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DEBT | 6 Months Ended
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Jun. 30, 2019
DEBT |
DEBT | 6. DEBT As of June 30, 2019 and December 31, 2018, the Company’s debt consisted of the following (in thousands):
|  | June 30, |  | December 31,
|  | 2019(1) |  | 2018
Senior revolving credit facility |  | $ | 188,000 |  | $ | —
6.75% senior notes due 2025(2) |  |  | 613,887 |  |  | 613,105
|  | $ | 801,887 |  | $ | 613,105
| (1) |  | The Company’s debt balance as of June 30, 2019 was classified as a current liability. See Note 14,” Subsequent Events,” for more details.
| (2) |  | Amount includes a $6.7 million and $7.2 million unamortized discount at June 30, 2019 and December 31, 2018, respectively, associated with the 2025 Notes. Amount includes a $5.0 million and $5.4 million unamortized premium at June 30, 2019 and December 31, 2018, respectively, associated with the Additional 2025 Notes. Additionally, these amounts are net of $9.4 million and $10.1 million unamortized debt issuance costs at June 30, 2019 and December 31, 2018, respectively. Refer to “6.75% Senior Notes” below for further details.
Senior Revolving Credit Facility On September 7, 2017, the Company entered into an Amended and Restated Senior Secured Revolving Credit Agreement (the Senior Credit Agreement) by and among the Company, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and certain other financial institutions party thereto, as lenders. Pursuant to the Senior Credit Agreement, the lenders party thereto agreed to provide the Company with a $1.0 billion senior secured reserve-based revolving credit facility with a borrowing base of $225.0 million as of June 30, 2019. On July 29, 2019, the Company borrowed approximately $16.2 million, resulting in the Company having an aggregate $223.2 million of indebtedness outstanding under the Senior Credit Agreement. The maturity date of the Senior Credit Agreement is September 7, 2022. The borrowing base will be redetermined semi-annually, with the lenders and the Company each having the right to one interim unscheduled redetermination between any two consecutive semi-annual redeterminations. The borrowing base takes into account the estimated value of the Company’s oil and natural gas properties, proved reserves, total indebtedness, and other relevant factors consistent with customary oil and natural gas lending criteria. Amounts outstanding under the Senior Credit Agreement bear interest at specified margins over the base rate of 1.75% to 2.75% for ABR-based loans or at specified margins over LIBOR of 2.75% to 3.75% for Eurodollar-based loans. These margins fluctuate based on the Company’s utilization of the facility. The Company may elect, at its option, to prepay any borrowings outstanding under the Senior Credit Agreement without premium or penalty (except with respect to any break funding payments which may be payable pursuant to the terms of the Senior Credit Agreement). Amounts outstanding under the Senior Credit Agreement are guaranteed by certain of the Company’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Company and its subsidiaries. The Senior Credit Agreement contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy. The Senior Credit Agreement also contains certain financial covenants, including the maintenance of (i) a Consolidated Total Net Debt to EBITDA Ratio (each as defined in the Senior Credit Agreement) and (ii) a Current Ratio (as defined in the Senior Credit Agreement) not to be less than 1.00 to 1.00. On May 9, 2019, the Company entered into the Eighth Amendment, Consent and Waiver to Amended and Restated Senior Secured Credit Agreement (the Eighth Amendment) which, among other things, (i) temporarily waived any default or event of default directly resulting from the potential Leverage Ratio Default (as defined in the Eighth Amendment) for the fiscal quarter ended March 31, 2019, (ii) increased interest margins to 1.75% to 2.75% for ABR-based loans and 2.75% to 3.75% for Eurodollar-based loans, (iii) reduced the Company's Consolidated Cash Balance (as defined in the Eighth Amendment) to $5.0 million, and (iv) provided for periodic reporting of projected cash flows and accounts payable agings to the lenders. Under the Eighth Amendment, the waiver would have terminated and an Event of Default (as defined in the Senior Credit Agreement) would have occurred on August 1, 2019. On July 31, 2019, the Company entered into the Waiver to Amended and Restated Senior Secured Credit Agreement, pursuant to which the termination date for the waiver granted by the Eighth