Debt

As of December 31, 2016 and 2015, our long-term debt was as follows (in thousands):

	December 31,			December 31,
	2016			2015
Credit Agreement:
Term loan, due February 2020, interest at adjusted LIBOR plus 1.75% (combined rate of 2.75% at December 31, 2016)	$	135,000		$	142,500
Less - deferred financing costs		(3,489	)		(4,738	)
Term loan, net of unamortized discounts		131,511			137,762
$200 million revolving loan facility, due February 2020, interest at adjusted LIBOR plus applicable margin	—			—
Convertible Notes:
2016 Convertible Notes – Senior convertible notes; due March 15, 2036; cash interest at 4.25%		230,000		—
Less – unamortized original issue discount		(14,005	)	—
Less – deferred financing costs		(5,513	)	—
2016 Convertible Notes, net of unamortized discounts		210,482			—
2010 Convertible Notes – Senior subordinated convertible notes; due March 1, 2017; cash interest at 3.0%		34,722			150,000
Less – unamortized original issue discount		(272	)		(7,923	)
Less – deferred financing costs		(24	)		(709	)
2010 Convertible Notes, net of unamortized discounts		34,426			141,368
Total debt, net of unamortized discounts		376,419			279,130
Current portion of long-term debt, net of unamortized discounts		(49,426	)		(148,868	)
Long-term debt, net of unamortized discounts	$	326,993		$	130,262

Credit Agreement.

In February 2015, we entered into an amended and restated $350 million credit agreement with several financial institutions (the “2015 Credit Agreement”). The 2015 Credit Agreement provided borrowings in the form of: (i) a $150 million aggregate principal five-year term loan (the “2015 Term Loan”); and (ii) a $200 million aggregate principal five-year revolving loan facility (the “2015 Revolver”).

The interest rates under the 2015 Credit Agreement are based upon our choice of an adjusted LIBOR rate plus an applicable margin of 1.75% - 2.75%, or an alternate base rate plus an applicable margin of 0.75% -1.75%, with the applicable margin, depending on our then-net secured total leverage ratio. We pay a commitment fee of 0.250% - 0.375% of the average daily unused amount of the 2015 Revolver, with the commitment fee rate also dependent upon our then-net secured total leverage ratio. As of December 31, 2016, our interest rate on the 2015 Term Loan is 2.75% (adjusted LIBOR plus 1.75% per annum), effective through March 31, 2017, and our commitment fee on the unused 2015 Revolver is 0.25%. As of December 31, 2016, we had no borrowing outstanding on our 2015 Revolver and had the entire $200 million available to us.

The 2015 Credit Agreement includes mandatory repayments of the aggregate principal amount of the 2015 Term Loan (payable quarterly) for the first (5% of total), second (5% of total), third (10% of total), fourth (15% of total), and fifth years (15% of total), with the remaining principal balance due at maturity (50% of total). The 2015 Credit Agreement has no prepayment penalties and requires mandatory repayments under certain circumstances, including: (i) asset sales or casualty proceeds; and (ii) proceeds of debt or preferred stock issuances.

The 2015 Credit Agreement contains customary affirmative covenants. In addition, the 2015 Credit Agreement has customary negative covenants that place limits on our ability to: (i) incur additional indebtedness; (ii) create liens on its property; (iii) make investments; (iv) enter into mergers and consolidations; (v) sell assets; (vi) declare dividends or repurchase shares; (vii) engage in certain transactions with affiliates; and (viii) prepay certain indebtedness; and (ix) issue capital stock of subsidiaries. We must also meet certain financial covenants to include: (i) a maximum total leverage ratio; (ii) a maximum secured leverage ratio; (iii) a minimum interest coverage ratio; and (iv) a limitation on capital expenditures. As of December 31, 2016, we were in compliance with the financial ratios and other covenants related to the 2015 Credit Agreement.

In conjunction with the 2015 Credit Agreement, we have pledged assets under a security agreement in favor of a financial institution as collateral agent (the “Security Agreement”). Under the Security Agreement and 2015 Credit Agreement, all of CSG’s domestic subsidiaries have guaranteed its obligations, and CSG and such subsidiaries have pledged substantially all of its assets to secure the obligations under the 2015 Credit Agreement and such guarantees.

Convertible Notes.

2016 Convertible Notes. In March 2016, we completed an offering of $230 million of 4.25% senior convertible notes due March 15, 2036 (the “2016 Convertible Notes”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2016 Convertible Notes are unsecured obligations and will pay 4.25% annual cash interest, payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2016.

The 2016 Convertible Notes will be convertible at the option of the note holders upon the satisfaction of specified conditions and during certain periods. During the period from, and including, December 15, 2021 to the close of business on the business day immediately preceding March 15, 2022 and on or after December 15, 2035, holders may convert all or any portion of their 2016 Convertible Notes at the conversion rate then in effect at any time regardless of these conditions. The 2016 Convertible Notes will be convertible at an initial conversion rate of 17.4642 shares of our common stock per $1,000 principal amount of the 2016 Convertible Notes, which is equivalent to an initial conversion price of approximately $57.26 per share of our common stock. Under the terms of the 2016 Convertible Notes, we will adjust the conversion rate for any quarterly dividends exceeding $0.185 per share. We will settle conversions of the 2016 Convertible Notes by paying or delivering, as the case may be, cash, shares of our common stock, or a combination thereof, at our election. It is our current intent and policy to settle our conversion obligations as follows: (i) pay cash for 100% of the par value of the 2016 Convertible Notes that are converted; and (ii) to the extent the value of our conversion obligation exceeds the par value, we can satisfy the remaining conversion obligation in our common stock, cash or a combination thereof.

Holders may require CSG to repurchase the 2016 Convertible Notes for cash on each of March 15, 2022, March 15, 2026, and March 15, 2031, or upon the occurrence of a fundamental change (as defined in the 2016 Convertible Notes Indenture (“2016 Notes Indenture”)) in each case at a purchase price equal to the principal amount thereof plus accrued and unpaid interest.

We may not redeem the 2016 Convertible Notes prior to March 20, 2020. On or after March 20, 2020, we may redeem for cash all or part of the 2016 Convertible Notes if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which CSG provides notice of redemption. On or after March 15, 2022, we may redeem for cash all or part of the 2016 Convertible Notes regardless of the sales price condition described in the preceding sentence. In each case, the redemption price will equal the principal amount of the 2016 Convertible Notes to be redeemed, plus accrued and unpaid interest.

The 2016 Notes Indenture includes customary terms and covenants, including certain events of default after which the 2016 Convertible Notes may be due and payable immediately. The Notes Indenture contains customary affirmative covenants, including compliance with terms of certain other indebtedness of the Company over a defined threshold amount.

The net proceeds from the sale of the 2016 Convertible Notes were approximately $223 million after deducting the initial purchasers’ discount and estimated offering expenses payable by us. As of December 31, 2016, we repurchased approximately $115 million aggregate principal amount of our 2010 Convertible Notes for $215.6 million (see additional discussion in 2010 Convertible Notes below) with the net proceeds from the offering of the 2016 Convertible Notes. The remainder of the net proceeds will be used to settle the outstanding 2010 Convertible Notes.

The original issue discount (“OID”) related to the 2016 Convertible Notes of $15.9 million, as a result of an effective interest rate of the liability component of 5.63% compared to the cash interest rate of 4.25%, is being amortized to interest expense through December 15, 2021, the first date the 2016 Convertible Notes can be put back to us by the holders.

2010 Convertible Notes. In March 2010, we completed an offering of $150 million of 3.0% senior subordinated convertible notes due March 1, 2017 (the “2010 Convertible Notes”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2010 Convertible Notes are unsecured obligations, subordinated to any future senior indebtedness and senior to any future junior subordinated debt. The 2010 Convertible Notes were issued at a price of 100% of their par value and bear interest at a rate of 3.0% per annum, which is payable semiannually in arrears on March 1 and September 1 of each year. The 2010 Convertible Notes contain customary affirmative covenants, including compliance with terms of certain other indebtedness of the Company over a defined threshold amount.

During 2016, we repurchased $115.3 million aggregated principal amount of our 2010 Convertible Notes at a total purchase price of $215.6 million, and recognized a loss on the repurchases of $8.6 million, to include the write-off of amortized deferred financing costs and OID. In addition, during 2016, we had holders convert $50,000 aggregate principal amount of the 2010 Convertible Notes for a total price of $0.1 million. As of December 31, 2016, the principal outstanding on the 2010 Convertible Notes was $34.7 million.

The 2010 Convertible Notes are convertible into our common stock, under the specified conditions and settlement terms outlined below. As a result of us declaring a quarterly cash dividend beginning in June 2013, the conversion rate has also been adjusted quarterly. As of December 31, 2016, the conversion rate was 44.3684 shares of our common stock per $1,000 par value of the 2010 Convertible Notes (equivalent to a conversion price of $22.54 per share of our common stock). The Indenture related to the 2010 Convertible Notes (“Notes Indenture”) includes anti-dilution provisions for the holders such that the conversion rate (and thus the initial conversion price) can be adjusted in the future for certain events, to include stock dividends, the issuance of rights, options or warrants to purchase our common stock at a price below the then-current market price, and certain distributions of common stock, property or rights, options or warrants to acquire our common stock to all or substantially all holders of our common stock. Additionally, the conversion rate may be adjusted prior to the maturity date in connection with the occurrence of specified corporate transactions for a “make-whole” premium as set forth in the Notes Indenture.

Prior to September 1, 2016, holders of the 2010 Convertible Notes could convert their securities at any time in the fiscal quarter following the period in which the price of our common stock trades over 130% of the conversion price for at least 20 consecutive trading days in the last 30 trading days of a fiscal quarter. Beginning September 1, 2016, the holders of the 2010 Convertible Notes can elect to convert their securities at any time, with settlement occurring on March 1, 2017. As of December 31, 2016, we classified the $34.7 million principal amount of the 2010 Convertible Notes as a current liability and reclassified the difference between the principal amount payable in cash upon conversion and the total settlement value of the 2010 Convertible Notes, or the intrinsic value of the conversion obligation, of approximately $40 million from stockholders’ equity to current portion of long-term debt conversion obligation on our Balance Sheet.

Upon conversion of the 2010 Convertible Notes, we will settle our conversion obligation as follows: (i) we will pay cash for 100% of the par value of the 2010 Convertible Notes that are converted; and (ii) to the extent the value of our conversion obligation exceeds the par value, we will satisfy the remaining conversion obligation in our common stock. Based on our December 31, 2016 closing stock price of $48.40 per share, the 2010 Convertible Notes would have had a total settlement value of approximately $75 million.

The remaining OID related to the 2010 Convertible Notes is being amortized to interest expense through March 1, 2017, the maturity date of the 2010 Convertible Notes.

Estimated Maturities on Long-Term Debt.

As of December 31, 2016, the maturities of our long-term debt, based upon: (i) the mandatory repayment schedule for the 2015 Term Loan; (ii) the convertibility of the 2010 Convertible Notes; and (iii) the expected remaining life of the 2016 Convertible Notes, was as follows (in thousands):

	2017		2018		2019		2020		2021+
2015 Term Loan	$	15,000	$	22,500	$	22,500	$	75,000	$	—
2010 Convertible Notes		34,722	—		—		—		—
2016 Convertible Notes	—		—		—		—			230,000
Total long-term debt repayments	$	49,722	$	22,500	$	22,500	$	75,000	$	230,000

Deferred Financing Costs. As of December 31, 2016, net deferred financing costs related to the 2015 Credit Agreement were $3.5 million, and are being amortized to interest expense over the related term of the 2015 Credit Agreement (through February 2020). As of December 31, 2016, net deferred financing costs related to the 2016 Convertible Notes were $5.5 million, and are being amortized to interest expense through December 15, 2021, the first date the 2016 Convertible Notes can be put back to us by the holders. The remaining net deferred financing costs related to the 2010 Convertible Notes is being amortized to interest expense through maturity (March 2017). The net deferred financing costs are presented as a reduction from the carrying amount of the corresponding debt liability in our Balance Sheets. Interest expense for 2016, 2015, and 2014 includes amortization of deferred financing costs of $2.4 million, $1.9 million, and $2.5 million, respectively. The weighted-average interest rate on our debt borrowings, including amortization of OID, amortization of deferred financing costs, and commitment fees on a revolving loan facility, for 2016, 2015, and 2014, was approximately 5%, 6%, and 6%, respectively.