As of December 31, 2021 and 2020, the Company’s debt consisted of the following (in thousands):

(1)	Amount is net of $14.2 million unamortized debt issuance costs at December 31, 2021. Amount also excludes $4.2 million allocated to the change of control call option embedded derivative. Refer to “Term Loan Credit Facility” below for further details.

Term Loan Credit Facility

On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into an Amended and Restated Senior Secured Credit Agreement (Term Loan Agreement) with Macquarie Bank

Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. The Term Loan Agreement amends and restates in its entirety the Senior Credit Agreement as discussed below. Pursuant to the Term Loan Agreement, the lenders have agreed to loan the Company (i) $200.0 million, which was funded on November 24, 2021 and was partially used to refinance all amounts owed under the Senior Credit Agreement; (ii) up to $20.0 million, available to be drawn up to 18 months from November 24, 2021, subject to the satisfaction of certain conditions; and (iii) up to $15.0 million, which amount will be available to be drawn from the date certain wells included in the approved plan of development (APOD) are deemed producing APOD wells until up to 18 months after November 24, 2021, subject to the satisfaction of certain conditions. An additional $5.0 million is available for the issuance of letters of credit. The maturity date of the Term Loan Agreement is November 24, 2025. Until such maturity date, borrowings under the Term Loan Agreement shall bear interest at a rate per annum equal to LIBOR (or another applicable reference rate, as determined pursuant to the provisions of the Term Loan Agreement) plus an applicable margin of 7.00%.

The Company may elect, at its option, to prepay any borrowing outstanding under the Term Loan Agreement subject to the following prepayment premiums:


Period			Premium
Months 0 - 12			Make-whole amount equal to 12 months of interest plus 2.00%
Months 13 - 24			2.00%
Months 25 - 36			1.00%
Months 37 - 48			0.00%

The Company may be required to make mandatory prepayments of the loans under the Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales, and with excess cash on hand in excess of certain maximum levels. For each fiscal quarter after January 1, 2023, the Company shall make mandatory prepayments when the Consolidated Cash Balance, as defined in the Term Loan Agreement, exceeds $20.0 million. Until December 31, 2024, the forecasted APOD capital expenditures for the succeeding fiscal quarter are excluded for purposes of determining the Consolidated Cash Balance.

The Company is required to make scheduled amortization payments in the aggregate amount of $120.0 million from the fiscal quarter ending March 31, 2023 through the fiscal quarter ending September 30, 2025. Amounts outstanding under the Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and of the equity interests of the Borrower held by the Company. As part of the Term Loan Agreement there are certain restrictions on the transfer of assets, including cash, to Battalion from the guarantor subsidiaries.

The Term Loan Agreement also contains certain financial covenants, including the maintenance of (i) an Asset Coverage Ratio (as defined in the Term Loan Agreement) of not less than (A) 1.50 to 1.00 as of December 31, 2021 and March 31, 2022, (B) 1.60 to 1.00 as of June 30, 2022, (C) 1.70 to 1.00 as of September 30, 2022, and (D) 1.80 to 1.00 as of December 31, 2022 and each fiscal quarter thereafter, (ii) a Total Net Leverage Ratio (as defined in the Term Loan Agreement) of not greater than (A) 3.25 to 1.00 as of December 31, 2021 through and including June 30, 2022, (B) 3.00 to 1.00 as of September 30, 2022 and December 31, 2022, (C) 2.75 to 1.00 as of March 31, 2023, and (D) 2.50 to 1.00 as of each fiscal quarter thereafter, and (iii) a Current Ratio (as defined in the Term Loan Agreement) of not less than 1.00 to 1.00, each determined as of the last day of any fiscal quarter period. As of December 31, 2021, the Company was in compliance with the financial covenants under the Term Loan Agreement.

The Term Loan Agreement also contains an APOD for the Company’s Monument Draw acreage through the drilling and completion of certain wells. The Term Loan Agreement contains a proved developed producing production test and an APOD economic test which the Company must maintain compliance with otherwise, subject to any available remedies or waivers, the Company is required to immediately cease making expenditures in respect of the APOD other than any expenditures deemed necessary by the Company in respect of no more than six additional APOD wells.

The Term Loan Agreement also 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.

At December 31, 2021, the Company had $200.0 million indebtedness outstanding, approximately $0.3 million letters of credit outstanding and $35.0 million in delayed draw term loans available to be drawn under the Term Loan Agreement, subject to the satisfaction of certain conditions defined in the agreement.

In conjunction with the Term Loan Agreement, the Company agreed to pay a premium to the lenders upon a future change of control event in which a majority of the board of directors or the Chief Executive Officer or the Chief Financial Officer positions do not remain held by the same persons as before the change of control event (Change of Control Call Option). The premium is reduced over time through the payment of interest and certain fees. The Company determined that the Change of Control Call Option was an embedded derivative in accordance with FASB ASC 815, Derivatives and Hedging, concluded the embedded derivative was not clearly and closely related to the host debt instrument, and recorded the initial $4.2 million fair value separately on the consolidated balance sheet within “Other noncurrent liabilities.” The Change of Control Call Option will be subsequently remeasured at fair value each reporting period with fair value changes recorded in “Interest expense and other” on the consolidated statements of operations. Refer to Note 7, “Fair Value Measurements,” for a discussion of the valuation approach used, the significant inputs to the valuation, and for a reconciliation of the change in fair value of the Change of Control Call Option.

