Debt | 9 Months Ended |
Sep. 30, 2014 |
Debt Disclosure [Abstract] | ' |
Debt | ' |
Debt |
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Credit Agreement |
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On December 19, 2011, Holdings entered into a credit agreement (the “Credit Agreement”) with a syndicate of financial institutions. The Credit Agreement, which matures in 2016, is guaranteed by certain subsidiaries of Holdings and is secured by a pledge of all of the equity interests in certain of Holdings’ domestic subsidiaries and 65% of the voting equity interests in certain of its foreign subsidiaries. |
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As of September 30, 2014, Holdings has commitments from lenders for $150.0 million. As of September 30, 2014 and December 31, 2013, Holdings’ outstanding balance under the Credit Agreement was $30.0 million and nil, respectively. |
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Under the terms of the Credit Agreement, loans will bear interest at either a Eurodollar Rate or a Base rate (as defined below), at Holdings’ election, plus an applicable margin, based on Holdings’ leverage ratio. In addition, Holdings must pay an annual commitment fee based on Holdings’ leverage ratio on the undrawn commitments under the Credit Agreement. The applicable margin and commitment fees are set forth in the table below: |
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Consolidated Leverage Ratio | | Commitment Fee | | Applicable Margin for Eurodollar Loans | | Applicable Margin for Base Rate Loans | | | | | | |
Less than 0.50 to 1.00 | | 0.25 | % | | 1.75 | % | | 0.75 | % | | | | | | |
Greater than or equal to 0.50 to 1.00 but less than 1.00 to 1.00 | | 0.3 | % | | 2 | % | | 1 | % | | | | | | |
Greater than or equal to 1.00 to 1.00 but less than 1.50 to 1.00 | | 0.35 | % | | 2.25 | % | | 1.25 | % | | | | | | |
Greater than or equal to 1.50 to 1.00, but less than 2.00 to 1.00 | | 0.4 | % | | 2.5 | % | | 1.5 | % | | | | | | |
Greater than or equal to 2.00 to 1.00 | | 0.45 | % | | 2.75 | % | | 1.75 | % | | | | | | |
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The Base Rate means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate, as defined in the Credit Agreement, plus 0.5%, (b) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent, Bank of America, N.A., as its prime rate, and (c) the Eurodollar Rate plus 1.00%. The |
Eurodollar Rate means the rate per annum equal to (i) the British Bankers Association LIBOR Rate, or (ii) if such rate is not available, the rate per annum determined by the administrative agent. |
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Interest expense related to borrowings under the Credit Agreement, including the amortization of debt financing costs, included in Interest on borrowings in the consolidated statements of operations was $0.4 million and $1.2 million for the three and nine months ended September 30, 2014, respectively. Interest expense related to borrowings under the Credit Agreement, including the amortization of debt financing costs, included in Interest on borrowings in the consolidated statements of operations was $0.1 million and $1.3 million for the three and nine months ended September 30, 2013, respectively. |
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Pursuant to covenants in the Credit Agreement, Holdings is required to maintain: excess net capital amount of 125% of adjusted net capital required to be maintained as of the last day of any fiscal quarter for US and UK (see Note 12), Consolidated Interest Coverage Ratio, Consolidated Leverage Ratio and Consolidated Senior Leverage Ratio, each as defined in the Credit Agreement, of 4.00 to 1.00, 2.75 to 1.00 and 1.50 to 1.00, respectively, as of the last day of any fiscal quarter, Net Unhedged Exposure, as defined in the Credit Agreement, of less than 20% of total assets of Holdings and its subsidiaries, and Net Unhedged Non-FX Exposure, as defined in the Credit Agreement, of less than 10% of total assets of Holdings and its subsidiaries. In addition, the Credit Agreement contains certain customary covenants as well as certain customary events of default. As of September 30, 2014, Holdings was in compliance with all material covenants. |
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During the three and nine months ended September 30, 2014, the weighted average dollar amount of borrowings related to the Credit Agreement were $27.7 million and $37.5 million, respectively, and the weighted average interest rates were 2.90% and 2.68%, respectively. During the three and nine months ended September 30, 2013, the weighted average dollar amount of borrowings related to the Credit Agreement were nil and $46.7 million, respectively, and the weighted average interest rates were nil and 2.44%, respectively. |
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Senior Convertible Notes due 2018 |
