NOTE 3 — LONG-TERM DEBT

The following is a summary of long-term debt as of March 31, 2020 and December 31, 2019 (in thousands):


		March 31,		December 31,
		2020		2019
Revolving Facility	$	115,000	$	115,000
Term Loan		250,000		250,000
Total long-term debt		365,000		365,000
Deferred financing fees, net of accumulated amortization		(10,790)		(11,510)
Total credit facilities, net of deferred financing fees	$	354,210	$	353,490

Revolving Facility

On April 23, 2018, the Company entered into a syndicated Revolving Facility with Natixis, New York Branch, as administrative agent, with initial availability of $87.5 million ($250.0 million face). The Revolving Facility is secured by certain of the Company’s oil and gas properties and will mature in October 2022.

The Revolving Facility is subject to a borrowing base, which is redetermined at least semi-annually and will depend on the volumes of the Company’s proved oil and gas reserves, commodity prices, estimated cash flows from these reserves and other information deemed relevant by the Revolving Facility lenders. As discussed below, the most recent redetermination was completed in June 2020. If, upon any downward adjustment of the borrowing base, the outstanding borrowings are in excess of the revised borrowing base, the Company may have to repay its indebtedness in excess of the borrowing base immediately, or in five monthly installments.

In January 2020, the Company entered into the fourth amendment to the Revolving Facility, which increased the borrowing base to $210 million (with elected borrowing commitments of $190 million), increased the maximum credit amount from $250 million to $500 million, revised the Leverage Ratio, and Interest Coverage Ratio covenant (as reflected below) and appointed Toronto Dominion (Texas) LLC, as the administrative agent. As a result of the former administrative agent exiting the facility and terminating its commitments, the Company wrote-off previously capitalized deferred financing fees of $1.1 million during the three months ended March 31, 2020 in accordance with ASC 470 Debt, which is included in interest expense on the consolidated statement of operations. The Company capitalized new financing and legal fees of $1.0 million, which will be amortized over the remaining loan term.

As of March 31, 2020, the Company had letters of credit of $16.4 million outstanding on the Revolving Facility, and $58.6 million of undrawn borrowing capacity.

As of March 31, 2020, interest on the Revolving Facility accrued at a rate equal to LIBOR, plus a margin ranging from 2.25% to 3.25%, depending on the level of funds borrowed. The stated weighted average interest rate on the Revolving Facility was 4.42% as of March 31, 2020.

Under the Revolving Facility, the Company is required to maintain the following financial ratios:

a minimum Current Ratio, consisting of consolidated current assets (as defined in the Revolving Facility) including undrawn borrowing capacity to consolidated current liabilities (as defined in the Revolving Facility), of not less than 1.0 to 1.0 as of the last day of any fiscal quarter;

a maximum Leverage Ratio, consisting of consolidated Total Debt to adjusted consolidated EBITDAX (as defined in the Revolving Facility), of not greater than 3.5 to 1.0 as of the last day of any fiscal quarter; and

a minimum Interest Coverage Ratio, consisting of EBITDAX to Consolidated Interest Expense (as defined in the Revolving Facility), of not less than 1.5 to 1.0 as of the last day of any fiscal quarter (for such time as there is a similar covenant under the Company’s or SEI’s subordinated indebtedness).

As of March 31, 2020, the Company was in compliance with all restrictive and financial covenants under the Revolving Facility.

On June 24, 2020, the Revolving Facility lenders provided notice to the Company that they had completed the Company’s borrowing base redetermination and via the redetermination, the Company’s borrowing base was reduced from $190 million to $170 million. As of the date of this report, the Company had available borrowing capacity of $38.6 million. Also on June 24, 2020, the Company entered into the fifth amendment to the Revolving Facility In addition to the borrowing base reduction, the amendment increased the interest rate margin to a range of 2.50% to 3.50%, depending on the level of funds borrowed, and incorporated changes corresponding to the third amendment to the Term Loan described below

Term Loan

On April 23, 2018, the Company entered into a $250.0 million syndicated Term Loan with Morgan Stanley Energy Capital, as administrative agent, which will mature in April 2023. The Term Loan is secured by certain of the Company’s oil and gas properties.

As of March 31, 2020, interest on the Term Loan accrued at a rate equal to the greater of (i) LIBOR plus 8% or (ii) 9%. The stated weighted average interest rate on the Term Loan was 9.45% as of March 31, 2020.

Under the Term Loan, the Company is required to maintain the following financial ratios:

a minimum Interest Coverage Ratio, consisting of EBITDAX to Consolidated Interest Expense (as defined in the Term Loan), of not less than 1.5 to 1.0 as of the last day of any fiscal quarter (for such time as there is a similar covenant under the Company’s or SEI’s subordinated indebtedness); and

An Asset Coverage Ratio, consisting of Total Proved PV9% (including the effect of the Company’s derivative positions) to Total Debt (as defined in the Term Loan agreement), of not less than 1.50 to 1.0.

As of March 31, 2020, the Company was in compliance with all restrictive and financial covenants under the Term Loan.

In addition, the Company’s credit facilities contain the requirement to deliver audited consolidated financial statements without a going concern or like qualification or exception. As described in Note 1 and 12, the Company obtained waivers from its Revolving Facility and Term Loan lenders to waive the events of default arising from the inclusion of the going concern explanatory paragraph included in the audit report for the year ended December 31, 2019 and with respect to the defaults arising from a failure to deliver audited consolidated financial statements for the year ended December 31, 2019 and related reports and certificates by the applicable deadline. These waivers were effective as of April 29, 2020, subject to the conditions set forth in the waivers.

As required by the Term Loan waiver, the Company entered into the third amendment to the Term Loan on June 24, 2020. The third amendment modified the Company’s Term Loan agreement as follows:

Increases the applicable interest rate margin from 8% to 10%, of which 2% of the applicable margin is payable-in-kind (“PIK”), effective May 30, 2020;

Requires that 50% of excess cash flow (as defined in the Term Loan agreement) generated during each quarter, if any, be used to pay down the outstanding balance on its Revolving Facility, with a permanent corresponding reduction in the borrowing base. If the outstanding balance on the Revolver is zero, any Required ECF Prepayment Amounts will be applied to reduce amounts outstanding under the Term Loan;

Removes the Asset Coverage Ratio requirement for the period ended March 31, 2020;

Limits the Company’s capital expenditures (as defined in the Term Loan agreement) for the period from May 1, 2020 to September 30, 2020 to $5 million;

Limits the Company’s general and administrative expense (as defined in the Term Loan agreement) for the second and third quarters of 2020 to $3 million per quarter; and

Negotiate in good faith with the Lenders by September 30, 2020 to reduce the Company’s total debt and leverage and explore transactions to increase the Company’s capital, which may include asset sales, public or private issuance of debt or equity, or any combination thereof.

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