 2023 and in accordance with the terms of the Indenture the Company completed the Mandatory Exchange of $106,268 of aggregate principal amount of the April 2027 Notes, which represents all of the April 2027 Notes outstanding under the Indenture. The Mandatory Exchange consideration per one thousand dollars of principal Notes exchanged consisted of 116.1846 of ADSs representing a corresponding number of the Company’s ordinary shares, nominal value $0.01 per share, plus accrued and unpaid interest thereon. The aggregate amount of ADSs and cash in respect of accrued and unpaid interest delivered to holders of Notes in the Mandatory Exchange was 12,347 ADSs and $1,470, respectively.
Royalty Financing ObligationOn March 29, 2023, the Company and Avadel CNS entered into the RPA with RTW that could provide the Company up to $75,000 of royalty financing in two tranches. The first tranche of $30,000 became available upon satisfaction of certain conditions which included the Company’s first shipment of LUMRYZ. The second tranche is available to use, at the Company’s election, if it achieves quarterly net revenue of $25,000 by the quarter ending June 30, 2024. The second tranche expires if the Company does not elect to use it by August 31, 2024.
On August 1, 2023, the Company received the first tranche of $30,000. As a result of receiving the first tranche, the Company is required to make quarterly royalty payments calculated as 3.75% of worldwide net product revenue of LUMRYZ, up to a total payback of $75,000.

The RPA is recorded as a royalty financing obligation on the unaudited condensed consolidated balance sheet based on the Company’s evaluation of the terms of the RPA. The accounts receivable and inventory balances of LUMRYZ are pledged as collateral for the RPA. There are no subjective acceleration clauses or provisions, and there are no covenants in violation or other clauses that would cause the full amount of the royalty financing obligation to be callable. As such, the RPA is recorded as a long-term obligation on the unaudited condensed consolidated balance sheet.

The Company imputes interest using the effective interest method and records interest expense based on the unamortized royalty financing obligation. The Company’s estimate of the interest rate under the RPA is based primarily on forecasted net revenue and the calculated amounts and timing of net royalty payments to reach the total payback of $75,000. As of September 30, 2023 the effective interest rate is estimated as 28.1%. The Company will account for changes in the imputed interest rate resulting from changes in forecasted net product revenue using the prospective method.

The following table shows the activity within the royalty financing obligation account for the period ended September 30, 2023.

Royalty Financing Obligation:September 30, 2023
Royalty financing obligation – beginning balance$— 
Receipt of the first tranche of the royalty financing obligation30,000 
Accretion of imputed interest expense on royalty financing obligation1,404 
Royalty financing obligation – ending balance31,404 
Less: royalty payable to RTW classified within accrued expenses253 
Royalty financing obligation, non-current$31,151 

The accretion of imputed interest expense is reflected as interest expense in the unaudited condensed consolidated statements of loss.