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Debt
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
Debt DebtAs discussed in Note 1. Organization and Business, we deconsolidated UpHealth Holdings as of September 30, 2023; accordingly, the financial position of UpHealth Holdings as of December 31, 2022 and financial results of UpHealth Holdings in the three and nine months ended September 30, 2023 are included in our unaudited condensed consolidated financial statements and the financial position of UpHealth Holdings as of September 30, 2023 is not included in our unaudited condensed consolidated financial statements. The filing of a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code, as discussed in Note 1.
Organization and Business, occurred on September 19, 2023. Management concluded that it would use the September 30, 2023 date for deconsolidation, as the last 12 days in the month were determined to not be material.
As also discussed in Note 1. Organization and Business, we deconsolidated Glocal as of July 1, 2022; accordingly, the financial results of Glocal in the six months ended June 30, 2022 are included in our unaudited condensed consolidated financial statements, and the financial position of Glocal as of September 30, 2023 and December 31, 2022 and the financial results of Glocal in the three months ended September 30, 2022 and the three and nine months ended September 30, 2023 are not included in our unaudited condensed consolidated financial statements.
Debt consisted of the following: 
(In thousands)September 30, 2023December 31, 2022
2025 Notes$115,000 $67,500 
2026 Notes57,227 115,000 
Total debt172,227 182,500 
Less: unamortized original issue and debt discount(28,338)(36,538)
Total debt, net of unamortized original issue and debt discount143,889 145,962 
Less: current portion of debt(143,889)— 
Noncurrent portion of debt$— $145,962 
2025 Senior Secured Convertible Notes and Indenture
On August 12, 2022, we entered into the Senior Secured Notes Indenture with the Indenture Trustee in its capacity as trustee thereunder, in respect of the $67.5 million in aggregate principal amount of 2025 Notes issued to holders of our 2026 Notes in a private placement transaction (“2025 Notes Offering”), raising approximately $22.5 million in gross cash proceeds, net of debt issuance costs of $2.2 million, after paying for a repurchase of $45.0 million of the 2026 Notes, which net proceeds were used in part to fully repay the Seller Notes (see below). The debt issuance costs consisted of cash paid in the amount of $1.5 million and the issuance of 115,000 shares of common stock, following the reverse stock split, with a value of $0.7 million. The 2025 Notes are convertible following the reverse split of our shares into 3,857,142 shares of our common stock at a conversion price, subject to the occurrence of certain corporate events, of $17.50 per share. The 2025 Notes are senior secured obligations of UpHealth, secured by substantially all of our assets and those of our domestic subsidiaries, and accrue interest at a rate equal to the daily secured overnight financing rate (“SOFR”) plus 9.0% per annum, with a minimum rate of 10.5% per annum, payable quarterly in arrears, for a quarterly rate of 12.21% for our December 15, 2022 interest payment date. The 2025 Notes will mature on December 15, 2025, unless earlier repurchased, redeemed or converted. Holders will have the right to convert their 2025 Notes at any time. Upon the occurrence of certain corporate events, holders of the 2025 Notes can require us to repurchase for cash all or part of their 2025 Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price that will be equal to 105% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest thereon, if any. In the event that we sell assets with net proceeds in excess of $15.0 million, then it will make an offer to all holders of the 2025 Notes to repurchase the 2025 Notes for an aggregate amount of cash equal to 20.0% of the net proceeds of such asset sale, at a repurchase price per 2025 Note equal to 100.0% of the principal amount thereof, plus accrued and unpaid interest, if any. We may not otherwise seek to redeem the 2025 Notes prior to June 16, 2024. We will settle conversions solely in shares of its common stock, except for payments of cash in lieu of fractional shares.
As discussed in Note 3. Significant Transactions, on May 11, 2023 we completed the sale of 100% of the outstanding capital stock of Innovations Group. In accordance with the terms and conditions set forth in the Senior Secured Notes Indenture, on June 9, 2023, we commenced an offer to purchase up to $10.3 million (representing 20% of the net proceeds from the sale subject to adjustment to maintain the authorized denominations of the 2025 Notes) in aggregate principal amount of our 2025 Notes for cash, at a repurchase price per Note equal to 100% of the principal amount thereof, plus accrued and unpaid interest (if any), from the holders of the 2025 Notes (the “Offer”). On June 15, 2023, we completed the repurchase of $10.3 million in aggregate principal amount of 2025 Notes, which were validly tendered and accepted for repurchase by us in accordance with the terms and conditions of the Offer (the “Note Repurchase”), representing 15.22% of the outstanding principal amount of the 2025 Notes before the Note Repurchase. Following the completion of the Note Repurchase, there is $57.2 million in aggregate principal amount of 2025 Notes outstanding.
Total interest expense related to the 2025 Notes consisted of the following:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2023202220232022
Contractual variable interest expense$2,126 $982 $6,764 $982 
Debt issuance costs amortization138 79 709 79 
Total interest expense$2,264 $1,061 $7,473 $1,061 
Included in the debt issuance costs amortization in the three and nine months ended September 30, 2023 was a write-off of $0.3 million, which was the proportionate share of the remaining debt issuance costs related to the repurchased 2025 Notes.
In March 2023, the Indenture Trustee, in its capacity as calculation agent, notified us of the quarterly rate reset of 14.03% for our June 15, 2023 interest payment date. In June 2023, the Indenture Trustee, in its capacity as calculation agent, notified us of the quarterly rate reset of 14.25% for our September 15, 2023 interest payment date. In September 2023, the Indenture Trustee, in its capacity as calculation agent, notified us of the quarterly rate reset of 14.41% for our December 15, 2023 interest payment date.
