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Debt Obligations | 3 Months Ended
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Mar. 31, 2025
Debt Disclosure [Abstract] |
Debt Obligations | 11. Debt Obligations Debt obligations, including finance lease obligations, consisted of the following (in millions):
| March 31, 2025 |  | December 31, 2024
Infrastructure |
PRIME minus 1.00% Line of Credit due 2025 | $ | 50.0 |  |  | $ | 45.0 |
3.25% Term Loan due 2026 | 72.8 |  |  | 74.6 |
PRIME minus 1.00% Term Loan due 2026 | 24.2 |  |  | 24.5 |
Obligations under finance leases | 0.2 |  |  | 0.6 |
Total Infrastructure | $ | 147.2 |  |  | $ | 144.7 |
Spectrum |  |  |
8.50% Note due 2025 | $ | 19.3 |  |  | $ | 19.3 |
11.45% Notes due 2025 | 50.4 |  |  | 50.4 |
Total Spectrum | $ | 69.7 |  |  | $ | 69.7 |
Life Sciences |  |  |
20.00% Notes due 2025 | $ | 25.2 |  |  | 24.0 |
Total Life Sciences | $ | 25.2 |  |  | $ | 24.0 |
Non-Operating Corporate |  |  |
8.50% Senior Secured Notes due 2026 | $ | 330.0 |  |  | $ | 330.0 |
7.50% Convertible Senior Notes due 2026 | 48.9 |  |  | 48.9 |
SOFR plus 5.75% Line of Credit due 2025 | 20.0 |  |  | 20.0 |
CGIC Unsecured Note due 2026 | 31.0 |  |  | 31.0 |
Total Non-Operating Corporate | $ | 429.9 |  |  | $ | 429.9 |
Total outstanding principal | $ | 672.0 |  |  | $ | 668.3 |
Unamortized issuance discount, issuance premium, and deferred financing costs | (8.6) |  |  | (5.5) |
Less: current portion of debt obligations | (523.5) |  |  | (162.2) |
Debt obligations, net of current portion | $ | 139.9 |  |  | $ | 500.6 |
As of March 31, 2025, estimated future aggregate finance lease and debt payments, including interest, were as follows (in millions):
|  | Finance Leases |  | Debt |  | Total
2025 (remaining period) (1) |  | $ | 0.1 |  |  | $ | 234.5 |  |  | $ | 234.6 |
2026 |  | 0.1 |  |  | 507.6 |  |  | 507.7 |
Total minimum principal and interest payments |  | 0.2 |  |  | 742.1 |  |  | 742.3 |
Less: Amount representing interest (1) |  | — |  |  | (70.3) |  |  | (70.3) |
Total aggregate finance lease and debt payments |  | $ | 0.2 |  |  | $ | 671.8 |  |  | $ | 672.0 |
(1) Excludes exit fees for Spectrum and R2 Technologies. The interest rates on finance leases ranged from approximately 3.0% to 6.8%. Infrastructure DBMG has a $135.0 million Revolving Line with UMB that bears interest at a prime rate minus a spread with an interest rate floor of 4.25%. The Revolving Line with UMB matures on August 15, 2025. The outstanding balance was $50.0 million and $45.0 million, as of March 31, 2025 and December 31, 2024, respectively, and availability for revolving loans was $84.9 million and $89.9 million as of March 31, 2025 and December 31, 2024, respectively. Interest is paid monthly, and the effective interest rate on the Revolving Line with UMB was 6.72% and 6.98% as of March 31, 2025 and December 31, 2024, respectively. The Revolving Line with UMB also includes a commitment fee equal to 0.25% per annum times the average daily unused availability under the line. DBMG also has a $72.8 million 3.25% term loan due 2026 (the "3.25% UMB Term Loan"), which matures May 31, 2026, and bears interest, which is paid monthly, at an annual rate of 3.25% with an effective interest rate of 3.3%. On June 28, 2024, DBM and UMB entered into the Third Amendment to the UMB Credit Agreement, which added an incremental separate term loan of $25.0 million to the existing credit facility ("PRIME minus 1.00% Term Loan due 2026"), with the same interest rate as the Revolving Line with UMB and the same maturity date as the initial 3.25% UMB Term Loan. Principal payments and interest are paid monthly. The UMB term loans and Revolving Line with UMB associated with the Infrastructure segment contain customary restrictive and financial covenants related to debt levels and performance, including a Fixed Charge Coverage Ratio covenant, as defined in their agreements. DBMG is in compliance with its debt covenants as of March 31, 2025. Spectrum The maturity date of Spectrum's 8.50% and 11.45% Notes is August 15, 2025, as amended in November 2023. As a result of amendments to extend the maturity date during the year ended December 31, 2023, additional exit fees of $8.3 million were incurred. The exit fees associated with the notes, which are payable on the earlier of maturity or repayment of the principal, were recorded as original issue discount and are being amortized over