|12 Months Ended|
Dec. 31, 2018
|Debt Disclosure [Abstract]|
2. Long-Term Debt
The components of our long-term debt are presented in the following tables (in thousands):
Aggregate annual maturities of amounts recorded for long-term debt as of December 31, 2018 are as follows (in millions): 2019–$0.0; 2020–$0.0; 2021–$0.0; 2022–$21.0; 2023-$625.0. See below for a discussion of our debt instruments.
9.75% Senior Second Lien Notes Due 2023
On October 18, 2018, we entered into a series of transactions to effect a refinancing of substantially all of our outstanding indebtedness. At that time, we issued $625.0 million of 9.75% Senior Second Lien Notes due 2023 (the “Senior Second Lien Notes”), which were issued at par with an interest rate of 9.75% per annum that matures on November 1, 2023, and are governed under the terms of the Indenture of the Senior Second Lien Notes (the “Indenture”). The estimated annual effective interest rate on the Senior Second Lien Notes was 10.3%, which includes debt issuance costs. Interest on the Senior Second Lien Notes is payable in arrears on May 1 and November 1 of each year, beginning on May 1, 2019.
Prior to November 1, 2020, we may redeem all or any portion of the Senior Second Lien Notes at a redemption price equal to 100% of the principal amount of the outstanding Senior Second Lien Notes plus accrued and unpaid interest, if any, to the redemption date, plus the “Applicable Premium” (as defined in the Indenture). In addition, prior to November 1, 2020, we may, at our option, on one or more occasions redeem up to 35% of the aggregate original principal amount of the Senior Second Lien Notes in an amount not greater than the net cash proceeds from certain equity offerings at a redemption price of 109.750% of the principal amount of the outstanding Senior Second Lien Notes plus accrued and unpaid interest, if any, to the redemption date.
On and after November 1, 2020, we may redeem the Senior Second Lien Notes, in whole or in part, at redemption prices (expressed as percentages of the principal amount thereof) equal to 104.875% for the 12-month period beginning November 1, 2020, 102.438% for the 12-month period beginning November 1, 2021, and 100.000% on November 1, 2022 and thereafter, plus accrued and unpaid interest, if any, to the redemption date. The Senior Second Lien Notes are guaranteed by Energy VI and W & T Energy VII, LLC (together, the “Guarantor Subsidiaries”). If we experience certain change of control events, we will be required to offer to repurchase the notes at 101.000% of the principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
Certain entities controlled by Tracy W. Krohn, Chairman, Chief Executive Officer and President of the Company, and his family were invested in certain existing notes of the Company that were repurchased by the Company in connection with the Refinancing Transaction (defined below). The Krohn entities tendered their existing notes on the same terms as were made available to all other holders of the existing notes pursuant to the publicly disclosed Company offer to purchase any and all such notes and reinvested an amount approximately equal to the proceeds from such tenders by purchasing approximately $8.0 million principal in Senior Second Lien Notes at the same price offered to other initial investors in the offering of such notes. As part of the 2018 Refinancing Transaction, the Krohn entities also had their previously disclosed $5.0 million investment in the Company’s Second Lien Term Loan (defined below) liquidated as the loan was repaid in full.
The Senior Second Lien Notes are secured by a second-priority lien on all of our assets that are secured under the Credit Agreement. The Senior Second Lien Notes contain covenants that limit or prohibit our ability and the ability of certain of our subsidiaries to: (i) make investments; (ii) incur additional indebtedness or issue certain types of preferred stock; (iii) create certain liens; (iv) sell assets; (v) enter into agreements that restrict dividends or other payments from the Company’s subsidiaries to the Company; (vi) consolidate, merge or transfer all or substantially all of the assets of the Company; (vii) engage in transactions with affiliates; (viii) pay dividends or make other distributions on capital stock or subordinated indebtedness; and (ix) create subsidiaries that would not be restricted by the covenants of the Indenture entered into by and among the Company, the Guarantors, and Wilmington Trust, National Association, as trustee (the “Trustee”). These covenants are subject to exceptions and qualifications set forth in the Indenture. In addition, most of the above described covenants will terminate if both S&P Global Ratings, a division of S&P Global Inc., and Moody’s Investors Service, Inc. assign the Senior Second Lien Notes an investment grade rating and no default exists with respect to the Senior Second Lien Notes.