Amendment was extended to August 8, 2019. On February 28, 2019, the lenders party to the Senior Credit Agreement issued a consent (the Severance and Office Payments Consent) to the Company whereby Severance Payments and Office Payments (as defined in the Severance and Office Payments Consent) may exceed the maximum level allowed for adding back non-recurring expenses and charges in the definition of EBITDA (as defined in the Senior Credit Agreement) when calculating the ratio of Consolidated Total Net Debt to EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarter ending March 31, 2019. On February 15, 2019, the Company entered into the Seventh Amendment (the Seventh Amendment) to the Senior Credit Agreement which, among other things, provided for (i) the use of annualized financial data in determining EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending March 31, 2019, June 30, 2019 and September 30, 2019 and (ii) amended the ratio of Consolidated Total Net Debt (as defined in the Senior Credit Agreement) to EBITDA to be (a) 5.00 to 1.0 for the fiscal quarter ending March 31, 2019, (b) 4.75 to 1.0 for the fiscal quarter ending June 30, 2019, (c) 4.5 to 1.0 for the fiscal quarter ending September 30, 2019, (d) 4.25 to 1.0 for the fiscal quarter ending December 31, 2019, and (e) 4.0 to 1.0 for the fiscal quarter ending March 31, 2020 and any fiscal quarter thereafter. On November 6, 2018, the lenders party to the Senior Credit Agreement issued a consent (the H2S Consent) to the Company whereby H2S Expenses (as defined in the H2S Consent) may exceed the maximum level allowed for adding back non-recurring expenses and charges in the definition of EBITDA (as defined in the Senior Credit Agreement) when calculating the ratio of Consolidated Total Net Debt to EBITDA (as defined in the Senior Credit Agreement) for the fiscal quarters ending September 30, 2018, December 31, 2018 and March 31, 2019. At June 30, 2019, the Company had $188.0 million of indebtedness outstanding and approximately $1.8 million letters of credit outstanding. The filing of the voluntary petitions for relief under chapter 11 of the Bankruptcy Code described in Note 1, “Financial Statement Presentation,” constituted an event of default under the Senior Credit Agreement that accelerated the Company’s obligations and terminated the lenders’ commitments under the Senior Credit Agreement. During the chapter 11 proceedings, amounts outstanding under the Senior Credit Agreement will bear interest at a rate per annum equal to 2.0% plus the applicable interest rate in effect. Refer to Note 14, “Subsequent Events,” for a discussion of the Company’s debtor-in-possession and exit financing facilities. 6.75% Senior Notes On February 16, 2017, the Company issued $850.0 million aggregate principal amount of new 6.75% senior unsecured notes due 2025 (the 2025 Notes) in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (Securities Act), Rule 144A and Regulation S, and applicable state securities laws. The 2025 Notes were issued at par and bear interest at a rate of 6.75% per annum, payable semi-annually on February 15 and August 15 of each year. The 2025 Notes will mature on February 15, 2025. Proceeds from the private placement were approximately $834.1 million after deducting initial purchasers’ discounts and commissions and offering expenses. The Company used a portion of the net proceeds from the private placement to fund the repurchase and redemption of the outstanding 8.625% senior secured second lien notes, and for general corporate purposes. The 2025 Notes are governed by an Indenture, dated as of February 16, 2017 (as supplemented, the February 2017 Indenture) by and among the Company, the Guarantors and U.S. Bank National Association, as Trustee, which contains affirmative and negative covenants that, among other things, limit the ability of the Company and the Guarantors to incur indebtedness; purchase or redeem stock or subordinated indebtedness; make investments; create liens; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of their assets; and, in certain circumstances, to pay dividends or make other distributions on stock. The February 2017 Indenture also contains customary events of default. Upon the occurrence of certain events of default, the Trustee or the holders of the 2025 Notes may declare all outstanding 2025 Notes to be due and payable immediately. The 2025 Notes are jointly and severally, fully and unconditionally guaranteed on a senior unsecured basis by the Company’s existing wholly-owned subsidiaries. Halcón, the issuer of the 2025 Notes, has no material independent assets