Notes Payable, Long-Term Debt and Other Obligations

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Notes Payable, Long-Term Debt and Other Obligations

NOTES PAYABLE, LONG-TERM DEBT AND OTHER OBLIGATIONS

Notes payable, long-term debt and other obligations consisted of:

	December 31, 2021		December 31, 2020
Vector:
5.75% Senior Secured Notes due 2029	$	875,000	$	—
6.125% Senior Secured Notes due 2025	—		850,000
10.5% Senior Notes due 2026, net of unamortized discount of $2,647 and $3,040	552,353		551,960
Liggett:
Revolving credit facility	24		—
Equipment loans	64		89
Other	32		64
Total notes payable, long-term debt and other obligations	1,427,473		1,402,113
Less:
Debt issuance costs	(28,803)		(21,247)
Total notes payable, long-term debt and other obligations	1,398,670		1,380,866
Less:
Current maturities	(79)		(57)
Amount due after one year	$	1,398,591	$	1,380,809

Senior Notes - Vector:

6.125% Senior Secured Notes due 2025:

On January 27, 2017, the Company sold $850,000 in aggregate principal amount of its 6.125% Senior Secured Notes due 2025 in a private offering to qualified institutional investors and non-U.S. persons pursuant to the exemptions from the registration requirements of the Securities Act of 1933 (“Securities Act”) contained in Rule 144A and Regulation S under the Securities Act.

The 6.125% Senior Secured Notes due 2025 paid interest on a semi-annual basis at a rate of 6.125% per year and had a maturity date of February 1, 2025. On February 1, 2021, the 6.125% Senior Secured Notes due 2025 were redeemed in full and the Company recorded a loss on the extinguishment of debt of $21,362 in 2021, including $13,014 of premium and $8,348 of other costs and non-cash interest expense related to the recognition of previously unamortized deferred finance costs.

The 6.125% Senior Secured Notes due 2025 were guaranteed subject to certain customary automatic release provisions on a joint and several basis by all of the wholly-owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses. In addition, some of the guarantees were collateralized by first priority or second priority security interests in certain assets of some of the subsidiary guarantors, including their common stock, pursuant to security and pledge agreements.

5.75% Senior Secured Notes due 2029:

On January 28, 2021, the Company completed the sale of $875,000 in aggregate principal amount of its 5.75% Senior Secured Notes due 2029 (“5.75% Senior Secured Notes”) to qualified institutional buyers and non-U.S. persons in a private offering pursuant to the exemptions from the registration requirements of the Securities Act contained in Rule 144A and Regulation S under the Securities Act. The aggregate net cash proceeds from the sale of the 5.75% Senior Secured Notes were approximately $855,500 after deducting the initial purchaser’s discount and estimated expenses and fees payable by the Company in connection with the offering. The Company used the net cash proceeds from the 5.75% Senior Secured Notes offering, together with cash on hand, to redeem all of the Company’s outstanding 6.125% Senior Secured Notes due 2025, including accrued interest and any premium thereon, and to pay fees and expenses in connection with the offering of the 5.75% Senior Secured Notes.

The 5.75% Senior Secured Notes pay interest on a semi-annual basis at a rate of 5.75% per year and mature on the earlier of February 1, 2029 and the date that is 91 days before November 1, 2026, the final stated maturity date of the 10.5% Senior

Notes due 2026 (“10.5% Senior Notes”) if such 10.5% Senior Notes have not been repurchased and cancelled or refinanced by such date.

The 5.75% Senior Secured Notes are fully and unconditionally guaranteed, subject to certain customary automatic release provisions, on a joint and several basis by all of the wholly-owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses, which subsidiaries, as of the issuance date of the 5.75% Senior Secured Notes were also guarantors under the Company’s outstanding 10.5% Senior Notes. The 5.75% Senior Secured Notes are not guaranteed by New Valley, or any of the Company’s subsidiaries engaged in the Company’s real estate business conducted through its subsidiary, New Valley. The guarantees provided by certain of the guarantors are secured by first priority or second priority security interests in certain collateral of such guarantors pursuant to security and pledge agreements, subject to certain permitted liens and exceptions as further described in the indenture and the security documents relating thereto. The Company does not provide any security for the 5.75% Senior Secured Notes.

