Convertible Debt and Notes Payable

As of September 30, 2019 and December 31, 2018, the Company's outstanding debt was as follows:




	As of September 30, 2019		As of December 31, 2018
	(dollars in thousands)
Convertible debt	$	117,469	$	134,489
Notes payable	306,645		229,740
Term loan	32,180		28,200
Other notes payable	395		—
Finance lease obligations	4,066		5,025
	$	460,755	$	397,454

Convertible Debt

December 2022 Convertible Notes

The Company, on December 14, 2017, issued $135.0 million aggregate principal amount of 3.00% convertible senior notes due December 2022 (the “December 2022 Convertible Notes”). The December 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 December 2022 Convertible Notes is payable semi-annually on December 15 and June 15 of each year. The December 2022 Convertible Notes are senior unsecured obligations of Cowen. The December 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 December 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 March 2019 (the "March 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 September 30, 2019, the outstanding principal amount of the December 2022 Convertible Notes was $135.0 million. On June 26, 2018, the Company received shareholder approval for the Company to settle the December 2022 Convertible Notes entirely in Class A common stock. 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 $1.0 million for the three months ended September 30, 2019 and 2018, and $3.0 million and $3.0 million for the nine months ended September 30, 2019 and 2018, respectively. The Company recognized the embedded cash conversion option at issuance date fair value, which also represents the initial unamortized discount on the December 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 $1.1 million and $1.0 million for the three months ended September 30, 2019 and 2018, and $3.2 million and $3.0 million for the nine months ended September 30, 2019 and 2018, respectively, 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 December 2022 Convertible Notes.

March 2019 Convertible Notes

On March 10, 2014, the Company issued $149.5 million of 3.0% cash convertible senior notes (the "March 2019 Convertible Notes"). The March 2019 Convertible Notes matured on March 15, 2019 and were fully repaid by the Company. The Company recorded interest expense of $0.2 million for the three months ended September 30, 2018, and $0.1 million and $0.9 million for the nine months ended September 30, 2019 and 2018, respectively. Amortization on the discount, included within interest and dividends expense in the accompanying condensed consolidated statements of operations was $0.3 million for the three months ended September 30, 2018, and $0.3 million and $1.2 million for the nine months ended September 30, 2019 and 2018, respectively, based on an effective interest rate of 8.89%.

Notes Payable

May 2024 Notes

On May 7, 2019, the Company completed its private placement of $53.0 million aggregate principal amount of 7.25% senior notes due May 2024 (the "May 2024 Notes") with certain institutional investors. On September 30, 2019, the Company issued an additional $25.0 million of the same series of notes. The additional May 2024 Notes were purchased at a premium of $0.5 million, which is shown net in notes payable in the accompanying condensed consolidated statement of financial condition. To date the May 2024 Notes have maintained their initial private rating, and the interest rate has remained unchanged. Interest on the May 2024 Notes is payable semi-annually in arrears on May 6 and November 6. The Company recorded interest expense of $0.9 million for the three months ended September 30, 2019, and $1.5 million for the nine months ended September 30, 2019. The Company capitalized debt issuance costs of approximately $1.5 million in May 2019 and $0.6 million in September 2019, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the May 2024 Notes.

June 2033 Notes

On June 11, 2018, the Company completed its public offering of $90.0 million of 7.75% senior notes due June 2033 (the “June 2033 Notes”) and subsequently the underwriters exercised in full their option to purchase an additional $10.0 million principal amount of the June 2033 Notes. Interest on the June 2033 Notes is payable quarterly in arrears on March 15, June 15, September 15 and December 15. The Company recorded interest expense of $1.9 million and $1.9 million for the three months ended September 30, 2019 and 2018, and $5.8 million and $2.3 million for the nine months ended September 30, 2019 and 2018, respectively. The Company capitalized debt issuance costs of approximately $3.6 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the June 2033 Notes.

December 2027 Notes

On December 8, 2017, the Company completed its public offering of $120.0 million of 7.35% senior notes due December 2027 (the “December 2027 Notes”) and subsequently the underwriters exercised in full their option to purchase an additional $18.0 million principal amount of the December 2027 Notes. Interest on the December 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 $2.5 million for the three months ended September 30, 2019 and 2018, and $7.6 million and $7.6 million for the nine months ended September 30, 2019 and 2018, respectively. 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 December 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 October 2021 and for general corporate purposes.

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 (as amended) on June 26, 2020. In July 2019, the Company borrowed an additional $4.0 million to fund general corporate purposes. The loan is secured by the value of the Company's limited partnership interests in two affiliated investment funds. The Company has provided a guarantee for this loan. The Company recorded interest expense of $0.5 million and $0.4 million for the three months ended September 30, 2019 and 2018, and $1.4 million and $1.2 million for the nine months ended September 30, 2019 and 2018, respectively.

Other Notes Payable

During January 2019, the Company borrowed $2.2 million to fund insurance premium payments. This note had an effective interest rate of 2.51% and was due on December 31, 2019, with monthly payment requirements of $0.2 million. As of September 30, 2019, the outstanding balance on this note was $0.4 million. Interest expense for the three and nine months ended September 30, 2019 was insignificant.

Finance Lease Obligations

The Company has entered into various finance leases for computer equipment. The Company's finance lease right-of-use asset amounted to $6.0 million and is recorded in fixed assets in the accompanying condensed consolidated statements of financial condition. These finance lease obligations are included in notes payable and other debt in the accompanying condensed consolidated statements of financial condition, and have a weighted average lease term of 3.4 years and weighted average interest rate of 4.93% as of September 30, 2019.

As of September 30, 2019 and December 31, 2018, the remaining balance on these finance leases was $4.1 million and $5.0 million, respectively.

For the three and nine months ended September 30, 2019 and 2018, quantitative information regarding the Company's finance lease obligations reflected in the accompanying condensed consolidated statement of operations, the supplemental cash flow information and certain other information related to finance leases were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(dollars in thousands)
Lease Cost
Finance Lease Cost:
Amortization of finance lease right-of-use assets	$	299	$	409	$	966	$	1,124
Interest on lease liabilities	54		64		172		167
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases					172		167
Financing cash flows from finance leases					$	951	$	1,630

Annual scheduled maturities of debt and minimum payments (of principal and interest) for all debt outstanding as of September 30, 2019, are as follows:



	Convertible Debt			Notes Payable			Term loan			Other Notes Payable			Finance Lease Obligation
	(dollars in thousands)
2019	$	2,025		$	7,301		$	489		$	405		$	231
2020	4,050			23,548			33,126			—			1,356
2021	4,050			23,548			—			—			1,356
2022	139,050			23,548			—			—			1,125
2023	—			23,548			—			—			374
Thereafter	—			433,025			—			—			—
Subtotal	149,175			534,518			33,615			405			4,442
Less (a)	(31,706		)	(227,873		)	(1,435		)	(10		)	(376		)
Total	$	117,469		$	306,645		$	32,180		$	395		$	4,066


(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, 2019, the Company has the following seven 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 $13.9 million, as of September 30, 2019, and $1.0 million, as of December 31, 2018, which is released annually between March 2020 and March 2023 based on the policy periods covered by the reinsurance agreements.



Location	Amount		Maturity
	(dollars in thousands)
Boston	$	392	March 2020
New York	$	358	April 2020
New York	$	71	October 2019
New York	$	398	October 2019
New York	$	1,125	October 2019
New York	$	1,623	November 2019
San Francisco	$	713	October 2025

To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of September 30, 2019 and December 31, 2018, there were no amounts due related to these letters of credit.