| Long-Term Debt and Other Liabilities | 9.
Long-Term Debt and Other Liabilities
Long-term debt as of September 30, 2018 and December 31,
2017 was as follows ( in thousands
September 30, December 31,
Senior Secured Notes $ 703,411 $ 705,520
Convertible Notes 327,653 311,544
Total debt 1,031,064 1,017,064
Less deferred financing costs (13,053 ) (16,196 )
Total long-term debt $ 1,018,011 $ 1,000,868
Senior Secured Notes “Co-Issuer”
As noted above, on September 20, 2017, the Issuers, the
Guarantors and the Trustee entered into the Supplemental Indenture
to (i) increase the amount of additional secured indebtedness
under Credit Facilities (as defined in the Indenture) that may be
incurred by the Issuer and its Restricted Subsidiaries (as defined
in the Indenture) under the Indenture by $100 million (from
$75 million to $175 million in aggregate principal
amount), (ii) permit the Issuer and its Restricted Subsidiaries to
incur additional secured indebtedness in connection with vendor
financing arrangements not to exceed $50 million in aggregate
principal amount at any time outstanding and (iii) permit the
Issuer and its Restricted Subsidiaries to make additional dividends
or distributions to Gogo in an aggregate amount of up to
$15 million during any twelve-month period to pay interest on
any indebtedness or preferred stock with a maturity later than
July 1, 2022. The Supplemental Indenture became effective
immediately upon execution, following our receipt of consents from
holders of a majority of the outstanding principal amount of the
Existing Notes (excluding Existing Notes held by the Issuers or any
affiliates of the Issuers) to the Supplemental Indenture and
amendments to the collateral agency agreement governing the Senior
Secured Notes (the “Consent Solicitation”). In
connection with the Consent Solicitation, GIH paid
$1.4 million in fees (“Consent Fees”) to holders
of Existing Notes who validly tendered (and did not revoke) their
consents prior to the expiration of the Consent Solicitation.
As of September 30, 2018 and December 31, 2017, the
outstanding principal amount of the Senior Secured Notes was
$690.0 million and $690.0 million, respectively, the
unamortized debt premium and Consent Fees were $13.4 million
and $15.5 million, respectively, and the net carrying amount
was $703.4 million and $705.5 million, respectively.
Interest on the Senior Secured Notes accrues at the rate of
12.500% per annum and is payable semi-annually in arrears on
January 1 and July 1, interest payments commenced on
January 1, 2017 (other than the January 2017 Additional Notes,
for which interest payments commenced on July 1, 2017, and the
September 2017 Additional Notes, for which interest payments
commenced on January 1, 2018). The Senior Secured Notes mature
on July 1, 2022. The January 2017 Additional Notes and
September 2017 Additional Notes have the same terms as the Original
Senior Secured Notes, except with respect to the issue date and
issue price, and are treated as a single series for all purposes
under the Indenture and the security documents that govern the
Senior Secured Notes.
We paid approximately $11.4 million, $2.0 million and
$2.5 million, respectively, of aggregate origination fees and
financing costs related to the issuance of the Original Senior
Secured Notes, the January 2017 Additional Notes and the September
2017 Additional Notes, which have been accounted for as deferred
financing costs. Additionally, as noted above, we paid
approximately $1.4 million of Consent Fees, which partially
offset the net carrying value of the Senior Secured Notes. 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 $0.7 million and $2.0 million,
respectively, for the three and nine month periods ended
September 30, 2018, and $0.5 million and
$1.6 million, respectively, for the prior year periods. As of
September 30, 2018 and December 31, 2017, the balance of
unamortized deferred financing costs related to the Senior Secured
Notes was $10.7 million and $12.6 million, respectively,
and is included as a reduction to long-term debt in our unaudited
condensed consolidated balance sheet. See Note 10, “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 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 Senior Secured
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 Senior Secured 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-Guarantors
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),
•
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 such 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
the guarantee of such Guarantor, 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
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 Senior Secured 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 without
consent of the holders of the Senior Secured Notes.
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 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 the principal amount redeemed,
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 Senior Secured 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, including us. 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 of the then outstanding Senior Secured Notes issued
under the Indenture to be due and payable immediately. As of
September 30, 2018, 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 non-cash
As of September 30, 2018 and December 31, 2017, the
outstanding principal on the Convertible Notes was
$361.9 million, the unamortized debt discount was
$34.3 million and $50.4 million, respectively, and the
net carrying amount of the liability component was
$327.7 million and $311.5 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 as deferred
financing costs and additional paid-in
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
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 three and nine month
periods ended September 30, 2018 or the year ended
December 31, 2017. 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.
Restricted Cash |