the remaining life of the notes, which is assumed to be the maturity date. A corresponding liability for the total exit fees of $15.9 million is reflected within Accrued Liabilities in the Condensed Consolidated Balance Sheets as of both March 31, 2025 and December 31, 2024. Interest is capitalized and payable upon maturity of the notes, of which there was $22.4 million and $20.5 million of accrued but unpaid interest as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025 and December 31, 2024, the weighted-average effective interest rate on the notes, as amended, was 22.9% and 22.8% per annum, respectively. During November 2023, concurrently with Broadcasting's execution of the Ninth Amendment to Secured Notes, which among other things extended the maturity of the notes, INNOVATE entered into a related side letter with the lenders, whereby INNOVATE agreed to utilize proceeds from a sale of certain of its existing operations, as allowable under the Company's current agreements and indentures and after all other required payments have been made, for repayment of a portion of Broadcasting's Senior Secured Notes. Assuming there are sufficient proceeds remaining after such repayment, an additional $2.0 million fee is payable for payments made after November 9, 2024, and in exchange for the additional $2.0 million fee, the institutional investors will return their equity interests in HC2 Broadcasting Holdings, Inc. and their equity interests in DTV America. The lenders hold warrants to purchase 145,825 shares of common stock of HC2 Broadcasting Holdings, Inc which can be exercised at any time until August 2027 at an exercise price of $0.01 per share. Life Sciences Effective January 31, 2024, a 20% note was entered into with Lancer Capital, which replaced the prior 20% note. The new note had an aggregate original principal amount of $20.0 million, which was comprised of all prior outstanding principal amounts of $17.4 million and unpaid accrued interest of $2.6 million which was capitalized into the new principal balance. The 20% $20.0 million note also included an exit fee, which would be 10.5% of the principal amount being repaid as of April 30, 2024. As a result of the addition of the exit fee effective January 31, 2024, the transaction was determined to be an extinguishment of debt under ASC 470-50, Debt - Modifications and Extinguishments ("ASC 470-50"), and the $2.2 million exit fee payable to the existing lender was included as a loss on debt extinguishment within Other income (expense), net on the Condensed Consolidated Statement of Operations for the three months ended March 31, 2024. The original maturity date of the 20% $20.0 million note was April 30, 2024, or within five business days of the date on which R2 Technologies receives an aggregate $20.0 million from the consummation of a debt or equity financing or has a change in control, as defined in the agreement, with an optional prepayment of the entire then-outstanding and unpaid principal and accrued interest upon five-days written notice to Lancer Capital. Effective May 17, 2024, the maturity date of the note was extended to December 31, 2024, and the exit fees were amended. The May 17, 2024, amendment was determined to be a modification of debt under ASC 470-50 as the terms of the debt were not determined to be substantially different, including taking into consideration the ability to prepay the debt at anytime, and, therefore, the additional exit fees were amortized using the effective interest method. During the first quarter of 2025, with an effective date of December 31, 2024, the maturity date of the note was extended to August 1, 2025, and another additional exit fee of $1.0 million was incurred under the amendment, which continues to increase by $1.0 million each month until maturity. The base exit fee, as amended, and as of March 31, 2025, was equal to 12.41% of the principal amount being repaid and continues to increase by 0.17% each month until maturity. The total new exit fees associated with the notes have been recorded as an original issue discount of $8.7 million and are being amortized over the remaining life of the note, which is assumed to be the maturity date. A corresponding liability for the new exit fees of $8.7 million was recorded for total accrued exit fees amount of $16.5 million which are included within Accrued liabilities in the Condensed Consolidated Balance Sheet as of March 31, 2025. The exit fees are payable on the earliest of the maturity date, the date of the acceleration of the principal amount of the note for any reason or, if any portion of the note is prepaid at any time, the date of such prepayment of the note. In addition, under the recent amendment, a new $5.0 million default fee will be payable on August 1, 2025, in the event all obligations under the note, including principal, any accrued and unpaid interest, and exit fees, are not repaid in full prior to the August 1, 2025, maturity date. The $5.0 million default fee will only be recognized in the event of a default on August 1, 2025. The amendment, which is effective as of December 31, 2024, was determined to be a modification of debt under ASC 470-50, as the terms of the debt were not determined to be substantially different, including taking into consideration the ability to prepay the debt at anytime, and, therefore, the additional exit fees are being amortized over the term of the note using the effective interest rate method and are included in interest expense. Interest on the note, as amended, is payable monthly in arrears, in cash or, if not paid in cash, accrued and unpaid interest is capitalized monthly into the principal balance. Interest expense, including amortization of all exit fees, related to the note with Lancer Capital was $4.5 million and $0.9 million for the three months ended March 31, 2025 and 2024, respectively. For the three months ended March 31, 2025 and 2024, in accordance with the 20% note agreement, $1.2 million and $0.7 million, respectively, of interest was capitalized into the principal balance. As of March 31, 2025, the total carrying amount relating to the note was $36.4 million, inclusive of $25.2 million of principal and capitalized interest, partially offset by $5.3 million of unamortized original issue discount, which are included within the Current portion of debt obligations in the Condensed Consolidated Balance Sheet, and $16.5 million in total accrued exit fees which are included within Accrued liabilities in the Condensed Consolidated Balance Sheet. As of December 31, 2024, the total outstanding amount relating to the note was $31.9 million, inclusive of $24.0 million of principal and capitalized interest, which total was included within Current portion of debt obligations in the Condensed Consolidated Balance Sheet, and $7.9 million in total accrued exit fees which were included within Accrued liabilities in the Condensed Consolidated Balance Sheet. As of March 31, 2025 and December 31, 2024, the effective interest rate on the note, as amended, was 51.3% and 57.8%, respectively. Non-Operating Corporate 2026 Senior Secured Notes The Company has $330.0 million aggregate principal amount of 8.50% senior secured notes due February 1, 2026 (the "2026 Senior Secured Notes"), which were issued in 2021 at 100% of par. The 2026 Senior Secured Notes have a stated annual interest rate of 8.50% and have an effective interest rate of 9.3%, which reflects the initial $10.8 million of deferred financing fees, including underwriting fees. Interest is payable semi-annually in arrears on February 1st and August 1st of each year. Aggregate interest expense, including the contractual interest coupon and amortization of the deferred financing fees was $7.6 million for both the three months ended March 31, 2025 and 2024, respectively. There were $2.2 million and $2.8 million of unamortized deferred financing fees as of March 31, 2025 and December 31, 2024, respectively. 2026 Convertible Notes The original $51.8 million aggregate principal amount of 7.50% convertible notes (the "2026 Convertible Notes") were issued under a separate indenture dated February 1, 2021, between the Company and U.S. Bank, as trustee (the "Convertible Indenture"). The 2026 Convertible Notes mature on August 1, 2026, unless earlier converted, redeemed or purchased. The 2026 Convertible Notes were issued at 100% of par with a stated annual interest rate of 7.50%. The fair value of the embedded conversion feature contained in the 2026 Convertible Notes had a fair value of $12.3 million, which was recorded as a premium on the 2026 Convertible Notes. The 2026 Convertible Notes have an effective interest rate of 3.21%, which reflects the initial $12.3 million premium and $1.1 million of deferred financing fees. During July 2024, INNOVATE repurchased $2.9 million