or operations apart from the assets and operations of its subsidiaries. In connection with the sale of the 2025 Notes, on February 16, 2017, the Company, the Guarantors and J.P. Morgan Securities LLC, on behalf of itself and as representative of the initial purchasers, entered into a Registration Rights Agreement (the 2017 Registration Rights Agreement) pursuant to which the Company agreed to, among other things, use reasonable best efforts to file a registration statement under the Securities Act and complete an exchange offer for the 2025 Notes within 365 days after closing. The Company completed the exchange offer for the 2025 Notes on February 1, 2018. On July 25, 2017, the Company concluded a consent solicitation of the holders of the 2025 Notes (the Consent Solicitation) and obtained consents to amend the February 2017 Indenture from approximately 99% of the holders of the 2025 Notes. As supplemented, the February 2017 Indenture exempted, among other things, the Williston Divestiture from certain provisions triggered upon a sale of “all or substantially all of the assets” of the Company. Consenting holders of the 2025 Notes received a consent fee of 2.0% of principal, or $16.9 million. The Company recorded the $16.9 million consent fees paid as a discount on the 2025 Notes. On September 7, 2017, the Company commenced an offer to purchase for cash up to $425.0 million of the $850.0 million outstanding aggregate principal amount of its 2025 Notes at 103.0% of principal plus accrued and unpaid interest. The consummation of the Williston Divestiture constituted a “Williston Sale” under the February 2017 Indenture, and the Company was required to make an offer to all holders of the 2025 Notes to purchase for cash an aggregate principal amount up to $425.0 million of the 2025 Notes. The offer to purchase expired on October 6, 2017, with notes representing in excess of $425.0 million of principal amount validly tendered. As a result, on October 10, 2017, the Company repurchased approximately $425.0 million principal amount of the 2025 Notes on a pro rata basis at 103.0% of par plus accrued and unpaid interest of approximately $4.1 million. On February 15, 2018, the Company issued an additional $200.0 million aggregate principal amount of its 2025 Notes at a price to the initial purchasers of 103.0% of par (the Additional 2025 Notes). The net proceeds from the sale of the Additional 2025 Notes were approximately $202.4 million after deducting initial purchasers’ premiums, commissions and estimated offering expenses. The proceeds were used to fund the cash consideration for the acquisition of the West Quito Draw Properties, discussed further in Note 4, “Acquisitions and Divestitures,” and for general corporate purposes, including to fund the Company’s 2018 drilling program. These notes were issued under the February 2017 Indenture. The Additional 2025 Notes are treated as a single class with, and have the same terms as, the 2025 Notes. The remaining unamortized discount on the 2025 Notes was $6.7 million at June 30, 2019. The unamortized premium on the Additional 2025 Notes was $5.0 million at June 30, 2019. The filing of the voluntary petitions for relief under chapter 11 of the Bankruptcy Code described in Note 1, “Financial Statement Presentation,” constituted an event of default under the February 2017 Indenture that accelerated the 2025 Notes and Additional 2025 Notes under the February 2017 Indenture. Refer to Note 14, “Subsequent Events,” for a discussion of the Company’s debtor-in-possession and exit financing facilities. Debt Issuance Costs The Company capitalizes certain direct costs associated with the issuance of debt and amortizes such costs over the lives of the respective debt. For the six months ended June 30, 2019, the Company expensed $0.2 million of debt issuance costs in conjunction with a decrease in the borrowing base under the Senior Credit Agreement. At June 30, 2019 and December 31, 2018, the Company had approximately $10.1 million and $11.1 million, respectively, of unamortized debt issuance costs. The debt issuance costs for the Company’s Senior Credit Agreement are presented in “Prepaids and other” and “Funds in escrow and other” within total assets on the unaudited condensed consolidated balance sheets, and the debt issuance costs for the Company’s senior unsecured debt are presented in “Current portion of long-term debt, net” and “Long-term debt, net” within total liabilities on the unaudited condensed consolidated balance sheets.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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