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In June 2013, the Corporation issued $172.5 million principal amount of 2.25% Convertible Notes maturing on June 15, 2018 and received net proceeds of $166.5 million, after deducting the initial purchasers' discount and offering expenses. The Convertible Notes pay interest semi-annually on June 15 and December 15 at a rate of 2.25% per year, commencing December 15, 2013. The indenture governing the Convertible Notes does not prohibit the Company from incurring additional senior debt or secured debt, nor does it prohibit any of its subsidiaries from incurring additional liabilities. |
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The Convertible Notes will be convertible at an initial conversion rate of 53.2992 shares of the Corporation's Class A common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $18.76. In addition, following certain corporate transactions that occur prior to the maturity date, the Corporation will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such corporate transaction. Upon conversion, the Corporation will deliver cash up to the principal amount. With respect to any conversion value in excess of the principal amount, the Corporation will deliver shares of its Class A common stock (unless it elects to deliver cash in lieu of all or a portion of such shares). |
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Holders may convert their notes at their option prior to the close of business on the business day immediately preceding March 15, 2018, only under the following circumstances: |
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• | during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2013 (and only during such fiscal quarter), if the last reported sale price of the Corporation's Class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; | | | | | | | | | | | | | | |
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• | during the five business day period immediately after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the offering circular) per $1,000 principal amount of notes for each trading day of such measurement period was less than 98% of the product of the last reported sale price of the Corporation's Class A common stock and the applicable conversion rate on such trading day; | | | | | | | | | | | | | | |
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• | upon the occurrence of specified corporate events; or | | | | | | | | | | | | | | |
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• | on or after March 15, 2018 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time. | | | | | | | | | | | | | | |
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In addition, if the Company undergoes a fundamental change (as defined in the offering circular), holders may, subject to certain conditions, require the Corporation to repurchase their notes for cash at a price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest. |
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Convertible Note Hedges |
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In connection with the offering of the Convertible Notes, the Company entered into privately negotiated convertible note hedge transactions with certain counterparties (the “Convertible Note Hedge Transaction”). The Convertible Note Hedge Transactions will cover, subject to customary anti-dilution adjustments, the number of shares of the Corporation's Class A common stock that will initially underlie the Convertible Notes. Concurrently with entering into the Convertible Note Hedge Transaction, the Company also entered into a separate, privately negotiated warrant transaction (the “Warrant Transaction”) with the same counterparties, whereby the Company sold to the counterparties warrants to purchase, subject to customary anti-dilution adjustments, up to the same number of shares of the Corporation's Class A common stock as in the Convertible Note Hedge Transaction. The strike price of the Warrant Transaction will initially be $21.24 per share of the Corporation's Class A common stock. Subject to certain conditions, the Company may settle the warrants in cash or on a net-share basis. |
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The Convertible Note Hedge Transaction and the Warrant Transaction have the effect of increasing the effective conversion price of the Convertible Notes to $21.24 per share. The cost of the Convertible Note Hedge Transaction and the proceeds from the Warrant Transaction was $29.1 million and $18.6 million, respectively. In accordance with Accounting Standards Codification ("ASC") 815, Derivatives and Hedging ("ASC 815"), the Company recorded the cost of the Convertible Note Hedge Transaction and the proceeds from the Warrant Transaction to additional-paid-in-capital in the stockholders' equity in the condensed consolidated statements of financial condition and the recorded values will not be adjusted for subsequent changes in their respective fair values. |
