(13) DEBT

2024 Convertible Notes

In August 2017, the Company issued $495.0 million in aggregate principal amount of senior subordinated convertible notes with a maturity date of August 1, 2024 (the 2024 Notes). The 2024 Notes were issued to the public at 98% of face value and bear interest at the rate of 0.599% per annum. The effective interest rate on the 2024 Notes the year ended December 31, 2017 was 1.1%. Interest is payable semi-annually in cash on February 1 and August 1 of each year, beginning February 1, 2018. The 2024 Notes are convertible, at the option of the holder into shares of the Company’s common stock. The initial conversion rate for the 2024 Notes is 8.0212 shares per $1,000 principal amount of the 2024 Notes, which represents a conversion price of approximately $124.67 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 2024 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 2024 Notes so long as the amount of the 2024 Notes converted is an integral multiple of $1,000 principal amount. Net proceeds from the offering were $481.7 million.

The 2024 Notes are senior subordinated, unsecured obligations, and rank (i) subordinated in right of payment to the prior payment in full of any of the Company’s existing and future senior debt, (ii) equal in right of payment to any of the Company’s existing and future senior subordinated debt, (iii) senior in right of payment to any of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the 2024 Notes, and (iv) effectively subordinated to any of the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness and 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 2024 Notes, the holders may require the Company to repurchase all or a portion of such holder’s 2024 Notes for cash at 100% of the principal amount of the 2024 Notes being purchased, plus any accrued and unpaid interest.

In connection with the issuance of the 2024 Notes, the Company recorded a discount on the 2024 Notes of $9.9 million, which will be accreted and recorded as additional interest expense over the life of the 2024 Notes. In connection with the issuance of the 2024 Notes, the Company incurred $3.4 million of issuance costs. These costs were deferred and are being amortized over the life of the 2024 Notes and recorded as additional interest expense.

2018/2020 Convertible Notes

On October 15, 2013, the Company issued $750.0 million in aggregate principal amount of senior subordinated convertible notes consisting of $375.0 million in aggregate principal amount of 0.75% senior subordinated convertible notes with a maturity date of October 15, 2018 (the 2018 Notes) and $375.0 million in aggregate principal amount of 1.50% senior subordinated convertible notes with a maturity date of October 15, 2020 (the 2020 Notes). Net proceeds from the offering were $726.2 million.

The 2018 Notes and the 2020 Notes bear interest at a rate of 0.75% and 1.50% per year, respectively, which is payable semiannually in arrears on April 15 and October 15 of each year. The effective interest rate on the 2018 Notes and 2020 Notes the year ended December 31, 2017 was 6.0% and 7.5%, respectively.

The 2018 Notes and the 2020 Notes are senior unsecured obligations, and rank (i) subordinated to any of the Company’s existing and future unsecured senior debt, (ii) equally to any of the Company’s existing and future senior subordinated debt, (iii) senior to any of the Company’s future indebtedness that is expressly subordinated to the 2018 Notes and the 2020 Notes, and (iv) effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness. Upon the occurrence of a “fundamental change”, as defined in the indenture, the holders may require the Company to repurchase all or a portion of the 2018 Notes and the 2020 Notes for cash at 100% of the principal amount of the Notes being purchased, plus any accrued and unpaid interest.

The initial conversion rate for the 2018 Notes is 10.6213 shares per $1,000 principal amount of the 2018 Notes, which represents a conversion price of approximately $94.15 per share, and the initial conversion rate for the 2020 Notes is 10.6213 shares per $1,000 principal amount of the 2020 Notes, which represents a conversion price of approximately $94.15 per share, Such conversion rates are subject to adjustment under certain conditions. Holders may convert their 2018 Notes or 2020 Notes at their option at any time prior to July 15, 2018, in the case of the 2018 Notes, and July 15, 2020, in the case of the 2020 Notes, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014 (and only during such calendar quarter), if the last reported sale price of the Company’s 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 applicable conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of the relevant notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after July 15, 2018, in the case of the 2018 Notes, or July 15, 2020, in the case of the 2020 Notes, until the close of business on the second scheduled trading day immediately preceding the applicable maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion of the 2018 Notes and the 2020 Notes, the Company may pay cash, shares of the Company’s common stock or a combination of cash and stock, as determined by the Company in its discretion.

The Company has separately accounted for the liability and equity components of the 2018 Notes and the 2020 Notes by allocating the proceeds from issuance of the 2018 Notes and the 2020 Notes between the liability component and the embedded conversion option, or equity component. This allocation was done by first estimating an interest rate at the time of issuance for similar notes that do not include the embedded conversion option. The Company allocated $156.2 million to the equity component, net of offering costs of $5.1 million. The Company recorded a discount on the notes of $161.3 million which will be accreted and recorded as additional interest expense over the life of the 2018 Notes and the 2020 Notes. Additionally, in connection with the issuance of the 2018 Notes and the 2020 Notes, the Company incurred $23.8 million of issuance costs, which are being amortized and recorded as additional interest expense over the life of the Notes.

