Note 11 – Convertible and Long-Term Debt Obligations

The following is a summary of our debt as of March 31, 2017 (in thousands):

	Unpaid						Unused
	Principal		Net Carrying Value				Committed
	Balance		Current		Long-Term		Amount		Interest Rate		Maturity Dates
Recourse debt:
1.5% Convertible Senior Notes due in 2018 ("2018 Notes")	$	204,993	$	197,710		—		—		1.5%	June 2018
0.25% Convertible Senior Notes due in 2019 ("2019 Notes")		920,000		—		837,661		—		0.25%	March 2019
1.25% Convertible Senior Notes due in 2021 ("2021 Notes")		1,380,000		—		1,145,078		—		1.25%	March 2021
2.375% Convertible Senior Notes due in 2022 ("2022 Notes")		977,500		—		820,938		—		2.375%	March 2022
Credit Agreement		934,000		—		934,000		210,169	1% plus LIBOR		June 2020
Secured Revolving Credit Facility		359,000		360,474		—		4,312	4.2%-6.5%		December 2017
Vehicle and Other Loans		28,201		20,004		8,197		—	1.1%-7.6%		April 2017 - September 2019
2.75% Convertible Senior Notes due in 2018		230,000		—		216,172		—	2.8%		November 2018
1.625% Convertible Senior Notes due in 2019		566,000		—		492,705		—	1.6%		November 2019
Zero-coupon Convertible Senior Notes due in 2020		113,000		—		90,745		—	0.0%		December 2020
Solar Bonds		233,059		200,904		30,797	*		2.5%-6.5%		May 2017 - January 2031
Total recourse debt		5,945,753		779,092		4,576,293		214,481
Non-recourse debt:
Warehouse Agreement		444,709		113,831		330,877		155,291	Various		September 2018
Canada Credit Facility		62,287		18,907		43,380		—	3.6%-4.5%		December 2020
Term Loan due in December 2018		106,028		—		105,524		30,781		4.4%	December 2018
Term Loan due in January 2021		181,102		5,956		173,870		—	4.5%		January 2021
Revolving Aggregation Credit Facility		509,386		—		512,043		250,614	4.2%-4.8%		December 2018
Solar Renewable Energy Credit Loan Facility		53,159		12,392		41,043		1,841		6.6%	July 2021
Cash Equity Debt I		118,956		3,333		114,622		—	5.7%		July 2033
Cash Equity Debt II		205,251		5,458		187,806		—	5.3%		July 2034
Cash Equity Debt III		167,501		3,646		160,751		—	5.8%		January 2035
Solar Asset-backed Notes, Series 2013-1		41,025		3,289		37,513			4.8%		November 2038
Solar Asset-backed Notes, Series 2014-1		59,824		3,019		56,471		—	4.6%		April 2044
Solar Asset-backed Notes, Series 2014-2		183,154		7,240		169,798		—	4.0%-Class A 5.4%-Class B		July 2044
Solar Asset-backed Notes, Series 2015-1		117,333		2,393		107,554		—	4.2%-Class A 5.6%-Class B		August 2045
Solar Asset-backed Notes, Series 2016-1		49,440		1,202		46,350		—	5.3%-Class A 7.5%-Class B		September 2046
Solar Loan-backed Notes, Series 2016-A		131,066		3,514		124,030		—	4.8%-Class A 6.9%-Class B		September 2048
Solar Loan-backed Notes, Series 2017-A		145,000		465		140,012		—	5.0%-Class A 6.1%-Class B 7.5%-Class C		September 2049
Total non-recourse debt		2,575,221		184,645		2,351,644		438,527
Total debt	$	8,520,974	$	963,737	$	6,927,937	$	653,008

*	Out of the $350.0 million authorized to be issued, $116.9 million remained available to be issued. See below and Note 16, Related Party Transactions, for Solar Bonds issued to related parties.

The following is a summary of our debt as of December 31, 2016 (in thousands):

