Debt

9 Months Ended

Sep. 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). On June 4, 2019, the Company utilized the accordion feature under the credit agreement to increase its credit borrowing capacity by $100.0 million, resulting in the available 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 credit agreement, will be amortized under the remaining term of the credit agreement. There were no outstanding borrowings under the credit agreement at either September 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 September 30, 2019 and December 31, 2018 was:



(Dollars in Millions)	Sep 30, 2019		Dec 31, 2018
Term Loan due June 29, 2020	$	—	$	34.9
5.0% Senior Notes due September 19, 2022	280.3		281.5
Term Loan due July 5, 2023	49.9		—
4.35% Senior Notes due February 15, 2025	448.5		448.4
7.375% Subordinated Debentures due February 27, 2054	—		144.2
Total Long-term Debt Outstanding	$	778.7	$	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”). On July 5, 2019, the Company borrowed $49.9 million, net of debt issuance costs, 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 aggregate principal of 4.35% senior notes due February 15, 2025 (the “2025 Senior Notes”) outstanding as of September 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.

Redemption of 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 recognized a loss on early extinguishment of debt of $5.8 million in its September 30, 2019 Condensed Consolidated Statement of Income.

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 $2.8 million and $0.8 million at September 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 September 30, 2019 and December 31, 2018. The Company periodically uses short-term and long-term FHLB borrowings for a combination of cash management, risk management, and spread investing purposes.

Note 5 - Debt (continued)

In March of 2018, United Insurance received advances of $10.0 million from the FHLB of Chicago. These advances were made in connection with the start-up of a collateralized investment borrowing program for the Company (“Collateralized Investment Borrowing” program) and 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.

During the first nine months of 2019, United Insurance received advances of $385.6 million from the FHLB of Chicago and made repayments of $247.9 million under the Collateralized Investment Borrowing program. United Insurance had outstanding advances from the FHLB of Chicago totaling $137.6 million at September 30, 2019. Proceeds were used to purchase fixed maturity securities to earn incremental net investment income.

United Insurance held pledged securities in a custodial account with the FHLB of Chicago with a fair value of $184.1 million at September 30, 2019 in connection with its outstanding advance from the FHLB of Chicago. 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 September 30, 2019:



(Dollars in Millions)	Principal Borrowings		Weighted-average Interest Rate
Due in One Year or Less	$	107.8	2.68	%
Due after One Year to Two Years	27.1		2.73	%
Due after Two Years	2.7		2.34	%
Total	$	137.6

Interest Expense and Interest Paid

Interest Expense, including facility fees, accretion of discount, amortization of premium and amortization of issuance costs, was $32.5 million and $9.2 million for the nine and three months ended September 30, 2019, respectively. Interest paid, including facility fees, was $43.0 million and $18.9 million for the nine and three months ended September 30, 2019, respectively. Interest Expense, including facility fees, accretion of discount and amortization of issuance costs, was $29.3 million and $13.4 million for the nine and three months ended September 30, 2018. Interest paid, including facility fees, was $35.0 million and $19.7 million for the nine and three months ended September 30, 2018.