|9 Months Ended|
Sep. 30, 2020
|Debt Disclosure [Abstract]|
The Company’s outstanding debt obligations as of September 30, 2020 and December 31, 2019 were as follows:
(1) The effective interest rate on the liability component of the Convertible Notes due 2023 was 6% for the three and nine months ended September 30, 2020 and 2019.
(2) The effective interest rate on the liability component of the Convertible Notes due 2025 was 4% for the three months ended September 30, 2020.
Interest expense was comprised of the following and is included in other expense, net in the condensed consolidated statement of operations:
Convertible Notes due 2025
In August 2020, the Company issued $517,500 of Convertible Notes due 2025 that mature on August 15, 2025. The Convertible Notes due 2025 bear interest at a rate of 0.75 percent per annum payable semiannually in arrears in cash on February 15 and August 15 of each year, beginning on February 15, 2021. The Convertible Notes due 2025 are general unsecured obligations, subordinated in right of payment to our obligations under the Company's revolving credit facility. The notes are structurally subordinated to the indebtedness and other liabilities of any of the Company's subsidiaries, other than its wholly owned subsidiary, Envestnet Asset Management, Inc., which will fully and unconditionally guarantee the notes on an unsecured basis. The Convertible Notes due 2025 rank equally in right of payment with all of the Company's other existing and future senior indebtedness.
Upon the occurrence of a “fundamental change,” as defined in the indenture, the holders may require the Company to repurchase all or a portion of the Convertible Notes due 2025 for cash at 100% of the principal amount of the Convertible Notes due 2025 being purchased, plus any accrued and unpaid interest. The Company may redeem for cash all or any portion of the notes, at our option, on or after August 15, 2023 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, consecutive or non-consecutive, within a 30 consecutive trading day period ending on, and including, any of the five trading days immediately preceding the date on which the Company provides notice of redemption.
The Convertible Notes due 2025 are convertible into shares of the Company’s common stock under certain circumstances prior to maturity at a conversion rate of 9.3682 shares per one thousand principal amount of the Convertible Notes due 2025, which represents a conversion price of $106.74 per share, subject to adjustment under certain conditions. Holders may convert their Convertible Notes due 2025 at their option at any time prior to the close of business on the business day immediately preceding February 15, 2025, under certain circumstances. The Company’s stated policy is to settle the debt component of the Convertible Notes due 2025 at least partially or wholly in cash. This policy is based both on the Company’s intent and its ability to settle these instruments in cash.
The Company has separately accounted for the liability and equity components of the Convertible Notes due 2025 by allocating the proceeds from issuance of the Convertible Notes due 2025 between the liability component and the embedded conversion option, or equity component. This allocation was done by first estimating an interest rate at the time of issuance for similar notes that do not include the embedded conversion option. The Company allocated $61,936 to the equity component, net of offering costs of $1,982 and taxes of $6,634. The Company recorded a discount on the Convertible Notes due 2025 of $70,552 which will be accreted and recorded as additional interest expense over the life of the Convertible Notes due 2025.
Amended Credit Agreement
The credit agreement under which the Company's revolving credit facility was issued (the “Amended Credit Agreement”) includes certain financial covenants and, as of September 30, 2020, the Company was in compliance with these requirements.
See “Note 14—Net Income (Loss) Per Share” for further discussion of the effect of conversion on net income per share.
The entire disclosure for long-term debt.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef