Notes and Loan Payable and Amounts Due Under Repurchase Agreements

Notes and loan payable includes the following:




	December 31,
	2017			2016
	(Dollars in thousands)
Senior notes due 2027
Principal	$	500,000		$	—
Unamortized debt issue costs	(5,572		)	—
Unamortized discount	(335		)	—
Senior notes due 2021
Principal	—			400,000
Unamortized debt issue costs	—			(5,733		)
Term loan due 2019
Principal	—			100,000
Unamortized debt issue costs	—			(512		)
	$	494,093		$	493,755

On June 16, 2017, we issued $500 million aggregate principal amount of senior unsecured notes due 2027 which bear interest at 5.0% per year and will mature on June 15, 2027 (the “2027 Notes”). The 2027 Notes were issued at a $0.3 million discount, which is being amortized over the term of the 2027 Notes using the effective interest method. Contractual interest is payable semi-annually in arrears each June 15th and December 15th. The initial transaction fees and costs totaling $5.8 million were capitalized as deferred financing costs and are being amortized over the term of the 2027 Notes using the effective interest method. We used the net proceeds from the issuance of the 2027 Notes to prepay our $100 million term loan (the "Term Loan") that was scheduled to mature in 2019 on June 16, 2017, and to redeem our $400 million notes that were scheduled to mature in 2021 (the "2021 Notes") on July 17, 2017. We paid $413.3 million to redeem the 2021 Notes which included a redemption premium equal to 3.313% of the $400 million principal amount of the 2021 Notes. We incurred a loss of $18.4 million on the redemption of the 2021 Notes.

On September 30, 2016, we entered into a credit agreement with six banks that provided for a $150 million unsecured revolving line of credit (the "Revolving Facility") that terminates on September 30, 2021 and a $100 million term loan that was scheduled to terminate on September 30, 2019 but was repaid on June 16, 2017 without penalty. We utilized the proceeds from the Term Loan to make a contribution to the capital and surplus of our subsidiary, American Equity Life. Any proceeds from the Revolving Facility will be used to finance our general corporate purposes. Interest was payable quarterly on the Term Loan. The interest rate for all borrowings under the credit agreement 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 Revolving Facility. The applicable margin and commitment fee rate are based on our credit rating and can change throughout the period of the borrowings. Based upon our current credit rating, the applicable margin is 0.75% for alternate base rate borrowings and 1.75% for adjusted LIBOR rate borrowings, and the commitment fee is 0.275%. The interest rate in effect on the Term Loan was 3.125% and 2.625% in 2017 and 2016, respectively. Under this agreement, we are required to maintain a minimum risk-based capital ratio at our subsidiary, 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 June 30, 2016, 2) 50% of the statutory net income for each fiscal quarter ending after June 30, 2016, and 3) 50% of all capital contributed to American Equity Life after June 30, 2016. The Revolving Facility 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 of the Revolving Facility by an additional one year past the initial maturity date of September 30, 2021 with the consent of the extending banks. There are currently no guarantors of the Revolving 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 under the Revolving Facility at December 31, 2017. As of December 31, 2017, $723.2 million is unrestricted and could be distributed to shareholders and still be in compliance with all covenants under this credit agreement.

The preceding replaced a $140 million unsecured revolving line of credit agreement with five banks dated November 22, 2013 that was scheduled to terminate on November 22, 2017.

On July 17, 2013, we issued $400 million aggregate principal amount of senior unsecured notes due 2021 which bore interest at 6.625% per year and would have matured on July 15, 2021 had we not redeemed them in 2017. Contractual interest was payable semi-annually in arrears each January 15th and July 15th. The initial transaction fees and expenses totaling $9.0 million were capitalized as deferred financing costs and were being amortized over the term of the 2021 Notes using the effective interest method.

In September 2010, we issued $200.0 million principal amount of 2015 notes (the "2015 Notes"). The 2015 Notes had a coupon interest rate of 3.5% per year, matured on September 15, 2015, and were settled in cash on the maturity date. Contractual interest was 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 were amortized over the term of the 2015 Notes using the effective interest method.

The conversion option of the 2015 Notes (the "2015 notes embedded conversion derivative") was an embedded derivative that required bifurcation from the 2015 notes and was accounted for as a derivative liability, which was 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 was amortized and recognized as interest expense using the effective interest method over the term of the 2015 Notes.

The 2015 Notes, that had not previously been extinguished, matured and were extinguished on September 15, 2015. Total consideration paid to holders of the 2015 Notes at maturity was $48.2 million in cash, which included $22.4 million principal amount and $25.8 million conversion premium. See Note 5 for a discussion of the settlement of the 2015 notes embedded derivative liability.

As part of our investment strategy, we enter into securities repurchase agreements (short-term collateralized borrowings). The maximum amount borrowed during 2017, 2016 and 2015 was $274.5 million, $113.0 million and $40.6 million, respectively. 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 $40.0 million, $4.5 million and $0.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. The weighted average interest rate on amounts due under repurchase agreements was 0.84%, 0.66% and 0.39% for the years ended December 31, 2017, 2016 and 2015, respectively.