To minimize the impact of potential dilution upon conversion of the 2018 Notes and the 2020 Notes, the Company entered into capped call transactions separate from the issuance of the Notes with certain counterparties covering 3,982,988 shares of the Company’s common stock, subject to adjustment. The capped calls have a strike price of $94.15 and a cap price of $121.05 and are exercisable when and if the Notes are converted. If upon conversion of the Notes, the price of the Company’s common stock is above the strike price of the capped calls, the counterparties will deliver shares of the Company’s common stock and/or cash with an aggregate value equal to the difference between the price of the Company’s common stock at the conversion date and the strike price, multiplied by the number of shares of the Company’s common stock related to the capped calls being exercised. The Company paid $29.8 million for these capped calls transactions, which was recorded as additional paid-in capital.

2017 Convertible Notes

In April 2007, the Company sold $324.9 million in aggregate principal amount of senior subordinated convertible notes due in April 2017 (the 2017 Notes). The 2017 Notes were issued at face value and bore interest at the rate of 1.875% per annum, payable semi-annually in cash. The 2017 Notes were convertible, at the option of the holder, at any time prior to maturity or repurchase, into shares of the Company’s common stock at a conversion rate of 49.1171 shares per $1,000 principal amount of the 2017 Notes, which is equal to a conversion price of approximately $20.36 per share, subject to adjustment in certain circumstances. The 2017 Notes did not include a call provision and the Company was unable to unilaterally redeem the 2017 Notes prior to maturity on April 23, 2017. During the twelve months ended December 31, 2017, 2016 and 2015, certain existing holders of the 2017 Notes elected to convert $22.5 million, $8.9 million and $8.1 million in aggregate principal amount of the 2017 Notes into 1,103,998, 438,462 and 399,469 shares, respectively, of the Company’s common stock. The 2017 Notes matured on April 23, 2017 with conversion of all principal amounts except for a final cash settlement of $26,000.

The following table summarizes information regarding the Company’s convertible debt at December 31:

	2017			2016
Convertible Notes due 2017	$	—		$	22,503
Unamortized deferred offering costs		—			(25	)
Convertible Notes due 2017, net		—			22,478

Convertible Notes due 2018		374,980			374,980
Unamortized discount		(12,488	)		(27,566	)
Unamortized deferred offering costs		(1,543	)		(3,484	)
Convertible Notes due 2018, net		360,949			343,930

Convertible Notes due 2020		374,993			374,993
Unamortized discount		(40,287	)		(53,239	)
Unamortized deferred offering costs		(3,631	)		(4,923	)
Convertible Notes due 2020, net		331,075			316,831

Convertible Notes due in 2024		495,000			—
Unamortized discount		(9,355	)		—
Unamortized deferred offering costs		(3,199	)		—
Convertible Notes due in 2024, net		482,446			—

Total convertible debt, net	$	1,174,470		$	683,239
Fair value of fixed rate convertible debt
Convertible Notes due in 2017 ⁽¹⁾	$	—		$	90,977
Convertible Notes due in 2018 ⁽¹⁾		403,955			423,202
Convertible Notes due in 2020 ⁽¹⁾		446,470			442,754
Convertible Notes due in 2024 ⁽¹⁾		493,894			—
Total	$	1,344,319		$	956,933

(1)

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.

See Note 14 to these Consolidated Financial Statements for further discussion of the effect of conversion on net loss per common share.

Revolving Credit Facility

In November 2016, the Company entered into a credit agreement (Credit Agreement) providing for up to $100.0 million (Revolving Credit Facility), a $10.0 million letter of credit subfacility and a $15.0 million swing line loan subfacility. The maturity date of the Revolving Credit Facility will occur on November 29, 2018. Interest on any outstanding balance of the Revolving Credit Facility is payable quarterly and draws may be voluntary prepaid at any time without penalty. In connection with entering into the Credit Agreement, $0.6 million in financing costs was incurred and will be amortized as Interest Expense over the term of the Credit Agreement. As of December 31, 2017, there were no outstanding amounts due under the Revolving Credit Facility.

In connection with the Revolving Credit Facility, the Company and certain of its subsidiaries are required to comply with covenants, including, among other things, restrictions on the Company’s and such subsidiaries’ ability to incur additional indebtedness, dispose of its assets, incur liens, make investments, and pay dividends or other distributions, in each case subject to specified exceptions. The Credit Agreement also contains customary indemnification obligations and customary events of default. If the Company’s Global Liquidity, which is defined as the sum of the market value of unrestricted cash, marketable securities and other assets to the extent constituting “cash and cash equivalents,” “short-term investments” or “long-term investments” as reflected in the Company’s Consolidated Balance Sheet, in each case, held by the Company or certain of the Company’s subsidiaries at such time, regardless of where such assets are domiciled, falls below $225.0 million at the end of any month or at the time of any borrowing or issuance of a letter of credit under the Revolving Credit Facility, then the Company’s obligations under the Credit Agreement will also be secured by the assets held by the Company in the custody account, which was established in the first quarter of 2017. As of December 31, 2017, the Company and certain of its subsidiaries that serve as guarantors are in compliance with all covenants.

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

	Years Ended December 31,
	2017		2016		2015
Coupon interest	$	10,407	$	9,555	$	9,750
Amortization of debt issuance costs		3,725		3,367		3,294
Accretion of discount on convertible notes		28,575		26,577		25,200
Total interest expense on convertible debt	$	42,707	$	39,499	$	38,244