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Market Risk and Interest Rate Risk
−Removed: Concurrent with the issuance of our Convertible Notes, we entered into separate convertible note hedge and warrant transactions.
−Removed: The convertible note hedge transactions were intended to reduce the potential future economic dilution associated with the conversion of the Convertible Notes and, combined with the warrants, effectively raised the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share.
−Removed: Under the convertible note hedge transactions, we had the option to purchase a total of approximately 3.1 million shares of our common stock, which was the number of shares initially issuable upon conversion of the Convertible Notes in full, at a price of approximately $79.89, which corresponds to the initial conversion price of the Convertible Notes, subject to customary anti-dilution adjustments substantially similar to those in the Convertible Notes.
−Removed: The convertible note hedge transactions expired in the third quarter of 2019.
−Removed: Under the warrant transactions, the holders of the warrants have the option to purchase a total of approximately 3.1 million shares of our common stock at a price of approximately $97.12.
−Removed: If the average market value per share of our common stock for the reporting period exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share.
−Removed: The warrants will expire incrementally on 100 different dates from January 6, 2020 to May 28, 2020 and are exercisable at each such expiry date.
−Removed: See Note 7 “Financing Arrangements” within the notes to the consolidated financial statements for additional information on our Convertible Notes, which matured on October 1, 2019.
We have exposure to changes in interest rates associated with borrowings under our bank credit facility, which has variable interest rates tied to LIBOR or an alternate base rate, at our option.
−Removed: At December 31, 2019 , we had borrowings outstanding under the credit facility totaling $205.0 million that carried a weighted average interest rate of 3.0% including the impact of the interest rate swap described below.
−Removed: A hypothetical 100 basis point change in the interest rate would have a $1.6 million effect on our pretax income, on an annualized basis, including the effect of the interest rate swap.
−Removed: At December 31, 2018, our borrowings outstanding under the credit facility totaled $50.0 million which carried a weighted average interest rate of 3.7%, including the effect of the interest rate swap described below.
−Removed: As of December 31, 2018, these variable rate borrowings were fully hedged against changes in interest rates by the interest rate swap, which had a notional amount of $50.0 million as of December 31, 2018.
−Removed: A hypothetical 100 basis point change in the interest rate as of December 31, 2018, would have had no impact on our consolidated financial statements.
+Added: At December 31, 2020, we had borrowings outstanding under the credit facility totaling $200.0 million that carried a weighted average interest rate of 2.5% including the impact of the interest rate swaps described below.
+Added: As of December 31, 2020, these variable rate borrowings were fully hedged against changes in interest rates by the interest rate swaps, which have a notional amount of $200.0 million as of December 31, 2020.
+Added: A hypothetical 100 basis point change in the interest rate as of December 31, 2020 would have no impact on our pretax income, on an annualized basis, including the effect of the interest rate swaps.
+Added: At December 31, 2019, our borrowings outstanding under the credit facility totaled $205.0 million which carried a weighted average interest rate of 3.0%, including the effect of the interest rate swap in effect and described below.
+Added: A hypothetical 100 basis point change in the interest rate as of December 31, 2019, would have had a $1.6 million effect on our pretax income, on an annualized basis, including the effect of the interest rate swap.
On June 22, 2017, we entered into a forward interest rate swap agreement effective August 31, 2017 and ending August 31, 2022, with a notional amount of $50.0 million.
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Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.900%.
+Added: On January 30, 2020, we entered into a forward interest rate swap agreement effective December 31, 2019 and ending December 31, 2024, with a notional amount of $50.0 million.
+Added: We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings.
+Added: Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.500%.
+Added: On March 16, 2020, we entered into a forward interest rate swap agreement effective February 28, 2020 and ending February 28, 2025, with a notional amount of $100.0 million.
+Added: We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings.
+Added: Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 0.885%.
We also have exposure to changes in interest rates associated with the promissory note assumed on June 30, 2017 in connection with our purchase of an aircraft, which has variable interest rates tied to LIBOR.
At December 31, 2020, the outstanding principal amount of the promissory note was $3.3 million and carried an interest rate of 2.1%.
−Removed: A hypothetical 100 basis point change in this interest rate would not
−Removed: have a material effect on our pretax income.
−Removed: At December 31, 2018 the outstanding principal amount of the promissory note was $4.4 million and carried an interest rate of 4.3%.
+Added: A hypothetical 100 basis point change in this interest rate would not have a material effect on our pretax income.
+Added: At December 31, 2019 the outstanding principal amount of the promissory note was $3.9 million
+Added: and carried an interest rate of 3.7%.
A hypothetical 100 basis point change in the interest rate as of December 31, 2019 would not have had a material effect on our pretax income.
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These investments principally consist of overnight sweep accounts.
−Removed: Due to the short maturity of these investments, we have concluded that we do not have material market risk exposure.
−Removed: We have a non-interest bearing convertible debt investment in Shorelight Holdings, LLC, a privately-held company, which we account for as an available-for-sale debt security.
+Added: Due to the short maturity of these investments, we concluded that we do not have material market risk exposure.
+Added: We have a 1.69% convertible debt investment in Shorelight Holdings, LLC, a privately-held company, which we account for as an available-for-sale debt security.
As such, the investment is carried at fair value with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income.
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At December 31, 2019, the fair value of the investment was $49.5 million, with a total cost basis of $27.9 million.
−Removed: We have a preferred stock investment in Medically Home Group, Inc., a privately-held company, which we account for as an equity security without a readily determinable fair value using the measurement alternative.
+Added: We have a preferred stock investment in Medically Home Group, Inc.
+Added: (“Medically Home”), a privately-held company, which we account for as an equity security without a readily determinable fair value using the measurement alternative.
As such, the investment is carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment.
Any unrealized holding gains and losses resulting from observable price changes are recorded in our consolidated statement of operations.
−Removed: As of December 31, 2019 , the carrying value of the investment was $5.0 million.
−Removed: Following our purchase, there has been no impairment, nor any observable price changes to our investment.
−Removed: See Note 13 “Fair Value of Financial Instruments” for further information on our long-term investments.
+Added: As of December 31, 2020, the carrying value of the investment was $6.7 million, with a total cost basis of $5.0 million.
+Added: At December 31, 2019 the carrying value and total cost basis of the investment was $5.0 million.
+Added: Following our purchase, we have not identified any impairment of our investment.
+Added: In October 2020, we recognized an unrealized gain of $1.7 million on our preferred stock investment resulting from an observable price change of preferred stock with similar rights and preferences to our preferred stock investment issued by Medically Home.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.