Convertible Debt and Notes Payable

As of June 30, 2018 and December 31, 2017, the Company's outstanding debt was as follows:



	As of June 30, 2018		As of December 31, 2017
	(dollars in thousands)
Convertible debt	$	131,683	$	141,502
Notes payable	229,494		132,970
Pledge facility	3,133		—
Term loan	28,200		28,121
Other notes payable	8,453		8,247
Capital lease obligations	3,322		4,120
	$	404,285	$	314,960

Convertible Debt

2022 Convertible Notes

The Company, on December 14, 2017, issued $135.0 million aggregate principal amount of 3.00% convertible senior notes due 2022 (the “2022 Convertible Notes”). The 2022 Convertible Notes are due on December 15, 2022 unless earlier repurchased by the Company or converted by the holder in accordance with their terms prior to such date. The interest on the 2022 Convertible Notes is payable semi-annually on December 15 and June 15 of each year. The 2022 Convertible Notes are senior unsecured obligations of Cowen. The 2022 Convertible Notes may be converted into cash or shares of Class A common stock at the Company's election based on the current conversion price. The 2022 Convertible Notes were issued with an initial conversion price of $17.375 per share of Cowen’s Class A common stock.

The Company used the net proceeds, together with cash on hand, from the offering for general corporate purposes, including the repurchase or repayment of $115.1 million of the Company’s outstanding 3.0% cash convertible senior notes due 2019 (the "2019 Convertible Notes") and the repurchase of approximately $19.5 million of the Company’s shares of its Class A common stock, which were consummated substantially concurrently with the closing of the offering. As of June 30, 2018, the outstanding balance of the 2022 Convertible Notes was $111.8 million. On June 26, 2018, the Company received Cowen shareholder approval for the Company to settle the 2022 Convertible Note entirely in class A common shares. Upon receiving shareholder approval, the Company reclassified the separately recognized conversion option from a derivative liability to equity.

The Company recorded interest expense of $1.0 million and $2.0 million for the three and six months ended June 30, 2018. The Company recognized the embedded cash conversion option at issuance date fair value, which also represents the initial unamortized discount on the 2022 Convertible Notes of $23.4 million and is shown net in convertible debt in the accompanying condensed consolidated statements of financial condition. Amortization on the discount, included within interest and dividends expense in the accompanying condensed consolidated statements of operations is $1.0 million and $2.0 million for the three and six months ended June 30, 2018, based on an effective interest rate of 7.13%. The Company capitalized the debt issuance costs in the amount of $2.2 million, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2022 Convertible Notes.

2019 Convertible Notes

On March 10, 2014, the Company issued $149.5 million of 3.0% cash convertible senior notes (the "2019 Convertible Notes"). The 2019 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 2019 Convertible Notes is payable semi-annually on March 15 and September 15 of each year. The 2019 Convertible Notes are senior unsecured obligations of the Company. The 2019 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 2019 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). During December 2017, the Company repurchased and extinguished $115.1 million of the outstanding balance of the 2019 Convertible Notes. During June 2018, the Company repurchased and extinguished an additional $13.5 million of the outstanding balance of the 2019 Convertible Notes. As of June 30, 2018, the outstanding balance of the 2019 Convertible Notes was $19.9 million.

The Company recorded interest expense of $0.2 million and $1.1 million for the three months ended June 30, 2018 and 2017, and $0.7 million and $2.3 million for the six months ended June 30, 2018 and 2017, respectively. The initial unamortized discount on the 2019 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 and dividends expense in the accompanying condensed consolidated statements of operations is $0.4 million and $1.7 million for the three months ended June 30, 2018 and 2017, and $0.9 million and $3.7 million for the six months ended June 30, 2018 and 2017, respectively, based on an effective interest rate of 8.89%. Upon issuance of the 2019 Convertible Notes, the Company capitalized the debt issuance costs in the amount of $0.9 million, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2019 Convertible Notes. In conjunction with the partial extinguishment of the 2019 Convertible Notes, the Company accelerated the pro-rata unamortized discount and capitalized debt issuance costs. During the six months ended June 30, 2018, the Company recognized $0.6 million of loss on debt extinguishment.

Of the net proceeds from the sale of the 2019 Convertible Notes, approximately $20.5 million was applied to pay the net cost of a cash convertible note economic hedge and warrant transaction, which increased 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.

