SEARCHLIGHT INVESTMENT

3 Months Ended

Mar. 31, 2021

SEARCHLIGHT INVESTMENT

SEARCHLIGHT INVESTMENT

4.  SEARCHLIGHT INVESTMENT

In connection with the Investment Agreement entered into on September 13, 2020, affiliates of Searchlight have committed to invest up to an aggregate of $425.0 million in the Company. The investment commitment is structured in two stages.  In the first stage of the transaction, which was completed on October 2, 2020, Searchlight invested $350.0 million in the Company in exchange for 6,352,842 shares, or approximately 8%, of the Company’s common stock and the CPR that is convertible, upon the receipt of certain regulatory and shareholder approvals, into an additional 17,870,012 shares, or 16.9% of the Company’s common stock.  In addition, Searchlight received the right to an unsecured subordinated note with an aggregate principal amount of approximately $395.5 million (the “Note”).  

In the second stage of the transaction, Searchlight will invest an additional $75.0 million and will be issued the Note, which will be convertible into shares of a new series of perpetual preferred stock of the Company with an aggregate liquidation preference equal to the principal amount of the Note plus accrued interest as of the date of conversion. The Note may be issued to Searchlight prior to the closing of the second stage of the transaction upon the occurrence of certain events. In addition, following shareholder approval and the receipt of applicable regulatory approvals, the CPR will be convertible into an additional 15,115,899 shares, or an additional 10.1%, of the Company’s common stock.  Upon completion of both stages, the common stock and CPR issued to Searchlight will represent approximately 35% of the Company’s common stock on an as-converted basis.  The closing of the second stage of the transaction is subject to the receipt of Federal Communications Commission (“FCC”) and Hart Scott Rodino approvals and the satisfaction of certain

other customary closing conditions. We have received approval under the Hart-Scott-Rodino Act and on April 26, 2021, the Company’s shareholders approved the issuance to Searchlight of the additional shares of common stock equal to 20% or more of the Company’s outstanding common stock.  We expect the closing of the second stage to be completed in the third quarter of 2021.

The total expected proceeds from the Investment Agreement were allocated among each of the individual components of the investment and recorded at their estimated fair values as of October 2, 2020. The proceeds were first allocated to the CPRs at their full estimated fair values including a discount for lack of marketability and then allocated to the issuance of the common stock with the remaining proceeds allocated to the Note.  The estimated fair value of the components of the Investment Agreement at October 2, 2020 were as follows:

(In thousands)
Assets Received:
	Cash proceeds	$	350,000
	Receivable from Searchlight, net of discount of $612		74,388
	Less: Issuance costs		(14,474)
	Total consideration	$	409,914
Assets Exchanged:
	6,352,842 shares of common stock, par value $0.01 per share, net of issuance costs of $1,473	$	26,779
	CPR for 16.9% additional shares of common stock		79,469
	CPR for 10.1% additional shares of common stock		67,221
	Convertible security interest issued as unsecured subordinated note right, net of discount of $146,018 and issuance costs of $13,001		236,445
		$	409,914

At March 31, 2021 and December 31, 2020, the net present value of the receivable for the additional investment of $75.0 million expected to be received from Searchlight upon the closing of the second stage of the transaction was $74.9 million and $74.7 million, respectively, and is included within other assets in the consolidated balance sheets.

The CPRs are reported at their estimated fair value within long-term liabilities in the consolidated balance sheets. Subsequent changes in fair value are reflected in earnings within other income and expense in the condensed consolidated statements of operations. As of March 31, 2021 and December 31, 2020, the estimated fair value of the CPRs was $180.8 million and $123.2 million, respectively, and during the quarter ended March 31, 2021, we recognized a loss of $57.6 million on the increase in the fair value of the CPRs.

The Note bears interest at 9.0% per annum from the date of the closing of the first stage of the transaction and is payable semi-annually in arrears.  Upon conversion of the Note, dividends on the preferred stock will accrue daily on the liquidation preference at a rate of 9.0% per annum, payable semi-annually in arrears.  The Note and preferred stock include a paid-in-kind (“PIK”) option for a five-year period beginning as of October 2, 2020.  The Company intends to exercise the PIK interest option on the Note through at least 2022. The term of the Note is 10 years and is due on October 1, 2029.  At March 31, 2021, the net carrying value of the Note was $241.0 million, net of unamortized discount and issuance costs of $143.5 million and $10.9 million, respectively.  At December 31, 2020, the net carrying value of the Note was $238.7 million, net of unamortized discount and issuance costs of $144.8 million and $12.0 million, respectively. The unamortized discount and issuance costs are being amortized over the contractual term of the Note using the effective interest method.