Subordinated Debentures and Convertible Notes

6 Months Ended

Jun. 30, 2023

Subordinated Debentures and Convertible Notes

Convertible Notes and Subordinated Debentures

Convertible Notes

In 2018, the Company issued $217.5 million aggregate principal amount of 2.00% convertible senior notes maturing on May 15, 2038, in a private offering to qualified institutional buyers under Rule 144A of the Securities Act of 1933. The convertible notes are not capital instruments but can be converted into shares of the Company’s common stock at an initial rate of 45.0760 shares per $1,000 principal amount of the notes (equivalent to an initial conversion price of approximately $22.18 per share of common stock, which represented a premium of 22.50% to the closing stock price on the date of the pricing of the notes). Holders of the convertible notes have the option to convert all or a portion of the notes at any time on or after February 15, 2023. The convertible notes can be called by the Company, in part or in whole, on or after May 20, 2023, for 100% of the principal amount in cash. Holders of the convertible notes have the option to put the notes back to the Company on May 15, 2023, May 15, 2028, or May 15, 2033 for 100% of the principal amount in cash. The convertible notes can be settled in cash, stock, or a combination of stock and cash at the option of the Company.

On May 15, 2023, most of the Company’s holders of the convertible notes elected to exercise their optional put right and the Company paid off $197.1 million principal amount of notes in cash. In addition, during the three and six months ended June 30, 2023, the Company repurchased its notes in the aggregate principal amount of $9.2 million and $19.9 million, respectively, and recorded a gain on debt extinguishment of $169 thousand and $405 thousand, respectively. The repurchased notes were immediately cancelled subsequent to the repurchase. These repurchases are separate from the optional put and were made through a third-party broker.

The value of the convertible notes at issuance and the carrying value at June 30, 2023 and December 31, 2022, are presented in the tables below:


	Capitalization Period	Gross Carrying Amount		June 30, 2023
				Total Capitalization		Carrying Amount
		(Dollars in thousands)
Convertible notes principal balance		$	444			$	444

Issuance costs to be capitalized	5 years	—		$	—	—
Carrying balance of convertible notes		$	444	$	—	$	444


	Capitalization Period	Gross Carrying Amount		December 31, 2022
				Total Capitalization		Carrying Amount
		(Dollars in thousands)
Convertible notes principal balance		$	217,500			$	217,500

Issuance costs to be capitalized	5 years	(4,119)		$	3,767	(352)
Carrying balance of convertible notes		$	213,381	$	3,767	$	217,148

Interest expense on the convertible notes for the three and six months ended June 30, 2023, totaled $598 thousand and $1.9 million, respectively. Interest expense on the convertible notes for the three and six months ended June 30, 2022 totaled $1.3 million and $2.6 million, respectively.