Senior Revolving Credit Facility

On October 8, 2019, the Company entered into a senior secured revolving credit agreement, as amended, (the Senior Credit Agreement) with Bank of Montreal, as administrative agent, and certain other financial institutions party thereto, as lenders, which refinanced the Company’s debtor-in-possession junior secured term credit facility and its Predecessor senior secured revolving credit facility. The Senior Credit Agreement provided for a $750.0 million senior secured reserve-based revolving credit facility. A portion of the Senior Credit Agreement, in the amount of $25.0 million, was available for the issuance of letters of credit. The maturity date of the Senior Credit Agreement was October 8, 2024. The borrowing base was 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 took 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 bore interest at specified margins over the base rate of 1.50% to 2.50% for ABR-based loans or at specified margins over LIBOR of 2.50% to 3.50% for Eurodollar-based loans. These margins fluctuated based on the Company’s utilization of the facility. The Senior Credit Agreement was amended and restated by the Term Loan Agreement. Borrowings outstanding under the Senior Credit Agreement were repaid with proceeds from the Term Loan Agreement and the resulting charge of $0.1 million was recorded in “Gain (loss) on extinguishment of debt” in the consolidated statement of operations for the year ended December 31, 2021.

On May 10, 2021, the Company entered into the Fourth Amendment to Senior Secured Revolving Credit Agreement (the Fourth Amendment) which reduced the borrowing base to $185.0 million effective June 1, 2021 and further reduced the borrowing base to $175.0 million effective September 1, 2021. The Fourth Amendment also, among other things, (i) increased interest margins to 2.00% to 3.00% for ABR-based loans and 3.00% to 4.00% for Eurodollar-based loans, (ii) amended the covenant relating to the minimum mortgaged total value of proved borrowing base properties to increase the value from 90% to 95%, (iii) provided for direct reductions in the borrowing base in the event of asset dispositions in excess of $1.0 million per fiscal year or swap terminations and (iv) revised certain covenants and covenant-related baskets including, but not limited to, adding covenants prohibiting the designation of unrestricted subsidiaries and requiring prior consent from the lenders regarding asset dispositions or swap terminations in excess of the greater of $7.5 million or 3.5% of the then effective borrowing base.

On September 24, 2021, the Company entered into the Fifth Amendment to Senior Secured Revolving Credit Agreement (the Fifth Amendment) which, among other things, modified the limits on swap agreements so as not to exceed, (i) from the period of the Fifth Amendment effective date through December 31, 2021, the percentage of the reasonably anticipated hydrocarbon production from proved developed producing reserves during such period hedged pursuant to secured swap agreements in place as of the Fifth Amendment effective date; (ii) for the fiscal year ending December 31, 2022, the greater of (a) the proved developed producing reserves during such fiscal year hedged pursuant to secured swap agreements in place as of the Fifth Amendment effective date and (b) 85% of the proved developed producing reserves during such fiscal year; and (iii) for the fiscal years ending December 31, 2023, December 31, 2024 and December 31, 2025, swap agreements not to exceed 85%, 70% and 60% of the proved developed producing reserves, respectively, during each fiscal year.

Paycheck Protection Program Loan

On April 16, 2020, the Company entered into a promissory note (the PPP Loan) for a principal amount of approximately $2.2 million from Bank of Montreal under the Paycheck Protection Program of the CARES Act, which is administered by the U.S. Small Business Administration (SBA). Pursuant to the terms of the CARES Act, the proceeds of the PPP Loan may be used for payroll costs, mortgage interest, rent or utility costs. The PPP Loan bears interest at a rate of 1.0% per annum and has a maturity date of April 16, 2022. As long as the Company made a timely application of forgiveness to the SBA, the Company was not required to make any payments under the PPP Loan until the forgiveness amount was communicated to the Company by the SBA. The Company applied for forgiveness of the amount due on the PPP Loan based on the use of the loan proceeds on eligible expenses in accordance with the terms of the CARES Act. Effective August 13, 2021, the principal amount of the Company’s PPP Loan was reduced to approximately $0.2 million by the SBA and the Company recorded a gain on the extinguishment of the forgiven portion of the PPP Loan and related accrued interest of $2.1 million. The gain is presented in “Gain (loss) on extinguishment of debt” in the consolidated statements of operations for the year ended December 31, 2021.

The PPP Loan contains certain events of default including non-payment, breach of representations and warranties, cross-defaults to other loans with the lender or to material indebtedness, voluntary or involuntary bankruptcy, judgments and change in control.

Debt Maturities

Aggregate maturities required on debt at December 31, 2021 due in future years are as follows (in thousands):


2022	$	85
2023		35,000
2024		50,000
2025		115,000
2026		—
Thereafter		—
Total	$	200,085

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. During the year ended December 31, 2021, the Company capitalized approximately $14.6 million of debt issuance costs related to the Term Loan Agreement.

At December 31, 2021, the Company had $14.2 million of unamortized debt issuance costs.