Convertible Debt and Notes Payable

As of September 30, 2017 and December 31, 2016, the Company's outstanding debt was as follows:



	As of September 30, 2017		As of December 31, 2016
	(dollars in thousands)
Convertible debt	$	136,189	$	130,029
Note payable	61,141		60,953
Term loan	28,082		—
Other notes payable	8,895		14,237
Capital lease obligations	3,149		1,840
	$	237,456	$	207,059

Convertible Debt

On March 10, 2014, the Company issued $149.5 million of 3.0% cash convertible senior notes ("Convertible Notes"). The Convertible Notes are due on March 15, 2019 unless earlier repurchased by the Company or converted by the holder into cash in accordance with their terms prior to such date. The interest on the Convertible Notes is payable semi-annually on March 15 and September 15 of each year. The Convertible Notes are senior unsecured obligations and rank senior in right of payments to other obligations. The Convertible Notes may be converted into cash, upon the occurrence of certain events, whereby a holder will receive, per $1,000 principal amount of notes being converted, an amount equal to the sum of principal amount outstanding and the conversion amount based on the current conversion price (the "Conversion Option"). The Convertible Notes were issued with an initial conversion price of $21.32 per share (per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016).

The Company recorded interest expense of $1.1 million and $1.1 million for the three months ended September 30, 2017 and 2016, and $3.4 million and $3.4 million for the nine months ended September 30, 2017 and 2016, respectively. The initial unamortized discount on the Convertible Notes was $35.7 million and is shown net in convertible debt in the accompanying condensed consolidated statements of financial condition. Amortization on the discount, included within interest expense in the accompanying condensed consolidated statements of operations is $1.9 million and $1.7 million for the three months ended September 30, 2017 and 2016, and $5.6 million and $5.1 million for the nine months ended September 30, 2017 and 2016, respectively, based on an effective interest rate of 8.89%. The Company capitalized the debt issuance costs in the amount of $3.7 million, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the Convertible Notes.

Of the net proceeds from the sale of the Convertible Notes, approximately $20.5 million was applied to pay the net cost of a cash convertible note economic hedge and warrant transaction, which increases the effective conversion price to $28.72 (see Note 6) (per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016), and approximately $0.3 million was applied to repurchase shares of Cowen Class A common stock. The remainder of the net proceeds is being used for general corporate purposes.

Note Payable

On October 10, 2014 the Company completed its public offering of $63.3 million aggregate principal amount of 8.25% senior notes due on October 15, 2021 ("2021 Notes"). Interest on the 2021 Notes is payable quarterly in arrears on January 15, April 15, July 15 and October 15, commencing on January 15, 2015. The Company recorded interest expense of $1.3 million and $1.3 million for the three months ended September 30, 2017 and 2016, and $3.9 million and $3.9 million for the nine months ended September 30, 2017 and 2016, respectively. The Company capitalized debt issuance costs of approximately $2.9 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2021 Notes.

Term Loan

On June 30, 2017, the Company borrowed $28.2 million to fund general corporate purposes. This term loan has an effective interest rate of LIBOR plus 3.75% with a lump sum payment of the entire principal amount due on June 29, 2018. The loan is secured by the value of the Company's limited partnership interests in two affiliated funds. The Company has provided a guarantee for this loan. The Company recorded interest expense of $0.4 million for the three months ended September 30, 2017, and $0.4 million for the nine months ended September 30, 2017.

Other Notes Payable

During January 2017, the Company borrowed $2.1 million to fund insurance premium payments. This note has an effective interest rate of 1.50% and is due on December 31, 2017, with monthly payment requirements of $0.2 million. As of September 30, 2017, the outstanding balance on this note payable was $0.4 million. Interest expense for the three and nine months ended September 30, 2017 was insignificant.

The Company has entered into various financing for its aircraft. The aircraft financing, net of debt costs, is recorded in notes payable and short-term borrowings in the accompanying condensed consolidated statements of financial condition. The debt maturities ranged from January 2019 to April 2021 and interest rates ranged from 4.21% to 7.25%. As of September 30, 2017, the remaining balance on the aircraft financing agreements was $8.5 million. Interest expense was $0.2 million and $0.2 million for the three months ended September 30, 2017 and 2016, and $0.6 million and $0.5 million for the nine months ended September 30, 2017 and 2016, respectively.

Capital Lease Obligations

The Company has entered into a capital lease for computer equipment, which amounted to $5.5 million and recorded in fixed assets as capital lease obligations. In addition, as part of the Convergex Group acquisition, the Company holds two capital leases for computer equipment which amounted to $0.8 million and are recorded as capital lease obligations. These capital lease obligations are included in short-term borrowings and other debt in the accompanying condensed consolidated statements of financial condition, and have lease terms that range from 48 to 60 months and interest rates that range from 4.25% to 5.69%. As of September 30, 2017, the remaining balance on these capital leases was $3.1 million. Interest expense was $0.1 million and $0.1 million for the three months ended September 30, 2017 and 2016, and $0.1 million and $0.1 million for the nine months ended September 30, 2017 and 2016, respectively.

Annual scheduled maturities of debt and minimum payments (of principle and interest) for all debt outstanding as of September 30, 2017, is as follows:



	Convertible Debt			Note Payable			Term loan			Other Note Payable			Capital Lease Obligation
	(dollars in thousands)
2017	$	—		$	1,305		$	—		$	862		$	467
2018	4,485			5,218			29,260			1,933			1,699
2019	151,743			5,218			—			3,410			399
2020	—			5,218			—			1,363			320
2021	—			68,468			—			2,512			320
Thereafter	—			—			—			—			160
Subtotal	156,228			85,427			29,260			10,080			3,365
Less (a)	(20,039		)	(24,286		)	(1,178		)	(1,185		)	(216		)
Total	$	136,189		$	61,141		$	28,082		$	8,895		$	3,149


(a)	Amount necessary to reduce net minimum payments to present value calculated at the Company's implicit rate at inception. This amount also includes capitalized debt costs and the unamortized discount on the convertible debt.

Letters of Credit

As of September 30, 2017, the Company has eight irrevocable letters of credit, related to leased office space, for which there is cash collateral pledged and the Company pays a fee on the stated amount of the letter of credit. The Company also has pledged as collateral, $10.4 million, as of September 30, 2017, and $5.5 million, as of December 31, 2016, due between March 2018 and December 2019, for reinsurance agreements.



Location	Amount		Maturity
	(dollars in thousands)
New York	$	596	October 2017
New York	$	2,811	October 2017
New York	$	1,600	November 2017
San Francisco	$	710	January 2018
Connecticut	$	65	January 2018
Boston	$	382	March 2018
New York	$	355	April 2018
New York	$	70	May 2018

To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of September 30, 2017 and December 31, 2016, there were no amounts due related to these letters of credit.