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DEBT | 12 Months Ended
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Dec. 31, 2017
DEBT |
DEBT | 7. DEBT Our debt consists of:
|  | December 31, |
(In thousands) |  | 2017 |  | 2016 |
Senior secured term loans |  | $ | 243,750 |  | $ | — |
Convertible subordinated notes due 2023 |  |  | 240,984 |  |  | 240,984 |
Convertible senior notes due 2025 |  |  | 192,500 |  |  | — |
Non-recourse notes due 2029 |  |  | — |  |  | 487,189 |
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Total debt |  |  | 677,234 |  |  | 728,173 |
Unamortized debt discount and issuance costs |  |  | (77,872 | ) |  | (12,080 | )
Current portion of senior secured term loan |  |  | (25,000 | ) |  | — |
Current portion of non-recourse notes due 2029 |  |  | — |  |  | (7,752 | )
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Net long-term debt |  | $ | 574,362 |  | $ | 708,341 |
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Senior Secured Term Loans On August 18, 2017, we entered into a credit agreement (the "Credit Agreement") and completed a financing of $250.0 million Term B Loan, the net proceeds of which were used to repay the remaining balance of our 2029 Notes. The Term B Loan will mature on August 18, 2022. Two and one half percent (2.5%) of the initial principal amount is due quarterly beginning December 31, 2017. The remaining outstanding balance is due at maturity. Prepayments, in whole or in part, can be made at any time without a penalty. The Credit Agreement also provides us the ability to request one or more additional tranches of term loans (or increase an existing term loan) at any time prior to maturity. Interest on each term loan, at our option, may bear a varying rate of LIBOR plus 4.5% or a certain alternate base rate plus 3.5%. The initial term loan bears interest at a varying rate of three-month LIBOR plus 4.5%. Interest is due quarterly, beginning November 20, 2017. The term loans under the Credit Agreement are unconditionally guaranteed by one of our wholly-owned subsidiaries, and will be required to be guaranteed by each of our subsequently acquired or organized direct and indirect restricted wholly-owned domestic subsidiaries whose assets or net revenues exceed 5% of the consolidated assets or net revenues, as the case may be, of our and our restricted subsidiaries (the "Guarantors"). Other domestic restricted subsidiaries, subject to certain customary exceptions, will be required to become Guarantors to the extent that domestic restricted subsidiaries excluded from such guarantee obligation represent, in the aggregate, more than 10% of the consolidated assets and more than 10% of our consolidated net revenues. These loans are senior secured obligations, collateralized by a lien on substantially all of our and the Guarantors' personal property and material real property assets (if any). Additionally, the Credit Agreement stipulates an annual principal payment of a percentage of Excess Cash Flow ("ECF"), as described therein, to repay the term loans. The percentage of the ECF scales upwards on a tiered basis from 0% to 50%, based on our leverage ratio, as calculated pursuant to the Credit Agreement, as of the last day of the applicable fiscal year. The first ECF application date will be measured as of the end of fiscal year 2018. In connection with the financing of the Term B Loan, we incurred $2.5 million in original interest discount and $4.9 million in debt issuance costs, which are being amortized to interest expense over the estimated life of the loan using the effective interest method. As of December 31, 2017, the principal balance of the Term B Loan was $243.8 million, of which $25.0 million was classified as a short-term liability. Convertible Senior Notes Due 2025 On August 7, 2017, we completed a private placement of $192.5 million aggregate principal amount of our 2025 Notes. The proceeds include the 2025 Notes sold pursuant to the $17.5 million over-allotment option granted by us to the initial purchasers, which option was exercised in full. The 2025 Notes were sold in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). The 2025 Notes are senior unsecured obligations and bear interest at a rate of 2.5% per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2018. The 2025 Notes are convertible, based on the applicable conversion rate, into cash, shares of our common stock or a combination thereof, at our election. The initial conversion rate for the 2025 Notes is 57.9240 shares of our common stock per $1,000 principal amount of the 2025 Notes (which is equivalent to an initial conversion price of approximately $17.26 per share), representing a 30.0% conversion premium over the last reported sale price of the Company's common stock on August 1, 2017, which was $13.28 per share. The conversion rate is subject to customary anti-dilution adjustments in certain circumstances. The 2025 Notes will mature on August 15, 2025, unless repurchased or converted in accordance with their terms prior to such date. Prior to February 15, 2025, the 2025 Notes will be convertible at the option of the holders only upon the occurrence of specified events and during certain periods. From, and including, February 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2025 Notes will be convertible at any time. Concurrently with the pricing of the offering, we repurchased and retired 1,317,771 shares of our common stock for approximately $17.5 million of the net proceeds from the offering, in privately negotiated transactions effected through one of the initial purchasers or its affiliate, as our agent. The remaining net proceeds from the sale of the 2025 Notes in the offering were used to redeem a portion of the principal outstanding under the 2029 Notes on August 15, 2017. In accordance with accounting guidance for debt with conversion and other options, we separately account for the liability and equity components of the 2025 Notes by allocating the proceeds between the liability component and the embedded conversion option ("equity component") due to our ability to settle the conversion obligation of the 2025 Notes in cash, common stock or a combination of cash and common stock, at our option. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature using the income approach. The allocation was performed in a manner that reflected our non-convertible debt borrowing rate for similar debt. The equity component of the 2025 Notes of $67.3 million was recognized as a debt discount and represents the difference between the proceeds from the issuance of the 2025 Notes and the fair value of the liability of the 2025 Notes on the date of issuance. The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense using the effective interest method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. Our outstanding 2025 Notes balances as December 31, 2017 consisted of the following:
(In thousands) |  | December 31, 2017 |
Liability component |  |  |  |
Principal |  | $ | 192,500 |
Debt discount and issuance costs, net |  |  | (68,342 | )
