Debt

6 Months Ended

Jun. 30, 2019

Amended and Extended Credit Agreement and Term Loan Facility

On June 8, 2018, the Company entered into an amended and extended credit agreement and term loan facility. The amended and extended credit agreement increased the borrowing capacity of the existing unsecured credit agreement to $300.0 million and extended the maturity date to June 8, 2023. The term loan facility included a delayed draw feature with borrowing capacity of $250.0 million and a maturity date two years from the borrowing date (see discussion below under heading, “Term Loan Due 2020,” for additional information). Furthermore, the amended and extended credit agreement provided for an accordion feature whereby the Company can increase either the revolving credit or term loan borrowing capacity by $100.0 million. On June 4, 2019, the Company utilized the accordion feature under its credit agreement to increase its revolving credit borrowing capacity by $100.0 million resulting in the available revolving credit commitments increasing from $300.0 million to $400.0 million. The Company incurred $0.1 million in additional debt issuance costs in connection with the utilization of the accordion feature, which, in addition to the $1.1 million of remaining unamortized costs under the revolving credit agreement, will be amortized under the remaining term of the revolving credit agreement. There were no outstanding borrowings under the revolving credit agreement at either June 30, 2019 or December 31, 2018.

Long-term Debt

The Company designates debt obligations as either short-term or long-term based on maturity date at issuance, or in the case of the 2022 Senior Notes, based on the date of assumption. Total amortized cost of Long-term Debt outstanding at June 30, 2019 and December 31, 2018 was:



(Dollars in Millions)	Jun 30, 2019		Dec 31, 2018
Term Loan due June 29, 2020	$	—	$	34.9
5.0% Senior Notes due September 19, 2022	280.6		281.5
4.35% Senior Notes due February 15, 2025	448.5		448.4
7.375% Subordinated Debentures due February 27, 2054	144.2		144.2
Total Long-term Debt Outstanding	$	873.3	$	909.0

Note 5 - Debt (continued)

Term Loan Due 2020

On June 29, 2018, the Company borrowed $250.0 million under its delayed-draw term loan facility, dated June 8, 2018, to facilitate the funding of the acquisition of Infinity. The proceeds from the term loan facility, net of debt issuance costs, were $249.4 million. On December 28, 2018, the Company repaid $215.0 million of the outstanding term loan. On May 31, 2019, the remaining outstanding balance of $35.0 million was repaid.

Term Loan Due 2023

On June 4, 2019, the Company entered into a delayed-draw term loan facility with a borrowing capacity of $50.0 million and a maturity date four years from the borrowing date (the “2023 Term Loan”). The 2023 Term Loan was undrawn at June 30, 2019. On July 5, 2019, the Company borrowed $50.0 million under the 2023 Term Loan, with a final maturity date of July 5, 2023 (and a mutual option to extend the maturity date by one year).

5.0% Senior Notes Due 2022

Infinity’s liabilities at the acquisition date included $275.0 million principal amount, 5.0% Senior Notes due September 19, 2022 (“2022 Senior Notes”). The 2022 Senior Notes were recorded at fair value as of the acquisition date, $282.1 million, with the $7.1 million premium being amortized as a reduction to interest expense over the remaining term, resulting in an effective interest rate of 4.36%. On November 30, 2018, Kemper executed a guarantee to fully and unconditionally guarantee the payment and performance obligations of the 2022 Senior Notes.

4.35% Senior Notes Due 2025

Kemper has $450.0 million of 4.35% senior notes due February 15, 2025 (the “2025 Senior Notes”) outstanding as of June 30, 2019. Kemper initially issued $250.0 million of the notes in February of 2015 and issued an additional $200 million of the notes in June of 2017. The additional notes are fungible with the initial notes issued in 2015, and together are treated as part of a single series for all purposes under the indenture governing the 2025 Senior Notes. The 2025 Senior Notes are unsecured and may be redeemed in whole at any time or in part from time to time at Kemper’s option at specified redemption prices.

