On September 16, 2022, the Company issued $1,150.0 million aggregate principal amount of convertible senior notes due on September 15, 2027 (the “2027 Notes”). The 2027 Notes are senior unsecured obligations of the Company and bear interest at a rate of 1.25% per annum, payable semi-annually in cash on each March 15 and September 15, commencing on March 15, 2023. The net proceeds were $1,126.7 million after deducting the discounts and offering expenses of $23.3 million. The debt discount is amortized under the effective interest method and recorded as additional interest expense over the life of the 2027 Notes. The effective interest rate on the 2027 Notes is 1.67%. The aggregate issuance of the 2027 Notes includes the issuance of $20.0 million in aggregate principal amount of 2027 Notes to the Michael A. Chambers Living Trust, an entity affiliated with Michael Chambers, a member of the Company’s board of directors.

The 2027 Notes may be convertible into shares of the Company’s common stock under certain circumstances prior to maturity at a conversion rate of 7.0439 shares per $1,000 principal amount of the 2027 Notes (8,100,485 shares of the Company’s common stock in the aggregate), which represents a conversion price of $141.97 per share, subject to adjustment under certain conditions. Upon conversion, the Company may pay cash, shares of its common stock or a combination of cash and stock, as determined by the Company at its discretion.

The holders of the 2027 Notes may convert their 2027 Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2022, if the last reported sale price per share of common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2027 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company's common stock, as described in the indenture agreement; (4) if the Company calls such notes for redemption; and (5) at any time from, and including, March 15, 2027 until the close of business on the second trading day immediately before the maturity date.

The 2027 Notes are not redeemable by the Company prior to September 20, 2025. On or after September 20, 2025, the Company may redeem for cash all or any portion of the 2027 Notes at a redemption price equal to the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest, if the last reported sale price of the Company’s common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period. Holders of the 2027 Notes have the right to require the Company to repurchase for cash all or a portion of their notes at 100% of its respective principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change as defined in the indenture agreement for the 2027 Notes. The 2027 Notes contain customary covenants and events of default, occurrence of which permits the holders to accelerate all outstanding obligations, including principal and interest.

In connection with the issuance of the 2027 Notes, the Company entered into privately negotiated capped call transactions with counterparties intended to minimize the impact of potential dilution upon conversion of the 2027 Notes (the “2022 Capped Calls”). The 2022 Capped Calls have an initial strike price of approximately $141.97 per share, which corresponds to the initial conversion price of the 2027 Notes and is subject to anti-dilution adjustments generally similar to those applicable to the 2027 Notes and have a cap price of approximately $210.32 per share. The 2022 Capped Calls cover, subject to anti-dilution adjustments, 8,100,485 shares of the Company’s common stock, which is the same number of shares of the Company’s common stock initially underlying the 2027 Notes. If, upon conversion of the 2027 Notes, the price of the Company’s common stock is between the strike price and the cap price of the capped calls, the counterparties will deliver shares of the Company’s common stock and/or cash with an aggregate value equal to the difference between the price of the Company’s common stock at the conversion date and the strike price, multiplied by the number of shares of the Company’s common stock related to the capped calls being exercised. The Company paid $127.3 million for the 2022 Capped Calls, which was recorded within additional paid-in capital.

On November 14, 2017, the Company issued $570.0 million aggregate principal amount of senior convertible notes due on November 15, 2024 (the “2024 Notes”). The 2024 Notes are senior unsecured obligations of the Company and bear interest at a rate of 1.50% per annum, payable semi-annually in cash on each May 15 and November 15, commencing on May 15, 2018. The net proceeds were $559.4 million after deducting the discounts and offering expenses of $10.6 million. The debt discount is amortized under the effective interest method and recorded as additional interest expense over the life of the 2024 Notes. The effective interest rate on the 2024 Notes is 1.9%.