As of December 31, 2021, the Company was in compliance with all debt covenants.

10.5% Senior Notes due 2026:

On November 2, 2018, the Company completed the sale of $325,000 in aggregate principal amount of its 10.5% Senior Notes to qualified institutional buyers and non-U.S. persons in a private offering pursuant to the exemptions from the registration requirements of the Securities Act contained in Rule 144A and Regulation S under the Securities Act. The aggregate net proceeds from the initial sale of the 10.5% Senior Notes were approximately $315,000 after deducting underwriting discounts, commissions, fees and offering expenses.

On November 18, 2019, the Company completed the sale of an additional $230,000 in aggregate principal amount of its 10.5% Senior Notes. The Company received net proceeds of approximately $220,400 after deducting underwriting discounts, commissions, fees and offering expenses. The Company used a portion of the net cash proceeds from the offering to retire the Company’s outstanding 5.5% Variable Interest Senior Convertible Notes in April 2020. As of December 31, 2021, the Company has outstanding $555,000 aggregate principal amount of its 10.5% Senior Notes.

The Company pays cash interest on the 10.5% Senior Notes at a rate of 10.5% per year, payable semi-annually on May 1 and November 1 of each year. The 10.5% Senior Notes mature on November 1, 2026.

The 10.5% Senior Notes were fully and unconditionally guaranteed subject to certain customary automatic release provisions on a joint and several basis by all of the Company’s wholly-owned domestic subsidiaries that are engaged in the conduct of its cigarette businesses, and, prior to the spin-off, by DER Holdings LLC, through which the Company indirectly owned a 100% interest in Douglas Elliman as of December 31, 2021. In connection with the spin-off, the guarantee by DER Holdings LLC was released. DER Holdings LLC did not guarantee our 5.75% Senior Secured Notes.

As of December 31, 2021, the Company was in compliance with all debt covenants.

Variable Interest Senior Convertible Debt:

7.5% Variable Interest Senior Convertible Notes due 2019:

In November 2012, the Company sold $230,000 in aggregate principal amount of its 7.5% Variable Interest Senior Convertible Notes due 2019 (the “7.5% Convertible Notes”) in a public offering registered under the Securities Act. The notes matured on January 15, 2019 and the Company paid $230,000 of principal.

5.5% Variable Interest Senior Convertible Notes due 2020:

On March 24, 2014, the Company completed the sale of $258,750 in aggregate principal amount of its 5.5% Variable Interest Convertible Senior Notes due 2020 (the “5.5% Convertible Notes”). The 5.5% Convertible Notes matured on April 15, 2020 and the Company paid $169,610 of principal.

Embedded Derivatives on the Variable Interest Senior Convertible Debt:

The portion of the interest on the Company’s convertible debt which was computed by reference to the cash dividends paid on the Company’s common stock was considered an embedded derivative within the convertible debt, which the Company was required to separately value. In accordance with authoritative guidance on accounting for derivatives and hedging, the Company had bifurcated these embedded derivatives and estimated the fair value of the embedded derivative liability including using a third-party valuation. The resulting discount created by allocating a portion of the issuance proceeds to the embedded derivative was then amortized to interest expense over the term of the debt using the effective interest method. Changes to the fair value of these embedded derivatives were reflected quarterly in the Company’s consolidated statements of operations as

“Change in fair value of derivatives embedded within convertible debt.” The value of the embedded derivative was contingent on changes in interest rates of debt instruments maturing over the duration of the convertible debt as well as projections of future cash and stock dividends over the term of the debt.

