|12 Months Ended|
Dec. 31, 2013
7. Long-Term Debt
As of December 31, 2013 and 2012 our long-term debt was as follows (in thousands):
On October 24, 2012, we issued $300.0 million of Senior Notes at a premium of 106% par value with an interest rate of 8.50% (7.7% effective interest rate) and maturity date of June 15, 2019, which have identical terms to the Senior Notes issued in June 2011 (collectively, the “8.50% Senior Notes”). The net proceeds after fees and expenses were approximately $312.0 million. The funds were used to repay all of our outstanding indebtedness under our revolving bank credit facility, a portion of which was incurred to partially fund our acquisition of the Newfield Properties described in Note 2, and for general corporate purposes. In February 2013, holders of the 8.50% Senior Notes issued in October 2012 exchanged their 8.50% Senior Notes for registered notes with the same terms.
On June 10, 2011, we issued $600.0 million of Senior Notes at par with an interest rate of 8.50% and maturity date of June 15, 2019. The net proceeds after fees and expenses were approximately $593.5 million. In January 2012, holders of the Senior Notes issued in June 2011 exchanged their Senior Notes for registered notes with the same terms.
During 2011, we used a portion of the net proceeds from the June 2011 issuance of the 8.50% Senior Notes to repurchase all of our 8.25% Senior Notes due 2014 (the “8.25% Senior Notes”), which had a principal amount of $450.0 million. Costs of $22.0 million related to repurchasing the 8.25% Senior Notes, which included repurchase premiums and the unamortized debt issuance costs, are included in the statement of income within the line item classification, Loss on extinguishment of debt.
Interest on the 8.50% Senior Notes is payable semi-annually in arrears on June 15 and December 15 of each year and all of the 8.50% Senior Notes are subject to the same indenture. The 8.50% Senior Notes are unsecured and are fully and unconditionally guaranteed by certain of our subsidiaries. At December 31, 2013 and 2012, the outstanding balance of our 8.50% Senior Notes was $900.0 million and was classified at their carrying value as long-term debt. The estimated annual effective interest rate on the 8.50% Senior Notes is 8.4% for 2013, which includes amortization of debt issuance costs and premiums. At December 31, 2013 and 2012, the estimated fair value of the 8.50% Senior Notes was approximately $962.5 million and $963.0 million, respectively.
We and our restricted subsidiaries are subject to certain covenants under the indenture governing the 8.50% Senior Notes, which limit our and our restricted subsidiaries’ ability to, among other things, make investments, incur additional indebtedness or issue preferred stock, sell assets, consolidate, merge or transfer all or substantially all of our assets, engage in transactions with affiliates, pay dividends or make other distributions on capital stock or subordinated indebtedness and create unrestricted subsidiaries. We were in compliance with all applicable covenants of the indenture governing the 8.50% Senior Notes as of December 31, 2013.
On November 8, 2013, we entered into the Fifth Amended and Restated Credit Agreement (the “Credit Agreement”), which provides a revolving bank credit facility of up to $1.2 billion with an initial borrowing base of $800.0 million. Letters of credit may be issued up to $300.0 million, provided availability under the revolving bank credit facility exists. This is a secured facility that is collateralized by our oil and natural gas properties. The Credit Agreement terminates on November 8, 2018 and replaced the prior Fourth Amended and Restated Credit Agreement (the “Prior Credit Agreement”). Availability under the Credit Agreement is subject to a semi-annual borrowing base determination set at the discretion of our lenders, and the Company and the lenders may each request one additional determination per year. The amount of the borrowing base is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria. Any determination by our lenders to change our borrowing base will result in a similar change in the availability under our revolving bank credit facility.
The Credit Agreement contains covenants that limit, among other things, our ability to: (i) pay cash dividends in excess of $60.0 million per year; (ii) repurchase our common stock or outstanding senior notes in excess of $100.0 million in the aggregate, provided that such limitation will not apply to the repurchase of our existing senior notes in an aggregate principal amount equal to the aggregate principal amount of any new issuance of notes; (iii) sell our assets; (iv) make certain loans or investments; (v) merge or consolidate; (vi) eliminate certain hedging contracts or enter into certain hedging contacts in excess of 75% of projected oil and gas production on a monthly basis; (vii) enter into certain liens; and (viii) enter into certain other transactions, without the prior consent of the lenders. We are permitted to issue additional unsecured indebtedness above our current level of $900.0 million as long as no event of default occurs, we are in compliance with the financial covenants after giving pro forma effect to the additional unsecured indebtedness, and such additional unsecured indebtedness matures after the maturity date of the Credit Agreement and is not subject to restrictive covenants materially more onerous than those provided for in the Credit Agreement. If we issue additional unsecured indebtedness in excess of the current $900.0 million in aggregate principal amount, the borrowing base then in effect will be reduced by $0.25 for each dollar of such excess until the borrowing base is redetermined by our lenders.
Borrowings under the revolving bank credit facility bear interest at the applicable London Interbank Offered Rate (“LIBOR”) plus a margin that varies from 1.75% to 2.75% depending on the level of total borrowings under the Credit Agreement, or an alternative base rate equal to the greater of (a) Prime Rate, (b) Federal Funds Rate plus 0.5%, and (c) LIBOR plus 1.0%, plus applicable margin ranging from 0.75% to 1.75%. The unused portion of the borrowing base is subject to a commitment fee ranging from 0.375% to 0.5%. The estimated annual effective interest rate was 3.8% for 2013 for borrowings under the Credit Agreement. The estimated annual effective interest rate includes amortization of debt issuance costs and excludes commitment fees and other costs.
The Credit Agreement contains various customary covenants, customary events of default and certain financial tests, as of the end of each quarter, including a maximum consolidated leverage ratio, as defined in the Credit Agreement, of 3.5 to 1.0, and a minimum current ratio, as defined in the Credit Agreement, of 1.0 to 1.0. The customary events of default include: (i) nonpayment of principal when due or nonpayment of interest or other amounts within three business days of when due; (ii) bankruptcy or insolvency with respect to the Company or any of its subsidiaries guaranteeing borrowings under the revolving bank credit facility; or (iii) a change of control.
As it applies to debt issuance costs, we applied accounting guidance under the FASB codification 470-50-40-21 that relates to line-of-credit arrangements. The Credit Agreement had an initial borrowing base equal to the borrowing base under the Prior Credit Agreement. One of the 20 banks in the syndication under the Prior Credit Agreement was replaced with a different bank under the Credit Agreement and the other 19 banks were unchanged. Accordingly, we apportioned the unamortized debt issuance cost related to the Prior Credit Agreement and expensed the portion related to the bank whose debt was extinguished and did not participate in the Credit Agreement. The remaining unamortized debt issuance costs related to the Prior Credit Agreement has been combined with the debt issuance costs related to the Credit Agreement and is being amortized over the term of the Credit Agreement on a straight line basis.
At December 31, 2013, we had $290.0 million in borrowings and $0.4 million in letters of credit outstanding under the revolving bank credit facility. At December 31, 2012, we had $170.0 million in borrowings and $0.6 million in letters of credit outstanding under the revolving bank credit facility. We were in compliance with all applicable covenants of the Credit Agreement as of December 31, 2013.
For information about fair value measurements, refer to Note 8.
The entire disclosure for long-term debt.
Reference 1: http://www.xbrl.org/2003/role/presentationRef