| Long-Term Debt and Other Liabilities | 8. Long-Term Debt and Other
Liabilities
Long-term debt as of June 30, 2016 and December 31, 2015
was as follows ( in thousands
June 30,
December 31,
2016 2015
Senior Secured Notes $ 525,000 $
—
Convertible Notes 283,036 274,528
Amended and Restated Senior Term Facility
— 301,503
Total debt 808,036 576,031
Less deferred financing costs (17,085 ) (14,623 )
Less current portion of long-term debt
— (18,835 )
Total long-term debt $ 790,951 $ 542,573
Senior Secured Notes
Interest on the Senior Secured Notes will accrue at the rate of
12.500% per annum and will be payable semi-annually in arrears
on July 1 and January 1, commencing on January 1,
2017. The notes mature on July 1, 2022.
We used a portion of the net proceeds from the issuance of the
Senior Secured Notes to repay all indebtedness outstanding under
the Amended and Restated Senior Term Facility (as defined below),
which we prepaid at par plus 3.0% of the principal amount of the
loans prepaid (see below for additional details). We intend to use
the remaining net proceeds for working capital and other general
corporate purposes, including potential costs associated with the
launch and commercial rollout of our next-generation technology
solutions.
We paid approximately $11.4 million of loan origination fees and
financing costs related to the issuance of the Senior Secured
Notes, which has been accounted for as deferred financing costs.
The deferred financing costs on our unaudited condensed
consolidated balance sheet are being amortized over the contractual
term of the Senior Secured Notes using the effective interest
method. Total amortization expense was $0.1 million for both the
three and six month periods ended June 30, 2016. See Note 9,
“Interest Costs” for additional information.
The Senior Secured Notes are the senior secured indebtedness of the
Issuers and are:
• effectively senior to all of the
Issuers’ existing and future senior unsecured indebtedness
and the Issuers’ indebtedness secured on a junior priority
basis by the same collateral securing the Senior Secured Notes, if
any, in each case to the extent of the value of the collateral
securing the Senior Secured Notes;
• effectively senior in right of
payment to any and all of the Issuers’ future indebtedness
that is subordinated in right of payment to the Senior Secured
Notes;
• effectively equal in right of payment
with the Issuers’ existing and future (i) unsecured
indebtedness that is not subordinated in right of payment to the
notes and (ii) indebtedness secured on a junior priority basis
by the same collateral securing the Senior Secured Notes, if any,
in each case to the extent of any insufficiency in the collateral
securing the notes;
• structurally senior to all of our
existing and future indebtedness, including our Convertible Notes
(as defined below); and
• structurally subordinated to all of
the indebtedness and other liabilities of any non-guarantor
subsidiary (other than the Issuers).
The Senior Secured Notes are guaranteed, on a senior secured basis,
by us and all of GIH’s existing and future domestic
restricted subsidiaries (other than the Co-Issuer), subject to
certain exceptions. The Issuers’ obligations under the Senior
Secured Notes are not guaranteed by Gogo International Holdings,
LLC, a subsidiary of ours that holds no material assets other than
equity interests of our foreign subsidiaries. Each guarantee is a
senior secured obligation of such Guarantor and is:
• effectively senior to all of such
Guarantor’s existing and future senior unsecured indebtedness
and such Guarantor’s indebtedness secured on a junior
priority basis by the same collateral, if any, securing the
guarantee, of such Guarantor, in each case to the extent of the
value of the collateral securing the guarantee;
• effectively senior in right of
payment to all of such Guarantor’s future indebtedness that
is subordinated in right of payment to such Guarantor’s
guarantee;
• effectively equal in right of payment
with all of such Guarantor’s existing and future
(i) unsecured indebtedness that is not subordinated in right
of payment to such Guarantor’s guarantee, and
(ii) indebtedness secured on a junior priority basis by the
same collateral, if any, securing such guarantee, in each case to
the extent of any insufficiency in the collateral securing such
guarantee; and
• structurally subordinated to all
indebtedness and other liabilities of any non-Guarantor subsidiary
of such Guarantor (excluding, in the case of our guarantee, the
Issuers).
