3. INDEBTEDNESS

Credit Facility

On December 27, 2018, we refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility (the “Credit Facility”) for up to $265.2 million. The principal new feature of the Credit Facility was a $118.0 million DDTL, which could only be drawn on in order to pay down the Company’s remaining 3.0% Convertible Senior Notes, which matured on December 1, 2019. The Credit Facility (and specifically the DDTL) has a subjective acceleration clause in case of a material adverse event. The Credit Facility also extended the maturity of the $72.2 million Term Loan to December 2023. In addition, the Credit Facility increased the previous $50.0 million line of credit (the “Revolver”) to $75.0 million. Also on December 27, 2018, we entered into an interest rate swap arrangement to manage our exposure to changes in LIBOR-based interest rates underlying our refinanced Term Loan (Note 4). The Term Loan includes a repayment schedule, pursuant to which $4.5 million of the loan will be paid in quarterly installments during 2020. As of December 31, 2019, $4.5 million of the loan is recorded as current borrowings in the accompanying consolidated balance sheets. In February 2019, we entered into an interest rate swap arrangement to manage our exposure to changes in LIBOR-based interest rates underlying the DDTL once drawn upon (Note 4). On November 29, 2019, we exercised our option to borrow $118.0 million pursuant to the DDTL feature and the proceeds were used to repay the outstanding 3% Convertible Senior Notes, which matured on December 1, 2019. The DDTL matures in December 2023 and includes a repayment schedule, pursuant to which $5.9 million will be paid in quarterly installments during 2020. As of December 31, 2019, $5.9 million of the loan is recorded as current borrowings in the accompanying consolidated balance sheets. Amounts drawn on the Term Loan and the DDTL bear an interest rate equal to, at our option, either a LIBOR rate plus 1.50% to 2.75% per annum, depending on our total leverage ratio or an alternative base rate plus an applicable base rate margin, which varies within a range of 0.50% to 1.75%, depending our total leverage ratio. On the Revolver, we incur a commitment fee at a rate per annum that varies within a range of 0.25% to 0.50%, depending on our leverage ratio.

The Credit Facility is secured by a lien on substantially all of ANI Pharmaceuticals, Inc.’s and its principal domestic subsidiary’s assets and any future domestic subsidiary guarantors’ assets. The Credit Facility imposes financial covenants consisting of a maximum total leverage ratio, which is, as of December 31, 2019 no greater than 3.50 to 1.00 and a minimum fixed charge coverage ratio, which shall be greater than or equal to 1.25 to 1.00. The primary non-financial covenants under the Credit Facility limit, subject to various exceptions, our ability to incur future indebtedness, to place liens on assets, to pay dividends or make other distributions on our capital stock, to repurchase our capital stock, to conduct acquisitions, to alter our capital structure, and to dispose of assets.

The carrying value of the current and non-current components of the Term Loan and DDTL as of December 31, 2019 and 2018 are:


	Current
(in thousands)	2019		2018
Current borrowing on secured Term Loan and Delayed Draw Term Loan	$	10,412	$	3,609
Deferred financing costs		(471)		(353)
Current component of Term Loan and Delayed Draw Term Loan, net of deferred financing costs	$	9,941	$	3,256


	Non-Current
(in thousands)	2019		2018
Non-current borrowing on secured Term Loan and Delayed Draw Term Loan	$	177,069	$	68,578
Deferred financing costs		(1,261)		(1,282)
Term Loan and Delayed Draw Term Loan, net of deferred financing costs and current component	$	175,808	$	67,296

The refinancing of the Term Loan was accounted for as a modification of our previous term loan and consequently, the remaining balance of the deferred issuance costs related to the previous term loan are included with the lenders fees associated with the refinance of the Term Loan and amortized as interest expense over the life of the Term Loan using the effective interest method. Fees to third parties associated with the refinance of the Term Loan were recognized as other (expense)/income, net in the accompanying consolidated statements of operations. The refinancing of the Revolver was accounted for as a modification of our previous revolving credit facility and consequently, the remaining balance of the deferred issuance costs related to the previous revolving credit facility are included with the lenders fees and fees to third parties associated with the refinance of the Revolver and amortized as interest expense on a straight-line basis over the life of the Revolver. All issuance costs allocated to the DDTL were deferred and will be amortized as interest expense on a straight-line basis over the five-year term of the DDTL.

As of December 31, 2019, we had a $69.5 million balance on the Term Loan and $118.0 million balance on the DDTL. As of December 31, 2019, we had not drawn on the Revolving Credit Facility. Of the $1.0 million of deferred debt issuance costs allocated to the Revolving Credit Facility, $0.8 million is included in other non-current assets in the accompanying consolidated balance sheets and $0.2 million is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. Of the 0.5 million of deferred debt issuance costs allocated to the DDTL, $0.1 million is classified as a direct deduction to the current portion of the DDTL in the accompanying consolidated balance sheets and $0.4 million is classified as a direct reduction to the non-current portion of the DDTL in the accompanying consolidated balance sheets. Of the $1.3 million of deferred debt issuance costs allocated to the Term Loan, $0.4 million is classified as a direct deduction to the current portion of the Term Loan in the accompanying consolidated balance sheets and $0.9 million is classified as a direct deduction to the non-current portion of the Term Loan in the accompanying consolidated balance sheets.

The contractual maturity of our Term Loan and DDTL is as follows for the years ending December 31:


(in thousands)	Term Loan		DDTL
2020	$	4,512	$	5,900
2021		5,414		5,900
2022		5,414		8,850
2023		54,141		97,350
Total	$	69,481	$	118,000

Convertible Senior Notes

In December 2014, we issued $143.8 million of our Notes in a registered public offering. After deducting the underwriting discounts and commissions and other expenses (including the net cost of the bond hedge and warrant, discussed below), the net proceeds from the offering were approximately $122.6 million. The Notes paid 3.0% interest semi-annually in arrears on June 1 and December 1 of each year, starting on June 1, 2015, and matured on December 1, 2019. In December 2018, we entered into separate, privately negotiated agreements with certain holders of our Notes and repurchased $25.0 million of our outstanding Notes. We accounted for the repurchase as an extinguishment of the portion of the Notes and recognized a loss on extinguishment of $0.5 million, which was recorded in other (expense)/income, net in the accompanying consolidated statements of operations. At the same time, we unwound a corresponding portion of the bond hedge and warrant, which are described in further detail below. As a result of unwinding this portion of the bond hedge and warrant, we received a net amount of $0.4 million. The repurchase of the Notes and the unwinding of the bond hedge and warrant resulted in a $1.7 million net reduction to additional paid-in capital (“APIC”) in the accompanying consolidated balance sheets. The remaining Notes were convertible into 1,709,002 shares of common stock, based on an initial conversion price of $69.48 per share.

The Notes were convertible at the option of the holder (i) during any calendar quarter beginning after March 31, 2015, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a 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 conversion price on each applicable trading day, (ii) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of such period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; and (iii) on or after June 1, 2019 until the second scheduled trading day immediately preceding the maturity date.

Upon conversion by the holders, we had the option to settle such conversion in shares of our common stock, cash, or a combination thereof. As a result of our cash conversion option, we separately accounted for the value of the embedded conversion option as a debt discount (with an offset to APIC) of $33.6 million. The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using market comparables to estimate the fair value of similar non-convertible debt (Note 8); the debt discount was amortized as additional non-cash interest expense using the effective interest method over the term of the Notes.

Offering costs of $5.5 million were allocated to the debt and equity components in proportion to the allocation of proceeds to the components, as deferred financing costs and equity issuance costs, respectively. The deferred financing costs of $4.2 million were amortized as additional non-cash interest expense using the straight-line method over the term of the debt, since this method was not significantly different from the effective interest method. Pursuant to guidance issued by the FASB, we classified the deferred financing costs as a direct deduction to the net carrying value of our Convertible Debt. The $1.3 million portion allocated to equity issuance costs was charged to APIC.

A portion of the offering proceeds was used to simultaneously enter into a “bond hedge” (or purchased call) and “warrant” (or written call) transactions with an affiliate of one of the offering underwriters (collectively, the “Call Option Overlay”). We entered into the Call Option Overlay to synthetically raise the initial conversion price of the Notes to $96.21 per share and reduce the potential common stock dilution that may arise from the conversion of the Notes. The exercise price of the bond hedge is $69.48 per share and the exercise price of the warrant is $96.21 per share of our common stock. Because the bond hedge and warrant are both indexed to our common stock and otherwise would be classified as equity, we recorded both elements as equity, resulting in a net reduction to APIC of $15.6 million. After the repurchase of $25.0 million of our outstanding Notes and the unwinding of the corresponding portion of the bond hedge and warrant, our remaining bond hedge had an underlying 1,709,002 common shares and the remaining warrant had an underlying 1,709,002 common shares.

On December 2, 2019 (December 1, 2019 was not a business day), we used the proceeds of the DDTL and operating cash on hand to repay the outstanding Notes. Holders of $50,000 of the Notes elected for conversion, which pursuant to the First Supplemental Indenture to the Notes, resulted in the holders’ receipt of cash for the principal portion of the Notes and 33 shares of our common stock. These shares were provided by our counterparty pursuant to the Call Option Overlay. As of December 31, 2019, the remaining warrant had an underlying 1,709,002 common shares.

The carrying value of the Notes is as follows as of December 31:


(in thousands)	2019		2018
Principal amount	$	—	$	118,750
Unamortized debt discount		—		(5,648)
Deferred financing costs		—		(639)
Net carrying value	$	—	$	112,463

The effective interest rate on the Notes was 7.4% and 8.5%, on an annualized basis, as of December 31, 2019 and 2018, respectively.

The following table sets forth the components of total interest expense related to the Notes, Term Loan, and DDTL recognized in our consolidated statements of operations for the year ended December 31:


(in thousands)	2019		2018		2017
Contractual coupon	$	6,635	$	7,170	$	4,313
Amortization of debt discount		5,647		7,002		6,720
Amortization of finance fees		1,377		1,463		845
Capitalized interest		(191)		(724)		(554)
	$	13,468	$	14,911	$	11,324