Debt

As of June 30, 2016, the Company had $8.5 billion of debt outstanding, including net premiums and net deferred financing costs, with a weighted-average years to maturity of 3.9 years and a weighted-average interest rate of 3.9%. The following table summarizes the carrying value of debt as of June 30, 2016 and December 31, 2015, and the debt activity for the six months ended June 30, 2016 (in thousands):



					Six Months Ended June 30, 2016
		Balance as of December 31, 2015			Debt Issuances			Repayments, Extinguishment and Assumptions				(Accretion) and Amortization			Balance as of June 30, 2016
Mortgage notes payable:
	Outstanding balance	$	3,039,882		$	512		$	(159,137	)	⁽¹⁾	$	—		$	2,881,257
	Net premiums ⁽²⁾	59,402			—			(1,389		)	⁽¹⁾	(11,141		)	46,872
	Deferred costs	(21,020		)	—			339			⁽¹⁾	2,016			(18,665		)
Other debt:															—
	Outstanding balance	33,463			—			(5,020		)		—			28,443
	Premium ⁽²⁾	258			—			—				(93		)	165
Mortgages and other debt, net		3,111,985			512			(165,207		)		(9,218		)	2,938,072
Corporate bonds:
	Outstanding balance	2,550,000			1,000,000			—				—			3,550,000
	Discount ⁽³⁾	(2,745		)	—			—				393			(2,352		)
	Deferred costs	(10,922		)	(16,941		)	—				2,512			(25,351		)
Corporate bonds, net		2,536,333			983,059			—				2,905			3,522,297
Convertible debt:
	Outstanding balance	1,000,000			—			—				—			1,000,000
	Discount ⁽³⁾	(17,779		)	—			—				2,413			(15,366		)
	Deferred costs	(19,327		)	—			—				2,752			(16,575		)
Convertible debt, net		962,894			—			—				5,165			968,059
Credit facility:
	Outstanding balance	1,460,000			453,000			(858,000		)		—			1,055,000
	Deferred costs ⁽⁴⁾	(11,410		)	—			—				2,282			(9,128		)
Credit facility, net		1,448,590			453,000			(858,000		)		2,282			1,045,872

Total debt		$	8,059,802		$	1,436,571		$	(1,023,207	)		$	1,134		$	8,474,300

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(1)

Includes $56.4 million of notes repaid prior to maturity, resulting in a gain on extinguishment of debt of $0.3 million due to the write-off of the unamortized premium. Additionally, a $55.0 million note was assumed by the buyer in a real estate disposition resulting in a write-off of the unamortized premium of $1.1 million and the unamortized deferred financing costs of $0.3 million, which are included in gain (loss) on dispositions of real estate, net.


(2)	Net premiums on mortgage notes payable and other debt were recorded upon the assumption of the respective debt instruments in relation to the various mergers and acquisitions. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective debt instruments using the effective-interest method.


(3)	Discounts on the corporate bonds and convertible debt were recorded based upon the fair value of the respective debt instruments as of the respective issuance dates. Amortization of these discounts is recorded as an increase to interest expense over the remaining term of the respective debt instruments using the effective-interest method.


(4)	Deferred costs relate to the term portion of the credit facility.

Mortgage Notes Payable

The Company’s mortgage notes payable consisted of the following as of June 30, 2016 (dollar amounts in thousands):



	Encumbered Properties	Gross Carrying Value of Collateralized Properties ⁽¹⁾		Outstanding Balance		Weighted-Average Interest Rate ⁽²⁾		Weighted-Average Years to Maturity
Fixed-rate debt ⁽³⁾	646	$	5,533,439	$	2,872,507	5.07	%	4.8
Variable-rate debt	1	25,307		8,750		3.41	%	0.2
Total ⁽⁴⁾	647	$	5,558,746	$	2,881,257	5.07	%	4.8

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(1)	Gross carrying value is gross real estate assets, including investment in direct financing leases, net of gross real estate liabilities.


(2)	Weighted-average interest rate for variable-rate debt represents the interest rate in effect as of June 30, 2016.


(3)	Includes $247.7 million of variable-rate debt fixed by way of interest rate swap arrangements.

(4)

The table above does not include loan amounts associated with the unconsolidated joint ventures of $46.2 million, none of which is recourse to the Company. These loans represent secured fixed and variable rates ranging from 2.85% to 5.20% and maturities ranging from October 2016 to July 2021, with a weighted-average interest rate of 3.89% and a weighted-average years to maturity of 2.4 years as of June 30, 2016.

The Company’s mortgage loan agreements generally restrict corporate guarantees and require the maintenance of financial covenants, including maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios). The mortgage loan agreements contain no dividend restrictions except in the event of default or when a distribution would drive liquidity below the applicable thresholds. At June 30, 2016, the Company believes it was in compliance with the debt covenants under the mortgage loan agreements, except for a loan in default that is described below, and had no restrictions on the payment of dividends. The default on the loan did not result in a cross default on our other indebtedness.

On January 13, 2015, a substantially vacant office building in Bethesda, Maryland was foreclosed upon after the Company elected to stop making debt service payments on the related non-recourse loan with an outstanding balance of $53.8 million as of December 31, 2014. As a result of the foreclosure, the Company forfeited its right to the property and was relieved of all obligations on the non-recourse loan. During the six months ended June 30, 2015, the Company recorded a gain on the forgiveness of debt of $4.9 million, which is included in gain on extinguishment and forgiveness of debt, net in the accompanying consolidated statements of operations.

On March 6, 2015, the Company received a notice of default from the lender of a non-recourse loan, which had an outstanding balance of $38.1 million on the notice date, due to the Company’s election not to make a reserve payment required per the loan agreement. Due to the default, the Company is currently accruing interest at the default rate of interest of 10.68% per annum. During the six months ended June 30, 2016, the Company completed the foreclosure proceedings of one of the two properties that secured the loan. Due to the foreclosure, the Company recorded a loss of $3.4 million, which is included in gain (loss) on disposition of real estate, net in the accompanying consolidated statements of operations and reduced the outstanding debt balance by $2.5 million as of June 30,2016. The Company completed the foreclosure proceedings of the second property subsequent to June 30, 2016.

The following table summarizes the scheduled aggregate principal repayments due on mortgage notes subsequent to June 30, 2016 (in thousands):



	Total
July 1, 2016 - December 31, 2016 ⁽¹⁾	$	113,550
2017	412,579
2018	211,060
2019	231,497
2020	284,235
Thereafter	1,628,336
Total	$	2,881,257

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(1)	Includes $35.6 million of mortgage notes in connection with the default of a non-recourse loan discussed above.

Other Debt

As of June 30, 2016, the Company had a secured term loan from KBC Bank, N.V. with an outstanding principal balance of $28.4 million and remaining unamortized premium of $0.2 million (the “KBC Loan”). The interest coupon on the KBC Loan is fixed at 5.81% annually until its maturity in January 2018. The KBC Loan is non-recourse to the Company, subject to limited non-recourse exceptions. The KBC Loan provides for monthly payments of both principal and interest. The scheduled principal repayments subsequent to June 30, 2016 are $7.4 million, $7.7 million and $13.3 million for the years ended December 31, 2016, 2017 and 2018, respectively.

The KBC Loan is secured by various investment assets held by the Company. The following table is a summary of the outstanding balance and carrying value of the collateral by asset type as of June 30, 2016 (in thousands):



	Outstanding Balance		Collateral Carrying Value
Mortgage notes receivable	$	7,858	$	19,705
Intercompany mortgage loans	2,198		5,144
CMBS	18,387		34,605
Total	$	28,443	$	59,454

Corporate Bonds

On June 2, 2016, the OP closed its senior note offering, consisting of (i) $400.0 million aggregate principal amount of 4.125% Senior Notes due June 1, 2021 (the “2021 Senior Notes”) and (ii) $600.0 million aggregate principal amount of 4.875% Senior Notes due June 1, 2026 (the “2026 Senior Notes”) (the offering of the 2021 Senior Notes, collectively with the 2026 Senior Notes, the “2016 Bond Offering”).

As of June 30, 2016, the OP had $3.55 billion aggregate principal amount of senior unsecured notes (the “Senior Notes”) outstanding comprised of the following (dollar amounts in thousands):



	Outstanding Balance June 30, 2016		Interest Rate		Maturity Date
2017 Senior Notes ⁽¹⁾	$	1,300,000	2.000	%	February 6, 2017
2019 Senior Notes	750,000		3.000	%	February 6, 2019
2021 Senior Notes	400,000		4.125	%	June 1, 2021
2024 Senior Notes	500,000		4.600	%	February 6, 2024
2026 Senior Notes	600,000		4.875	%	June 1, 2026
Total balance and weighted-average interest rate	$	3,550,000	3.303	%

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(1)	Redeemed on July 5, 2016. See Note 20 – Subsequent Events for further details.

