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FINANCING ARRANGEMENTS
 12 Months Ended
Dec. 31, 2023
Debt Disclosure [Abstract]  
FINANCING ARRANGEMENTS FINANCING ARRANGEMENTS
Convertible Senior Notes due 2026
The 2026 notes bear interest at a rate of 1.125% per annum, payable semiannually in arrears on March 15 and September 15 of each year, with an annual effective interest rate of 1.83%. The 2026 Notes will mature on March 15, 2026, subject to earlier repurchase, redemption or conversion.
Each $1,000 of principal amount of the 2026 Notes initially is convertible into 14.6800 shares of Common Stock, which is equivalent to an initial conversion price of $68.12 per share, subject to adjustment upon the occurrence of specified events. In addition, upon the occurrence of a make-whole fundamental change, as defined in the Indenture governing the 2026 Notes (the "Indenture"), or if we issue a notice of redemption, we will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2026 Notes in connection with such make-whole fundamental change or redemption.
Upon conversion, we can elect to settle the conversion value in cash, shares of our Common Stock, or any combination of cash and shares of our Common Stock. Subject to certain conditions, holders of the 2026 Notes may convert the 2026 Notes at their option at any time until the close of business on the scheduled trading day immediately preceding the maturity date. In addition, if specified corporate events occur prior to the maturity date, we may be required to increase the conversion rate for holders who elect to convert based on the effective date of such event and the applicable stock price attributable to the event. Based on the closing price of the Common Stock of $12.84 as of December 31, 2023, the if-converted value of the 2026 Notes was less than the principal amount.
Certain conditions apply to the conversion by holders and redemption by us of the 2026 Notes, which are set forth in the Indenture governing the 2026 Notes. In addition, upon the occurrence of a fundamental change (as defined in the Indenture) prior to the maturity date, holders may require us to repurchase all or a portion of the 2026 Notes for cash.
The 2026 Notes are our senior unsecured obligations and will rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 2026 Notes; equal in right of payment to any of our unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of current or future subsidiaries (including trade payables).
The Indenture includes customary events of default, including that acceleration of indebtedness under the Credit Agreement could result in an event of default under the Indenture. If an event of default, as defined in the Indenture, occurs and is continuing, the principal amount of the 2026 Notes and any accrued and unpaid interest may be declared immediately due and payable. In the case of bankruptcy or insolvency, the principal amount of the 2026 Notes and any accrued and unpaid interest would automatically become immediately due and payable. We account for the 2026 Notes as a single liability-classified instrument measured at amortized cost. The carrying value of the 2026 Notes was determined by deducting transaction costs incurred in connection with the issuance of the 2026 Notes of $7.8 million from the principal amount. Those transaction costs were recorded as a debt discount in the Consolidated Balance Sheets and are amortized to interest expense. We have presented the 2026 Notes in Convertible senior notes, net in the accompanying Consolidated Balance Sheets.
The carrying amount of the 2026 Notes consisted of the following as of December 31, 2023 and 2022 (in thousands):
December 31,
20232022
Principal amount$230,000 $230,000 
Less: debt discount(3,530)(5,077)
Net carrying amount of liability$226,470 $224,923 
We classified the fair value of the 2026 Notes as a Level 3 measurement due to the lack of observable market data over fair value inputs such as our stock price volatility over the term of the 2026 Notes and our cost of debt. The estimated fair value of the 2026 Notes as of December 31, 2023 and 2022 was $141.9 million and $133.1 million and was determined using a lattice model.
During the years ended December 31, 2023 and 2022, we recognized interest costs on the 2026 Notes as follows (in thousands):
Year Ended December 31,
20232022
Contractual interest$2,588 $2,588 
Amortization of debt discount1,547 1,520 
Total $4,135 $4,108 
Capped Call Transactions
In connection with the 2026 Notes, we entered into privately-negotiated capped call transactions with each of Barclays Bank PLC, BNP Paribas and Mizuho Markets Americas LLC. The capped call transactions cover, subject to customary adjustments, the number of shares of Common Stock initially underlying the 2026 Notes. The capped call transactions are expected generally to reduce potential dilution to our Common Stock upon any conversion of the 2026 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, with such reduction and/or offset subject to a cap initially equal to $104.80 (which represents a premium of 100% over the last reported sale price of our Common Stock on The Nasdaq Global Select Market on March 22, 2021), subject to certain adjustments under the terms of the capped call transactions.
The capped call transactions are accounted for as freestanding derivatives and recorded at the initial fair value, net of tax, in Additional paid-in-capital in the Consolidated Balance Sheets with no recorded subsequent change to fair value as long as they meet the criteria for equity classification.
Under the if-converted method, the shares of Common Stock underlying the conversion option in the 2026 Notes are included in the diluted income (loss) per share denominator and the interest expense and amortization of the debt discount on the 2026 Notes, net of tax, are added to the numerator. However, upon conversion, there will be minimized economic dilution from the 2026 Notes, as exercise of the capped call transactions reduces dilution from the 2026 Notes that would have otherwise occurred when the price of our Common Stock exceeds the conversion price. The capped call transactions are intended to offset actual dilution from the conversion of the 2026 Notes and to effectively increase the overall conversion price from $68.12 to $104.80 per share.
