Debt Obligations

12 Months Ended

Dec. 31, 2019

DEBT OBLIGATIONS

Debt obligations consisted of the following (in thousands):



	December 31,			December 31,
	2019			2018
Unsubordinated term loans	$	626,277		$	721,406
Revolving credit facility	632,900			475,000
Convertible debt	213,461			204,846
Other financing arrangements	11,746			—
Total debt obligations	1,484,384			1,401,252
Less: current portion	(14,707		)	(29,654		)
Total long term obligations, net	$	1,469,677		$	1,371,598

The Company utilizes a syndicated credit agreement ("Senior Credit Agreement") which includes unsubordinated term loans and a revolving credit facility. In November 2019, the Senior Credit Agreement was amended to increase the maximum revolver capacity from $645.0 million to $750.0 million, combine two terms loans into one loan and reduce the interest rate spread of the LIBOR based financing at various debt-to-EBITDA levels. This amendment also

extended the agreement to November 2024 provided certain liquidity measures are maintained during 2024 and added incremental accordion capacity based on debt ratios. As of December 31, 2019, the unused revolving credit facility totaled $103.9 million, net of draws of $632.9 million and outstanding letters of credit of $13.2 million. The Senior Credit Agreement permitted additional indebtedness of up to $750.0 million, excluding the unsecured convertible notes outstanding of $258.8 million as of December 31, 2019.

The balance of the unsubordinated term loan is net of debt issuance costs of $8.7 million and $9.8 million for the years ended December 31, 2019 and 2018, respectively. Under the terms of the Senior Credit Agreement, interest rates are adjusted at least quarterly based on the Company's EBITDA, its outstanding debt level and prevailing LIBOR or prime rates. At the Company's current debt-to-EBITDA ratio, the LIBOR based financing for the unsubordinated term loan and revolving credit facility bear variable interest rates of 3.675% and 3.649%, respectively.

The Senior Credit Agreement is collateralized by certain of the Company's Boeing 777, 767 and 757 aircraft. Under the terms of the Senior Credit Agreement, the Company is required to maintain collateral coverage equal to 115% of the outstanding balance of the term loan and the total funded revolving credit facility. The minimum collateral coverage which must be maintained is 50% of the outstanding balance of the term loan plus the revolving credit facility commitment of $750.0 million.

The Senior Credit Agreement limits the amount of dividends the Company can pay and the amount of common stock it can repurchase to $100.0 million during any calendar year, provided the Company's total debt to earnings before interest, taxes, depreciation and amortization expenses ("EBITDA") ratio is under 3.00 times, after giving effect to the dividend or repurchase. The Senior Credit Agreement contains covenants, including a maximum permitted total EBITDA to debt ratio, a fixed charge covenant ratio requirement, limitations on certain additional indebtedness, and on guarantees of indebtedness. The Senior Credit Agreement stipulates events of default, including unspecified events that may have material adverse effects on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement.

On January 28, 2020, the Company, through a subsidiary, completed a debt offering of $500.0 million in senior unsecured notes (the “Senior Notes”). The Senior Notes were sold only to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and certain investors pursuant to Regulation S under the Securities Act. The Senior Notes are senior unsecured obligations that bear interest at a rate of 4.75% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2020. The Senior Notes will mature on February 1, 2028. The Senior Notes contain customary events of default and certain covenants which are generally no more restrictive than those set forth in the Senior Credit Agreement. The net proceeds of $495.0 million from the Senior Notes were used to pay down the revolving credit facility. The Senior Notes do not require principal payments in 2020.

In September 2017, the Company issued $258.8 million aggregate principal amount of 1.125% Convertible Senior Notes due 2024 (" Convertible Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Convertible Notes bear interest at a rate of 1.125% per year payable semi-annually in arrears on April 15 and October 15 each year, beginning April 15, 2018. The Convertible Notes mature on October 15, 2024, unless repurchased or converted in accordance with their terms prior to such date. The Convertible Notes are unsecured indebtedness, subordinated to the Company's existing and future secured indebtedness and other liabilities, including trade payables. Conversion of the Convertible Notes can only occur upon satisfaction of certain conditions and during certain periods, beginning any calendar quarter commencing after December 31, 2017 and thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon the occurrence of certain fundamental changes, holders of the Convertible Notes can require the Company to repurchase their notes at the cash repurchase price equal to the principal amount of the notes, plus any accrued and unpaid interest.