The Senior Notes are guaranteed by the General Partner. The OP may redeem all or a part of any series of the Senior Notes at any time, at its option, for the redemption prices set forth in the indenture governing the Senior Notes. With respect to the 2019 Senior Notes and the 2024 Senior Notes, if such Senior Notes are redeemed on or after January 6, 2019 with respect to the 2019 Senior Notes, or November 6, 2023 with respect to the 2024 Senior Notes, the redemption price will equal 100% of the principal amount of the Senior Notes of the applicable series to be redeemed, plus accrued and unpaid interest on the amount being redeemed to, but excluding, the applicable redemption date. The Senior Notes are registered under the Securities Act of 1933, as amended, and are freely transferable. The Company believes it was in compliance with the covenants pursuant to the indenture governing the Senior Notes as of June 30, 2016.

Convertible Debt

As of June 30, 2016, the OP had two tranches of Convertible Notes with an outstanding aggregate balance of $1.0 billion, comprised of the 2018 Convertible Notes and 2020 Convertible Notes. The Convertible Notes are identical to the General Partner’s registered issuance of the same amount of notes to various purchasers in a public offering. The following table presents each of the 2018 Convertible Notes and the 2020 Convertible Notes listed below with their respective terms (dollar amounts in thousands):



	Outstanding Balance ⁽¹⁾		Interest Rate		Conversion Rate ⁽²⁾	Maturity Date
2018 Convertible Notes	$	597,500	3.00	%	60.5997	August 1, 2018
2020 Convertible Notes	402,500		3.75	%	66.7249	December 15, 2020
Total balance and weighted-average interest rate	$	1,000,000	3.30	%

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(1)	Excludes the carrying value of the conversion options recorded within additional paid-in capital of $28.6 million and the unamortized discount of $15.4 million as of June 30, 2016. The discount will be amortized over the remaining term of 3.0 years.


(2)	Conversion rate represents the amount of the General Partner OP Units per $1,000 principal amount of Convertible Notes converted as of June 30, 2016, as adjusted in accordance with the applicable indentures as a result of cash dividend payments.

In connection with any permissible conversion election made by the holders of the identical convertible notes issued by the General Partner, the General Partner may elect to convert the 2018 Convertible Notes into cash, General Partner OP Units or a combination thereof, in limited circumstances prior to February 1, 2018 and may convert the 2018 Convertible Notes at any time into such consideration on or after February 1, 2018. Additionally, the General Partner may elect to convert the 2020 Convertible Notes into cash, General Partner OP Units or a combination thereof, in limited circumstances prior to June 15, 2020, and may convert the 2020 Convertible Notes at any time into such consideration on or after June 15, 2020. The Company believes it was in compliance with the covenants pursuant to the indenture governing the Convertible Notes as of June 30, 2016.

Credit Facility

The General Partner, as guarantor, and the OP, as borrower, are parties to an unsecured credit facility (the “Credit Facility”) pursuant to a credit agreement, dated as of June 30, 2014, as amended, with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent and other lenders party thereto (the “Credit Agreement”).

On July 31, 2015, the General Partner and the OP entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) with Wells Fargo and other lenders party to the Credit Agreement. Pursuant to the Second Amendment, the maximum capacity under the Credit Facility was reduced from $3.6 billion to $3.3 billion, which included a reduction in the size of the $2.45 billion revolving credit facility to $2.3 billion and the elimination of the $150.0 million multicurrency revolving credit facility. The maximum aggregate dollar amount of letters of credit that may be outstanding at any one time under the Credit Facility was reduced from $50.0 million to $25.0 million.

In respect of financial covenants, the Second Amendment reduced the Company’s minimum Unencumbered Asset Value (as defined in the Credit Agreement) from $10.5 billion to $8.0 billion. For the purposes of determining Unencumbered Asset Value, the Company is permitted to include restaurant properties representing more than 30% of its Unencumbered Asset Value in such calculation such that: (i) from July 1, 2015 to June 29, 2016, up to 40% of the Unencumbered Asset Value may be comprised of restaurant properties; and (ii) from June 30, 2016 to December 30, 2016, up to 35% of the Unencumbered Asset Value may be comprised of restaurant properties. From December 31, 2016, the maximum percentage of Unencumbered Asset Value attributable to restaurant properties will be reduced back down to 30%. In connection with the Second Amendment, the Company agreed to pay certain customary fees to the consenting lenders and agreed to reimburse customary expenses of the arrangers, which are recorded as deferred financing costs and included in rent and tenant receivables and other assets, net in the accompanying consolidated balance sheets.

As of June 30, 2016, the Credit Facility allowed for maximum borrowings of $3.3 billion, consisting of a $1.0 billion term loan facility and a $2.3 billion revolving credit facility. The outstanding balance on the Credit Facility was $1.1 billion, of which $40.0 million bore a floating interest rate of 2.26%, at June 30, 2016. The remaining outstanding balance on the Credit Facility of $1.0 billion is, in effect, fixed through the use of derivative instruments used to hedge interest rate volatility. Including the spread, which can vary based on the General Partner’s credit rating, the interest rate on this portion was 3.29% at June 30, 2016. As of June 30, 2016, a maximum of $2.2 billion was available to the OP for future borrowings, subject to borrowing availability.

