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SUBSEQUENT EVENTS | 9 Months Ended
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Sep. 30, 2019
SUBSEQUENT EVENTS |
SUBSEQUENT EVENTS | 15. SUBSEQUENT EVENTS Emergence From Voluntary Reorganization Under Chapter 11 On August 7, 2019, the Halcón Entities filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas to pursue the Plan. On September 24, 2019, the Bankruptcy Court entered an order confirming the Plan and on October 8, 2019, the Plan became effective and the Halcón Entities emerged from chapter 11 bankruptcy. Upon emergence from chapter 11 bankruptcy, the Company qualified for and adopted fresh-start accounting in accordance with the provisions set forth in ASC 852 as (i) the reorganization value of the Company's assets immediately prior to the date of confirmation was less than the postpetition liabilities and allowed claims, and (ii) the holders of the existing voting shares of the predecessor entity received less than 50% of the voting shares of the emerging entity. Fresh-start accounting requires the Company to present its assets, liabilities, and equity as if it were a new entity upon emergence from bankruptcy. The new entity will be referred to as "successor" or "successor company." However, the Company will continue to present financial information for any periods before adoption of fresh-start accounting for the predecessor company. The predecessor and successor companies may lack comparability, as required in ASC 205, Presentation of Financial Statements (ASC 205). ASC 205 states financial statements are required to be presented comparably from year to year, with any exceptions to comparability clearly disclosed. Therefore, "black-line" financial statements are required to be presented to distinguish between the predecessor and successor companies. Adopting fresh-start accounting results in a new financial reporting entity with no beginning retained earnings or deficit as of the fresh-start reporting date. Upon the application of fresh-start accounting, the Company will allocate the reorganization value (the fair value of the successor company's total assets) to its individual assets based on their estimated fair values. The reorganization value is intended to represent the approximate amount a willing buyer would value the Company's assets immediately after the reorganization. Reorganization value is derived from an estimate of enterprise value, or the fair value of the Company's long-term debt and stockholders' equity less cash. The process of estimating the fair value of the Company’s assets, liabilities and equity upon emergence is currently ongoing and, therefore, such amounts have not yet been finalized. In support of the Plan, the enterprise value of the successor company was estimated and approved by the Bankruptcy Court to be in the range of $425.0 million and $475.0 million. Exit Financing On the Effective Date, the Company entered into a senior secured revolving credit agreement with Bank of Montreal, as administrative agent, and certain other financial institutions party thereto, as lenders, which refinanced the DIP Facility and Senior Credit Agreement. The Exit Facility provides for a $750.0 million senior secured reserve-based revolving credit facility. The Exit Facility has an initial borrowing base of $275.0 million and on the Effective Date, the Company made an initial draw of $130.0 million. A portion of the Exit Facility, in the amount of $50 million, is available for the issuance of letters of credit. The maturity date of the Exit Facility is October 8, 2024. The first redetermination will be in the spring of 2020 and redeterminations will occur semi-annually thereafter, 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 Exit Facility bear interest at specified margins over the base rate of 1.00% to 2.00% for ABR-based loans or at specified margins over LIBOR of 2.00% to 3.00% for Eurodollar-based loans, which margins may be increased one-time by not more than 50 basis points per annum if necessary in order to successfully syndicate the Exit Facility, which is currently in process. 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 Exit Credit Agreement without premium or penalty (except with respect to any break funding payments which may be payable pursuant to the terms of the Exit Credit Agreement). The Company may be required to make mandatory prepayments of the Loans under the Exit Facility in connection with certain borrowing base deficiencies, including deficiencies which may arise in connection with a borrowing base redetermination, an asset disposition or swap terminations attributable in the aggregate to more than ten percent (10)% of the then-effective borrowing base. Amounts outstanding under the Exit Credit Agreement are guaranteed by 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 Exit Credit Agreement contains certain events of default, including non-payment; breaches of representation and warranties; non-compliance with covenants; cross-defaults to material indebtedness; voluntary or involuntary bankruptcy; judgments and change in control. The Exit Credit Agreement also contains certain financial covenants, including the maintenance of (i) a Total Net Indebtedness