The 2024 Notes may be convertible into shares of the Company’s common stock under certain circumstances prior to maturity at a conversion rate of 13.621 shares per $1,000 principal amount of the 2024 Notes (7,763,970 shares of the Company's common stock in the aggregate), which represents a conversion price of $73.42 per share, subject to adjustment under certain conditions. Upon conversion, the Company may pay cash, shares of its common stock or a combination of cash and stock, as determined by the Company at its discretion.

The holders of the 2024 Notes may convert their 2024 Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2017, if the last reported sale price per share of common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company's common stock, as described in the indenture agreement; and (4) at any time from, and including, May 15, 2024 until the close of business on the scheduled trading day immediately before the maturity date.

The 2024 Notes are not redeemable by the Company prior to the maturity date. Holders of the 2024 Notes have the right to require the Company to repurchase for cash all or a portion of their notes at 100% of its respective principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change as defined in the indenture agreement for the 2024 Notes. The 2024 Notes contain customary covenants and events of default, occurrence of which permits the holders to accelerate all outstanding obligations, including principal and interest. The 2024 Notes contain customary covenants and events of default, occurrence of which permits the holders to accelerate all outstanding obligations, including principal and interest.

In connection with the issuance of the 2024 Notes, the Company entered into privately negotiated capped call transactions with counterparties intended to minimize the impact of potential dilution upon conversion of the 2024 Notes (the “2017 Capped Calls”). The 2017 Capped Calls have an initial strike price of approximately $73.42 per share, which corresponds to the initial conversion price of the 2024 Notes and is subject to anti-dilution adjustments generally similar to those applicable to the 2024 Notes, and have a cap price of approximately $104.88 per share. The 2017 Capped Calls initially covered, subject to anti-dilution adjustments, 7,763,970 shares of the Company’s common stock, which is the same number of shares of the Company’s common stock initially underlying the 2024 Notes. If, upon conversion of the 2024 Notes, the price of the Company’s common stock is between the strike price and the cap price of the capped calls, the counterparties will deliver shares of the Company’s common stock and/or cash with an aggregate value equal to the difference between the price of the Company’s common stock at the conversion date and the strike price, multiplied by the number of shares of the Company’s common stock related to the capped calls being exercised. The Company paid $50.9 million for the 2017 Capped Calls, which was recorded within additional paid-in capital.

In connection with the issuance of the 2027 Notes, on September 14, 2022, the Company entered into separate, privately negotiated transactions to repurchase a portion of the outstanding 2024 Notes. The holders exchanged $150.6 million in aggregate principal value of 2024 Notes held by them for an aggregate payment of $248.6 million for full settlement of the principal value and accrued interest on such date. The repurchase was not pursuant to the conversion privileges included in the terms of the debt at issuance and therefore was accounted for a debt extinguishment. The Company accounted for the debt extinguishment by recognizing the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt as loss on debt extinguishment. Accordingly, on the repurchase date, the Company: (i) reduced the carrying value of repurchased 2024 Notes by $149.3 million, (ii) eliminated accrued interest of $0.8 million, and (iii) recorded $98.5 million of debt extinguishment expense which is included in the loss on debt extinguishment in the unaudited condensed consolidated statement of operations and comprehensive loss. The outstanding principal balance of the 2024 Notes as of September 30, 2022, after considering the repurchase discussed above, is $419.4 million, which is convertible into 5,712,253 shares of Company common stock.

As a result of the repurchase of a portion of the 2024 Notes discussed above, on September 19, 2022, the Company entered into agreements with the 2017 Capped Calls counterparties to terminate a portion of the 2017 Capped Calls in a notional amount corresponding to the principal amount of the 2024 Notes repurchased. In connection with the termination, the Company received $26.3 million in cash from the counterparties, which was included within additional paid-in capital.

On September 16, 2022, using proceeds received from the issuance of the 2027 Notes described above, the Company prepaid in full all of its amounts outstanding with respect to the December 2019 Term Loan with Biopharma Credit PLC and Biopharma Credit Investments V (Master) LP and repaid in full all obligations due. The aggregate payoff amount was approximately $585.5 million, which includes $550.0 million of principal, additional loan consideration and premiums of $25.4 million, and accrued interest of $10.1 million through the repayment date. The loss on debt extinguishment was $26.9 million, and is included in the loss on debt extinguishment in the unaudited condensed consolidated statement of operations and comprehensive loss.