The Convertible Notes may be settled in cash, the Company’s common shares or a combination of cash and the Company’s common shares, at the Company’s election. The initial conversion rate is 31.3475 common shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $31.90 per common share). If a “make-whole fundamental change” (as defined in the offering circular with the Convertible Notes) occurs, the Company will, in certain circumstances, increase the conversion rate for a specified period of time.

In conjunction with the Convertible Notes, the Company purchased convertible note hedges under privately negotiated transactions for $56.1 million, having the same number of the Company's common shares, 8.1 million shares and same strike price of $31.90, that underlie the Convertible Notes. The convertible note hedges are expected to

reduce the potential equity dilution with respect to the Company's common stock, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the Convertible Notes. The Company's current intent and policy is to settle all Note conversions through a combination settlement which satisfies the principal amount of the Convertible Notes outstanding with cash. The Convertible Notes could have a dilutive effect on the computation of earnings per share in accordance with accounting principles to the extent that the average traded market price of the Company’s common shares for a reporting period exceeds the conversion price.

The conversion feature of the Convertible Notes required bifurcation from the principal amount under the applicable accounting guidance. Settlement provisions of the Convertible Notes and the convertible note hedges required cash settlement of these instruments until the Company's shareholders increased the number of authorized shares of common stock to cover the full number of shares underlying the Convertible Notes. As a result, the conversion feature of the Convertible Notes and the convertible note hedges were initially accounted for as liabilities and assets, respectively, and marked to market at the end of each period. The fair value of the note conversion obligation at issuance was $57.4 million.

On May 10, 2018, the Company's shareholders increased the number of authorized shares of common stock to cover the full number of shares underlying the Convertible Notes. The Company reevaluated the Convertible Notes and convertible note hedges under the applicable accounting guidance including ASC 815, "Derivatives and Hedging," and determined that the instruments, which meet the definition of derivative and are indexed to the Company's own stock, should be classified in shareholder's equity. On May 10, 2018, the fair value of the conversion feature of the Convertible Notes and the convertible note hedges of $51.3 million and $50.6 million, respectively, were reclassified to paid-in capital and are no longer remeasured to fair value.

The net proceeds from the issuance of the Convertible Notes was approximately $252.3 million, after deducting initial issuance costs. These unamortized issuance costs and discount are being amortized to interest expense through October 2024, using an effective interest rate of approximately 5.15%. The carrying value of the Company's convertible debt is shown below.



	December 31,		December 31,
	2019		2018
Principal value, Convertible Senior Notes, due 2024	258,750		258,750
Unamortized issuance costs	(4,864	)	(5,799	)
Unamortized discount	(40,425	)	(48,105	)
Convertible debt	213,461		204,846

In conjunction with the offering of the Convertible Notes, the Company also sold warrants to the convertible note hedge counterparties in separate, privately negotiated warrant transactions at a higher strike price and for the same number of the Company’s common shares, subject to customary anti-dilution adjustments. The amount received for these warrants and recorded in Stockholders' Equity in the Company’s consolidated balance sheets was $38.5 million. These warrants could result in 8.1 million additional shares of the Company's common stock, if the Company's traded market price exceeds the strike price which is $41.35 per share and is subject to certain adjustments under the terms of the warrant transactions. The warrants could have a dilutive effect on the computation of earnings per share to the extent that the average traded market price of the Company's common shares for a reporting periods exceed the strike price.

The scheduled cash principal payments for the Company's debt obligations, as of December 31, 2019, for the next five years are as follows (in thousands):



	Principal Payments
2020	$	16,481
2021	16,491
2022	32,378
2023	32,389
2024	1,432,050
2025 and beyond	8,607
Total principal cash payments	1,538,396
Less: unamortized issuance costs and discounts	(54,012		)
Total debt obligations	$	1,484,384