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DEBT
 6 Months Ended
Jun. 30, 2022
Long-Term Debt, Unclassified [Abstract]  
DEBT DEBT
 
The following table reflects the Company’s debt as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022December 31, 2021
13% Senior Secured Notes due 2024
$59,000 $70,750 
Royalty rights obligation2,162 2,743 
Total principal amount61,162 73,493 
Less: current portion of long-term debt(11,662)(12,174)
Net, long-term debt$49,500 $61,319 


13% Senior Secured Notes due 2024

In accordance with the Zyla Merger, Assertio assumed $95.0 million aggregate principal amount of 13% senior secured notes due 2024 (the Secured Notes) issued pursuant to an indenture (the Existing Indenture) entered into on January 31, 2019, by and among Zyla Life Sciences, the guarantors party thereto (the Guarantors) and Wilmington Savings Fund Society, FSB (as successor to U.S. Bank National Association), as trustee and collateral agent (the Trustee). The Secured Notes were issued in two series: $50.0 million of Series A-1 Notes and $45.0 million of Series A-2 Notes.

As of May 20, 2020, the Existing Indenture was modified by a Supplemental Indenture (the Supplemental Indenture and the Existing Indenture, as so modified, the Indenture), pursuant to which Assertio (the Issuer) assumed the obligations as issuer of the Secured Notes and the subsidiaries of Assertio became guarantors of the Secured Notes. The Supplemental Indenture, among other things, provides for certain amendments to the restrictive covenants in the Indenture.

Interest on the Secured Notes accrues at a rate of 13% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year (each, a Payment Date). The Existing Indenture also requires payments of outstanding principal on the Secured Notes equal to 10% per annum of the issued principal amount, payable semi-annually on each Payment Date.

The Secured Notes are senior secured obligations of the Issuer and are secured by a lien on substantially all assets of the Issuer and the guarantors. The stated maturity date of the Secured Notes is January 31, 2024. Upon the occurrence of a Change of Control, subject to certain conditions (as defined in the Existing Indenture), holders of the Secured Notes may require the Issuer to repurchase for cash all or part of their Secured Notes at a repurchase price equal to 100% of the principal amount of the Secured Notes to be repurchased, plus accrued and unpaid interest to the date of repurchase.

The Company may redeem the Secured Notes at its option, in whole or in part from time to time, at a redemption price equal to 100% of the principal amount of the Secured Notes being redeemed, plus accrued and unpaid interest, if any, through the redemption date. No sinking fund is provided for the Secured Notes.

Pursuant to the Supplemental Indenture, Assertio and its restricted subsidiaries must also comply with certain covenants, including limitations on the issuance of debt; the issuance of preferred and/or disqualified stock; the payment of dividends and other restricted payments; the prepayment, redemption or repurchase of subordinated debt; mergers, amalgamations or consolidations; engaging in certain transactions with affiliates; and the making of investments. In addition, the Issuer must maintain a minimum level of consolidated liquidity, based on unrestricted cash on hand and availability under any revolving credit facility, equal to the greater of (1) the quotient of the outstanding principal amount of the Secured Notes divided by 9.5 and (2) $7.5 million. The Company was in compliance with its covenants with respect to the Secured Notes as of June 30, 2022.

The Company made a prepayment for the Senior Secured Notes in the second quarter of 2022 in the amount of $7.1 million, including $7.0 million of principal and $0.1 million of accrued interest. The Company had Senior Secured Notes obligations of $59.0 million and $70.8 million as of June 30, 2022 and December 31, 2021, respectively, with $9.5 million classified as current and $49.5 million classified as non-current debt in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2022 and $9.5 million classified as current and $61.3 million classified as non-current debt in the Company’s Condensed Consolidated Balance Sheets as of December 31, 2021.

Royalty Rights Obligation
In accordance with the Zyla Merger, the Company assumed a royalty rights agreements (the Royalty Rights) with each of the holders of its Secured Notes pursuant to which the Company will pay the holders of the Secured Notes an aggregate 1.5% royalty on Net Sales (as defined in the Existing Indenture) through December 31, 2022. The Royalty Rights were determined to be a freestanding element with respect to the Secured Notes and the Company is accounting for the Royalty Rights obligation relating to future royalties as a debt instrument.

The Company has Royalty Rights obligations of $2.2 million and $2.7 million as of June 30, 2022 and December 31, 2021, respectively, which are classified as current debt in the Company’s Condensed Consolidated Balance Sheets.

The accounting for the Royalty Rights requires the Company to make certain estimates and assumptions about the future net sales. The estimates of the magnitude and timing of net sales are subject to significant variability due to the extended time period associated with the financing transaction and are thus subject to significant uncertainty.
    
Interest Expense

Royalty rights are amortized as interest expense using the effective interest method. The following table reflects debt related interest included in Interest expense in the Company’s Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Stated coupon interest$2,248 $2,557 $4,547 $5,170 
Amortization of royalty rights21 48 48118
Total interest expense $2,269$2,605$4,595$5,288