| Indebtedness | Note 10—Indebtedness
Credit Agreement
On December 9, 2016, we (as borrower) and certain of our
existing and future domestic material restricted subsidiaries (the
Guarantors) entered into a credit agreement (the Credit Agreement)
with Bank of America, N.A. and certain other lenders (the
Lenders).
Subject to the terms and conditions set forth in the Credit
Agreement, the Lenders have provided us with a five-year revolving
credit facility in the amount of up to $300 million (the
Credit Facility). Under the Credit Agreement, we also have the
right to request an increase of the aggregate commitments under the
Credit Facility by up to $150 million without the consent of
any Lenders not participating in such increase, subject to
specified conditions.
The proceeds of the Credit Facility may be used for lawful
corporate purposes of Bottomline and its subsidiaries, including
acquisitions, share buybacks, capital expenditures, the repayment
or refinancing of indebtedness, redemption of the Notes and general
corporate purposes. The Credit Facility is available for the
issuance of up to $20 million of letters of credit and up to
$20 million of swing line loans. The Credit Facility will
terminate on December 8, 2021.
Loans outstanding under the Credit Facility will bear interest, at
our option, at either (i) a Eurodollar rate plus a margin of
between 1.50% and 2.25% (which is initially 1.75%) based on the
Consolidated Net Leverage Ratio (as defined in the Credit
Agreement), or (ii) a base rate plus a margin of between 0.50%
and 1.25% (which is initially 0.75%) based on the Consolidated Net
Leverage Ratio. Loans under the Credit Agreement may be prepaid at
par and commitments under the Credit Agreement may be reduced at
any time, in whole or in part, without premium or penalty (except
for LIBOR breakage costs).
The Credit Facility is guaranteed by the Guarantors and is secured
by substantially all of our domestic assets and those of the
Guarantors, including a pledge of all of the shares of capital
stock of the Guarantors and 65% of the shares of the capital stock
of our first-tier foreign subsidiaries or those of any Guarantor,
in each case subject to certain exceptions as set forth in the
Credit Agreement. The collateral does not include, among other
things, any real property or the capital stock or any assets of any
unrestricted subsidiary.
The Credit Agreement contains customary representations, warranties
and covenants, including, but not limited to, material adverse
events, specified restrictions on indebtedness, liens, investments,
acquisitions, sales of assets, dividends and other restricted
payments, and transactions with affiliates. We are required to
comply with (a) a maximum consolidated net leverage ratio of
3.75 to 1.00, stepping down to 3.50 to 1.00 for the quarter ending
June 30, 2018; (b) a minimum consolidated interest coverage
ratio of 3.00 to 1.00; and (c) a minimum liquidity requirement
at all times that the Notes are outstanding.
The Credit Agreement also contains customary events of default and
related cure provisions. In the case of a continuing event of
default, the administrative agent would be entitled to exercise
various remedies on behalf of the Lenders, including the
acceleration of any outstanding loans.
Convertible Senior Notes
On December 12, 2012, we issued $189.8 million aggregate
principal amount of the Notes, inclusive of the underwriters’
exercise in full of their over-allotment option of
$24.8 million. Cash interest at a rate of 1.50% per year
began to accrue on December 12, 2012 and is payable
semi-annually on June 1 and December 1 of each year
beginning on June 1, 2013. We received net proceeds from the
offering of approximately $167.3 million after adjusting for
debt issue costs, including the underwriting discount, and the net
cash used to purchase the Note Hedges and sell the Warrants which
are discussed below.
The Notes were issued under an indenture dated December 12,
2012 (the Base Indenture) by and between us and The Bank of New
York Mellon Trust Company, N.A., as Trustee and a First
Supplemental Indenture dated December 12, 2012 (the First
Supplemental Indenture) by and between us and the Trustee (the Base
Indenture and the First Supplemental Indenture are collectively
referred to as the Indenture). There are no financial or operating
covenants relating to the Notes.
The Notes are senior unsecured obligations of ours and rank senior
in right of payment to any future unsecured indebtedness that is
expressly subordinated in right of payment to the Notes, and equal
in right of payment to any of our existing and future unsecured
indebtedness that is not subordinated. The Notes are effectively
junior in right of payment to any of our secured indebtedness (to
the extent of the value of assets securing such indebtedness) and
structurally junior to all existing and future indebtedness and
other liabilities, including trade payables, of our subsidiaries.
Prior to this offering, neither we nor our subsidiaries had any
outstanding indebtedness for borrowed money. The Indenture does not
limit the amount of debt that we or our subsidiaries may incur. The
Notes are not guaranteed by us or any of our subsidiaries.
Holders may convert their Notes at their option, prior to the close
of business on the business day immediately preceding June 1,
2017, in multiples of $1,000 principal amount, only under the
following circumstances:
• during any calendar quarter
commencing after the calendar quarter ending on March 31, 2013
(and only during such calendar quarter), if the last reported sale
price of our common stock for at least 20 trading days (whether or
not consecutive) during a period of 30 consecutive trading days
ending on the last trading day of the immediately preceding
calendar quarter is greater than or equal to 130% of the conversion
price on each applicable trading day;
• during the five business day period
after any five consecutive trading day period (the measurement
period) in which the trading price per $1,000 principal amount of
the convertible notes for each trading day of the measurement
period was less than 98% of the product of the last reported sales
price of our common stock and the conversion rate on each trading
day; or
• upon the occurrence of specified
corporate events, including a merger or a sale of all or
substantially all of our assets.
On or after June 1, 2017 and until the close of business on
the second scheduled trading day immediately preceding the maturity
date of December 1, 2017, holders may convert their Notes, in
multiples of $1,000 principal amount, at the option of the holder
regardless of the foregoing circumstances.
The conversion rate for the Notes is initially 33.3042 shares per
$1,000 principal amount of Notes (equivalent to an initial
conversion price of approximately $30.03 per share of our common
stock). The conversion rate is subject to customary adjustment for
certain events as described in the Indenture.
The principal balance of the Notes is always required to be settled
in cash. However, we are permitted at our election to settle any
conversion obligation in excess of the principal portion in cash,
shares of our common stock, or a combination of cash and shares of
our common stock.
We may not redeem the Notes prior to their maturity date. If we
undergo a fundamental change (as described in the Indenture),
subject to certain conditions, holders may require us to repurchase
for cash all or part of their Notes in principal amounts of $1,000
or an integral multiple thereof. The fundamental change repurchase
price will be equal to 100% of the principal amount of the Notes to
be repurchased, plus accrued and unpaid interest to, but excluding,
the fundamental change repurchase date.
The Indenture contains customary events of default with respect to
the Notes and provides that upon certain events of default
occurring and continuing, the Trustee may, and the Trustee at the
request of such holders of at least 25% in principal amount of the
convertible notes shall, declare 100% of the principal of and
accrued and unpaid interest, if any, on the Notes to be due and
payable. In case of certain events of bankruptcy, insolvency or
reorganization, involving us or a significant subsidiary, 100% of
the principal of and accrued and unpaid interest on the Notes will
automatically become due and payable. Upon such a declaration of
acceleration, such principal and accrued and unpaid interest, if
any, will be due and payable immediately.
Under limited circumstances, we may be required to pay contingent
interest on the Notes as a result of failure to comply with the
reporting obligations in the Indenture or failure to file required
Securities and Exchange Commission documents and reports. When
applicable, the contingent interest payable per $1,000 principal
amount is 0.25% per annum over the applicable term as provided
under the Indenture. The contingent interest features of the Notes
are embedded derivative instruments. The estimated fair value of
the contingent interest features of the Notes was zero at issuance
and at March 31, 2017, as the likelihood of any liability
being incurred under these provisions was deemed remote and, to the
extent occurring, the time period during which a contingent
interest charge would apply is projected to be short.
The Notes were recorded upon issuance using a residual method of
valuation, meaning since the Conversion Feature was initially a
derivative instrument recorded at fair value, we allocated debt
proceeds to the Conversion Feature based on the fair value of that
instrument and the residual proceeds were allocated to the Notes.
The carrying amount of the Notes will be accreted to the principal
amount over the remaining term to maturity and we will record a
corresponding charge to interest expense.
The net carrying amount of the Notes at March 31, 2017 was as
follows:
(in thousands)
Principal amount $ 189,750
Unamortized discount (8,820 )
Unamortized debt issuance costs (789 )
Net carrying value $ 180,141
We incurred certain third party costs in connection with our
issuance of the Notes, principally related to underwriting and
legal fees, which are being amortized to interest expense ratably
over the five-year term of the Notes.
The following table sets forth total interest expense related to
the Notes:
Three Months Ended Nine Months Ended
2017 2016 2017 2016
(in thousands)
(in thousands)
Contractual interest expense (cash) $ 711 $ 712 $ 2,135 $ 2,135
Amortization of debt discount (non-cash) 3,188 2,969 9,396 8,751
Amortization of debt issue costs (non-cash) 296 296 888 888
$ 4,195 $ 3,977 $ 12,419 $ 11,774
Effective interest rate of the liability component 8.22 % 7.76 % 8.10 % 7.65 %
Note Hedges
In December 2012, we entered into privately negotiated transactions
to purchase hedge instruments (the Note Hedges), covering
approximately 6.3 million shares of our common stock. The Note
Hedges are subject to anti-dilution provisions substantially
similar to those of the Notes, have a strike price that corresponds
to the conversion price of the Notes, are exercisable by us upon
any conversion under the Notes and expire on December 1,
2017.
The Note Hedges are generally expected to reduce the potential
dilution to our common stock (or, in the event the Conversion
Feature is settled in cash, to reduce our cash payment obligation)
in the event that at the time of conversion our stock price exceeds
the conversion price under the Notes. The cost of the Note Hedges,
$42.3 million, is expected to be tax deductible as an original
issue discount over the life of the Notes, as the Notes and the
Note Hedges represent an integrated debt instrument for tax
purposes.
The Note Hedges are transactions that are separate from the terms
of the Notes and the Warrants (discussed below), and holders of the
Notes and the Warrants have no rights with respect to the Note
Hedges.
Warrants
In December 2012, we received aggregate proceeds of
$25.8 million, net of issue costs, from the sale of warrants
(the Warrants), for the purchase of up to 6.3 million shares
of our common stock, subject to antidilution adjustments, at a
strike price of $40.04 per share. The Warrants are exercisable in
equal tranches over a period of 150 days beginning on March 1,
2018, and ending on October 18, 2018.
The Warrants are transactions that are separate from the terms of
the Notes and the Note Hedges, and holders of the Notes and Note
Hedges have no rights with respect to the Warrants. |
