Debt

6 Months Ended

Jun. 30, 2019

DEBT

2021 Senior Convertible Notes

In December 2017, the Company issued $300.0 million principal amount of 5.75% senior convertible notes (the “2021 Notes”) for a purchase price equal to 98% of the principal amount, raising net proceeds of $294.0 million before issuance costs.

The 2021 Notes are governed by an Indenture, dated December 8, 2017 between the Company and U.S. Bank National Association, as trustee (the “2017 Indenture”). The 2021 Notes mature on July 1, 2021, unless earlier repurchased or converted, and bear interest at a rate of 5.75% per year payable semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2018.

The 2021 Notes are convertible at an initial conversion rate of 23.8 shares of the Company’s common stock per $1,000 principal amount of the 2021 Notes, which represents an initial conversion price of $42 per share, subject to adjustment for anti-dilutive issuances, voluntary increases in the conversion rate and make-whole adjustments upon a fundamental change. A fundamental change includes a change in control, delisting of the Company’s common stock and a liquidation of the Company. Upon conversion, the Company will deliver the applicable number of the Company’s common stock and cash in lieu of any fractional shares. Holders of the 2021 Notes may convert their 2021 Notes at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date.

The holders of the 2021 Notes may require the Company to repurchase all or a portion of their 2021 Notes at a cash repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus the remaining scheduled interest through and including the maturity date, upon a fundamental change and events of default, including non-payment of interest or principal and other obligations under the 2017 Indenture.

The 2021 Notes were issued at a two percent discount and accounted for as debt upon issuance. The Company recorded $300.0 million of debt and $6.0 million for the debt discount. The debt discount is accreted to interest expense over the term of the 2021 Notes using the interest method.

The Company incurred debt issuance costs of $9.2 million that were deferred and amortized to interest expense over the term of the 2021 Notes.

The Company agreed to register the resale of the 2021 Notes and the shares of common stock issuable upon conversion of the 2021 Notes. A registration statement on Form S-3 relating to such securities was filed with the U.S. Securities and Exchange Commission by the Company on August 7, 2018.

The net carrying amounts of the liability components of the 2021 Notes as of June 30, 2019 and December 31, 2018 consists of the following (in thousands):



	June 30, 2019			December 31, 2018
Principal amount	$	300,000		$	300,000
Unamortized debt discount	(3,532		)	(4,348		)
Net carrying amount before unamortized debt issuance costs	296,468			295,652
Unamortized debt issuance costs	(5,430		)	(6,685		)
Net carrying value	$	291,038		$	288,967

The effective interest rate of the liability component is 6.4% for the 2021 Notes.

2018 Notes

In 2013, the Company issued convertible notes (the “2018 Notes”) raising gross proceeds of $253.0 million. The 2018 Notes bore interest at a rate of 1.50% per year payable semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2014. On July 1, 2018, the 2018 Notes matured and the $253.0 million principal amount due was repaid. The 2018 Notes are no longer outstanding.

The following table presents the interest expense recognized related to the 2021 Notes and 2018 Notes for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Contractual interest expense at 1.5% and 5.75% per annum	$	4,313	$	5,261	$	8,625	$	10,522
Amortization of debt issuance costs	632		954		1,255		1,870
Accretion of debt discount	411		2,542		815		5,052
Total	$	5,356	$	8,757	$	10,695	$	17,444