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Debt | 9 Months Ended
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Sep. 30, 2021
Debt Disclosure [Abstract] |
Debt | Debt Term Loan On August 23, 2017, the Company and certain of its direct and indirect subsidiaries, as guarantors, entered into a credit agreement (the “Credit Agreement”) with Cantor Fitzgerald Securities, as administrative agent and collateral agent, and certain funds managed by Highbridge Capital Management, LLC, as lenders (the “Lenders”). Pursuant to the Credit Agreement, the Lenders provided the Company with a term loan in the principal amount of $48.0 million (the “Term Loan”) with a maturity date of August 23, 2020. On March 31, 2020, the Company issued 2,330 shares of Series E Preferred Stock to South Ocean Funding L.L.C. (“South Ocean”), the Lender holding all of the aggregate principal amount then outstanding under the Credit Agreement in satisfaction of all then accrued interest under the Credit Agreement. On May 12, 2020, the Company used a portion of the proceeds from the Offering to repay in full the Term Loan and terminate the Credit Agreement. The amounts paid included $47.5 million in outstanding principal, approximately $0.5 million in interest accrued thereon, and a prepayment fee of $1.4 million. The Company also used a portion of the proceeds of the Offering to repurchase the 2,330 shares of Series E Preferred Stock that had been issued to South Ocean for $2.4 million. The Term Loan bore interest at a rate per annum equal to the three-month LIBOR, but in no event less than 1.00%, plus 7.625%. The effective interest rate was 15.19% for the nine months ended September 30, 2020. The following table sets forth total interest expense recognized related to the Term Loan (in thousands):
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
|  |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  |  |  |
Contractual interest expense |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,667 |  |  |  |  |
Amortization of debt discount |  |  | — |  |  | — |  |  | — |  |  | 859 |  |  |  |  |
Amortization of debt issuance costs |  |  | — |  |  | — |  |  | — |  |  | 103 |  |  |  |  |
Total interest expense |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2,629 |  |  |  |  |
Convertible Notes 2025 Notes On May 12, 2020, the Company completed its registered public Offering of $100.0 million aggregate principal amount of 2025 Notes. On May 12, 2020, the Company also entered into the May Exchange Agreements with certain holders of the 2022 Notes. Pursuant to the May Exchange Agreements, these noteholders agreed to exchange the 2022 Notes that they held (representing an aggregate of $45.0 million principal amount of 2022 Notes with an estimated fair value of approximately $112.4 million as of the date of exchange) for an aggregate of $32.0 million in cash and $80.4 million principal amount of 2025 Notes in the May Private Exchange Transactions that closed concurrently with the registered Offering. In connection therewith, the Company recorded a loss of $67.2 million on debt conversion and extinguishment, net in the condensed consolidated statement of operations. The 2025 Notes issued in the May Private Exchange Transactions are part of the same series as the 2025 Notes issued in the registered Offering. During the nine months ended September 30, 2021, certain holders of the 2025 Notes converted an aggregate of approximately $5.0 million in principal amount of the 2025 Notes into 428,669 shares of the Company’s common stock, including 32,221 shares of common stock issued in satisfaction of the interest make-whole payment. In connection therewith, the Company recorded a loss of $0.4 million on debt conversion, net in the condensed consolidated statement of operations. The 2025 Notes are issued under an indenture, dated May 12, 2020 (the “Base Indenture”), between the Company and Wilmington Trust, National Association, as trustee (the “Trustee”), as supplemented by the first supplemental indenture, dated May 12, 2020 (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), between the Company and the Trustee. The 2025 Notes will mature on May 1, 2025, unless earlier repurchased, redeemed or converted. The 2025 Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 3.25%, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2020. Holders of the 2025 Notes may convert the 2025 Notes into shares of the Company’s common stock (together with cash in lieu of any fractional share), at their option, at any time until the close of business on the scheduled trading day immediately before the maturity date. Upon conversion of the 2025 Notes, the Company will deliver for each $1,000 principal amount of 2025 Notes converted a number of shares of common stock (together with cash in lieu of any fractional share), equal to the conversion rate. The initial conversion rate for the 2025 Notes is 79.2896 shares of common stock per $1,000 principal amount of 2025 Notes, which represents an initial conversion price of approximately $12.61 per share, and is subject to adjustment upon the occurrence of certain events, including, but not limited to, certain stock dividends, splits and combinations, the issuance of certain rights, options or warrants to holders of the common stock, certain distributions of assets, debt securities, capital stock or other property to holders of the common stock, cash dividends on the common stock and certain Company tender or exchange offers. If a fundamental change (as defined in the Indenture) occurs at any time prior to the maturity date, then the noteholders may require the Company to repurchase their 2025 Notes at a cash repurchase price equal to the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. If a make-whole fundamental change (as defined in the Indenture) occurs, then the Company will in certain circumstances increase the conversion rate for a specified period of time. The 2025 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after May 6, 2023 and on or before the scheduled trading day before the maturity date, at a cash redemption price equal to the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, as long as the last reported sale price per share of the common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. The Indenture contains customary