A summary of non-cash interest expense associated with the amortization of the debt discount created by the embedded derivative liability associated with the Company’s variable interest senior convertible debt is set forth in the following table:

	Year Ended December 31,
	2021		2020		2019
7.5% Convertible Notes	$	—	$	—	$	2,031
5.5% Convertible Notes	—		4,053		16,481
Interest expense associated with embedded derivatives	$	—	$	4,053	$	18,512

A summary of non-cash changes in fair value of derivatives embedded within convertible debt is set forth in the following table:

	Year Ended December 31,
	2021		2020		2019
7.5% Convertible Notes	$	—	$	—	$	6,635
5.5% Convertible Notes	—		4,999		19,790
Gain on changes in fair value of derivatives embedded within convertible debt	$	—	$	4,999	$	26,425

The following table reconciles the fair value of derivatives embedded within convertible debt:

	7.5% Convertible Notes		5.5% Convertible Notes		Total
Balance at January 1, 2019	$	6,635	$	24,789	$	31,424
Gain from changes in fair value of embedded derivatives	(6,635)		(19,790)		(26,425)
Balance at December 31, 2019	—		4,999		4,999
Gain from changes in fair value of embedded derivatives	—		(4,999)		(4,999)
Balance at December 31, 2020	$	—	$	—	$	—

Beneficial Conversion Feature on Variable Interest Senior Convertible Debt:

After giving effect to the recording of the embedded derivative liability as a discount to the convertible debt, the Company’s common stock had a fair value at the issuance date of the debt in excess of the conversion price resulting in a beneficial conversion feature. The accounting guidance on debt with conversion and other options requires that the intrinsic value of the beneficial conversion feature be recorded to additional paid-in capital and as a discount on the debt. The discount is then amortized to interest expense over the term of the debt using the effective interest method. The beneficial conversion feature has been recorded, net of income taxes, as an increase to stockholders’ deficiency.

A summary of non-cash interest expense associated with the amortization of the debt discount created by the beneficial conversion feature on the Company’s variable interest senior convertible debt is set forth in the following table:

	Year Ended December 31,
	2021		2020		2019
Amortization of beneficial conversion feature:
7.5% Convertible Notes	$	—	$	—	$	1,328
5.5% Convertible Notes	—		1,223		4,973
Interest expense associated with beneficial conversion feature	$	—	$	1,223	$	6,301

Unamortized Debt Discount on Variable Interest Senior Convertible Debt:

The following table reconciles unamortized debt discount within convertible debt:

	7.5% Convertible Notes		5.5% Convertible Notes		Total
Balance at January 1, 2019	$	3,359	$	29,465	$	32,824
Partial redemption of 5.5% convertible notes	—		(2,735)		(2,735)
Amortization of embedded derivatives	(2,031)		(16,481)		(18,512)
Amortization of beneficial conversion feature	(1,328)		(4,973)		(6,301)
Balance at December 31, 2019	—		5,276		5,276
Amortization of embedded derivatives	—		(4,053)		(4,053)
Amortization of beneficial conversion feature	—		(1,223)		(1,223)
Balance at December 31, 2020	$	—	$	—	$	—

Revolving Credit Agreement — Liggett:

In January, 2015, Liggett and 100 Maple LLC (“Maple”), a subsidiary of Liggett, entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”), with Wells Fargo Bank, National Association (“Wells Fargo”), as agent and lender.

On October 31, 2019, Liggett and Maple amended the Credit Agreement to, among other things, update the borrowing base to adjust the advance rates in respect of eligible inventory and add certain eligible real property. On March 22, 2021, Liggett, Maple and Vector Tobacco entered into Amendment No. 4 and Joinder to the Credit Agreement with Wells Fargo. The Credit Agreement was amended to, among other things, (i) add Vector Tobacco as a borrower under the Credit Agreement, (ii) extend the maturity of the Credit Agreement to March 22, 2026, and (iii) increase the amount of the maximum credit line thereunder from $60,000 to $90,000.

Since October 31, 2019, all borrowings under the Credit Agreement have been limited to a borrowing base equal to the sum of (I) the lesser of 85% of eligible trade receivables less certain reserves and $15,000; plus (II) 80% of the value of eligible inventory consisting of packaged cigarettes; plus (III) the designated percentage of the value of eligible inventory consisting of leaf tobacco (i.e., 65% of Liggett’s eligible cost of inventory consisting of leaf tobacco less certain reserves or 85% of the net orderly liquidation value of eligible inventory); plus (IV) the lesser of (a) the real property subline amount or (b) 60% of the fair market value of eligible real property. The obligations under the Credit Agreement are collateralized on a first priority basis by all inventories, receivables and certain other personal property of Liggett and Maple, a mortgage on Liggett’s manufacturing facility and certain real property of Maple, subject to certain permitted liens.

