INDEBTEDNESS

Long-term debt consisted of the following as of December 31, 2019 (in thousands):



	Principal Amount		Discount			Debt Issuance Costs			Net Balance
ABL Facility	$	—	$	—		$	—		$	—
First Lien Term Loan	925,000		(8,399		)	(22,825		)	893,776
Second Lien Notes	412,256		(11,672		)	(7,864		)	392,720
	$	1,337,256	$	(20,071	)	$	(30,689	)	1,286,496
Less: current portion									(9,250		)
Total long-term debt									$	1,277,246

Long-term debt consisted of the following as of December 31, 2018 (in thousands):



	Principal Amount		Discount			Debt Issuance Costs			Net Balance
Previous Revolving Credit Facility	$	—	$	—		$	—		$	—
Previous First Lien Term Loan	401,513		(1,062		)	(5,678		)	394,773
Previous Second Lien Term Loan	150,000		—			(5,398		)	144,602
	$	551,513	$	(1,062	)	$	(11,076	)	539,375
Less: current portion									(4,150		)
Total long-term debt									$	535,225

Retired Debt Obligations — During 2015, Option Care entered into two credit arrangements administered by Bank of America, N.A. and U.S. Bank. The agreements provided for up to $645.0 million in senior secured credit facilities through an $80.0 million revolving credit facility (the “Previous Revolving Credit Facility”), a $415.0 million first lien term loan (the “Previous First Lien Term Loan”), and a $150.0 million second lien term loan (the “Previous Second Lien Term Loan”, and together with the Previous First Lien Term Loan, the “Previous Term Loans”, and the Previous Term Loans, together with the Previous Revolving Credit Facility, the “Previous Credit Facilities”). Amounts borrowed under the credit agreements were secured by substantially all of the assets of the Company.

The Company incurred an original issue discount in conjunction with entering into the Previous First Lien Term Loan of $2.1 million, and also incurred an aggregate of $21.1 million in debt issuance costs to obtain the two credit agreements. These costs were recorded as a reduction to the carrying amount in the consolidated balance sheets and were being amortized over the term of the related debt using the effective interest method for the Previous Term Loans and the straight-line method for the Previous Revolving Credit Facility.

On August 6, 2019, the Company repaid the outstanding balance of Previous Term Loans and retired the outstanding Previous Credit Facilities by entering into two new credit arrangements and a notes indenture, described below under “New Debt Obligations”. At the time of repayment, the outstanding balance of the Previous First Lien Term Loan was $393.8 million, which was comprised of principal of $399.4 million, net of debt issuance costs of $0.9 million and deferred financing costs of $4.7 million. The balance of the Previous Second Lien Term Loan was $145.8 million, which was comprised of principal of $150.0 million, net of deferred financing costs of $4.2 million. Proceeds from the two new credit arrangements and notes indenture were also used, in part, to repay the outstanding debt of BioScrip as of the Merger Date of $575.0 million.

The principal balance on the Previous First Lien Term Loan was repayable in quarterly installments of $1.0 million. There were no quarterly principal payments required for the Previous Second Lien Term Loan. Interest was payable monthly for the Previous First Lien Term Loan and quarterly for the Previous Second Lien Term Loan. The interest rate on the Previous First Lien Term Loan was 6.10% as of December 31, 2018 and the interest rate on the Previous Second Lien Term Loan was 11.15% as of December 31, 2018. The weighted average interest rate paid on the Previous First Lien Term Loan was 6.20% and 6.30% for the years ended December 31, 2019 and 2018, respectively, prior to the retirement of the debt obligations. The weighted average interest paid on the Previous Second Lien Term Loan was 11.36% and 10.80% for the years ended December 31, 2019 and 2018, respectively, prior to the retirement of the debt obligations.

New Debt Obligations — In conjunction with the Merger, the Company entered into an asset-based-lending revolving credit facility administered by Bank of America, N.A. The Company also issued senior secured second lien PIK toggle floating rate notes due 2027 (the “Second Lien Notes”) under an indenture with Ankura Trust Company, LLC. The two new credit agreements and the indenture were entered into on August 6, 2019 and provide for up to $1,475.0 million in senior secured credit facilities through a $150.0 million asset-based-lending revolving credit facility (the “ABL Facility”), a $925.0 million first lien term loan (the “First Lien Term Loan”, and together with the ABL Facility, the “Loan Facilities”), and a $400.0 million issuance of Second Lien notes.

The ABL Facility provides for borrowings up to $150.0 million, which matures on August 6, 2024. The ABL Facility bears interest at a per annum rate that is determined by the Company’s periodic selection of rate type, either the Base Rate or the Eurocurrency Rate. Interest on the ABL Facility is charged on Base Rate loans at Base Rate, as defined, plus 1.25% to 1.75%, depending on the historical excess availability as a percentage of the Line Cap, as defined in the ABL Facility credit agreement. Interest on the ABL Facility is charged on Eurocurrency Rate Loans at the Eurocurrency Rate, as defined, plus 2.25% to 2.75%, depending on the historical excess availability as a percentage of the Line Cap, as defined in the ABL Facility credit agreement. The ABL Facility contains commitment fees payable on the unused portion ranging from 0.25% to 0.375%, depending on various factors including the Company’s leverage ratio, type of loan and rate type, and letter of credit fees of 2.50%. Borrowings under the ABL Facility are secured by a first priority security interest in the Company’s and each of its subsidiaries’ inventory, accounts receivable, cash, deposit accounts and certain assets and property related thereto (the “ABL Priority Collateral”), in each case subject to certain exceptions, and a third priority security interest in the Term Loan Priority Collateral, as defined below. The Company had no outstanding borrowings under the ABL Facility at December 31, 2019. The Company had $9.6 million of undrawn letters of credit issued and outstanding, resulting in net borrowing availability under the ABL of $140.4 million as of December 31, 2019.