The Senior Secured Notes and the related guarantees are secured by
first-priority liens, subject to permitted liens, on substantially
all of the Issuers’ and the Guarantors’ assets, except
for certain excluded assets, including pledged equity interests of
the Issuers and all of our existing and future domestic restricted
subsidiaries guaranteeing the Senior Secured Notes.
The security interests in certain collateral may be released
without the consent of holders of the notes if such collateral is
disposed of in a transaction that complies with the Indenture and
related security agreements. In addition, under certain
circumstances, we and the Guarantors have the right to transfer
certain intellectual property assets that on the Issue Date
constitute collateral securing the Senior Secured Notes or the
guarantees to a restricted subsidiary organized under the laws of
Switzerland, resulting in the release of such collateral.
On or after July 1, 2019, the Issuers may, at their option, at
any time or from time to time, redeem any of the Senior Secured
Notes in whole or in part. The Senior Secured Notes will be
redeemable at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest,
if any, to (but not including) the redemption date (subject to the
right of holders of record on the relevant regular record date that
are on or prior to the redemption date to receive interest due on
an interest payment date), if redeemed during the twelve-month
period commencing on July 1 of the following years:
Redemption
Year Price
2019 106.250 %
2020 103.125 %
2021 and thereafter 100.000 %
In addition, at any time prior to July 1, 2019, the Issuers
may redeem up to 35% of the aggregate principal amount of the
Senior Secured Notes with the proceeds of certain equity offerings
at a redemption price of 112.500% of their principal amount, plus
accrued and unpaid interest, if any, to (but not including) the
date of redemption; provided, however ,
The Issuers may redeem the Senior Secured Notes, in whole or in
part, at any time prior to July 1, 2019, at a redemption price
equal to 100% of the principal amount of the notes redeemed plus
the make-whole premium set forth in the Indenture as of, and
accrued and unpaid interest, if any, to (but not including) the
applicable redemption date.
The Indenture contains covenants that, among other things, limit
the ability of the Issuers and the Subsidiary Guarantors and, in
certain circumstances, our ability, to: incur additional
indebtedness; pay dividends, redeem stock or make other
distributions; make investments; create restrictions on the ability
of our restricted subsidiaries to pay dividends to the Issuers or
make other intercompany transfers; create liens; transfer or sell
assets; merge or consolidate; and enter into certain transactions
with the Issuers’ affiliates. Most of these covenants will
cease to apply if and for as long as the Senior Secured Notes have
investment grade ratings from both Moody’s Investment
Services, Inc. and Standard & Poor’s.
If we or the Issuers undergo specific types of change of control
prior to July 1, 2022, GIH is required to make an offer to
repurchase for cash all of the Senior Secured Notes at a repurchase
price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to (but not including) the payment
date.
The Indenture provides for events of default, which, if any of them
occur, would permit or require the principal, premium, if any, and
interest on all the then outstanding Senior Secured Notes issued
under the Indenture to be due and payable immediately. As of
June 30, 2016, no event of default had occurred.
Convertible Notes
The $361.9 million of proceeds received from the issuance of the
Convertible Notes was initially allocated between long-term debt
(the liability component) at $261.9 million, and additional
paid-in-capital, (the equity component) at $100.0 million, within
the unaudited condensed consolidated balance sheet. The fair value
of the liability component was measured using rates determined for
similar debt instruments without a conversion feature. The carrying
amount of the equity component, representing the conversion option,
was determined by deducting the fair value of the liability
component from the aggregate face value of the Convertible Notes.
If we or the note holders elect not to settle the debt through
conversion, we must settle the Convertible Notes at face value.
