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Notes Payable and Amounts Due Under Repurchase Agreements | 12 Months Ended
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Dec. 31, 2013
Notes Payable [Abstract] |
Notes Payable and Amounts Due Under Repurchase Agreements | Notes Payable and Amounts Due Under Repurchase Agreements On July 17, 2013, we issued $400 million aggregate principal amount of senior unsecured notes due 2021 which bear interest at 6.625% per year and will mature on July 15, 2021. We used $15 million of the net proceeds from the issuance to repay the entire amount outstanding under our revolving credit facility and $168.7 million, net of proceeds of $22.2 million in settlement of 2015 notes hedges and 2015 warrants, to pay the cash consideration portion of the convertible note tender and exchange offers discussed below. We intend to use the remaining net proceeds from the notes issuance to tender for, redeem or repurchase the $160.3 million aggregate principal amount of convertible notes that are currently outstanding. The form and timing of any such activity will be dependent upon market conditions and other factors and there can be no assurance that any such transactions can be completed prior to the December 2014 call date for the 5.25% Contingent Convertible Senior Notes due December 15, 2029 (the "2029 notes") or the September 2015 maturity date for the 2015 notes. In September 2010, we issued $200.0 million principal amount of 2015 notes. The 2015 notes have a stated interest rate of 3.5%, mature on September 15, 2015, and are intended to be settled in cash; however, in certain limited circumstances we have the discretion to settle in shares of our common stock or a combination of cash and shares of our common stock. Contractual interest payable on the 2015 notes began accruing in September 2010 and is payable semi-annually in arrears each March 15th and September 15th. The initial transaction fees and expenses totaling $6.8 million were capitalized as deferred financing costs and are being amortized over the term of the 2015 notes using the effective interest method. Upon occurrence of any of the conditions described below, holders may convert their 2015 notes at the applicable conversion rate at any time prior to June 15, 2015. On or after June 15, 2015 through the maturity date of September 15, 2015, holders may convert each of their 2015 notes at the applicable conversion rate regardless of the following conditions:
• | during the 5 business day period after any 10 consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on such trading day;
• | during any calendar quarter commencing after December 31, 2010, the Notes may be converted if the last reported price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day. The “last reported sale price” means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions for the New York Stock Exchange; or
• | upon the occurrence of specified corporate transactions.
The initial conversion rate for the 2015 notes was 80 shares of our common stock per $1,000 principal amount of 2015 notes, equivalent to a conversion price of approximately $12.50 per share of our common stock, with the amount due on conversion. Upon conversion, a holder will receive the sum of the daily settlement amounts, calculated on a proportionate basis for each day, during a specified observation period following the conversion date. The conversion rate for the 2015 notes was adjusted to 80.9486 shares in December 2012, equivalent to a conversion price of approximately $12.35 per share. If a fundamental change, as defined in the indenture, occurs prior to maturity and our stock price is at least $10.00 per share at that time, the conversion rate will increase by an additional amount of up to 20 shares of our common stock per $1,000 principal amount of 2015 notes, which amount would be paid to each holder that elects to convert its 2015 notes at that time. The conversion option of the 2015 notes (the "2015 notes embedded conversion derivative") is an embedded derivative that requires bifurcation from the 2015 notes and is accounted for as a derivative liability, which is included in Other liabilities in our Consolidated Balance Sheets. The fair value of the 2015 notes embedded conversion derivative at the time of issuance of the 2015 notes was $37.0 million, and was recorded as the original debt discount for purposes of accounting for the debt component of the 2015 notes. This discount is being recognized as interest expense using the effective interest method over the term of the 2015 notes. The estimated fair value of the 2015 notes embedded conversion derivative was $107.0 million and $43.1 million as of December 31, 2013 and 2012, respectively. In December 2004, we issued $260.0 million of convertible senior notes due December 15, 2024 (the "2024 notes"), of which $22.9 million was assigned to the equity component (net of income tax of $16.1 million). On March 25, 2013, notice of mandatory redemption was issued for the remaining outstanding amount of our 2024 notes and holders of $25.8 million principal amount of the convertible notes exercised their conversion rights prior to the April 30, 2013 mandatory redemption date. The holders of these notes received the principal amount of their notes in cash and the conversion premium in shares of our common stock, for which 216,729 shares were issued. The balance of the convertible notes ($2.5 million principal amount) was redeemed for cash. The 2024 notes bore interest at a fixed rate of 5.25% per annum. Interest was payable semi-annually in arrears on June 6 December 6 of each year. In December 2009, we issued $115.8 million of contingent convertible senior notes due December 15, 2029, of which $15.6 million was assigned to the equity component (net of income tax of $11.0 million), $52.2 million principal amount were issued for cash and $63.6 million were issued in exchange of $63.6 million of the 2024 notes. The 2029 notes bear interest at a fixed rate of 5.25% per annum. Interest is payable semi-annually in arrears on June 6 and December 6 of each year. In addition to regular interest on the 2029 notes, beginning with the six-month interest period ending June 6, 2015, we will also pay contingent interest under certain conditions at a rate of 0.5% per annum based on the average trading price of the notes during a specified period. The 2029 notes are convertible at the holders' option prior to the maturity date into cash and shares of our common stock under the following conditions:
• | during any fiscal quarter, if the closing sale price of our common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the fiscal quarter preceding the quarter in which the conversion occurs is more than 120% of the conversion price of the notes in effect on that 30th trading day;
• | we have called the notes for redemption and the redemption has not yet occurred; or
• | upon the occurrence of specified corporate transactions.
Holders may convert any outstanding 2029 notes into cash and shares of our common stock at a conversion price per share of $9.57. This represents a conversion rate of approximately 104.5 shares of common stock per $1,000 in principal amount of notes (the "conversion rate"). Subject to certain exceptions described in the indentures covering these notes, at the time the notes are tendered for conversion, the value (the "conversion value") of the cash and shares of our common stock, if any, to be received by a holder converting $1,000 principal amount of the notes will be determined by multiplying the conversion rate by the "ten day average closing stock price", which equals the average of the closing per share prices of our common stock on the New York Stock Exchange on the ten consecutive trading days beginning on the second trading day following the day the notes are submitted for conversion. We will deliver the conversion value to holders as follows: (1) an amount in cash (the "principal return") equal to the lesser of (a) the aggregate conversion value of the notes to be converted and (b) the aggregate principal amount of the notes to be converted, and (2) if the aggregate conversion value of the notes to be converted is greater than the principal return, an amount in shares (the "net shares") equal to such aggregate conversion value less the principal return (the "net share amount") and (3) an amount in cash in lieu of fractional shares of common stock. The number of net shares to be paid will be determined by dividing the net share amount by the ten day average closing stock price. We may redeem some or all of the 2029 notes at any time on or after December 15, 2014. In addition, the holders may require us to repurchase all or a portion of their 2029 notes on December 15, 2014, 2019 and 2024, and upon a change in control, as defined in the indenture governing the notes, holders may require us to repurchase all or a portion of their notes for a period of time after the change in control. The redemption price or repurchase price shall be payable in cash and equal to 100% of the principal amount of the notes plus accrued and unpaid interest (contingent interest and liquidated damages, if any) up to but not including the date of redemption or repurchase. Our convertible notes are senior unsecured obligations and rank equally in right of payment with all existing and future senior indebtedness and senior to any existing and future subordinated indebtedness. Our convertible notes effectively rank junior in right of payment to any existing and future secured indebtedness to the extent of the value of the assets securing such secured indebtedness. Our convertible notes are structurally subordinated to all liabilities of our subsidiaries. We are required to include the dilutive effect of the 2029 notes in our diluted earnings per share calculation. Because these notes include a mandatory cash settlement feature for the principal amount, incremental dilutive shares will only exist when the fair value of our common stock at the end of the reporting period exceeds the conversion price per share disclosed above. At December 31, 2013 and 2012, the conversion premium of the 2029 notes was dilutive and the effect has been included in diluted earnings per share for the years ended December 31, 2013 and 2012. The 2015 notes and the 2015 notes hedges are excluded from the dilutive effect in our diluted earnings per share calculation as they are intended to be settled only in cash. In 2013, we extinguished $108.0 million principal amount of our 2015 notes and $47.5 million principal amount of our 2029 notes pursuant to public and private exchange offers with holders of our outstanding convertible debt instruments. Total consideration paid to holders of the 2015 notes consisted of $116.1 million in cash and $79.2 million in shares of our common stock (3,643,402 shares). Total consideration paid to holders of the 2029 notes consisted of $74.8 million in cash and $34.9 million in shares of our common stock (1,629,677 shares). Total consideration paid to the holders of the 2015 notes and 2029 notes excludes the accrued interest through the settlement date that was also paid. The carrying value of the convertible notes at extinguishment was $99.6 million and $44.5 million for the 2015 notes and 2029 notes, respectively, and losses net of tax of $15.2 million for the 2015 notes and $5.2 million for the 2029 notes were recognized. In connection with the extinguishment of our 2015 notes, we terminated the related 2015 notes hedges associated with the 2015 notes extinguished and received cash proceeds of $22.2 million from the 2015 notes hedges counterparties (see Notes 5). After the unwind agreements, 7,474,817 warrants remain outstanding with a strike price of $15.75 and continue to be accounted for as equity. The 2015 notes hedges with two counterparties remain outstanding whereby we have the option to receive the cash equivalent of the conversion spread on approximately 7,474,817 shares of our common stock based upon a strike price of $12.35 per share, subject to certain conversion rate adjustments in the 2015 notes. Subsequent to the year ended December 31, 2013, we extinguished $22.7 million principal amount of our 2029 notes for a combination of cash and shares of our common stock (946,793 shares) pursuant to a private exchange offer that was settled on February 10, 2014. The carrying value of the 2029 notes at extinguishment was $21.6 million which resulted in a loss of $1.7 million on extinguishment of debt net of income taxes. The convertible senior notes included in notes payable are accounted for separately as a liability component and an equity component in the consolidated balance sheets. The liability component and equity component are as follows:
| December 31, 2013 |  | December 31, 2012
| September 2015 Notes |  | December 2029 Notes |  | September 2015 Notes |  | December 2029 Notes |  | December 2024 Notes
| (Dollars in thousands) |  | (Dollars in thousands)
Notes payable: |  |  |  |  |  |  |  |  |
Principal amount of liability component | $ | 91,951 |  |  | $ | 68,373 |  |  | $ | 200,000 |  |  | $ | 115,839 |  |  | $ | 28,243 |
Unamortized discount | (6,623 | ) |  | (3,743 | ) |  | (21,944 | ) |  | (12,269 | ) |  | — |
Net carrying amount of liability component | $ | 85,328 |  |  | $ | 64,630 |  |  | $ | 178,056 |  |  | $ | 103,570 |  |  | $ | 28,243 |
Additional paid-in capital: |  |  |  |  |  |  |  |  |
Carrying amount of equity component |  |  | $ | 15,586 |  |  |  |  | $ | 15,586 |  |  | $ | 22,637 |
Amount by which the if-converted value exceeds principal | $ | 104,403 |  |  | $ | 113,169 |  |  | $ | — |  |  | $ | 30,382 |  |  | $ | — |
The discount is being amortized over the expected lives of the notes, which is December 15, 2014 for the 2029 notes and September 15, 2015 for the 2015 notes and was December 15, 2011 for the 2024 notes. The effective interest rates during the discount amortization periods are 8.9%, 8.5% and 11.9% on the 2015 notes, the 2024 notes and 2029 notes, respectively. The interest cost recognized in operations for the convertible notes, inclusive of the coupon and amortization of the discount and debt issue costs was $26.4 million, $28.5 million, and $31.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. In November 2013, we terminated our $160 million unsecured revolving line of credit agreement and entered into a $140 million unsecured revolving line of credit agreement with five banks for which the revolving period is four years. The interest rate is floating at a rate based on our election that will be equal to the alternate base rate (as defined in the credit agreement) plus the applicable margin or the adjusted LIBOR rate (as defined in the credit agreement) plus the applicable margin. We also pay a commitment fee based on the available unused portion of the credit facility. The applicable margin and commitment fee rate are based on our credit rating and can change throughout the period of the credit facility. Based upon our current credit rating, the applicable margin is 1.00% for alternate base rate borrowings and 2.00% for adjusted LIBOR rate borrowings, and the commitment fee is 0.35%. Under this agreement, we are required to maintain a minimum risk-based capital ratio at American Equity Life of 275%, a maximum ratio of adjusted debt to total adjusted capital of 0.35, and a minimum level of statutory surplus at American Equity Life equal to the sum of 1) 80% of statutory surplus at September 30, 2013, 2) 50% of the statutory net income for each fiscal quarter ending after September 30, 2013, and 3) 50% of all capital contributed to American Equity Life after September 30, 2013. The agreement contains an accordion feature that allows us, on up to three occasions and subject to credit availability, to increase the credit facility by an additional $50 million in the aggregate. We also have the ability to extend the maturity date by an additional one year past the initial maturity date of November 22, 2017 with the consent of the extending banks. There are currently no guarantors of the credit facility, but certain of our subsidiaries must guarantee our obligations under the credit agreement if such subsidiaries guarantee other material amounts of our debt. No amounts were outstanding at December 31, 2013 and no amounts were outstanding under the previous line of credit at December 31, 2012. As of December 31, 2013, $389.0 million is unrestricted and could be distributed to shareholders and still be in compliance with all covenants under this credit agreement. As part of our investment strategy, we enter into securities repurchase agreements (short-term collateralized borrowings). The maximum amount borrowed during 2013 was $258.6 million. We had no borrowings under repurchase agreements during 2012. When we do borrow cash on these repurchase agreements, we pledge collateral in the form of debt securities with fair values approximately equal to the amount due and we use the cash to purchase debt securities ahead of the time we collect the cash from selling annuity policies to avoid a lag between the investment of funds and the obligation to credit interest to policyholders. We earn investment income on the securities purchased with these borrowings at a rate in excess of the cost of these borrowings. Such borrowings averaged $38.3 million and $12.9 million for the years ended December 31, 2013 and 2011. The weighted average interest rate on amounts due under repurchase agreements was 0.20% and 0.23% for the years ended December 31, 2013 and 2011.

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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 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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