The principal balance of the First Lien Term Loan is repayable in quarterly installments commencing in March 2020 of $2.3 million plus interest, with a final payment of all remaining outstanding principal due on August 6, 2026. Interest on the First Lien Term Loan is payable monthly on Base Rate loans at Base Rate, as defined, plus 3.25% to 3.50%, depending on the Company’s leverage ratio. Interest is charged on Eurocurrency Rate loans at the Eurocurrency Rate, as defined, plus 4.25% to 4.50%, depending on the Company’s leverage ratio. The interest rate on the First Lien Term Loan was 6.20% as of December 31, 2019. The weighted average interest rate incurred was 6.47% for the period August 6, 2019 through December 31, 2019. Amounts borrowed under the First Lien Term Loan are secured by a first priority security interest in each of the Company’s subsidiaries’ capital stock (subject to certain exceptions) and substantially all of the Company’s property and assets (other than the ABL Priority Collateral), (the “Term Loan Priority Collateral”), in each case subject to certain exceptions, and a second priority security interest in the ABL Priority Collateral.

The Second Lien Notes mature on August 6, 2027. Interest on the Second Lien Notes is payable quarterly and is at the greater of 1% or the London Interbank Offered Rate (“LIBOR”), plus 8.75%. The Company elected to pay-in-kind (“PIK”) the first quarterly interest payment, due in November 2019, which resulted in the Company capitalizing $12.3 million in interest to the principal balance on the interest payment date. In connection with the PIK election, the Company was charged an additional 1.00% in interest expense on the first quarterly interest payment. The interest rate on the Second Lien Notes was 10.66% as of December 31, 2019. The weighted average interest incurred was 11.45% for the period August 6, 2019 through December 31, 2019.

The Company assessed whether the repayment of the Previous Term Loans and subsequent issuance of the First Lien Term Loan and the Second Lien Notes resulted in an insubstantial modification or an extinguishment of the existing debt for each loan in the syndication by grouping lenders as follows: (i) Lenders participating in both the Previous Credit Facilities and the new Loan Facilities and Second Lien Notes; (ii) previous lenders that exited; and (iii) new lenders. The Company determined that $226.7 million of the Previous First Lien Term Loan was extinguished and none of the Previous Second Lien Term Loan was extinguished, which is disclosed as an outflow from financing activities in the consolidated statements of cash flows. The Company determined that $752.4 million of new debt was issued related to the First Lien Term Loan and $250.0 million of new debt was issued related to the Second Lien Notes, which is disclosed as an inflow from financing activities in the consolidated statements of cash flows. In connection with the issuance of the First Lien Term Loan, the Second Lien Notes, and the ABL Facility, the Company incurred $52.6 million in debt issuance costs and third-party fees, of which $48.1 million was capitalized, $1.3 million was expensed as a component of other expense and $3.2 million was expensed as a loss on extinguishment as a component of other expense. Further, $21.3 million of the total fees incurred of $52.6 million was netted against the $981.1 million of proceeds from debt as a component of the cash flows from financing activities, $30.0 million was presented as deferred financing costs as a component of cash flows from financing activities, and the remaining $1.3 million was included in cash flows from operating activities.

The Company recognized a loss on extinguishment of debt of $5.5 million, of which $3.2 million related to debt issue costs incurred with the issuance of the Loan Facilities and Second Lien Notes, as discussed above, and $2.3 million related to deferred financing fees on the Previous Credit Facilities, which were written off upon extinguishment. All remaining deferred financing fees related to the Previous Credit Facilities of $7.6 million were attributed to modified loans, which are capitalized and will be amortized over the remaining term of the Loan Facilities and Second Lien Notes.

Long-term debt matures as follows (in thousands):



Year Ending December 31,	Minimum Payments
2020	$	9,250
2021	9,250
2022	9,250
2023	9,250
2024	9,250
2025 and beyond	1,291,006
Total	$	1,337,256

During the year ended December 31, 2019, the Company engaged in hedging activities to limit its exposure to changes in interest rates. See Note 13, Derivative Instruments, for further discussion.

The following table presents the estimated fair values of the Company’s debt obligations as of December 31, 2019 (in thousands):



Financial Instrument	Carrying Value as of December 31, 2019		Markets for Identical Item (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
First Lien Note Facility	$	893,776	$	—	$	922,688	$	—
Second Lien Note Facility	392,720		—		—		411,119
Total debt instruments	$	1,286,496	$	—	$	922,688	$	411,119

The following table sets forth the changes in Level 3 measurements for the year ended December 31, 2019 (in thousands):



	Level 3 Measurements
Previous Term Loans fair value as of January 1, 2019	$	551,882
Change in fair value	(369		)
Repayments of debt principal	(2,075		)
Retirements of Previous Term Loans	(549,438		)
Issuance of Second Lien Notes as of August 6, 2019	388,000
Interest rate PIK	12,256
Change in fair value	10,863
Second Lien Notes fair value as of December 31, 2019	$	411,119

See Note 14, Fair Value Measurements, for further discussion.