Leverage Ratio (as defined in the Exit Credit Agreement) not to exceed 4.00:1.00, determined as of each four fiscal quarter periods and commencing with the fiscal quarter ending March 31, 2020 and (ii) a Current Ratio (as defined in the Exit Credit Agreement) not to be less than 1.00:1.00, commencing with the fiscal quarter ending March 31, 2020. Common Stock On the Effective Date, pursuant to the terms of the Plan, all shares of the predecessor company were cancelled and the Company filed an amended and restated certificate of incorporation with the Delaware Secretary of State and adopted amended and restated bylaws. Pursuant to the amended and restated certificate of incorporation, the number of authorized shares of common stock which the Company has the authority to issue was reduced from 1,001,000,000 to 101,000,000. Of the 101,000,000 authorized shares, 100,000,000 are common stock, par value $0.0001 per share and 1,000,000 are preferred stock, par value $0.0001 per share. On the Effective Date, pursuant to the terms of the Plan and the confirmation order, the Company issued:
| · |  | 421,827 shares of New Common Shares pursuant to the Existing Equity Interests Rights Offering; 8,059,111 shares of New Common Shares pursuant to the Senior Noteholder Rights Offering; and 3,558,334 shares of New Common Shares in connection with the Backstop Commitment, which includes 657,590 shares of New Common Shares issued as the Backstop Commitment Premium;
| · |  | 3,790,247 shares of New Common Shares to the Senior Noteholders pursuant to a mandatory exchange; and
| · |  | 374,421 shares of New Common Shares, 1,798,322 Series A Warrants (defined below), 2,247,985 Series B Warrants (defined below) and 2,890,271 Series C Warrants (defined below), to the holders of pre-emergence stockholders pursuant to a mandatory exchange.
Warrant Agreement On the Effective Date, by operation of the Plan and the confirmation order, all warrants of the predecessor company were cancelled and the Company entered into a warrant agreement (the Warrant Agreement) with Broadridge Corporate Issuer Solutions, Inc., pursuant to which the Company issued three series of warrants (the Series A Warrants, the Series B Warrants and the Series C Warrants and together, the Warrants, and the holders thereof, the Warrant Holders), on a pro rata basis to pre-emergence holders of the Company’s Existing Equity Interests pursuant to the Plan. Each Warrant represents the right to purchase one share of New Common Shares at the applicable exercise price, subject to adjustment as provided in the Warrant Agreement and as summarized below. On the Effective Date, the Company issued (i) Series A Warrants to purchase an aggregate of 1,798,322 shares of New Common Stock, with an initial exercise price of $40.17 per share, (ii) Series B Warrants to purchase an aggregate of 2,247,985 shares of New Common Stock, with an initial exercise price of $48.28 per share and (iii) Series C Warrants to purchase an aggregate of 2,890,271shares of New Common Stock, with an initial exercise price of $60.45 per share. Each series of Warrants issued under the Warrant Agreement has a three-year term, expiring on October 8, 2022. The strike price of each series of Warrants issued under the Warrant Agreement increases monthly, as provided in the Warrant Agreement. The Warrants do not grant the Warrant Holder any voting or control rights or dividend rights, or contain any negative covenants restricting the operation of the Company’s business. Registration Rights Agreement On the Effective Date, the Company and the other signatories thereto (the Demand Stockholders), entered into a registration rights agreement (the Registration Rights Agreement), pursuant to which, subject to certain conditions and limitations, the Company agreed to file with the SEC a registration statement concerning the resale of the registrable shares of New Common Shares of the Company held by Demand Stockholders (the Registrable Securities), as soon as reasonably practicable but in no event later than the later to occur of (i) ninety (90) days after the Effective Date and (ii) a date specified by a written notice to the Company by Demand Stockholders holding at least a majority of the Registerable Securities, and thereafter to use its commercially reasonable best efforts to cause to be declared effective by the SEC as soon as reasonably practicable. In addition, from time to time, the Demand Stockholders may request that additional Registrable Securities be registered for resale by the Company. Subject to certain limitations, the Demand Stockholders also have the right to request that the Company facilitate the resale of Registrable Securities pursuant to firm commitment underwritten public offerings. The Registration Rights Agreement contains other customary terms and conditions, including, without limitation, provisions with respect to suspensions of the Company’s registration obligations pursuant to the Registration Rights Agreement and indemnification.

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- Definition The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 855 -URI http://asc.fasb.org/topic&trid=2122774 + Details
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