	Unpaid						Unused
	Principal		Net Carrying Value				Committed
	Balance		Current		Long-Term		Amount		Interest Rate		Maturity Dates
Recourse debt:
2018 Notes	$	205,013	$	196,229		—		—		1.5%	June 2018
2019 Notes		920,000		—		827,620		—		0.25%	March 2019
2021 Notes		1,380,000		—		1,132,029		—		1.25%	March 2021
Credit Agreement		969,000		—		969,000		181,000	1% plus LIBOR		June 2020
Secured Revolving Credit Facility		364,000		366,247		—		24,305	4.0%-6.0%		January 2017 - December 2017
Vehicle and Other Loans		23,771		17,235		6,536		—	2.9%-7.6%		March 2017 - June 2019
2.75% Convertible Senior Notes due in 2018		230,000		—		212,223		—	2.8%		November 2018
1.625% Convertible Senior Notes due in 2019		566,000		—		483,820		—	1.6%		November 2019
Zero-coupon Convertible Senior Notes due in 2020		113,000		—		89,418		—	0.0%		December 2020
Solar Bonds		332,060		181,582		148,948	#		1.1%-6.5%		January 2017 - January 2031
Total recourse debt		5,102,844		761,293		3,869,594		205,305
Non-recourse debt:
Warehouse Agreement		390,000		73,708		316,292		210,000	Various		September 2018
Canada Credit Facility		67,342		18,489		48,853		—	3.6%- 4.5%		December 2020
Term Loan due in December 2017		75,467		75,715		—		52,173	4.2%		December 2017
Term Loan due in January 2021		183,388		5,860		176,169		—	4.5%		January 2021
MyPower Revolving Credit Facility		133,762		133,827		—		56,238	4.1%-6.6%		January 2017
Revolving Aggregation Credit Facility		424,757		—		427,944		335,243	4.0%-4.8%		December 2018
Solar Renewable Energy Credit Term Loan		38,124		12,491		26,262		—	6.6%-9.9%		April 2017 - July 2021
Cash Equity Debt I		119,753		3,272		115,464		—	5.7%		July 2033
Cash Equity Debt II		206,901		5,376		189,424		—	5.3%		July 2034
Cash Equity Debt III		170,000		4,994		161,853			5.8%		January 2035
Solar Asset-backed Notes, Series 2013-1		41,899		3,329		38,346		—	4.8%		November 2038
Solar Asset-backed Notes, Series 2014-1		60,768		3,016		57,417		—	4.6%		April 2044
Solar Asset-backed Notes, Series 2014-2		186,851		7,055		173,625		—	4.0%-Class A 5.4%-Class B		July 2044
Solar Asset-backed Notes, Series 2015-1		119,199		1,511		110,238		—	4.2%-Class A 5.6%-Class B		August 2045
Solar Asset-backed Notes, Series 2016-1		50,119		1,202		47,025		—	5.3%-Class A 7.5%-Class B		September 2046
Solar Loan-backed Notes, Series 2016-A		140,586		3,514		133,510		—	4.8%-Class A 6.9%-Class B		September 2048
Total non-recourse debt		2,408,916		353,359		2,022,422		653,654
Total debt	$	7,511,760	$	1,114,652	$	5,892,016	$	858,959

#	Out of the $350.0 million authorized to be issued, $17.9 million remained available to be issued. See below and Note 16, Related Party Transactions, for Solar Bonds issued to related parties.

Recourse debt refers to debt that is recourse to our general assets. Non-recourse debt refers to debt that is recourse to only specified assets of our subsidiaries. The differences between the unpaid principal balances and the net carrying values are due to convertible senior note conversion features, debt discounts and deferred financing costs. As of March 31, 2017, we were in compliance with all financial debt covenants.

The following descriptions summarize the significant debt activity in the three months ended March 31, 2017.

2.375% Convertible Senior Notes due in 2022, Bond Hedges and Warrant Transactions

In March 2017, we issued $977.5 million in aggregate principal of 2.375% convertible senior notes due in March 2022 (“2022 Notes”) in a public offering. The net proceeds from the issuance, after deducting transaction costs, were $965.9 million.

Each $1,000 of principal of the 2022 Notes is initially convertible into 3.0534 shares of our common stock, which is equivalent to an initial conversion price of approximately $327.50 per share, subject to adjustment upon the occurrence of specified events. Holders of the 2022 Notes may convert, at their option, on or after December 15, 2021. Further, holders of the 2022 Notes may convert such 2022 Notes, at their option, prior to December 15, 2021, only under the following circumstances: (1) during any quarter beginning after June 30, 2017, if the closing price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days immediately preceding the quarter is greater than or equal to 130% of the conversion price; (2) during the five-business day period following any five-consecutive trading day period in which the trading price of the 2022 Notes is less than 98% of the average of the closing price of our common stock for each day during such five-consecutive trading day period; or (3) if we make specified distributions to holders of our common stock or if specified corporate transactions occur. Upon a conversion, we would pay cash for the principal amount and, if applicable, deliver shares of our common stock (subject to our right to deliver cash in lieu of all or a portion of such shares of our common stock) based on a daily conversion value. If a fundamental change occurs prior to the maturity date, holders of the 2022 Notes may require us to repurchase all or a portion of their 2022 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date, we would increase the conversion rate for a holder who elects to convert their 2022 Notes in connection with such an event in certain circumstances. As of March 31, 2017, none of the conditions permitting the holders of the 2022 Notes to early convert had been met. Therefore, the 2022 Notes are classified as long-term debt.