Notes Payable

2033 Notes

On June 11, 2018, the Company completed its public offering of $90.0 million of 7.75% senior notes due 2033 (the “2033 Notes”) and subsequently the underwriters exercised in full their option to purchase an additional $10.0 million principal amount of the 2033 Notes. Interest on the 2033 Notes is payable quarterly in arrears on March 15, June 15, September 15 and December 15. The Company recorded interest expense of $0.4 million and $0.4 million for the three and six months ended June 30, 2018. The Company capitalized debt issuance costs of approximately $3.8 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2033 Notes.

2027 Notes

On December 8, 2017, the Company completed its public offering of $120.0 million of 7.35% senior notes due 2027 (the “2027 Notes”) and subsequently the underwriters exercised in full their option to purchase an additional $18.0 million principal amount of the 2027 Notes. Interest on the 2027 Notes is payable quarterly in arrears on March 15, June 15, September 15 and December 15. The Company recorded interest expense of $2.5 million and $5.1 million for the three and six months ended June 30, 2018. The Company capitalized debt issuance costs of approximately $5.0 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2027 Notes. The net proceeds of the offering, after deducting the underwriting discount and estimated offering expenses payable by the Company were used to redeem all of its 8.25% senior notes due 2021 (the "2021 Notes") and for general corporate purposes.

Pledge Facility

The Company borrows on its secured tri-party pledge facility to obtain funding necessary to cover daily securities settlements with clearing corporations (see Note 24). Borrowings have an interest rate of the Federal Reserve's overnight bank funding rate plus .80%. As of June 30, 2018, the outstanding balance on the Company's pledge line was $3.1 million and was fully repaid in July 2018. Interest expense for the three and six months ended June 30, 2018 was insignificant.

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 28, 2019. 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 and $0.8 million for the three and six months ended June 30, 2018.

Other Notes Payable

During January 2018, the Company borrowed $2.0 million to fund insurance premium payments. This note has an effective interest rate of 2.01% and is due on December 31, 2018, with monthly payment requirements of $0.2 million. As of June 30, 2018, the outstanding balance on this note payable was $0.9 million. Interest expense for the three and six months ended June 30, 2018 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 other debt 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 June 30, 2018 and December 31, 2017, the remaining balance on the aircraft financing agreements was $7.5 million and $8.2 million, respectively. Interest expense was $0.1 million and $0.2 million for the three months ended June 30, 2018 and 2017, and $0.2 million and $0.4 million for the six months ended June 30, 2018 and 2017, respectively.

Capital Lease Obligations

The Company has entered into seven capital leases for computer equipment, which amounted to $7.3 million and is recorded in fixed assets as capital lease obligations. These capital lease obligations are included in notes payable 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 3.70% to 5.69%. As of June 30, 2018, the remaining balance on these capital leases was $3.3 million. Interest expense was $0.1 million and $0.1 million for the three months ended June 30, 2018 and 2017, and $0.1 million and $0.1 million for the six months ended June 30, 2018 and 2017, respectively.

Annual scheduled maturities of debt and minimum payments (of principal and interest) for all debt outstanding as of June 30, 2018, are as follows:



	Convertible Debt			Note Payable			Term loan			Other Note Payable			Capital Lease Obligation
	(dollars in thousands)
2018	$	4,225		$	9,033		$	28,551		$	2,021		$	892
2019	25,223			17,893			—			3,410			799
2020	4,050			17,893			—			1,363			720
2021	4,050			17,893			—			2,512			720
2022	139,050			17,893			—			—			488
Thereafter	—			370,090			—			—			—
Subtotal	176,598			450,695			28,551			9,306			3,619
Less (a)	(44,915		)	(221,201		)	(351		)	(853		)	(297		)
Total	$	131,683		$	229,494		$	28,200		$	8,453		$	3,322


(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 June 30, 2018, the Company has the following eight irrevocable letters of credit, related to leased office space, for which there is cash collateral pledged, which the Company pays a fee on the stated amount of the letter of credit. The Company also has pledged collateral for reinsurance agreements which amounted to $9.6 million, as of June 30, 2018, and $11.8 million, as of December 31, 2017, which is anticipated to be due March 2021.



Location	Amount		Maturity
	(dollars in thousands)
Connecticut	$	65	September 2018
Boston	$	385	March 2019
New York	$	356	April 2019
New York	$	70	May 2019
New York	$	496	October 2018
New York	$	2,249	October 2018
New York	$	1,611	November 2018
San Francisco	$	712	January 2019

To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of June 30, 2018 and December 31, 2017, there were no amounts due related to these letters of credit.