DEBT

Debt consists of the following (in thousands):



	As of December 31,
	2014		2013
Convertible senior notes - unsecured (net of discount of $6,963)	$	193,037	$	—
Revolving credit facility - unsecured	374,000		167,000
Bank term loans - unsecured	250,000		370,000
HUD mortgage loans (net of discount of $1,662)	45,689		—
Fannie Mae term loans - secured (including premium of $1,756)	—		80,080
	$	862,726	$	617,080

In March 2014 we issued $200,000,000 of 3.25% senior unsecured convertible notes due April 2021 (the "Notes"). Interest is payable April 1st and October 1st of each year. The Notes are convertible at an initial conversion rate of 13.926 shares of common stock per $1,000 principal amount, representing a conversion price of approximately $71.81 per share for a total of approximately 2,785,200 underlying shares. The conversion rate is subject to adjustment upon the occurrence of certain events, as defined in the indenture governing the Notes, but will not be adjusted for any accrued and unpaid interest except in limited circumstances. The conversion option is considered an "optional net-share settlement conversion feature," meaning that upon conversion, NHI's conversion obligation may be satisfied, at our option, in cash, shares of common stock or a combination of cash and shares of common stock. Because the conversion price is in excess of the average stock price for the year, the impact of the conversion option is currently anti-dilutive to the earnings per share calculation and as such has no effect on our earnings per share.

The embedded conversion options (1) do not require net cash settlement, (2) are not conventionally convertible but can be classified in stockholders’ equity under ASC 815-40, and (3) are considered indexed to NHI’s own stock. Therefore, the conversion feature satisfies the conditions to qualify for an exception to the derivative liability rules, and the Notes are split into debt and equity components. The value of the debt component is based upon the estimated fair value of a similar debt instrument without the conversion feature at the time of issuance and was estimated to be approximately $$192,238,000. The $7,762,000 difference between the contractual principal on the debt and the value allocated to the debt was recorded as an equity component and represents the estimated value of the conversion feature of the instrument. The excess of the contractual principal amount of the debt over its estimated fair value, the original issue discount, is amortized to interest expense using the effective interest method over the estimated term of the Notes, projected to extend through October 2020, at issuance. The effective interest rate used to amortize the debt discount and the debt component of the issue costs for the Notes was approximately 3.9% based on our estimated non-convertible borrowing rate at the date the Notes were issued.

The total cost of issuing the Notes was $6,063,000, of which $5,788,000 was allocated to the debt component and is subject to amortization over the estimated term of the notes. The remaining $275,000 was allocated to the equity component.

In March 2014, we entered into an amended $700,000,000 senior unsecured credit facility. The facility can be expanded, subject to certain conditions, up to an additional $130,000,000. The amended credit facility provides for: (1) a $450,000,000 unsecured, revolving credit facility that matures in March 2019 (inclusive of an embedded 1-year extension option) with interest at 150 basis points over LIBOR; (2) a $130,000,000 unsecured term loan that matures in June 2020 with interest at 175 basis points over LIBOR; and (3) two existing term loans which remain in place totaling $120,000,000, maturing in June 2020 and bearing interest at 175 basis points over LIBOR. The employment of interest rate swaps for our fixed term debt leaves only our revolving credit facility exposed to variable rate risk. Our swaps and the financial instruments to which they relate are described in the table below, under the caption “Interest Rate Swap Agreements.”

At December 31, 2014, we had $76,000,000 available to draw on the revolving portion of the credit facility. The unused commitment fee is 40 basis points per annum. The unsecured credit facility requires that we maintain certain financial ratios within limits set by our creditors. To date, these ratios, which are calculated quarterly, have been within the limits required by the credit facility agreements.

On December 31, 2014, we paid off Fannie Mae mortgage loans with remaining principal balances of $70,131,000 and $7,136,000 using funds drawn from our revolving credit facility.

In July and September 2014 we obtained mortgage loans totaling $38,007,000 from the U.S. Department of Housing and Urban Development secured by nine properties in our joint venture with an affiliate of Bickford. The mortgage notes require monthly payments of principal and interest of 4.65% in the first year and 4.3% thereafter (inclusive of mortgage insurance premium) and mature in August and October 2049.

In October 2014 we assumed a HUD mortgage loan with an outstanding principal balance of $9,535,000 and an estimated fair value of $7,858,000. The HUD mortgage requires monthly payments of principal and interest of 2.9% (inclusive of mortgage insurance premium) and matures in October 2047.

The aggregate outstanding balance of our HUD mortgage loans as of December 31, 2014 was $47,352,000.

The following table summarizes interest expense (in thousands):



	Year Ended December 31,
	2014			2013			2012
Interest expense at contractual rates	$	23,878		$	8,944		$	3,380
Capitalized interest	(576		)	(378		)	(208		)
Amortization of debt premiums, discounts and issuance costs	2,580			247			320
Unamortized premium written off as a result of debt payoff	(1,655		)	—			—
Debt issuance costs expensed due to credit facility modifications	2,145			416			—
Total interest expense	$	26,372		$	9,229		$	3,492

Interest Rate Swap Agreements

We have entered into interest rate swap agreements to fix the interest rates on our bank term loans. The critical terms of this swap agreement are essentially identical to those of the term loans and thus, in accordance with ASC Topic 815 Derivative Instruments and Hedging Activities, the swap is considered a perfectly effective "cash flow hedge." Accordingly, changes in the fair value of this cash flow hedge are included in accumulated other comprehensive income rather than net income in our Consolidated Statements of Income. Gains and losses are reclassified from accumulated other comprehensive income into earnings once the underlying hedged transaction is recognized in earnings. If the fair value of the hedge is an asset, we include it in our Consolidated Balance Sheets in other assets, and, if a liability, as a component of accrued expenses.

Below is a summary of our swap agreements at December 31, 2014 (dollars in thousands):



Date Entered	Maturity Date	Fixed Rate	Rate Index	Notional Amount		Fair Value
May 2012	April 2019	3.29%	1-month LIBOR	$	40,000	$	(98	)
June 2013	June 2020	3.86%	1-month LIBOR	$	80,000	$	(1,814	)
March 2014	June 2020	3.91%	1-month LIBOR	$	130,000	$	(3,281	)

See Note 14 for fair value disclosures about our interest rate swap agreements.