The revolving credit facility generally bears interest at an annual rate of LIBOR plus 1.00% to 1.80% or Base Rate plus 0.00% to 0.80% (based upon the General Partner’s then current credit rating). “Base Rate” is defined as the highest of the prime rate, the federal funds rate plus 0.50% or a floating rate based on one month LIBOR, determined on a daily basis. The term loan facility generally bears interest at an annual rate of LIBOR plus 1.15% to 2.05%, or Base Rate plus 0.15% to 1.05% (based upon the General Partner’s then current credit rating). In addition, the Credit Agreement provides the flexibility for interest rate auctions, pursuant to which, at the Company’s election, the Company may request that lenders make competitive bids to provide revolving loans, which competitive bids may be at pricing levels that differ from the foregoing interest rates.

The Credit Agreement provides for monthly interest payments under the Credit Facility. In the event of default, at the election of a majority of the lenders (or automatically upon a bankruptcy event of default with respect to the OP or the General Partner), the commitments of the lenders under the Credit Facility will mature, and payment of any unpaid amounts in respect of the Credit Facility will be accelerated. The revolving credit facility and the term loan facility both terminate on June 30, 2018, in each case, unless extended in accordance with the terms of the Credit Agreement. The Credit Agreement provides for a one-year extension option with respect to each of the revolving credit facility and the term loan facility, exercisable at the Company’s election and subject to certain customary conditions, as well as certain customary “amend and extend” provisions. At any time, upon timely notice by the OP and subject to any breakage fees, the OP may prepay borrowings under the Credit Facility (subject to certain limitations applicable to the prepayment of any loans obtained through an interest rate auction, as described above). The OP incurs a fee equal to 0.15% to 0.25% per annum (based upon the General Partner’s then current credit rating) multiplied by the commitments (whether or not utilized) in respect of the revolving credit facility. In addition, the OP incurs customary administrative agent, letter of credit issuance, letter of credit fronting, extension and other fees.

The Credit Facility requires restrictions on corporate guarantees, as well as the maintenance of financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) and the maintenance of a minimum net worth. The key financial covenants in the Credit Facility, as defined and calculated per the terms of the Credit Agreement, include maintaining (i) a maximum leverage ratio less than or equal to 60%, (ii) a minimum fixed charge coverage ratio of at least 1.5x, (iii) a secured leverage ratio less than or equal to 45%, (iv) a total unencumbered asset value ratio less than or equal to 60%, (v) a minimum tangible net worth covenant of at least $5.5 billion, (vi) a minimum unencumbered interest coverage ratio of at least 1.75x and (vii) a minimum unencumbered asset value of at least $8.0 billion. The Company believes it was in compliance with the Credit Agreement and is not restricted from accessing any borrowing availability under the Credit Facility as of June 30, 2016.

2016 Term Loan

On June 2, 2016, the General Partner as guarantor, and the OP, as borrower, entered into a $300.0 million senior secured term loan facility (the “2016 Term Loan”), pursuant to a credit agreement (the “2016 Term Loan Agreement”) with JPMorgan Chase Bank, N.A., as the administrative agent, and certain other lenders party thereto. The Company did not draw on the 2016 Term Loan prior to June 30, 2016. The 2016 Term Loan provides for borrowings in an aggregate principal amount of $300.0 million and generally bears interest at an annual rate of LIBOR plus 1.15% to 2.05%, or Base Rate (as defined above) plus 0.15% to 1.05% (based upon the General Partner’s then current credit rating). The 2016 Term Loan matures on July 1, 2019. The borrowings under the 2016 Term Loan will be guaranteed by (i) VEREIT and each subsidiary of VEREIT owning a direct or indirect interest in the Operating Partnership and (ii) each subsidiary of VEREIT (other than the Operating Partnership) that guarantees certain other indebtedness of VEREIT, the Operating Partnership or any other subsidiary of VEREIT that becomes a guarantor under the 2016 Term Loan.

The 2016 Term Loan requires the maintenance of financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) consistent with the financial maintenance covenants included in our Existing Credit Facility plus two additional financial maintenance covenants including maintaining (i) minimum designated property asset value greater than or equal to 60% and (ii) minimum designated property yield of at least 11.50%. The 2016 Term Loan provides that if at any time the OP achieves a corporate family rating of at least BBB-, Baa3 or BBB- from at least two of S&P, Moody’s or Fitch, respectively, then all pledges of equity interest will be released. In the event of certain downgrades that follow an upgrade, the OP will be required to pledge certain interests to the lenders.