Embedded derivatives are required to be separated from the host contract and accounted for as a derivative instrument if the economic characteristics and risk of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the host contract and if a separate instrument with the same terms as the embedded derivative would be a derivative instrument subject to the scope of ASC Topic 815, Derivatives and Hedging (“ASC 815”). ASC 815 includes a scope exception for instruments issued by a reporting entity that are both (1) indexed to the reporting entity’s own stock and (2) classified in stockholders’ equity in the reporting entity’s statement of financial position.

All of the features of the 2027 Notes were evaluated to determine if separate accounting as a derivative instrument was required. The conversion feature in the 2027 Notes is indexed solely in the Company's common stock and since the Company retains the option to settle these notes in shares, the conversion feature qualified for a “scope exception” from treatment as a derivative since the conversion feature qualifies as “fixed for fixed”, meaning the settlement is equal to the difference between a fixed monetary amount of convertible notes and the fair value of a fixed number of the Company’s shares, and therefore, the Company did not separately account for it as a derivative. Other features of the notes, such as rights under certain default events, were not considered clearly and closely related to the economic characteristics and risks of the underlying debt host instrument, however, the fair value of these features were determined to be immaterial.

The capped calls are indexed solely to the Company’s common stock and classified in stockholders’ equity since Sarepta retains the right to receive shares, if there is an exercise of the capped call options. The premiums paid for the capped call options, equal to their fair value at inception, was recorded as a reduction to additional paid-in capital.

As of September 30, 2022 and December 31, 2021, the Company recorded approximately $1,542.8 million and $1,096.9 million as long-term debt on the unaudited condensed consolidated balance sheets, respectively.

The following table summarizes the Company’s debt facilities for the periods indicated:


	As of September 30, 2022			As of December 31, 2021
	(in thousands)
Principal amount of the 2024 Notes	$	419,371		$	569,993
Principal amount of the 2027 Notes		1,150,000			—
Unamortized discount - debt issuance costs of 2024 Notes		(3,460	)		(6,320	)
Unamortized discount - debt issuance costs of 2027 Notes		(23,141	)		—
Net carrying value of the convertible notes		1,542,770			563,673
Principal amount of the 2019 Term Loan		—			550,000
Unamortized discounts		—			(16,797	)
Net carrying value of 2019 Term Loan		—			533,203
Total carrying value of debt facilities	$	1,542,770		$	1,096,876

Fair value of 2024 Notes	$	704,422		$	846,138
Fair value of 2027 Notes		1,194,609			—
Fair value of 2019 Term Loan		—			576,085
Total fair value of debt facilities	$	1,899,031		$	1,422,223

For the three months ended September 30, 2022 and 2021, contractual interest expense from debt facilities was $14.7 million and $16.0 million, inclusive of $2.0 million and $1.9 million of amortization of debt discounts, respectively. For the nine months ended September 30, 2022 and 2021, contractual interest expense from debt facilities was $46.5 million and $47.5 million, inclusive of $6.0 million and $5.6 million of amortization of debt discounts, respectively.

The fair value of the 2027 Notes and 2024 Notes is based on open market trades and is classified as Level 1 in the fair value hierarchy. The fair value of the December 2019 Term Loan is classified as Level 2 in the fair value hierarchy and is determined using a discounted cash flow analysis with market interest rates adjusted for credit risk as a significant input.

The following table summarizes the total principal payments due under the Company’s debt arrangements:


	As of September 30, 2022
	(in thousands)
2022 (October-December)	$	—
2023		—
2024		419,371
2025		—
2026		—
2027		1,150,000
Total payments	$	1,569,371

The aggregate annual maturities of long-term debt principal and contractual interest during the remainder of 2022, the years ended December 31, 2023, 2024, 2025, 2026, and 2027 are $3.9 million, $20.6 million, $440.0 million, $14.4 million, $14.4 million, and $1,164.4 million, respectively.