Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.22.2
Debt
6 Months Ended
Jun. 30, 2022
Debt Disclosure [Abstract]  
Debt Debt
Warehouse Credit Facilities—To provide capital for the mortgage loans that it originates, our mortgage segment utilizes warehouse credit facilities that are classified as current liabilities in our consolidated balance sheets. Borrowings under each warehouse credit facility are secured by the related mortgage loan and rights and income associated with the loan. The following table summarizes borrowings under these facilities as of the periods presented:

June 30, 2022
Lender Borrowing Capacity Outstanding Borrowings Weighted-Average Interest Rate on Outstanding Borrowings Maturity Date
City National Bank $ 100,000  $ 36,151  3.63  % 10/11/2022
Comerica Bank 75,000  33,448  3.80  Upon lender demand
Origin Bank 75,000  35,000  4.31  9/30/2022
People's United Bank, National Association 50,000  21,695  3.47  10/19/2022
Prosperity Bank 150,000  81,268  3.71  9/30/2022
Republic Bank & Trust Company 75,000  31,906  3.32  8/17/2022
Wells Fargo Bank, N.A. 135,000  44,964  3.52  As determined by lender
Western Alliance Bank 25,000  13,871  3.18  12/2/2022
Total $ 685,000  $ 298,303  —  — 

December 31, 2021
Lender Borrowing Capacity Outstanding Borrowings Weighted-Average Interest Rate on Outstanding Borrowings
Western Alliance Bank $ 50,000  $ 17,089  3.00  %
Texas Capital Bank, N.A. 40,000  11,852  3.01 
Flagstar Bank, FSB
25,000  4,102  3.00 
Total $ 115,000  $ 33,043  — 

Secured Revolving Credit Facility—To provide capital for the homes that it purchases, RedfinNow has, through a special purpose entity called RedfinNow Borrower, entered into a secured revolving credit facility with Goldman Sachs Bank, N.A. ("Goldman Sachs"). Borrowings under the facility are secured by RedfinNow Borrower's assets, including the financed homes, as well as the equity interests in RedfinNow Borrower. Under the facility, RedfinNow Borrower and certain other Redfin entities have ongoing obligations, including Redfin Corporation’s compliance with financial covenants based on its net worth, liquidity, and leverage ratio, each measured on a quarterly basis. The following table summarizes borrowings under this facility as of the periods presented:

June 30, 2022 December 31, 2021
Lender Borrowing Capacity Outstanding Borrowings Weighted-Average Interest Rate on Outstanding Borrowings Borrowing Capacity Outstanding Borrowings Weighted-Average Interest Rate on Outstanding Borrowings
Goldman Sachs Bank USA $ 400,000  $ 156,540  4.55  % $ 200,000  $ 199,781  3.30  %

The facility matures on August 9, 2023, but we may extend the maturity date for an additional six months to repay outstanding borrowings. Goldman Sachs may, at its sole option, finance a portion of RedfinNow Borrower's acquisition costs of qualified homes that have been purchased. The portion financed is based, in part, on how long the qualifying home has been owned by a Redfin entity. Beginning on January 1, 2022, all outstanding borrowings generally bear interest at a rate equal to (i) the USD-SOFR-Compound rate plus (ii) 11.448 basis points (subject to a floor of 0.30%) plus (iii) 3.00%. Outstanding borrowings before January 1, 2022 generally bore interest at a rate of one-month LIBOR (subject to a floor of 0.30%) plus 3.00%.
RedfinNow Borrower must repay all borrowings and accrued interest upon the termination of the facility, and it has the option to repay the borrowings, and the related interest, with respect to a specific financed home upon the sale of such home. In certain situations involving a financed home remaining unsold after a certain time period or becoming ineligible for financing under the facility, RedfinNow Borrower may be obligated to repay all or a portion of the borrowings, and related interest, with respect to such home prior to the sale of such home. In instances involving "bad acts," Redfin Corporation has guaranteed repayment of amounts owed under the facility, in some situations, and indemnification of certain expenses incurred, in other situations.

As of June 30, 2022, RedfinNow Borrower had $470,950 of total assets, of which $364,962 related to inventory and $76,823 in cash and cash equivalents. As of December 31, 2021, RedfinNow Borrower had $567,128 of total assets, of which $337,630 related to inventory and $101,064 in cash and equivalents.

For the three months ended June 30, 2022 and 2021, we amortized $94 and $50 of debt issuance costs, respectively, and recognized $1,243 and $613 of interest expense, respectively. For the six months ended June 30, 2022 and 2021, we amortized $185 and $136 of debt issuance costs, respectively, and recognized $2,751 and $953 of interest expense, respectively.