events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Trustee, by notice to the Company, or the holders of the 2025 Notes representing at least 25% in aggregate principal amount of the outstanding 2025 Notes, by notice to the Company and the Trustee, may declare 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 2025 Notes to be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 2025 Notes will automatically become immediately due and payable. Notwithstanding the foregoing, the Indenture provides that, to the extent the Company elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will, for the first 360 days after such event of default, consist exclusively of the right to receive additional interest on the 2025 Notes. Interest make-whole payment The 2025 Notes also include an interest make-whole payment feature whereby if the last reported sale price of the Company’s common stock for each of the five trading days immediately preceding a conversion date is greater than or equal to $10.51, the Company will, in addition to the other consideration payable or deliverable in connection with such conversion, make an interest make-whole payment to the converting holder equal to the sum of the present values of the scheduled payments of interest that would have been made on the 2025 Notes to be converted had such notes remained outstanding from the conversion date through the earlier of (i) the date that is three years after the conversion date and (ii) the maturity date. The present values will be computed using a discount rate equal to 1%. The Company will satisfy its obligation to pay the interest make-whole payment, at its election, in cash or shares of common stock (together with cash in lieu of fractional shares). The Company has determined that this feature is an embedded derivative and has recognized the fair value of this derivative as a liability in the condensed consolidated balance sheets, with subsequent changes to fair value to be recorded at each reporting period on the condensed consolidated statement of operations in other income, net. As of September 30, 2021, $161.9 million in principal amount of the 2025 Notes were outstanding, $80.4 million of which were held by related parties. The 2025 Notes consist of the following (in thousands):
| September 30, 2021 |  | December 31, 2020 |  |
Liability component |  |  |  |  |
Principal | $ | 161,898 |  |  | $ | 166,898 |  |  |
Add: fair value of embedded derivative | 1,317 |  |  | 4,898 |  |  |
Less: unamortized debt discount | (2,972) |  |  | (3,703) |  |  |
Less: unamortized issuance costs | (2,364) |  |  | (2,946) |  |  |
Net carrying amount | $ | 157,879 |  |  | $ | 165,147 |  |  |
The effective interest rate on the liability component of the 2025 Notes was 4.15% for the nine months ended September 30, 2021. The following table sets forth total interest expense recognized related to the 2025 Notes (in thousands):
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |  |
|  | 2021 |  | 2020 |  | 2021 |  | 2020 |  |  |  |
Contractual interest expense |  | $ | 1,315 |  |  | $ | 1,278 |  |  | $ | 3,899 |  |  | $ | 2,078 |  |  |  |  |
Amortization of debt discount |  | 207 |  |  | 217 |  |  | 622 |  |  | 341 |  |  |  |  |
Amortization of debt issuance costs |  | 165 |  |  | 172 |  |  | 495 |  |  | 268 |  |  |  |  |
Total interest expense |  | $ | 1,687 |  |  | $ | 1,667 |  |  | $ | 5,016 |  |  | $ | 2,687 |  |  |  |  |
2022 Notes On January 9, 2017, in connection with the settlement of an exchange offer and consent solicitation with respect to the 5.50% convertible senior notes due 2020 (the “Novatel Wireless Notes”), the Company issued approximately $119.8 million aggregate principal amount of 2022 Notes. During the three months ended March 31, 2020, the Company entered into privately-negotiated exchange agreements (“the March Exchange Agreements”) with certain investors holding the 2022 Notes. Pursuant to the March Exchange Agreements, the investors exchanged $59.9 million in aggregate principal amount of outstanding 2022 Notes for 13,688,876 shares of common stock. The investors that participated in the March Exchange Agreements agreed to waive any accrued but unpaid interest on the exchanged 2022 Notes. Included in the 13,688,876 shares of common stock issued in the exchange transactions that took place during the three months ended March 31, 2020 were 942,706 shares valued at $7.9 million on the date of issuance at fair value, which were issued pursuant to the terms of the privately-negotiated March Exchange Agreements and were in excess of the consideration issuable under the original conversion terms of the exchanged 2022 Notes. ASC 470 Debt, requires the recognition through earnings of an inducement charge equal to the fair value of the consideration delivered in excess of the consideration issuable under the original conversion terms. This resulted in a non-cash charge of $7.9 million for the three months ended March 31, 2020, which was recorded as inducement expense in the condensed consolidated statement of operations. Pursuant to the May Private Exchange Transactions described above, on May 12, 2020, the holders of an aggregate of $45.0 million principal amount of 2022 Notes exchanged their 2022 Notes for a combination of 2025 Notes and cash. As a result of the May Private Exchange Transactions, $2,000 in principal amount of the 2022 Notes remained outstanding as of May 12, 2020. On July 22, 2020, pursuant to a redemption notice issued on May 15, 2020, the Company redeemed the remaining $2,000 principal amount of the 2022 Notes. The effective interest rate on the liability component of the 2022 Notes was 12.89% for the nine months ended September 30, 2020. The following table sets forth total interest expense recognized related to the 2022 Notes (in thousands):
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
|  |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  |  |  |
Contractual interest expense |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 768 |  |  |  |  |
Amortization of debt discount |  |  | — |  |  | — |  |  | — |  |  | 1,952 |  |  |  |  |
Amortization of debt issuance costs |  |  | — |  |  | — |  |  | — |  |  | 111 |  |  |  |  |
Total interest expense |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2,831 |  |  |  |  |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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