Revolving Credit Agreement
In May 2019, we entered into a second amended and restated senior secured revolving credit agreement, which matures on May 14, 2024, as amended from time to time, the Credit Agreement.
On February 12, 2024, we prepaid $43.1 million to terminate all commitments to extend further credit under the Credit Agreement using our $80.0 million in proceeds received from the Rights Offering. The terms of the Rights Offering permit the Company to use the proceeds for general corporate purposes, including the repayment of debt. We were not subject to any early termination penalties under the Credit Agreement. The payment of the Payoff Amount terminated our obligations under the Credit Agreement, except for ordinary and customary survival terms. In addition, we retained access to letters of credit, originally available under the Credit Agreement.
In September 2022, we entered into the Third Amendment to the Credit Agreement to modify certain financial covenants and provide for additional flexibility in our operations, including certain modifications to our requirement to maintain (i) a maximum funded indebtedness to EBITDA ratio and (ii) a monthly minimum liquidity balance. In addition to the modifications described below, the Third Amendment reduced our borrowing capacity under our senior secured revolving credit facility from $225.0 million to $150.0 million.
In March 2023, we entered into the Fourth Amendment to the Credit Agreement to modify certain financial covenants and provide for additional flexibility in our operations, among other changes, including certain modifications to (i) our requirements to maintain a monthly minimum liquidity balance (including any undrawn amounts under the revolving credit facility) of at least $50.0 million, (ii) the calculation of EBITDA under the Fourth Amendment, (iii) mandatory prepayment requirements, and (iv) certain affirmative covenants. In addition, the Fourth Amendment reduced our borrowing capacity under our senior secured revolving credit facility from $150.0 million to $75.0 million, which provides for the issuance of up to $75.0 million in letters of credit, provided that the sum of
outstanding borrowings and letters of credit do not exceed the maximum funding commitment of $75.0 million.
In November, 2023, the Company entered into the Fifth amendment to the Credit Agreement to provide for additional flexibility with regards to the fully backstopped Rights Offering. See Note 10, Stockholders' Equity (Deficit) for additional information regarding the Rights Offering. Specifically, the Company entered into the Fifth Amendment to the Credit Agreement. The Fifth Amendment effects certain modifications to the definition of the term “Change in Control” and adds the term “Disqualified Equity Interest” to the Credit Agreement, among other changes. In addition, the Fifth Amendment modifies the restricted payment covenant to permit the Company to declare and pay dividends with respect to its Equity Interests (other than Disqualified Equity Interests) payable solely in additional shares of its Equity Interests (other than Disqualified Equity Interests).
We deferred debt issuance costs of $4.6 million in aggregate in connection with the Credit Agreement. Deferred debt issuance costs are included within Other non-current assets on the Consolidated Balance Sheets and are amortized to interest expense over the term of the respective agreement.
As of December 31, 2023, we were in compliance with the applicable covenants under the Credit Agreement. Non-compliance with the covenants under the Credit Agreement may result in termination of the commitments thereunder and any then outstanding borrowings may be declared due and payable immediately. We have the right to terminate the Credit Agreement or reduce the available commitments at any time.
Borrowings under the Second Amendment bore (a) interest at a rate per annum equal to (i) an adjusted LIBO rate or (ii) a customary base rate (with loans denominated in certain currencies bearing interest at rates specific to such currencies) plus an additional margin ranging between 0.50% and 2.00% and (b) commitment fees ranging from 0.25% to 0.35% on the daily amount of unused commitments. The Second Amendment also includes a replacement mechanism for the discontinuation of the adjusted LIBO rate.
The Third Amendment replaced LIBOR as a benchmark interest rate under the Second Amendment with Term Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment of 10 basis points. The Third Amendment also provides that, from the date of the Third Amendment through the fiscal quarter ending June 30, 2023, the Alternate Base Rate ("ABR") and Canadian prime spreads shall be raised to 1.50%, the fixed rate spreads to 2.50% and the commitment fee to 0.40% on the daily amount of the unused commitments under the Credit Agreement. After June 30, 2023, the applicable spreads and commitment fee will revert to the levels set by the Second Amendment, with the addition of a new tier that is applicable when the ratio of funded indebtedness to EBITDA exceeds 3.00:1.00 and provides for ABR and Canadian prime spreads of 1.25%, fixed rate spreads of 2.25% and a commitment fee of 0.40% on the daily amount of the unused commitments under the Credit Agreement.
The Credit Agreement is secured by substantially all of our tangible and intangible assets, including a pledge of 100% of the outstanding capital stock of substantially all of our direct and indirect domestic subsidiaries and 65% of the shares or equity interests of first-tier foreign subsidiaries and each U.S. entity whose assets substantially consist of capital stock and/or intercompany debt of one or more foreign subsidiaries, subject to certain exceptions. Certain of our domestic and foreign subsidiaries are guarantors under the Credit Agreement.
Amounts committed to outstanding borrowings and letters of credit under the Credit Agreement as of December 31, 2023 and 2022 were as follows (in thousands):
December 31, 2023December 31, 2022
Borrowings$42,776 $75,000 
Letters of credit (1)
25,200 24,900 

(1) Under the Credit Agreement, cash collateral was required if letters of credit extended beyond May 14, 2024. Cash collateral is treated as restricted cash on the Consolidated Balance Sheets. See Note 6, Supplemental Consolidated Balance Sheets and Statements of Operations Information for additional information.