Concurrently with the issuance of the Senior Second Lien Notes, we entered into the Credit Agreement with a maturity date of October 18, 2022. The primary items of the Credit Agreement are as follows, with certain terms defined under the Credit Agreement:
Availability under the Credit Agreement is subject to semi-annual redeterminations of our borrowing base to occur on or before May 15 and November 14 each calendar year, and certain additional redeterminations that may be requested at the discretion of either the lenders or the Company. The borrowing base is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria. Any redetermination by our lenders to change our borrowing base will result in a similar change in the availability under the Credit Agreement. The Credit Agreement’s security is collateralized by a first priority lien on substantially all of our oil and natural gas properties and certain personal property.
As of December 31, 2018, we had $21.0 million borrowings outstanding under the Credit Agreement and as of December 31, 2017, we had no borrowings outstanding under the Fifth Amended and Restated Credit Agreement, as amended (the “Prior Credit Agreement). As of December 31, 2018 and 2017, we had $9.6 million and $0.3 million, respectively, outstanding in letters of credit under the Credit Agreement and Prior Credit Agreement, respectively.
As of December 31, 2018, we were in compliance with all applicable covenants of the Credit Agreement and Senior Second Lien Notes.
For information about fair value measurements of our long-term debt, refer to Note 3.
Refinancing Transaction in 2018
On October 18, 2018, funds from the issuances of the Senior Second Lien Notes, borrowings under the Credit Agreement and cash on hand were used to repurchase and retire, repay or redeem all of the prior debt instruments, which are listed below. The issuance of the Senior Second Lien Notes, execution of the Credit Agreement and extinguishment of the prior debt instruments are collectively referred to as the “Refinancing Transaction”. A net gain of $47.1 million was recorded as a result of the Refinancing Transaction, comprised of the write off of carrying value adjustments of the prior debt instruments and partially offset by premiums paid. The effect on both basic and diluted earnings per share for 2018 was $0.33 per share, which assumes the gain would not affect our income tax expense for 2018.
Prior Debt Instruments
The following debt instruments were repurchased and retired, repaid or redeemed, including interest and applicable premiums as part of the Refinancing Transaction on October 18, 2018:
Exchange Transaction in 2016
On September 7, 2016, we consummated a transaction whereby we exchanged approximately $710.2 million in aggregate principal amount, or 79%, of our Unsecured Senior Notes for: (i) $159.8 million in aggregate principal amount of Second Lien PIK Toggle Notes; (ii) $142.0 million in aggregate principal amount of Third Lien PIK Toggle Notes; and (iii) 60.4 million shares of our common stock (collectively, the “Debt Exchange”). At the same time on closing on the Debt Exchange, we closed on a $75.0 million, 1.5 Lien Term Loan, with the then largest holder of our Unsecured Senior Notes (collectively with the Debt Exchange, the “Exchange Transaction”). We accounted for the Exchange Transaction as a Troubled Debt Restructuring pursuant to the guidance under ASC 470-60. Under ASC 470-60, the carrying value of the Second Lien PIK Toggle Notes, Third Lien PIK Toggle Notes and 1.5 Lien Term Loan (the “2016 Debt”) was measured using all future undiscounted payments (principal and interest); therefore, no interest expense was recorded for the 2016 Debt in the Consolidated Statements of Operations from September 7, 2016 to October 18, 2018. Therefore, our reported interest expense was significantly less than the contractual interest payments for the period the 2016 Debt was outstanding. Under ASC 470-60, payments related to the 2016 Debt are reported in the financing section of the Condensed Consolidated Statements of Cash Flows.
A gain of $123.9 million was recognized related to the Exchange Transaction during 2016. Under ASC 470-60, a gain was recognized as the sum of (i) the future undiscounted payments (principal and interest) related to the 2016 Debt, (ii) the fair value of the common stock issued and (iii) deal transaction costs of $18.9 million was less than the sum of (iv) the carrying value of the Unsecured Senior Notes exchanged and (v) the funds received from the 1.5 Lien Term Loan. The shares of common stock issued were valued at $1.76 per share, which was the closing price on September 7, 2016. The effect on both basic and diluted earnings per share for 2016 was $1.30 per share, which assumes the gain would not affect our income tax benefit for 2016.
During the second quarter of 2017, interest on the Second Lien PIK Toggle Notes and the Third Lien PIK Toggle Notes was paid in cash rather than in kind. As a result of the cash interest payment, an $8.2 million net reduction was recorded to long-term debt on the Consolidated Balance Sheet and the offset to Gain on Debt Transactions in the Consolidated Statement of Operations. For 2017, $0.4 million of additional expense was recorded to Gain on Debt Transactions for differences between actual and estimated transaction expenses. The effect of these transactions on both basic and diluted earnings per share for 2017 was $0.06 per share, which assumes the net gain would not affect our income tax benefit for that period.
The entire disclosure for long-term debt.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef