Debt and Banking Arrangements

6 Months Ended

Jun. 30, 2011

Debt and Banking Arrangements [Abstract]

Note 9. Debt and Banking Arrangements

Credit Facilities

In June 2011, we entered into three new separate five-year senior unsecured revolving credit facility agreements. The replacements of our previous $900 million credit facility and WPZ’s $1.75 billion credit facility, as discussed further below, are considered modifications for accounting purposes.

We established a new $900 million unsecured revolving credit facility agreement which replaced our existing unsecured $900 million credit facility agreement that was scheduled to expire May 1, 2012. There were no outstanding borrowings under the existing agreement at the time it was terminated. The credit facility may, under certain conditions, be increased up to an additional $250 million. Significant financial covenants require our ratio of debt to EBITDA (each as defined in the credit facility) must be no greater than 4.5 to 1. For the fiscal quarter and the two following fiscal quarters in which one or more acquisitions for a total aggregate purchase price equal to or greater than $50 million has been executed, we are required to maintain a ratio of debt to EBITDA of no greater than 5 to 1. At June 30, 2011, we are in compliance with these financial covenants.

WPZ also established a new $2 billion unsecured revolving credit facility agreement that includes Transco and Northwest Pipeline as co-borrowers that replaced an existing unsecured $1.75 billion credit facility agreement that was scheduled to expire on February 17, 2013. This credit facility is only available to named borrowers. At the closing, WPZ refinanced $300 million outstanding under the existing facility via a non-cash transfer of the obligation to the new credit facility. The new credit facility may, under certain conditions, be increased up to an additional $400 million. The full amount of the credit facility is available to WPZ to the extent not otherwise utilized by Transco and Northwest Pipeline. Transco and Northwest Pipeline each have access to borrow up to $400 million under the credit facility to the extent not otherwise utilized by the other co-borrowers. Significant financial covenants include:

	•		WPZ’s ratio of debt to EBITDA (each as defined in the credit facility) must be no greater than 5 to 1. For the fiscal quarter and the two following fiscal quarters in which one or more acquisitions for a total aggregate purchase price equal to or greater than $50 million has been executed, WPZ is required to maintain a ratio of debt to EBITDA of no greater than 5.5 to 1;

	•		The ratio of debt to capitalization (defined as net worth plus debt) must be no greater than 65 percent for each of Transco and Northwest Pipeline.

At June 30, 2011, WPZ is in compliance with these financial covenants.

WPX entered into a new $1.5 billion unsecured revolving credit facility agreement that will be effective upon meeting certain conditions, including the completion of WPX’s initial public offering. This credit facility will only be available to WPX. The new agreement will automatically terminate if the effective date has not occurred on or before November 30, 2011. The credit facility may, under certain conditions, be increased up to an additional $300 million and WPX may also request a swingline loan to obtain same-day funds of up to $125 million under the agreement. Significant financial covenants include:

•

WPX’s PV to debt (each as defined in the credit facility and PV primarily relating to the present value of proved oil and gas reserves) of at least 1.5 to 1;

•

The ratio of WPX’s debt to capitalization (defined as net worth plus debt) must be no greater than 60 percent.

The three new credit agreements contain the following terms and conditions:

	•		Each time funds are borrowed, with the exception of swingline loans under the WPX agreement, the applicable borrower may choose from two methods of calculating interest: a fluctuating base rate equal to Citibank N.A’s adjusted base rate plus an applicable margin, or a periodic fixed rate equal to LIBOR plus an applicable margin. Interest on swingline loans is payable at a rate per annum equal to a fluctuating base rate equal to Citibank N.A’s adjusted base rate plus an applicable margin. The applicable borrower is required to pay a commitment fee (currently 0.25 percent for agreements in effect) based on the unused portion of their respective credit facility. The applicable margin and the commitment fee are determined for each borrower by reference to a pricing schedule based on such borrower’s senior unsecured long-term debt ratings.

	•		Various covenants limit, among other things, a borrower’s and its material subsidiaries’ ability to grant certain liens supporting indebtedness, a borrower’s ability to merge or consolidate, sell all or substantially all of its assets, enter into certain affiliate transactions, make certain distributions during an event of default, make investments and allow any material change in the nature of its business. WPX’s credit agreement further limits WPX and its material subsidiaries’ ability to make certain investments, loans or advances or enter into certain hedging agreements beyond the ordinary course of business.

	•		If an event of default with respect to a borrower occurs under their respective credit facility agreement, the lenders will be able to terminate the commitments for the respective borrowers and accelerate the maturity of any loans of the defaulting borrower under the respective credit facility agreement and exercise other rights and remedies.

Letters of credit issued and loans outstanding under the credit facility agreements at June 30, 2011, are:


		Letters
	Expiration	of Credit		Loans
		(Millions)
$900 million unsecured credit facility (1)	June 3, 2016	$	—	$	—
$2 billion WPZ unsecured credit facility (2) (3)	June 3, 2016		—		350
Bilateral bank agreements for letters of credit			74

		$	74	$	350


(1)		$700 million letter of credit capacity.

(2)		$1.3 billion letter of credit capacity.

(3)		Subsequent to June 30, 2011, WPZ repaid a net $100 million of this loan balance.

Retirements

Utilizing cash on hand, WPZ retired $150 million of 7.5 percent senior unsecured notes that matured on June 15, 2011.

- 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.

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