Note 12 – Debt Obligations

Our debt consisted of the following at December 31:



	2014		2013
Senior notes, 12% fixed rate, due 2018 (1)	$	554,000	$	554,000
Convertible senior notes, 5.5% fixed rate, due 2016 (1)		135,000		135,000
Convertible bonds, 11.5% until March 31, 2014 and 7.5% thereafter, due 2016 (1)		83,746		78,437
Convertible senior notes, 6.5%, fixed rate, due 2017 (1)		17,500		—
Amended term loan facility, variable rate, due 2017		440,000		—
Revolving credit facility, 13% fixed rate, due 2014		—		115,163
		1,230,246		882,600
Less: Debt Discount		(7,819)		(11,722)
Less: Liabilities Subject to Compromise		(790,246)
Less: Current Maturities		(432,181)		—
Long-Term Debt	$	—	$	870,878

⁽¹⁾

Debt balance as of December 31, 2014 is included within Liabilities Subject to Compromise in the Consolidated Balance Sheets.

For a discussion of the potential impact of our filing under Chapter 11 of the Bankruptcy Code on our debt obligations, see Note 3 - Voluntary Reorganization under Chapter 11. As a result of our filing under Chapter 11 of the Bankruptcy Code, we are in default of the debt covenants related to the Senior Notes, 5.5% Convertible Senior Notes, 6.5% Convertible Senior Notes and 7.5% Convertible Bonds. All outstanding balances related to these obligations have been reclassified as Liabilities Subject to Compromise in our consolidated balance sheets.

Senior Notes

In February 2012, we closed the private placement of $350 million aggregate principal amount of 12% First Priority Notes due 2018 and $150 million aggregate principal amount of 12% Second Priority Notes due 2018. In October 2012, we completed a private placement of an additional $54 million aggregate principal amount of 12% First Priority Notes due 2018 (collectively, the “2018 Notes”).

5.5% Convertible Senior Notes

In July 2011, we issued $135 million aggregate principal amount of our 5.5% Convertible Senior Notes due July 15, 2016. Interest on these notes is payable semi-annually at a rate of 5.5% per annum. The 5.5% Convertible Senior Notes are convertible into shares of our common stock at an initial conversion rate of 54.019 shares (equivalent to $18.51 per share) of common stock per $1,000 principal amount of the notes, subject to certain anti-dilution adjustments.

7.5% Convertible Bonds

Our 7.5% Convertible Bonds bore interest at a rate of 11.5% per annum until March 31, 2014, and at a rate of 7.5% thereafter. Interest is compounded quarterly and added to the outstanding principal balance each quarter. The bonds are convertible into shares of our common stock at an initial conversion price of $16.52 per $1,000 of principal, which represents a conversion rate of approximately 61 shares of our common stock per $1,000 of principal.

Term Loan Facility

On January 24, 2014, we entered into a $255 million agreement consisting of a $125 million senior secured first lien term loan facility (“Term Loan Facility”) and a $130 million Combined Procurement Agreement (see Note 16). The Term Loan Facility bore quarterly interest of LIBOR plus 7.00% annually (provided LIBOR equals at least 1.25% annually).

The Term Loan Facility matured the earlier of:

(i)

December 1, 2017; or

(ii)

92 days prior to the maturity date of our outstanding 5.5% Convertible Senior Notes or our 7.5% Convertible Bonds, if still outstanding on that date.

The proceeds of the Term Loan Facility were used to repay the outstanding amounts under our Revolving Credit Facility. The repayment included a prepayment fee and accrued interest of approximately $2.0 million. Subsequent to the repayment, the Revolving Credit Facility was terminated, all of the associated liens on our collateral obligations were released, and we recorded a loss of $3.5 million on the early extinguishment of financing agreements.

On September 30, 2014, we repaid the balance outstanding under the Term Loan Facility with proceeds from the Amended Term Loan Facility.

Amended Term Loan Facility

On September 30, 2014, two wholly-owned subsidiaries, Endeavour International Holding B.V. (“EIH”) and End Finco LLC (“Finco” and collectively, “Borrowers”) entered into an amended and restated credit agreement (the “Amended Credit Agreement”) in respect of our Term Loan Facility. EIH and Finco are non-Debtors, and as such, the Amended Credit Agreement is not subject to the RSA and related Bankruptcy Cases.

Pursuant to the Amended Credit Agreement, the lenders advanced approximately $440 million in aggregate principal amount of term loans to the Borrowers (“Amended Term Loan Facility”). The proceeds were used to:

repay in full the balance outstanding under the existing Term Loan Facility;

repay in full the Monetary Production Payments (see Note 14);

repay in full all reimbursement obligations outstanding with respect to the Combined Procurement Agreement (see Note 24);

provide cash collateral for the LC Issuance Agreement (see Note 24) and pay related expenses; and

provide additional liquidity to the Company.

We deferred financing costs of $10.3 million related to the Amended Term Loan Facility. The repayments of the Term Loan Facility, Monetary Production Payments and Combined Procurement Agreement included prepayment fees of approximately $3.3 million, $7.8 million and $2.4 million, respectively, and accrued interest of $2.6 million, $3.7 million and $1.9 million, respectively.