Convertible Senior Notes—We have issued convertible senior notes with the following characteristics:

Issuance Maturity Date Stated Cash Interest Rate Effective Interest Rate First Interest Payment Date Semi-Annual Interest Payment Dates Conversion Rate
2023 notes July 15, 2023 1.75  % 2.45  % January 15, 2019 January 15; July 15 32.7332
2025 notes October 15, 2025 —  0.42  13.7920
2027 notes April 1, 2027 0.50  0.90  October 1, 2021 April 1; October 1 10.6920

We issued our 2023 notes on July 23, 2018, with an aggregate principal amount of $143,750. Subsequent to the issuance date, we repurchased or settled conversions of an aggregate of $120,238 of our 2023 notes. On July 20, 2021, our 2023 notes became redeemable by us, but we did not exercise our redemption right during the three months ended June 30, 2022.

We issued our 2025 notes on October 20, 2020, with an aggregate principal amount of $661,250.

We issued our 2027 notes on March 25, 2021 and April 5, 2021, with an aggregate principal amount of $575,000.

The components of our convertible senior notes were as follows:

June 30, 2022
Issuance Aggregate Principal Amount Unamortized Debt Discount  Unamortized Debt Issuance Costs Net Carrying Amount
2023 notes $ 23,512  $ —  $ 157  $ 23,355 
2025 notes 661,250  —  9,086  652,164 
2027 notes 575,000  —  10,646  564,354 

December 31, 2021
Issuance Aggregate Principal Amount Unamortized Debt Discount Unamortized Debt Issuance Costs Net Carrying Amount
2023 notes $ 23,512  $ —  $ 232  $ 23,280 
2025 notes 661,250  —  10,467  650,783 
2027 notes 575,000  —  11,766  563,234 
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
2023 notes
Contractual interest expense $ 103  $ 104  $ 206  $ 208 
Amortization of debt discount —  —  —  — 
Amortization of debt issuance costs 38  39  75  110 
Total interest expense $ 141  $ 143  $ 281  $ 318 
2025 notes
Contractual interest expense —  —  —  — 
Amortization of debt discount —  —  —  — 
Amortization of debt issuance costs 690  690  1,380  1,380 
Total interest expense $ 690  $ 690  $ 1,380  $ 1,380 
2027 notes
Contractual interest expense 719  715  1,438  749 
Amortization of debt discount —  —  —  — 
Amortization of debt issuance costs 560  557  1,120  585 
Total interest expense $ 1,279  $ 1,272  $ 2,558  $ 1,334 
Total
Contractual interest expense 822  819  1,644  957 
Amortization of debt discount —  —  —  — 
Amortization of debt issuance costs 1,288  1,286  2,575  2,075 
Total interest expense $ 2,110  $ 2,105  $ 4,219  $ 3,032 

Conversion of Our Convertible Senior Notes

Prior to the free conversion date, a holder of each tranche of our convertible senior notes may convert its notes in multiples of $1,000 principal amount only if one or more of the conditions described below is satisfied. On or after the free conversion date, a holder may convert its notes in such multiples without any conditions. The free conversion date is April 15, 2023 for our 2023 notes, July 15, 2025 for our 2025 notes, and January 1, 2027 for our 2027 notes.

The conditions are:
during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;
during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the applicable notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such trading day;
if we call any or all of the applicable notes for redemption, at any time prior to the close of business on the scheduled trading day prior to the redemption date; or
upon the occurrence of specified corporate events.
We intend to settle any future conversions of our convertible senior notes by paying or delivering, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. We apply the if-converted method to calculate diluted earnings per share when applicable. Under the if-converted method, the denominator of the diluted earnings per share calculation is adjusted to reflect the full number of common shares issuable upon conversion, while the numerator is adjusted to add back interest expense for the period.

Classification of Our Convertible Senior Notes

Historically, we had separated our 2023 notes and our 2025 notes into liability and equity components. With our adoption of ASU 2020-06 on January 1, 2021, using the modified retrospective approach, this accounting treatment is no longer applicable. All of our convertible senior notes are now accounted for wholly as liabilities. The difference between the principal amount of the notes and the net carrying amount represents the unamortized debt discount, which we record as a deduction from the debt liability in our consolidated balance sheets. This discount is amortized to interest expense using the effective interest method over the term of the notes.

See Note 4 for fair value information related to our convertible senior notes.
2027 Capped Calls—In connection with the pricing of our 2027 notes, we entered into capped call transactions with certain counterparties (the “2027 capped calls”). The 2027 capped calls have initial strike prices of $93.53 per share and initial cap prices of $138.56 per share, in each case subject to certain adjustments. Conditions that cause adjustments to the initial strike price and initial cap price of the 2027 capped calls are similar to the conditions that result in corresponding adjustments to the conversion rate for our 2027 notes. The 2027 capped calls cover, subject to anti-dilution adjustments, 6,147,900 shares of our common stock and are generally intended to reduce or offset the potential dilution to our common stock upon any conversion of the 2027 notes, with such reduction or offset, as the case may be, subject to a cap based on the cap price. The 2027 capped calls are separate transactions, and not part of the terms of our 2027 notes. As these instruments meet certain accounting criteria, the 2027 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $62,647 incurred in connection with the 2027 capped calls was recorded as a reduction to additional paid-in capital.