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The Convertible Note Hedge Transaction and the Warrant Transaction are separate transactions, in each case, entered into by the Company with certain counterparties, and are not part of the terms of the Convertible Notes and will not affect any holder's right under the Convertible Notes. Holders of the Convertible Notes will not have any rights with respect to the Convertible Hedge Transaction or the Warrant Transaction. |
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Under ASC 470, Debt ("ASC 470"), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer's economic interest cost. The effect of ASC 470 on the accounting for the Convertible Notes is that the fair value of the equity component is included in the additional paid-in capital section of stockholders' equity in the Company's condensed consolidated statements of financial condition and the principal amount of the Convertible Notes is reduced by original issue discount to reflect the Convertible Notes fair value at issuance. At issuance, the equity component of the Convertible Notes was valued at $29.1 million and the Convertible Notes were valued at $144.1 million consisting of $172.5 million of principal net of original issuance discount of $29.1 million. The original issue discount will be amortized over the life of the Convertible Notes using the effective interest rate of 6.20%. |
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The balances of the liability and equity components as of September 30, 2014, were as follows, with amounts in thousands: |
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| | September 30, 2014 | | | | | | | | | | | |
Liability component - principal | | $ | 172,500 | | | | | | | | | | | | |
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Deferred bond discount | | (22,264 | ) | | | | | | | | | | | |
Liability component - net carrying value | | $ | 150,236 | | | | | | | | | | | | |
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Equity component | | $ | 29,101 | | | | | | | | | | | | |
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Interest expense related to the Convertible Notes, included in Interest on borrowings in the condensed consolidated statements of operations was as follows, with amounts in thousands: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2014 | | 2013 | | 2014 | | 2013 |
Interest expense - stated coupon rate | $ | 970 | | | $ | 970 | | | $ | 2,911 | | | $ | 1,272 | |
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Interest expense - amortization of deferred bond discount | 1,335 | | | 1,254 | | | 3,932 | | | 1,644 | |
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Total interest expense - convertible notes | $ | 2,305 | | | $ | 2,224 | | | $ | 6,843 | | | $ | 2,916 | |
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The Company incurred $6.0 million of Convertible Notes issuance cost. Amortization of Convertible Notes issuance costs included in Interest on borrowings in the condensed consolidated statements of operations was $0.3 million and $0.9 million for the three and nine months ended September 30, 2014, respectively. Amortization of Convertible Notes issuance costs included in Interest on borrowings in the condensed consolidated statements of operations was $0.3 million and $0.4 million for the three and nine months ended September 30, 2013. Unamortized Convertible Notes issuance cost was $4.4 million and $5.3 million at September 30, 2014 and December 31, 2013, respectively, and is included in Other assets in the condensed consolidated statements of financial condition. |
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Notes Payable |
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In connection with its Lucid acquisition, the Company issued to the Lucid sellers 3.5% unsecured promissory notes in the amounts of $71.4 million and $15.8 million maturing on December 21, 2012. On December 21, 2012, the Company repaid $64.0 million of these notes and issued a series of 2.25%, $22.9 million unsecured promissory notes for the balance. The notes were pre-paid on June 6, 2013 with a portion of the proceeds received from the Convertible Notes issued on June 3, 2013. In the second quarter of 2013, the Lucid purchase price was increased by $15.3 million due to the final determination of tax balances at the acquisition date adjusted during the measurement period. The Company issued six-month 2.25% unsecured promissory notes to the Lucid sellers for the purchase price increase which matured on December 21, 2013. In satisfaction of the matured notes, the Company repaid $5.5 million and issued a series of 2.25% unsecured promissory notes to the Lucid sellers for the balance of $9.8 million which matured on June 6, 2014. In satisfaction of the matured notes, the Company repaid $2.3 million and issued a series of 2.25% unsecured promissory notes for the balance of $7.5 million which matures on December 6, 2014. |