FORM 10-K/A GAMCO Investors, Inc. - Gabelli

E. Debt
Debt consists of the following:
2005 2006
5.5% Senior notes $ 100,000 $ 100,000
6% Convertible note (a) 50,000 49,504
5.22% Senior notes 82,308 82,308
Total $ 232,308 $ 231,812
(a) Convertible note was 5% with a conversion price of $52 per share for December 31, 2005. Conversion price at December 31, 2006 is $53 per share.
5.5% Senior notes
On May 15, 2003, we issued 10-year, $100 million senior notes. The senior notes, due May 15, 2013, pay interest semi-annually at 5.5%.
6% Convertible note
On August 13, 2001, we issued a 10-year, $100 million convertible note to Cascade Investment LLC (“Cascade”). The convertible note, due August 14, 2011, paid interest semiannually
at 6.5% for the first year and 6% thereafter and was convertible into our class A common stock at $53 per share. In August 2003, the interest rate on the note was
lowered to 5% and the conversion price was lowered by $1 per share to $52 per share. On April 1, 2005 we repurchased $50 million, plus accrued interest. In June 2006, GBL
and Cascade agreed to amend the terms of the note. Effective September 15, 2006, the rate on the note increased from 5% to 6% while the conversion price was raised to $53
per share from $52 per share. In addition, the exercise date of Cascade’s put option was extended to May 15, 2007, the expiration date of the related letter of credit was
extended to May 22, 2007 and a call option was included giving GBL the right to redeem the note at 101% of its principal amount together with all accrued but unpaid interest
thereon upon at least 30 days prior written notice, subject to certain provisions. The evaluation of the change in the terms of the note under EITF 96-19, “Debtor’s Accounting for a
Modification or Exchange of Debt Instruments,” and EITF 05-7, “Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues,”
resulted in a debt discount of $632,500, which will be amortized over the remaining life of the debt. For the year ended December 31, 2006, we amortized $137,000 of the debt
discount.
If this note were converted, Cascade would own approximately 11% of our aggregate outstanding class A common stock as of December 31, 2006. GBL is required to reserve
and keep available free from pre-emptive rights, shares of common stock out of its authorized stock for purpose of conversion of the note.
On August 9, 2002, the Board of Directors authorized GBL to establish a collateral account consisting of cash or securities totaling $103 million, lowered to $102.5 million in
August 2003, lowered again to $51.3 million in April 2005, to secure a $51.3 million letter of credit in favor of Cascade. We have paid $282,000 in 2004, $148,000 in 2005,
$128,000 in 2006 and expect to pay fees of approximately $53,000 in 2007 for the $51.3 million letter of credit which will expire on May 22, 2007. At that time, the collateral
account will be closed and any cash or securities held will be available for general corporate use.
Company Obligations under Mandatory Convertible Securities
On February 6, 2002, we completed our public offering of 3.6 million mandatory convertible securities. The securities were listed on the NYSE under the symbol “GBL.I” until
February 2005. These securities initially consisted of (a) a purchase contract under which the holder purchased shares of our class A common stock on February 17, 2005 and (b)
senior notes due February 17, 2007. In connection with the offering, we received $90,000,000 before underwriting and other expenses of approximately $3,100,000. For
accounting purposes, the net present value of the purchase contract adjustments and their related offering costs, totaling $4.6 million, have been recorded as a reduction to
additional paid in capital. Costs incurred in connection with the issuance of the senior notes have been capitalized as deferred financing costs and will be amortized as an adjustment
to interest expense over the term of the notes. During 2004, 2005 and 2006, approximately $95,000, $97,000 and $91,000, respectively, have been amortized to interest
expense.
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