DEBT

6 Months Ended

Jun. 30, 2020

Convertible Notes

As of June 30, 2020, the Company had outstanding fixed-rate notes with varying maturities for an undiscounted aggregate principal amount of $1.5 billion (collectively the Notes). The Notes are senior subordinated convertible obligations, and interest is payable in arrears, semi-annually. The following table summarizes information regarding the Company’s convertible debt:


	June 30, 2020		December 31, 2019
1.25% senior subordinated convertible notes due in May 2027 (the 2027 Notes)	$	600,000	$	—
Unamortized discount	(13,269)		—
Unamortized deferred offering costs	(717)		—
2027 Notes, net	586,014		—

0.599% senior subordinated convertible notes due in August 2024 (the 2024 Notes)	495,000		495,000
Unamortized discount	(5,825)		(6,533)
Unamortized deferred offering costs	(1,987)		(2,229)
2024 Notes, net	487,188		486,238

1.50% senior subordinated convertible notes due in October 2020 (the 2020 Notes)	374,993		374,993
Unamortized discount	(4,512)		(12,078)
Unamortized deferred offering costs	(381)		(1,033)
2020 Notes, net⁽¹⁾	370,100		361,882

Total convertible debt, net	$	1,443,302	$	848,120

Fair value of fixed rate convertible debt ⁽²⁾:
2027 Notes	$	702,882	$	—
2024 Notes	609,216		512,582
2020 Notes	493,551		420,727
Total fair value of fixed rate convertible debt	$	1,805,649	$	933,309

(1) The 2020 Notes are classified as a current liability in the periods presented since they mature in October 2020.

(2) The fair value of the Company’s fixed-rate convertible debt is based on open market trades and is classified as Level 1 in the fair value hierarchy. For additional discussion of fair value measurements, see Note 3 – Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Interest expense on the Company’s convertible debt consisted of the following:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Accretion of discount on convertible notes	$	4,395	$	3,953	$	8,505	$	7,855
Coupon interest expense	3,016		2,254		5,188		4,411
Amortization of debt issuance costs	522		508		1,030		1,015
Total interest expense on convertible debt	$	7,933	$	6,715	$	14,723	$	13,281

2027 Notes

In May 2020, the Company issued $600.0 million in aggregate principal amount of senior subordinated unsecured convertible notes with a maturity date of May 15, 2027. The 2027 Notes were issued to the public at par value and bear interest at the rate of 1.25% per annum. Interest is payable semi-annually in cash in arrears on May 15 and November 15 of each year,

beginning November 15, 2020. The 2027 Notes are convertible, at the option of the holder into shares of the Company’s common stock. The initial conversion rate for the 2027 Notes is 7.2743 shares per $1,000 principal amount of the 2027 Notes, which represents a conversion price of approximately $137.47 per share, subject to adjustment under certain conditions. Following certain corporate transactions, the Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its 2027 Notes in connection with such corporate transactions by a number of additional shares of the Company’s common stock. A holder may convert fewer than all of such holder’s 2027 Notes so long as the amount of the 2027 Notes converted is an integral multiple of $1,000 principal amount. Net proceeds from the offering were $585.8 million. In connection with the issuance of the 2027 Notes, the Company recorded a discount on the 2027 Notes of $13.5 million, which will be accreted and recorded as additional interest expense over the life of the 2027 Notes. The Company also incurred $0.7 million of issuance costs, which were deferred and are being amortized over the life of the 2027 Notes and recorded as additional interest expense.

The 2027 Notes are senior subordinated, unsecured obligations, and rank (i) subordinated in right of payment to the prior payment in full of all of the Company’s existing and future senior debt, (ii) equal in right of payment with the Company’s existing and future senior subordinated debt, (iii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the notes, (vi) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness, and (v) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries. Upon the occurrence of a “fundamental change,” as defined in the indenture governing the 2027 Notes, the holders may require the Company to repurchase all or a portion of such holder’s 2027 Notes for cash at 100% of the principal amount of the 2027 Notes being purchased, plus any accrued and unpaid interest.

The offer and sale of the 2027 Notes and the shares of the Company’s common stock issuable upon conversion of the 2027 Notes have not been registered under the Securities Act or any state securities laws and the 2027 Notes were offered only to qualified institutional buyers as defined in Rule 144A under the Securities Act.

See Note 13 - Debt in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information related to the Company’s convertible debt.

Revolving Credit Facility

In October 2018, the Company entered into an unsecured revolving credit facility of up to $200.0 million (the 2018 Credit Facility). The 2018 Credit Facility includes a letter of credit subfacility and a swingline loan subfacility and is intended to finance ongoing working capital needs and for other general corporate purposes. Borrowings under the 2018 Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the LIBOR rate (except that if LIBOR is less than zero it shall be deemed to be zero for purposes of the 2018 Credit Facility), or LIBOR successor rate, plus an applicable margin ranging from 1.00% to 1.95% per annum, based upon the Company’s net leverage ratio and earnings before interest, taxes, depreciation and amortization (EBITDA) for each of the two most recently ended four-quarter measurement periods, or (b) the Base Rate, generally the prime lending rate, plus an applicable margin ranging from 0.00% to 0.95%, based upon the Company’s net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods. Commitment fees payable on the undrawn amount range from 0.15% to 0.35% per annum based upon the Company’s net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods. The Company’s obligations under the Credit Facility are guaranteed by its direct subsidiary, California Corporate Center Acquisition LLC, and such obligations may in the future be guaranteed from time to time by certain other material domestic subsidiaries. The 2018 Credit Facility matures on October 19, 2021 at which time all outstanding amounts become due and payable, except that if at least $100.0 million aggregate principal amount of the 2020 Notes remain outstanding on August 1, 2020 and certain other conditions have not been met, the Company may be required to repay all amounts borrowed under the 2018 Credit Facility on August 1, 2020. The Company incurred approximately $1.0 million of issuance costs, which will be amortized to Interest Expense over the term of the 2018 Credit Facility. The 2018 Credit Facility contains financial covenants requiring the Company to maintain a minimum interest coverage ratio and a minimum liquidity requirement. As of June 30, 2020, and December 31, 2019, there were no outstanding amounts due on nor any usage of the 2018 Credit Facility. As of June 30, 2020, the Company and certain of its subsidiaries that served as guarantors were in compliance with all covenants.