Convertible Debt and Short Term Borrowings

As of September 30, 2014 and December 31, 2013, the Company's outstanding debt was as follows:



	As of September 30, 2014		As of December 31, 2013
	(dollars in thousands)
Convertible debt	$	117,031	$	—
Note payable	357		41
Capital lease obligations	4,251		2,523
	$	121,639	$	2,564

Convertible Debt

On March 10, 2014, the Company issued $149.5 million of 3.0% cash convertible senior notes ("Convertible Notes"). The Convertible Notes are due on March 15, 2019 unless earlier repurchased by the Company or converted by the holder into cash in accordance with their terms prior to such date. The interest on the Convertible Notes is payable semi-annually on March 15 and September 15 of each year. The Convertible Notes are senior unsecured obligations and rank senior in right of payments to other obligations. The Convertible Notes may be converted into cash, upon the occurrence of certain events, whereby a holder will receive, per $1,000 principal amount of notes being converted, an amount equal to the sum of principal amount outstanding and the conversion amount based on the current conversion price (the "Conversion Option"). The Convertible Notes were issued with an initial conversion price of $5.33 per share.

The Company recorded interest expense related to the coupon of $1.1 million and $2.5 million for the three and nine months ended September 30, 2014, respectively. The initial unamortized discount on the Convertible Notes was $35.7 million and is shown net in convertible debt in the accompanying condensed consolidated statements of financial condition. Amortization on the discount for the three and nine months ended September 30, 2014, included within interest expense in the accompanying condensed consolidated statements of operations, was $1.5 million and $3.2 million, respectively, based on an effective interest rate of 8.89%. The Convertible Notes are classified as Level 2 in the fair value hierarchy. As of September 30, 2014 the estimated fair value of the Convertible Notes, which includes the conversion option, was $148.8 million, and is based on the last broker quote of the Convertible Notes on September 30, 2014. The carrying amount of the debt as of September 30, 2014 was $117.0 million net of the unamortized discount of $32.5 million. The Company capitalized the debt issuance costs in the amount of $3.7 million, which is included in other assets in the accompanying condensed consolidated statements of financial condition, and will be amortized over the life of the Convertible Notes. As of September 30, 2014, the Company is in compliance with all covenants included in the indenture governing the Convertible Notes.

Of the net proceeds from the sale of the Convertible Notes, approximately $20.5 million was applied to pay the net cost of a cash convertible note economic hedge and warrant transaction which increases the effective conversion price to $7.18 (See Note 5), and approximately $0.3 million was applied to repurchase shares of Cowen Class A common stock. The remainder of the net proceeds is being used for general corporate purposes.

Note Payable

During January 2014, the Company borrowed $2.0 million to fund insurance premium payments. This note bears interest at 1.55% and is due on December 1, 2014, with monthly payment requirements of $0.2 million. As of September 30, 2014, the outstanding balance on this note payable was $0.4 million. Interest expense for the three and nine months ended September 30, 2014 was insignificant.

Capital Lease Obligations

The Company entered into several capital leases for computer equipment during the fourth quarter of 2010 and one in January 2014. These leases amount to $7.6 million and are recorded in fixed assets and as capital lease obligations, which are included in short-term borrowings and other debt in the accompanying condensed consolidated statements of financial condition, and have lease terms that range from 48 to 60 months and interest rates that range from 0.60% to 6.03%. As of September 30, 2014, the remaining balance on these capital leases was $4.3 million. Interest expense was $0.1 million and $0.1 million for the three months ended September 30, 2014 and 2013, respectively, and $0.2 million and $0.1 million for the nine months ended September 30, 2014 and 2013, respectively.

Annual scheduled maturities of debt and minimum payments for debt outstanding as of September 30, 2014, is as follows:



	Convertible Debt			Notes payable			Capital Lease Obligation
	(dollars in thousands)
2014	$	—		$	362		$	412
2015	4,411			—			1,343
2016	4,411			—			1,025
2017	4,411			—			938
2018	4,411			—			938
Thereafter	151,688			—			79
Subtotal	169,332			362			4,735
Less: Amount representing interest (a)	(52,301		)	(5		)	(484		)
Total	$	117,031		$	357		$	4,251


(a)	Amount necessary to reduce net minimum payments to present value calculated at the Company's implicit rate at inception. This amount also includes the unamortized discount on the convertible debt.

Letters of Credit

As of September 30, 2014, the Company has the following seven irrevocable letters of credit related to leased office space, for which there is cash collateral pledged, which the Company pays a fee on the stated amount of the letter of credit.



Location	Amount		Maturity
	(dollars in thousands)
San Francisco	$	82	May 2015
Boston	$	382	March 2015
New York	$	893	August 2015
New York	$	4,497	December 2014
New York	$	1,000	February 2015
New York	$	1,861	June 2015
New York	$	127	September 2015

To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of September 30, 2014 and December 31, 2013, there were no amounts due related to these letters of credit.