In accordance with GAAP relating to embedded conversion features, we initially valued and bifurcated the conversion feature associated with the 2022 Notes. We recorded to stockholders’ equity $145.6 million for the conversion feature. The resulting debt discount is being amortized to interest expense at an effective interest rate of 6.00%.

In connection with the offering of the 2022 Notes, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to adjustment for certain specified events) a total of approximately 3.0 million shares of our common stock at a price of approximately $327.50 per share. The cost of the convertible note hedge transactions was $204.1 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase initially (subject to certain specified events) a total of approximately 3.0 million shares of our common stock at a price of $655.00 per share. We received $52.9 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to reduce potential dilution from the conversion of the 2022 Notes and to effectively increase the overall conversion price from $327.50 to $655.00 per share. As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedge and warrant transactions was recorded as a reduction to additional paid-in capital on our consolidated balance sheet as of March 31, 2017.

Term Loan due in December 2018

On March 31, 2016, a subsidiary of SolarCity entered into an agreement for a term loan. The term loan bears interest at an annual rate of the lender’s cost of funds plus 3.25%. The fee for undrawn commitments is 0.85% per annum. On March 31, 2017, the agreement was amended to extend the availability period and the maturity date. The term loan is secured by substantially all of the assets and cash flows of the subsidiary and is non-recourse to our other assets.

Term Loan due in January 2021

In January 2016, a subsidiary of SolarCity entered into an agreement with a syndicate of banks for a term loan. The term loan bears interest at an annual rate of three-month LIBOR plus 3.50%. The term loan is secured by substantially all of the assets of the subsidiary, including its interests in certain financing funds, and is non-recourse to our other assets. During the three months ended March 31, 2017, we repaid $2.3 million of the principal outstanding under the term loan.

MyPower Revolving Credit Facility

In January 2017, the MyPower revolving credit facility matured, and the aggregate outstanding principal amount was fully repaid.

Solar Renewable Energy Credit Loan Facilities

On March 31, 2016, a subsidiary of SolarCity entered into an agreement for a term loan. The term loan bore interest at an annual rate of one-month LIBOR plus 9.00% or, at our option, 8.00% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate or (iii) one-month LIBOR plus 1.00%. The term loan was secured by substantially all of the assets of the subsidiary, including its rights under forward contracts to sell solar renewable energy credits, and was non-recourse to our other assets. On March 1, 2017, we fully repaid the outstanding principal amount under the term loan.

On July 14, 2016, the same subsidiary entered into an agreement for another loan facility. The loan facility bears interest at an annual rate of one-month LIBOR plus 5.75% or, at our option, 4.75% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate or (iii) one-month LIBOR plus 1.00%. The loan facility is secured by substantially all of the assets of the subsidiary, including its rights under forward contracts to sell solar renewable energy credits, and is non-recourse to our other assets.

Solar Loan-backed Notes, Series 2017-A

On January 27, 2017, we pooled and transferred certain MyPower customer notes receivable into a special purpose entity (“SPE”) and issued $123.0 million in aggregate principal of Solar Loan-backed Notes, Series 2017-A, Class A; $8.8 million in aggregate principal of Solar Loan-backed Notes, Series 2017-A, Class B; and $13.2 million in aggregate principal of Solar Loan-backed Notes, Series 2017-A, Class C; backed by these notes receivable to investors. The SPE is wholly owned by us and is consolidated in our financial statements. Accordingly, we did not recognize a gain or loss on the transfer of these notes receivable. The Solar Loan-backed Notes were issued at a discount of 1.87% for Class A, 1.86% for Class B and 8.13% for Class C. The payments received by the SPE from these notes receivable are used to service the semi-annual principal and interest payments on the Solar Loan-backed Notes and satisfy the SPE’s expenses, and any remaining cash is distributed to one of our wholly owned subsidiaries. The SPE’s assets and cash flows are not available to our other creditors, and the creditors of the SPE, including the Solar Loan-backed Note holders, have no recourse to our other assets.

Interest Expense

The following table presents the aggregate amount of interest expense recognized relating to the contractual interest coupon and amortization of the debt issuance costs and debt discount on convertible notes with cash conversion features, which includes the 2018 Notes, the 2019 Notes, the 2021 Notes and the 2022 Notes (in thousands):

	Three Months Ended March 31,
	2017		2016
Contractual interest coupon	$	6,151	$	8,391
Amortization of debt issuance costs		1,308		1,898
Amortization of debt discount		23,962		25,191
Total	$	31,421	$	35,480