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Net carrying amount |  | $ | 124,158 |
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Equity component, net |  | $ | 65,361 |
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In connection with the issuance of the 2025 Notes, we incurred approximately $5.4 million of debt issuance costs, which primarily consisted of placement, legal and other professional fees, and allocated these costs to the liability and equity components based on the allocation of the proceeds. Of the total $5.4 million of debt issuance costs, $1.9 million were allocated to the equity component and recorded as a reduction to additional paid-in capital and $3.5 million were allocated to the liability component and recorded as a reduction to the carrying amount of the liability component on the consolidated balance sheet. The portion allocated to the liability component is amortized to interest expense over the expected life of the 2025 Notes using the effective interest method. The following table sets forth total interest expense recognized related to the 2025 Notes from the date of issuance through December 31, 2017:
(In thousands) |  | December 31, 2017 |
Contractual interest expense |  | $ | 1,925 |
Amortization of debt issuance costs |  |  | 189 |
Amortization of debt discount |  |  | 2,268 |
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Total interest and amortization expense |  | $ | 4,382 |
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Convertible Subordinated Notes Due 2023 In January 2013, we completed an underwritten public offering of $287.5 million aggregate principal amount of unsecured convertible subordinated notes, which will mature on January 15, 2023. The financing raised proceeds, net of issuance costs, of approximately $281.2 million, less $36.8 million to purchase two privately-negotiated capped call option transactions in connection with the issuance of the notes. The 2023 Notes bear interest at the rate of 2.125% per year that is payable semi-annually in arrears in cash on January 15 and July 15 of each year, beginning on July 15, 2013. The 2023 Notes were convertible, at the option of the holder, into shares of our common stock at an initial conversion rate of 35.9903 shares per $1,000 principal amount of the 2023 Notes, subject to adjustment in certain circumstances, which represents an initial conversion price of approximately $27.79 per share. In connection with the offering of the 2023 Notes, we entered into two privately-negotiated capped call option transactions with a single counterparty. The capped call option transaction is an integrated instrument consisting of a call option on our common stock purchased by us with a strike price equal to the initial conversion price of $27.79 per share for the underlying number of shares and a cap price of $38.00 per share, both of which are subject to adjustments consistent with the 2023 Notes. The cap component is economically equivalent to a call option sold by us for the underlying number of shares with an initial strike price of $38.00 per share. As an integrated instrument, the settlement of the capped call coincides with the due date of the convertible debt. Upon settlement, we would receive from our hedge counterparty a number of shares of our common shares that would range from zero, if the stock price was below $27.79 per share, to a maximum of 2,779,659 shares, if the stock price is above $38.00 per share. However, if the market price of our common stock, as measured under the terms of the capped call transactions, exceeds $38.00 per share, there is no incremental anti-dilutive benefit from the capped call. The partial conversion by certain holders of the 2023 Notes in July 2014, and dividends declared and paid in 2014 and 2015, the conversion rate with respect to our 2023 Notes was adjusted in total to 50.5818 shares of our common stock per $1,000 principal amount of the 2023 Notes, which represents a conversion price of approximately $19.77 per share. As a result of the conversion rate adjustments, the capped call strike price and cap price were also adjusted accordingly to $19.77 and $27.04, respectively. For the year ending December 31, 2016, we retired a portion of our 2023 Notes with a face value of $14.1 million and carrying value of $13.9 million by way of purchase in the open market. The 2023 Notes were purchased for a total settlement price of $11.6 million resulting in a gain of $2.3 million, which is included in Other (expense) income, net in the consolidated statement of operations. As a result of the partial retirement of our 2023 Notes, we entered into partial termination agreement of the capped call option transaction described above. The partial termination agreement of the capped call option transaction enabled us to receive $0.6 million from the counterparty, which was recorded as an increase in additional paid-in capital in our consolidated balance sheets as of December 31, 2016. Non-Recourse Notes Due 2029 In April 2014, we entered into certain note purchase agreements relating to the private placement of $450.0 million aggregate principal amount of non-recourse fixed rate term notes due 2029. The 2029 Notes had an annual interest rate of 9%, and prior to May 15, 2016, in the event that the specified portion of royalties received in a quarter was less than the interest accrued for the quarter, the principal amount of the 2029 Notes increased by the interest shortfall amount for that period, and considered as payment in kind ("PIK"). In total, $44.0 million of interest expense was added to the principal balance of the 2029 Note. During the years ended December 31, 2017 and 2016, respectively, the principal balance of the 2029 Notes was paid down by $29.6 million and $6.8 million, respectively, with the payments received from the royalty revenues. In May 2017, we redeemed $50.0 million on the 2029 Notes. In August 2017, we redeemed the remaining principal balance of $407.6 million with the net proceeds from the 2025 Notes and Term B Loan. In connection with the sale of the 2029 Notes in 2014, we incurred approximately $15.3 million in debt issuance costs, which were being amortized to interest expense over the estimated life of the 2029 Notes. With the redemptions of the 2029 Notes in 2017, we wrote off $7.3 million of unamortized debt issuance costs which is included in Other income (expense), net in our consolidated statements of operations. Debt Maturities The aggregate scheduled maturities of our long-term debt as of December 31, 2017 are as follows:
(In thousands) |  | December 31, 2017 |
Years ending December 31: |  |  |  |
2018 |  | $ | 25,000 |
2019 |  |  | 25,000 |
2020 |  |  | 25,000 |
2021 |  |  | 25,000 |
2022 |  |  | 143,750 |
Thereafter |  |  | 433,484 |
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Total |  | $ | 677,234 |
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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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