Subsequent to their repayment, the Term Loan Facility, Monetary Production Payments and Combined Procurement Agreement were terminated, and all of the associated liens on our collateral obligations were released. As a result, we wrote off deferred financing costs of $7.3 million and $6.7 million related to the Term Loan Facility and Monetary Production Payments, respectively. Additionally, we wrote off a debt discount of $1.9 million related to the Term Loan Facility and charged $1.9 million to loss on foreign currency exchange related to the Combined Procurement Agreement. All charges related to prepayment fees and write off of deferred financing costs, debt discount and loss on foreign currency exchange are included in other income as “Loss on early extinguishment of financing agreements” in our condensed consolidated statements of operations.

The Amended Term Loan Facility bears interest quarterly at a rate of LIBOR plus 10.00% per year (with a LIBOR floor of 1% per year) and matures on January 2, 2017. The loans under the Amended Term Loan Facility were issued with original issue discount of 2.0%. Borrowings under the Amended Term Loan Facility are guaranteed by the Company and certain of its current and future subsidiaries, including Endeavour Operating Corporation and Endeavour UK, subject to certain exceptions. The Amended Term Loan Facility is secured by the same assets securing the Company’s Term Loan Facility other than cash and cash equivalents in the United States.

The Amended Credit Agreement contains covenants and provisions with respect to events of default that are substantially similar to the covenants in the Company’s Term Loan Facility including, but not limited to, restrictions on the Company’s and its subsidiaries’ abilities to: (i) pay distributions or repurchase or redeem the Company’s capital stock or subordinated debt; (ii) make certain investments; (iii) incur additional indebtedness; (iv) create or incur certain liens; (v) sell assets; (vi) consolidate, merge or transfer all or substantially all of the Company’s assets; (vii) enter into agreements that restrict distributions from the Company’s subsidiaries to the Company; (viii) engage in transactions with affiliates; and (ix) allow EIH or any of its subsidiaries to make dividends, payments or other distributions of any kind to the Debtors, other than pursuant to specific limited amounts and for specified purposes.

The Amended Credit Agreement contains customary events of default, subject to certain exceptions. In particular, the following events do not constitute events of default under the Amended Credit Agreement: (a) payment defaults or other defaults to the Company’s existing notes or to certain intercompany indebtedness or (b) a bankruptcy filing by the Company or its domestic subsidiaries and one foreign subsidiary.

In addition, the Amended Credit Agreement contains various financial covenants as defined in the agreement, including:

a maximum leverage ratio of 2.75:1.00 beginning with the fiscal quarter ending December 31, 2014 and

a minimum asset coverage ratio of 1.0 to 1.0 as of June 30 and December 31 of each year.

If oil and gas prices remain at their depressed levels, we currently anticipate a breach of our leverage covenant under our Amended Term Loan Facility (see Note 12 – Debt Obligations) in or about the third quarter of 2015, which will result in a default under the terms of the Amended Term Loan Facility and a liquidity shortfall at the end of the fourth quarter of 2015. Based on this determination, we have classified the outstanding balance of the Amended Term Loan Facility as a current liability in the line item “Current maturities of debt” and the related remaining deferred financing costs as a current asset in our Consolidated Balance Sheets as of December 31, 2014.

Revolving Credit Facility

On April 12, 2012, we entered into a Revolving Credit Facility, with Cyan Partners, LP, as administrative agent, under which we ultimately borrowed $115 million.

On January 24, 2014, we repaid the balance outstanding under the Revolving Credit Facility with proceeds from the Term Loan Facility. Following the repayment, the Revolving Credit Facility was terminated and all of the associated liens on the collateral securing our obligations were released.

6.5% Convertible Senior Notes

On February 28, 2014, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) relating to the issuance of up to $55 million in common stock, warrants and convertible notes. We closed on an initial $30 million in late February and early March 2014, comprised of:

2.9 million shares of our common stock;

warrants to purchase 0.7 million shares of our common stock at an exercise price of $5.292 per share, expiring on February 28, 2019; and

$17.5 million in aggregate principal amount of our 6.5% Convertible Senior Notes.

The 6.5% Convertible Senior Notes have a maturity date the same as the Term Loan Facility. Interest is payable on the 6.5% Convertible Senior Notes quarterly.

The 6.5% Convertible Senior Notes are:

convertible at any time;

convertible initially at a rate 214.5002 shares of our common stock per $1,000 principal amount of 6.5% Convertible Notes (equivalent to an initial conversion price of approximately $4.662 per share of our common stock);

subject to certain anti-dilution adjustments;

subject to customary events of default;

general unsecured and unsubordinated obligations; and

equally ranked in right of payment with all of our existing and future unsubordinated indebtedness and senior in right of payment to any of our future indebtedness that is expressly subordinated to the 6.5% Convertible Notes.

Five Year Debt Maturities

Assuming our debt is not accelerated due to our potential covenant breach, principal maturities of debt for which we are contractually obligated at December 31, 2014 are as follows:



2015	$	—
2016		220,316
2017		457,500
2018		554,000
2019		—
Thereafter		—

Fair Value

The fair value of our outstanding debt obligations was $446.1 million and $868.4 million at December 31, 2014 and 2013, respectively. The fair values of long-term debt were determined based upon external market quotes for our 2018 Notes and 5.5% Convertible Senior Notes and discounted cash flows for other debt, which results in a Level 3 fair-value measurement.