The filing of the Chapter 11 case by UpHealth Holdings constitutes an event of default that accelerated our obligations under the Senior Secured Indenture. The Senior Secured Notes Indenture provides that upon the filing of the Chapter 11 case, the principal and interest due thereunder shall be immediately due and payable. However, pursuant to the terms of the November 16, 2023 Transaction Support Agreement, we will enter into a Supplemental Indenture to the Senior Secured Notes Indenture which will, among other things, (a) provide for the waiver, with respect to us and Cloudbreak, of the specified events of default under the Senior Secured Notes Indenture resulting from the commencement of the Chapter 11 cases and (b) rescind, with respect to us and Cloudbreak, the acceleration of the 2025 Notes resulting from the occurrence of the foregoing events of default.
2026 Unsecured Convertible Notes and Indenture
On January 20, 2021, GigCapital2 entered into convertible note subscription agreements, each dated January 20, 2021 and amended on June 8, 2021, with certain institutional investors, pursuant to which GigCapital2 agreed to issue and sell unsecured convertible notes in a private placement to close immediately prior to the closing of the Business Combinations.
On June 15, 2021, in connection with the closing of the Business Combinations, we entered into the Unsecured Notes Indenture with the Indenture Trustee, in its capacity as trustee thereunder, in respect of the $160.0 million in aggregate principal amount of 2026 Notes that were issued to certain institutional investors. The 2026 Notes bear interest at a rate of 6.25% per annum, payable semi-annually, and were convertible following the reverse split of our shares into approximately 1,502,347 shares of common stock at a conversion price of $106.50 in accordance with the terms of the Unsecured Notes Indenture, and will mature on June 15, 2026. The total proceeds received from the 2026 Notes were $151.9 million, net of debt issuance costs of $8.1 million. In accounting for the 2026 Notes, we bifurcated and accounted for the conversion option as a derivative measured at fair value on the issuance date in accordance with ASC 815, Derivatives and Hedging. The difference between the proceeds allocated to the 2026 Notes at issuance and the fair value of the conversion option was allocated to the host debt contract. As of September 30, 2023 and December 31, 2022, the fair value of the derivative was $59 thousand and $0.1 million, respectively, all of which was included in other liabilities, noncurrent, in our unaudited condensed consolidated balance sheets.
The filing of the Chapter 11 case by UpHealth Holdings constitutes an event of default that accelerated our obligations under the Unsecured Notes Indenture. The Unsecured Notes Indenture provides that upon the filing of the Chapter 11 case and the acceleration of the obligations under the Senior Secured Notes Indenture, the principal and interest due thereunder shall be immediately due and payable. However, pursuant to the terms of the November 16, 2023 Transaction Support Agreement, we will enter into a Supplemental Indenture to the Unsecured Notes Indenture which will, among other things, provide for the waiver, with respect to us and Cloudbreak, of the specified events of default under the Unsecured Notes Indenture resulting from the acceleration of the 2025 Notes resulting from the occurrence of the event of default of the Senior Secured Notes Indenture and the commencement of the Chapter 11 cases.
Total interest expense related to the 2026 Notes consisted of the following:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2023202220232022
Contractual fixed interest expense$1,874 $2,184 $5,468 $7,184 
Derivative accretion2,210 2,730 6,629 8,899 
Debt issuance costs amortization287 351 862 1,152 
Total interest expense$4,371 $5,265 $12,959 $17,235 
On August 12, 2022, concurrently and in connection with the issuance of our 2025 senior secured convertible notes and indenture (see below), Oppenheimer & Co. Inc. (“OpCo”) commenced a private offer to repurchase approximately $45.0 million in
aggregate principal amount of our 2026 Notes (the “2026 Notes Repurchase”). In connection with the 2026 Notes Repurchase, OpCo entered into a note purchase agreement with each institutional investor pursuant to which OpCo agreed to purchase 2026 Notes from each investor, concurrently with each investor’s purchase of 2025 Notes in the 2025 Notes Offering (see below). At the closing, each investor had the ability to sell $2.0 million in principal amount of 2026 Notes at 100% of par value for each $3.0 million in principal amount of 2025 Notes purchased in the 2025 Notes Offering. Concurrently and in connection with the closing on August 18, 2022, OpCo purchased from each investor the principal amount of the 2026 Notes set forth in each investor’s note purchase agreement, pursuant to and in accordance with the terms thereof. Following the reverse split of shares, the remaining 2026 Notes are convertible into approximately 1,079,812 shares of common stock at a conversion price of $106.50 in accordance with the terms of the Indenture.
Seller Notes
As part of the purchase price consideration for several of UpHealth Holdings’ merger entities, we entered into seller notes payable to their former shareholders, which accrue interest at specific rates, per the respective merger agreements. On June 9, 2021, in connection with the closing of the Business Combination, we paid $88.1 million of the seller notes. In August 2021, we paid an additional $11.1 million of the seller notes and deferred the maturity date to September 2022. In August 2022, we paid the remaining $18.7 million of seller notes plus accrued interest of $1.9 million. As of both September 30, 2023 and December 31, 2022, the seller notes totaled zero.
Accrued interest payable was zero as of both September 30, 2023 and December 31, 2022. Interest expense was zero and $0.3 million in the three months ended September 30, 2023 and 2022, respectively. Interest expense was zero and $1.2 million in the nine months ended September 30, 2023 and 2022, respectively.