Therefore, the liability component will be accreted up to the face
value of the Convertible Notes, which will result in additional
non-cash interest expense being recognized within the unaudited
condensed consolidated statements of operations through the
Convertible Notes maturity date (see Note 9, “Interest
Costs” for additional information). The effective interest
rate on the Convertible Notes, including accretion of the notes to
par and debt issuance cost amortization, was approximately 11.5%.
The equity component will not be remeasured as long as it continues
to meet the conditions for equity classification.
As of June 30, 2016 and December 31, 2015, the
outstanding principal on the Convertible Notes was $361.9 million
for both periods, the unamortized debt discount was $78.9 million
and $87.4 million, respectively, and the net carrying amount of the
liability component was $283.0 million and $274.5 million,
respectively.
We incurred approximately $10.4 million of issuance costs related
to the issuance of the Convertible Notes, of which $7.5 million and
$2.9 million were recorded to deferred financing costs and
additional paid-in capital, respectively, in proportion to the
allocation of the proceeds of the Convertible Notes. The $7.5
million recorded as deferred financing costs on our unaudited
condensed consolidated balance sheet is being amortized over the
term of the Convertible Notes using the effective interest method.
Total amortization expense of the deferred financing costs was $0.3
million and $0.7 million, respectively, for the three and six month
periods ended June 30, 2016, and $0.3 million and $0.4
million, respectively, for the comparable prior year periods.
Amortization expense is included in interest expense in the
unaudited condensed consolidated statements of operations. As of
June 30, 2016 and December 31, 2015, the balance of
unamortized deferred financing costs related to the Convertible
Notes was $5.8 million and $6.5 million, respectively, and is
included as a reduction to long-term debt in our unaudited
condensed consolidated balance sheets. See Note 9, “Interest
Costs” for additional information.
The Convertible Notes had an initial conversion rate of 41.9274
common shares per $1,000 principal amount of Convertible Notes,
which is equivalent to an initial conversion price of approximately
$23.85 per share of our common stock. Upon conversion, we currently
expect to deliver cash up to the principal amount of the
Convertible Notes then outstanding. With respect to any conversion
value in excess of the principal amount, we currently expect to
deliver shares of our common stock. We may elect to deliver cash in
lieu of all or a portion of such shares. The shares of common stock
subject to conversion are excluded from diluted earnings per share
calculations under the if-converted method as their impact is
anti-dilutive.
Holders may convert the Convertible Notes, at their option, in
multiples of $1,000 principal amount at any time prior to
December 1, 2019, but only in the following circumstances:
• during any fiscal quarter beginning
after the fiscal quarter ended June 30, 2015, if the last
reported sale price of our common stock for at least 20 trading
days (whether or not consecutive) during the last
30 consecutive trading days of the immediately preceding
fiscal quarter is greater than or equal to 130% of the conversion
price of the Convertible Notes on each applicable trading day;
• during the five business day period
following any five consecutive trading day period in which the
trading price for the Convertible Notes is less than 98% of the
product of the last reported sale price of our common stock and the
conversion rate for the Convertible Notes on each such trading day;
or
• upon the occurrence of specified
corporate events.
None of the above events allowing for conversion prior to
December 1, 2019 occurred during the six month periods ended
June 30, 2016 or 2015. Regardless of whether any of the
foregoing circumstances occurs, a holder may convert its
Convertible Notes, in multiples of $1,000 principal amount, at any
time on or after December 1, 2019 until maturity.
In addition, if we undergo a fundamental change (as defined in the
indenture governing the Convertible Notes), holders may, subject to
certain conditions, require us to repurchase their Convertible
Notes for cash at a price equal to 100% of the principal amount of
the Convertible Notes to be purchased, plus any accrued and unpaid
interest. In addition, if specific corporate events occur prior to
the maturity date, we will increase the conversion rate for a
holder who elects to convert its Convertible Notes in connection
with such a corporate event in certain circumstances.