7.375% Subordinated Debentures Due 2054

On June 7, 2019, Kemper issued a notice of redemption for the entire $150.0 million aggregate principal outstanding of its 7.375% Subordinated Debentures due 2054 (the “7.375% Subordinated Debentures”) at a redemption price equal to 100% of their principal, plus accrued and unpaid interest on the redemption date. On July 8, 2019, Kemper completed the redemption, and the 7.375% Subordinated Debentures were repaid in full. The Company expects to recognize a loss on early extinguishment of debt of $5.8 million in its third quarter Condensed Consolidated Statement of Operations.

The Company used the proceeds received from Kemper’s common stock offering on June 7, 2019, as well as, a portion of the proceeds from its July 5, 2019 borrowing under the 2023 Term Loan to repay the 7.375% Subordinated Debentures. See Note 9, “Stockholders’ Equity,” for additional information regarding the common stock offering.

Collateralized Investment Borrowings

Kemper’s subsidiaries, United Insurance Company of America (“United Insurance”) and Trinity Universal Insurance Company (“Trinity”), are members of the Federal Home Loan Bank (“FHLB”) of Chicago and Dallas, respectively. As a requirement of membership in the FHLB, United Insurance and Trinity maintain a certain level of investment in FHLB common stock and additional amounts based on the level of outstanding borrowings. The Company’s investments in FHLB common stock are reported at cost and included in Equity Securities at Modified Cost. The carrying value of FHLB of Chicago common stock held by United Insurance was $3.1 million and $0.8 million at June 30, 2019 and December 31, 2018, respectively. The carrying value of FHLB of Dallas common stock held by Trinity was $3.3 million at both June 30, 2019 and December 31, 2018.

In March of 2018, United Insurance received advances of $10.0 million from the FHLB of Chicago. These advances, made in connection with the start-up of a collateralized investment borrowing program for the Company (“Collateralized Investment Borrowing” program), were collateralized by U.S Government Agency securities held in a custodial account with the FHLB of Chicago with a fair value of $15.7 million at December 31, 2018. These advances were repaid in March of 2019.

Note 5 - Debt (continued)

In March of 2019, United Insurance received advances of $187.7 million from the FHLB of Chicago. During the second quarter of 2019, United Insurance received advances of $71.3 million and repaid $104.0 million under the Collateralized Investment Borrowing program. United Insurance had outstanding advances from the FHLB of Chicago totaling $155.0 million at June 30, 2019. These advances were made in connection with the Company’s Collateralized Investment Borrowing program. Proceeds related to these advances were used to purchase fixed maturity securities to earn incremental net investment income. With respect to these advances, United Insurance held pledged securities in a custodial account with the FHLB of Chicago with a fair value of $177.6 million as of June 30, 2019.

The fair value of the collateral pledged must be maintained at certain specified levels above the borrowed amount, which can vary depending on the assets pledged. If the fair value of the collateral declines below these specified levels of the amount borrowed, United Insurance would be required to pledge additional collateral or repay outstanding borrowings.

The following summarizes the terms of the Company’s Collateralized Investment Borrowings at June 30, 2019:



(Dollars in Millions)	Principal Borrowings		Weighted-average Interest Rate
Due in One Year or Less	$	98.0	2.71	%
Due after One Year to Two Years	54.4		2.75	%
Due after Two Years to Three Years	2.6		2.73	%
	$	155.0

Interest Expense and Interest Paid

Interest Expense, including facility fees, accretion of discount, amortization of premium and amortization of issuance costs, was $23.3 million and $11.8 million for the six and three months ended June 30, 2019, respectively. Interest paid, including facility fees, was $24.1 million and $4.3 million for the six and three months ended June 30, 2019, respectively. Interest Expense, including facility fees, accretion of discount and amortization of issuance costs, was $15.9 million and $7.9 million for the six and three months ended June 30, 2018. Interest paid, including facility fees, was $15.3 million and $2.8 million for the six and three months ended June 30, 2018.