Long-term Debt

6 Months Ended

Jun. 30, 2020

The components of long-term debt, including the effects of issuance costs and issuance discounts, are as follows:


	As of June 30, 2020		As of December 31, 2019

	(in millions)
Outstanding debt principal balances:

7.50% senior notes due 2020	$	—	$	450


3.45% senior notes due 2021	139		500
3.95% senior notes due 2022	244		600
0.25% convertible senior notes due 2025	1,323		—
4.45% senior notes due 2026	500		500
7.20% senior notes due 2028	241		250
	2,447		2,300
Issuance costs and discounts	(254)		(11)
Total debt	2,193		2,289

Less current portion of long-term debt	(139)		(450)
Long-term debt	$	2,054	$	1,839

Credit facility. The Company maintains a revolving corporate credit facility (the "Credit Facility") with a syndicate of financial institutions and has aggregate loan commitments of $1.5 billion. The Credit Facility has a maturity date in October 2023. As of June 30, 2020, the Company had no outstanding borrowings under the Credit Facility and was in compliance with its debt covenants.

Convertible senior notes. In May 2020, the Company issued $1.3 billion principal amount of 0.25 percent convertible senior notes due 2025 (the "Convertible Notes"). The Convertible Notes bear a fixed interest rate of 0.25 percent per year with interest payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2020. The Convertible Notes will mature on May 15, 2025, unless earlier redeemed, repurchased or converted. The Convertible Notes are unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company.

The Convertible Notes are convertible into shares of the Company's common stock at an initial conversion rate of 9.1098 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes (subject to adjustment pursuant to the terms of the notes indenture, the "Conversion Rate"), which represents an initial conversion price of $109.77 per share (subject to adjustment pursuant to the terms of the notes indenture, the "Conversion Price"). Upon conversion, the Convertible Notes will be settled in cash, shares of the Company's common stock or a combination thereof, at the Company's election. The Company intends to settle the principal amount of the Convertible Notes in cash.

Holders of the Convertible Notes may convert their notes at their option prior to February 15, 2025 under the following circumstances:

•during the quarter following any quarter during which the last reported sales price of the Company's common stock exceeds 130 percent of the Conversion Price for at least 20 trading days;

•during the five-day period following any five consecutive trading day period when the trading price of the Convertible Notes is less than 98 percent of the price of the Company's common stock times the Conversion Rate;

•upon notice of redemption by the Company; or

•upon the occurrence of specified corporate events including certain consolidations or mergers.

On or after February 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time. The Company may not redeem the Convertible Notes prior to May 20, 2023, and after such date, may redeem the Convertible Notes only if the last reported sale price of the Company's common stock has been at least 130 percent of the Conversion Price for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides the notice of redemption. The redemption price is equal to 100 percent of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest.

The Company bifurcated the Convertible Notes into a debt and equity component at issuance. The value assigned to the debt component was the estimated fair value, as of the issuance date, of an equivalent senior note without the conversion feature. The difference between the cash proceeds and the estimated fair value, representing the value assigned to the equity component, was recorded as a debt discount. The Company measured the debt component at fair value by utilizing a discounted cash flow model. This model utilized observable inputs such as contractual interest rate and repayment terms, risk-free interest rate, benchmark forward yield curves and the average term-yield on the Company's existing non-convertible debt.

The principal amount and related unamortized issuance costs and discount on the Convertible Notes, are as follows:


	As of June 30, 2020
	(in millions)
Principal amount of Convertible Notes	$	1,323



Unamortized issuance costs and discount on Convertible Notes (a)	(247)
Net carrying value	$	1,076

______________________

(a)Amortized to interest expense at an effective interest rate of 4.27 percent over five years.

The interest costs recognized on the Convertible Notes, are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

	(in millions)
Contractual interest coupon	$	1	$	—	$	1	$	—


Amortization of debt discount and issuance costs	8		—		8		—
	$	9	$	—	$	9	$	—

Capped call transactions. In connection with the issuance of the Convertible Notes, the Company entered into privately negotiated capped call transactions with certain financial institution counterparties (the "Capped Call"), the purpose of which was to reduce the potential dilution to the Company's common stock upon conversion of the Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of such converted notes, with such reduction and offset subject to a capped price. The Capped Call transactions have a strike price of $109.77 per share of common stock and a capped price of $156.21 per share of common stock. The net costs of $113 million incurred to purchase the Capped Call transactions were recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheets.

Senior notes. In May 2020, the Company paid $725 million to complete a cash tender offer for certain of its outstanding senior notes. Associated with the tender offer, the Company settled $360 million of its 3.45% senior notes due 2021, $356 million of its 3.95% senior notes due 2022 and $9 million of its 7.20% senior notes due 2028. The Company expensed unamortized debt discounts and issuance costs associated with the tendered notes of $2 million and recognized a pre-tax loss on the early extinguishment of debt totaling $23 million. The losses are recorded in other expense in the consolidated statements of operations. See Note 14 for additional information.

The Company's 7.50% senior notes with a debt principal balance of $450 million matured and was repaid in January 2020. The Company funded the repayment with cash on hand.

The Company's 3.45% senior notes, with a debt principal balance of $139 million, will mature in January 2021 and are included in the current portion of long-term debt in the consolidated balance sheet as of June 30, 2020.

Credit agreement. On April 3, 2020, the Company entered into a 364-Day Credit Agreement (the "364-Day Credit Agreement") with Wells Fargo Bank, National Association, as Administrative Agent, and the other agents and lenders party thereto. In May 2020, the Company terminated the 364-Day Credit Agreement in conjunction with the issuance of the Convertible Notes. During the three months ended June 30, 2020, the Company recognized a $2 million loss on the early extinguishment of debt in other expense in the consolidated statements of operations for unamortized deferred financing costs associated with the 364-Day Credit Agreement. See Note 14 for additional information.