In connection with the issuance of the Convertible Notes, we paid
approximately $140 million to enter into prepaid forward stock
repurchase transactions (the “Forward Transactions”)
with certain financial institutions (the “Forward
Counterparties”), pursuant to which we purchased
approximately 7.2 million shares of common stock for
settlement on or around the March 1, 2020 maturity date for
the Convertible Notes, subject to the ability of each Forward
Counterparty to elect to settle all or a portion of its Forward
Transactions early. As a result of the Forward Transactions, total
shareholders’ equity within our unaudited condensed
consolidated balance sheet was reduced by approximately $140
million. Approximately 7.2 million shares of common stock that
will be effectively repurchased through the Forward Transactions
are treated as retired shares for basic and diluted EPS purposes
although they remain legally outstanding.
Amended and Restated Senior Term Facility
Prior to the Amendment, under the Amended Senior Term Facility we
borrowed an aggregate principal amount of $248.0 million (the
“Tranche B-1 Loans”). Pursuant to the Amendment, we
borrowed an aggregate additional principal amount of $75.0 million
(the “Tranche B-2 Loans” and, together with the Tranche
B-1 Loans, the “Loans”).
The interest rates applicable to the Tranche B-1 Loans were based
on a fluctuating rate of interest measured by reference, at
GBA’s option, to either (i) a London inter-bank offered
rate adjusted for statutory reserve requirements
(“LIBOR”) (subject to a 1.50% floor) plus an applicable
margin of 9.75% per annum, or (ii) an alternate base rate
(“Base Rate”) (subject to a 2.50% floor) plus an
applicable margin of 8.75% per annum. The interest rates
applicable to the Tranche B-2 Loans were based on a fluctuating
rate of interest measured by reference, at GBA’s option, to
either (i) LIBOR (subject to a 1.00% floor) plus an applicable
margin of 6.50% per annum, or (ii) a Base Rate (subject
to a 2.00% floor) plus an applicable margin of 5.50% per
annum. Immediately prior to the termination, all loans were
outstanding as one month LIBOR loans, and the interest rates on the
Tranche B-1 Loans and the Tranche B-2 Loans were 11.25% and 7.50%,
respectively. We pay customary fees in respect of the Amended and
Restated Senior Term Facility.
The Tranche B-2 Loans were secured by the same collateral and
guaranteed by the same guarantors as the Tranche B-1 Loans. The
call premiums, mandatory prepayments, covenants, events of default
and other terms applicable to the Tranche B-2 Loans were also
generally the same as the corresponding terms applicable to the
Tranche B-1 Loans under the Amended and Restated Senior Term
Facility.
On June 14, 2016 the outstanding principal balance of $287.7
million, together with accrued and unpaid interest, was paid in
full, and the Amended and Restated Senior Term Facility was
terminated in accordance with its terms on such date (subject to
the survival of provisions expressly stated therein to survive the
termination thereof). Additionally, we paid the voluntary
prepayment premium of 3.0% or $8.6 million and wrote off all of the
remaining unamortized deferred financing costs of $6.8 million.
Both of these items are included in loss on extinguishment of debt
in our unaudited condensed consolidated financial statements. As of
December 31, 2015, $301.5 million was outstanding under the
Amended and Restated Senior Term Facility.
We paid $22.2 million of loan origination fees and financing costs
related to the Amended and Restated Senior Term Facility, all but
$4.1 million of which were accounted for as deferred financing
costs. Total amortization expense of the deferred financing costs
was $0.6 million and $1.4 million, respectively, for the three and
six month periods ended June 30, 2016, and $0.8 million and
$1.5 million in the comparable prior year periods, respectively.
Amortization expense is included in interest expense in the
unaudited condensed consolidated statements of operations. As noted
above, deferred financing costs related to the Amended and Restated
Senior Term Facility were written off as of June 14, 2016. As
of December 31, 2015, the balance of unamortized deferred
financing costs related to the Amended and Restated Senior Term
Facility was $8.2 million and was included as a reduction to
long-term debt in our unaudited condensed consolidated balance
sheets. See Note 9, “Interest Costs” for additional
information.
Letters of Credit |
