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DEBT
 9 Months Ended
Sep. 30, 2023
DEBT  
DEBT

5. DEBT

As of September 30, 2023 and December 31, 2022, the Company’s debt consisted of the following (in thousands):

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September 30, 2023

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December 31, 2022

Term loan credit facility

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$

210,001

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$

235,000

Other

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241

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190

Total debt (Face Value)

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210,242

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235,190

Less:

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Current portion of long-term debt(1)

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(45,106)

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(35,067)

Other(2)

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(11,660)

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(17,447)

Long-Term Debt, net

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$

153,476

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$

182,676

(1)Amounts primarily reflect amortization payments under the Amended Term Loan Agreement due within one year.
(2)Amounts primarily reflect unamortized debt issuance costs of approximately $8.3 million and $13.0 million at September 30, 2023 and December 31, 2022, respectively, but also includes remaining amounts to be accreted associated with the embedded derivative separately presented and further described in Note 6, “Fair Value Measurements”.

Term Loan Credit Facility

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On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (the “Borrower”) entered into an Amended and Restated Senior Secured Credit Agreement (the “Term Loan Agreement”) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. On November 14, 2022, the Company paid approximately $2.4 million and entered into a further Amended Credit Agreement (the “Amended Term Loan Agreement”) with its lenders which modified certain provisions of its original Term Loan Agreement including, but not limited to, its Current Ratio financial covenant, interest rate benchmark, and prepayment premiums, all as further described below.

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As of September 30, 2023, the Company had $210.2 million of indebtedness outstanding and no letters of credit outstanding under the Amended Term Loan Agreement. The Company had $5.0 million available for the issuance of letters of credit as of September 30, 2023 and $4.7 million available as of the date of this filing. The maturity date of the Amended Term Loan Agreement is November 24, 2025. Borrowings under the Amended Term Loan Agreement bear a variable interest rate based on the Secured Overnight Financing Rate (“SOFR”) plus 0.15% plus a fixed applicable margin of 7.5%. The weighted average interest rate on the Company’s borrowings for the quarter ended September 30, 2023 was approximately 12.89%.

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

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Period (after applicable borrowing date(1))

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Premium

Months 0-12

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Make-whole amount equal to 12 months of interest plus 2.00%

Months 13-24

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2.00%

Months 25-36

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1.00%

Months 37-48

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0.00%

(1)Applicable borrowing dates are November 2021 for the original $200.0 million borrowed and April and November 2022 for the $20.0 million and $15.0 million in delayed draw borrowings, respectively.

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The Company may be required to make mandatory prepayments under the Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales, or with cash on hand in excess of certain maximum levels beginning in 2023. For each fiscal quarter after January 1, 2023, the Company is required to make mandatory prepayments when the Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, exceeds $20.0 million. Until December 31, 2024, the forecasted capital expenditures for the succeeding fiscal quarter on the approved plan of development (“APOD”) wells (i.e. oil and natural gas wells located within a specified boundary as set by the Amended Term Loan Agreement) are excluded for purposes of determining the Consolidated Cash Balance.

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The Company is required to make scheduled remaining amortization payments in the aggregate amount of $95.0 million from the fiscal quarter ending December 31, 2023 through the fiscal quarter ending September 30, 2025 with $10.0 million due at the end of the fourth quarter of 2023 and the first quarter of 2024, $12.5 million due at the end of each of the second and third quarters of 2024, $15.0 million due at the end of the fourth quarter of 2024 and the first quarter of 2025 and $10.0 million due at the end of each of the second and third quarters of 2025. The Company will be required to make a final payment of $115.0 million at maturity on November 24, 2025. Amounts outstanding under the Amended Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and by the equity interests of the Borrower held by the Company. As part of the Amended Term Loan Agreement there are certain restrictions on the transfer of assets, including cash, to Battalion from the guarantor subsidiaries.

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The Amended Term Loan Agreement also contains certain financial covenants (as defined in the Amended Term Loan Agreement), including the maintenance of the following ratios:

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●Asset Coverage Ratio of not less than 1.80 to 1.00 as of September 30, 2023 and the last day of each fiscal quarter thereafter
●Total Net Leverage Ratio of not greater than 2.50 to 1.00 as of September 30, 2023, and each fiscal quarter thereafter, and
●Current Ratio of not less than 1.00 to 1.00, determined as of the last day of any fiscal quarter period, as of September 30, 2023 and for each fiscal quarter thereafter.

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As of September 30, 2023, the Company was in compliance with the financial covenants under the Amended Term Loan Agreement.

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The Amended Term Loan Agreement also contains an APOD for the Company’s Monument Draw acreage through the drilling and completion of certain wells. The Amended 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.

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The Amended 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.

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In conjunction with entering into the original Term Loan Agreement in November 2021, 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 (the “CEO”) or the Principal 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 Change of Control Call Option is accounted for as an embedded derivative not clearly and closely related to the host debt instrument. Accordingly, the Company recorded the initial fair value separately on the unaudited condensed consolidated balance sheet within “Other noncurrent liabilities” and records changes in the fair value of the embedded derivative each reporting period in “Interest expense and other” on the unaudited condensed consolidated statements of operations. Refer to Note 6, “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.