principal amount of its 2026 Convertible Notes at a market discount for $1.1 million, which was inclusive of accrued interest of $0.1 million. As of March 31, 2025, the 2026 Convertible Notes had a net carrying value of $51.8 million inclusive of the remaining unamortized premium of $3.2 million and unamortized deferred financing costs of $0.3 million. As of December 31, 2024, the 2026 Convertible Notes had a net carrying value of $52.3 million, inclusive of an unamortized premium of $3.8 million and unamortized deferred financing costs of $0.4 million. Interest is payable semi-annually in arrears on February 1st and August 1st of each year. Aggregate interest expense recognized relating to both the contractual interest coupon and amortization of discount net of premium and deferred financing costs was $0.4 million and $0.5 million, for the three months ended March 31, 2025 and 2024, respectively. Each $1,000 of principal of the 2026 Convertible Notes is convertible into 23.6327 shares of our common stock, which is equivalent to a conversion price of approximately $42.31 per share, both as adjusted for the 2024 Reverse Stock Split and subject to further adjustment upon the occurrence of specified events. Based on the closing price of our common stock of $7.83 on March 31, 2025, the if-converted value of the 2026 Convertible Notes did not exceed its principal value. Revolving Line of Credit The Company has a revolving credit agreement with MSD PCOF Partners IX, LLC ("MSD"), which has a maximum commitment of $20.0 million ("Revolving Line of Credit"). As of both March 31, 2025 and December 31, 2024, the outstanding balance was $20.0 million. The maturity date of the Revolving Line of Credit was amended on March 6, 2025, from May 16, 2025, to August 1, 2025. The Revolving Line of Credit has an interest rate margin applicable to loans borrowed under the Revolving Line of Credit of 5.75%, and the benchmark rates for the interest are SOFR-based rates. As of March 31, 2025 and December 31, 2024, the effective interest rate on the Revolving Line of Credit, as amended, was 10.3% and 10.6%, respectively. Interest is paid quarterly in arrears. The Revolving Line of Credit also includes a commitment fee at a per annum rate of 1.0% calculated based off the actual daily amount of unused availability under the Revolving Line of Credit with MSD, and also includes a requirement for a prepayment if net cash proceeds from certain asset sales in excess of $10.0 million are received. The affirmative and negative covenants governing the Revolving Line of Credit are substantially consistent with the affirmative and negative covenants contained in the indenture that governs the 2026 Senior Secured Notes. CGIC Unsecured Note Due 2026 The Company has a subordinated unsecured promissory note with Continental General Insurance Company ("CGIC") in the original principal amount of $35.1 million (the "CGIC Unsecured Note"). The CGIC Note, which is due February 28, 2026, bore interest at 9.0% per annum through May 8, 2024, bears interest at 16.0% per annum from May 9, 2024, to May 8, 2025, and 32.0% per annum thereafter. As of both March 31, 2025 and December 31, 2024, the effective interest rate on the note, as adjusted, was 17.5%. The CGIC Unsecured Note also requires a mandatory prepayment from the proceeds from certain asset sales and the greater of $3.0 million or 12.5% of the net proceeds from certain equity sales. As a result of the closing of the rights offering and concurrent private placement in 2024 (refer to Note 15. Equity and Temporary Equity), INNOVATE redeemed $4.1 million of the CGIC Unsecured Note on April 26, 2024. Other covenants in the CGIC Unsecured Note are generally consistent with the Company's Indenture governing the 8.50% Senior Secured Notes due 2026, dated as of February 1, 2021, by and among the Company, the guarantors party thereto and U.S. Bank National Association. For the three months ended March 31, 2025 and 2024, interest expense recognized relating to the CGIC Unsecured Note was $1.4 million and $1.6 million, respectively, and cash paid for interest to CGIC was $1.2 million and $0.8 million, respectively. Accrued interest related to the CGIC notes was $3.6 million and $3.4 million as of March 31, 2025, and December 31, 2024, respectively. INNOVATE is in compliance with its debt covenants as of March 31, 2025.

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