The term of the Credit Agreement expires on March 22, 2026. Loans under the Credit Agreement bear interest at a rate equal to LIBOR plus 2.25%. The interest rate applicable to this Credit Agreement at December 31, 2021 was 2.35%. The Credit Agreement, as amended, permitted the guaranty of the 6.125% Senior Secured Notes due 2025, and permits the guaranty of the 5.75% Senior Secured Notes and the 10.5% Senior Notes, by each of Liggett, Maple and Vector Tobacco. Wells Fargo, Liggett, Maple, Vector Tobacco and the collateral agent for the holders of the 5.75% Senior Secured Notes have entered into an intercreditor agreement, pursuant to which the liens of such collateral agent on the assets that are subject to the Credit Agreement are subordinated to the liens of Wells Fargo on such assets.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit Liggett’s, Maple’s, Vector Tobacco’s and their subsidiaries’ ability to incur, create or assume certain indebtedness, to incur or assume certain liens, to purchase, hold or acquire certain investments, to declare or make certain dividends and distributions and to engage in certain mergers, consolidations and asset sales. The Credit Agreement also requires the Company to comply with specified financial covenants, including that Liggett’s earnings before interest, taxes, depreciation and amortization, as defined under the Credit Agreement, on a trailing twelve month basis, shall not be less than $150,000 if Liggett’s excess availability, as defined under the Credit Agreement, is less than $30,000. The covenants also require that annual capital expenditures, as defined under the Credit Agreement (before a maximum carryover amount of $10,000), shall not exceed $20,000 during any fiscal year. The Credit Agreement also contains customary events of default. Liggett was in compliance with these covenants as of December 31, 2021.

As of December 31, 2021, there was $24 in outstanding balance under the Credit Agreement. Availability, as determined under the Credit Agreement, was $80,771 based on eligible collateral at December 31, 2021.

Fair Value of Notes Payable and Long-Term Debt:

The estimated fair value of the Company’s notes payable and long-term debt were as follows:

	December 31, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value			Fair Value
Senior Notes	$	1,427,353	$	1,426,176	$	1,401,960		$	1,464,208
Liggett and other	120		124		153			161
Notes payable and long-term debt	$	1,427,473	$	1,426,300	$	1,402,113	(1)	$	1,464,369

_____________________________

(1) The carrying value does not include the carrying value of the embedded derivative. See Note 18.

Notes payable and long-term debt are carried on the consolidated balance sheets at amortized cost. The fair value determinations disclosed above would be classified as Level 2 under the fair value hierarchy disclosed in Note 18 if such liabilities were recorded on the consolidated balance sheets at fair value. The estimated fair value of the Company’s notes payable and long-term debt has been determined by the Company using available market information and appropriate valuation methodologies including the evaluation of the Company’s credit risk as described in Note 1. The Company used a derived price based upon quoted market prices and trade activity as of December 31, 2021 to determine the fair value of its publicly-traded notes and debentures. The carrying value of the revolving credit facility is equal to the fair value. The fair value of the equipment loans and other obligations was determined by calculating the present value of the required future cash flows. However, considerable judgment is required to develop the estimates of fair value and, accordingly, the estimate presented herein is not necessarily indicative of the amount that could be realized in a current market exchange.

Scheduled Maturities:

Scheduled maturities of notes payable and long-term debt were as follows:

	Principal		Unamortized Discount/ (Premium)		Net
Year Ending December 31:
2022	$	79	$	—	$	79
2023	33		—		33
2024	8		—		8
2025	—		—		—
2026	555,000		2,647		552,353
Thereafter	875,000		—		875,000
Total	$	1,430,120	$	2,647	$	1,427,473