Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt

NOTE 8 — Debt

Apollo Term Loan

In November 2019, pursuant to the acquisition of Legacy Gannett, the Company entered into a five-year, senior-secured term loan facility with Apollo Capital Management, L.P. ("Apollo") in an aggregate principal amount of approximately $1.8 billion (the "Apollo Term Loan"). The Apollo Term Loan which matures on November 19, 2024, generally bears interest at the rate of 11.5% per annum. Origination fees totaled 6.5% of the total principal amount of the financing at closing. Pursuant to the agreement, Apollo has the right to designate two individuals to attend Board of Directors meetings as non-fiduciary and non-voting observers and participants. In addition, if the total gross leverage ratio exceeds certain thresholds, Apollo has the right to appoint up to two voting directors. As of September 30, 2020, the total gross leverage ratio exceeded certain thresholds, whereby Apollo has the right to appoint one voting director. Upon the occurrence and during the continuance of an Event of Default (as defined in the Apollo Term Loan), the interest rate increases by 2.0%.

The Apollo Term Loan contains customary covenants and events of default, including a covenant that the Company have at least $20 million of unrestricted cash on the last day of each fiscal quarter. The Apollo Term Loan is required to be prepaid with (i) any unrestricted cash in excess of $40 million at the end of fiscal year 2020 and fiscal year 2021, (ii) 50% of excess cash flow (as such term is defined in the Apollo Term Loan) measured at the end of each fiscal quarter (beginning with the third quarter of 2020), subject to a step-up to 90% of excess cash flow for each period in fiscal year 2021 or later if the ratio of consolidated debt to EBITDA (as such terms are defined in the Apollo Term Loan) is greater than or equal to 1.00 to 1.00, and (iii) 100% of the net proceeds of any non-ordinary course asset sales. The Apollo Term Loan prohibits the payment of cash dividends prior to the thirtieth day of the second quarter of 2020, and thereafter permits payment of cash dividends up to an agreed-upon amount, provided that the ratio of consolidated debt to EBITDA (as such terms are defined therein) does not exceed a specified threshold. As of September 30, 2020, the Company is in compliance with all of the covenants and obligations under the Apollo Term Loan.

In connection with the Apollo Term Loan, the Company incurred approximately $4.9 million of fees and expenses and $116.6 million of lender fees which were capitalized and will be amortized over the term of the Apollo Term Loan using the effective interest method. 

The Company used the proceeds of the Apollo Term Loan to (i) partially fund the acquisition of Legacy Gannett, (ii) repay, prepay, repurchase, redeem, or otherwise discharge in full each of the existing financing facilities (as defined in the agreement and discussed in part below), and (iii) pay fees and expenses incurred to obtain the Apollo Term Loan. The Company is permitted to prepay the principal of the Apollo Term Loan, in whole or in part, at par plus accrued and unpaid interest, without any prepayment premium or penalty. The Apollo Term Loan is guaranteed by the material wholly-owned subsidiaries of the Company, and all obligations of the Company and its subsidiary guarantors are or will be secured by first priority liens on certain material real property, equity interests, land, buildings, and fixtures. The Apollo Term Loan contains customary representations and warranties, affirmative covenants, and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, dividends and other distributions, capital expenditures, and events of default.

As of September 30, 2020, the Company had $1.729 billion in aggregate principal outstanding under the Apollo Term Loan, $4.1 million of deferred financing costs, and $93.3 million of capitalized lender fees. During the three and nine months ended September 30, 2020, the Company recorded $51.0 million and $152.4 million in interest expense, respectively, $5.9 million and $17.7 million in amortization of deferred financing costs, respectively, and $0.5 million and $1.7 million for loss on early extinguishment of debt, respectively. During the three and nine months ended September 30, 2020, the Company paid interest of $51.0 million and $176.0 million, respectively. The effective interest rate is 12.9%. As of September 30, 2020, the Company reclassified $15.2 million of the Apollo Term Loan to the Current portion of long-term debt on the Condensed consolidated balance sheets, which represents 50% of the Company's excess cash flow (as such term is defined in the Apollo Term Loan) measured at the end of the third quarter of 2020.

Convertible debt

On April 9, 2018, Legacy Gannett completed an offering of 4.75% convertible senior notes, resulting in total aggregate principal of $201.3 million and net proceeds of approximately $195.3 million. Interest on the notes is payable semi-annually in arrears. The notes mature on April 15, 2024 with our earliest redemption date being April 15, 2022. The stated conversion rate of the notes is 82.4572 shares per $1,000 in principal or approximately $12.13 per share.

The Company's acquisition of Legacy Gannett constituted a Fundamental Change and Make-Whole Fundamental Change under the terms of the indenture governing the notes. At the acquisition date, the Company delivered to noteholders a notice offering the right to surrender all or a portion of their notes for cash on December 31, 2019. On December 31, 2019, we completed the redemption of $198.0 million in aggregate principal in exchange for cash.

The $3.3 million principal value of the remaining notes outstanding is reported as convertible debt in the Condensed consolidated balance sheets. The effective interest rate on the notes was 6.05% as of September 30, 2020.