SEARCHLIGHT INVESTMENT

12 Months Ended

Dec. 31, 2021

SEARCHLIGHT INVESTMENT

SEARCHLIGHT INVESTMENT

4.SEARCHLIGHT INVESTMENT

In connection with the Investment Agreement entered into on September 13, 2020, affiliates of Searchlight committed to invest up to an aggregate of $425.0 million in the Company. The investment commitment was structured in two stages.  In the first stage of the transaction, which was completed on October 2, 2020, Searchlight invested $350.0 million in the Company in exchange for 6,352,842 shares, or approximately 8%, of the Company’s common stock and was issued a CPR that was convertible, upon the receipt of certain regulatory and shareholder approvals, into an additional 17,870,012 shares, or 16.9% of the Company’s common stock.  In addition, Searchlight received the right to an unsecured subordinated note with an aggregate principal amount of approximately $395.5 million (the “Note”), which will be convertible into shares of a new series of perpetual preferred stock of the Company with an aggregate liquidation preference equal to the principal amount of the Note plus accrued interest as of the date of conversion.

On July 15, 2021, the Company received all required state public utility commission regulatory approvals necessary for the conversion of the CPR into 16.9% additional shares of the Company’s common stock. As a result, the CPR was converted into 17,870,012 shares of common stock, which were issued to Searchlight on July 16, 2021.

In the second stage of the transaction, which was completed on December 7, 2021 following the receipt of Federal Communications Commission (“FCC”) and certain regulatory approvals and the satisfaction of certain other customary closing conditions, Searchlight invested an additional $75.0 million and was issued the Note. On December 7, 2021, Searchlight elected to convert the Note into 434,266 shares of Series A Perpetual Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”). In addition, the CPR converted into an additional 15,115,899 shares, or an additional 10.1%, of the Company’s common stock.  As of December 31, 2021, the total shares of common stock issued to Searchlight represent approximately 35% of the Company’s outstanding common stock.

The total expected proceeds from the Investment Agreement were allocated among each of the individual components of the investment and recorded at their estimated fair values as of October 2, 2020. The proceeds were first allocated to the CPR at its full estimated fair value including a discount for lack of marketability and then allocated to the issuance of the common stock with the remaining proceeds allocated to the Note.  The estimated fair value of the components of the Investment Agreement at October 2, 2020 were as follows:

(In thousands)
Assets Received:
	Cash proceeds	$	350,000
	Receivable from Searchlight, net of discount of $612		74,388
	Less: Issuance costs		(14,474)
	Total consideration	$	409,914
Assets Exchanged:
	6,352,842 shares of common stock, par value $0.01 per share, net of issuance costs of $1,473	$	26,779
	CPR for 16.9% additional shares of common stock		79,469
	CPR for 10.1% additional shares of common stock		67,221
	Convertible security interest issued as unsecured subordinated note right, net of discount of $146,018 and issuance costs of $13,001		236,445
		$	409,914

At December 31, 2020, the net present value of the receivable for the additional investment of $75.0 million expected to be received from Searchlight upon the closing of the second stage of the transaction was $74.7 million, net of unamortized discount of $0.3 million, and was included within other assets in the consolidated balance sheet.

Prior to conversion, the CPR was reported at its estimated fair value within long-term liabilities in the consolidated balance sheet. Subsequent changes in fair value were reflected in earnings within other income and expense in the consolidated statements of operations. As of December 31, 2020, the estimated fair value of the CPR was $123.2 million and during the years ended December 31, 2021 and 2020, we recognized a loss of $86.5 million and a gain of $23.5 million, respectively, on the change in the fair value of the CPR. Issuance costs allocated to the CPR of $7.6 million were expensed as incurred during the year ended December 31, 2020, which were included in acquisition and other transaction costs in the consolidated statements of operations.  

The Note bore interest at 9.0% per annum from the date of the closing of the first stage of the transaction and was payable semi-annually in arrears on April 1 and October 1 of each year. The term of the Note was 10 years and was due on October 1, 2029. The Note included a paid-in-kind (“PIK”) option for a five-year period beginning as of October 2, 2020.  During the year ended December 31, 2021, the Company elected the PIK option and accrued interest of $38.8 million was added to the principal balance of the Note. At December 31, 2020, the net carrying value of the Note was $238.7 million, net of unamortized discount and issuance costs of $144.8 million and $12.0 million, respectively. The unamortized discount and issuance costs were being amortized over the contractual term of the Note using the effective interest method. On December 7, 2021, Searchlight exercised its option to convert the Note and the net carrying value of the Note of $285.9 million, net of unamortized discount and issuance costs of $139.7 million and $8.7 million, respectively, was converted into 434,266 shares of Series A Preferred Stock at a liquidation preference of $1,000 per share.  Dividends on the Series A Preferred Stock will accrue daily on the liquidation preference at a rate of 9.0% per annum, payable semi-annually in arrears. See Note 11 for more information on the terms of the Series A Preferred Stock.