NOTE 11 - INDEBTEDNESS



	March 31,			December 31,
	2020			2019
	(In thousands)
Revolving Credit Agreement, due October 2023	$	97,750		$	115,000
Total long-term debt	$	97,750		$	115,000
Less: current portion	(97,750		)	(115,000		)
Total long-term debt, net of current portion	$	—		$	—

Revolving Credit Agreement

On October 10, 2018, the Company entered into a five-year, $500.0 million senior secured revolving credit agreement by and among the Company, as borrower, certain subsidiaries of the Company, as guarantors (the “Guarantors”), the Administrative Agent, and the lenders party thereto (as amended, the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for a senior secured reserves based revolving credit facility with a borrowing base of $115.0 million as of December 31, 2019. The borrowing base is subject to semiannual re-determinations in May and November of each year. As provided for in the Seventh Amendment and as a result of a decrease in commodity prices, the borrowing base was decreased to $90.0 million on January 17, 2020. The reduction in the borrowing base resulted in a borrowing base deficiency as of January 17, 2020, of $25.0 million. We have made scheduled repayments of $17.3 million and the remaining $7.8 million was due on June 5, 2020, which the Company did not pay.

On June 5, 2020, the Company, the Guarantors, the Administrative Agent and certain lenders entered into the Forbearance Agreement. See Note 2 - Chapter 11 Filing, Liquidity and Going Concern for a description of the terms of the Forbearance Agreement and the related subsequent events concerning the indebtedness under the Revolving Credit Agreement.

On the Petition Date, the Debtors filed voluntary petitions seeking relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court commencing cases for relief under Chapter 11 of the Bankruptcy Code. Under the Plan contemplated by the RSA, each Non-Affiliate RBL Lender will receive its pro rata share of (i) $9.2 million in cash plus all accrued and unpaid interest as of the Petition Date (estimated to be $0.7 million), and (ii) participations in $55 million of new loans under the Exit Facility. See Note 2 - Chapter 11 Filing, Liquidity and Going Concern for a description of the terms of the Chapter 11 Cases, the RSA and the Plan and the impact of the Chapter 11 Cases on the outstanding debt under our Revolving Credit Agreement.

Borrowings under the Revolving Credit Agreement bear interest at a floating rate of either LIBOR or a specified base rate plus a margin determined based upon the usage of the borrowing base. The Company is required to pay a commitment fee of 0.5% per annum on any unused portion of the borrowing base. The Company’s obligations under the Revolving Credit Agreement are secured by first priority liens on substantially all of the Company’s and the Guarantors’ assets and are unconditionally guaranteed by each of the Guarantors.

As of March 31, 2020, outstanding borrowings under the Revolving Credit Agreement were $97.8 million, resulting in a borrowing base deficiency of $7.8 million. The Revolving Credit Agreement also provides for issuance of letters of credit in an aggregate amount of up to $5.0 million. As of March 31, 2020 and December 31, 2019, indebtedness outstanding under our Revolving Credit Agreement, was classified as current liability due to uncertainty of the Company’s ability to meet debt covenants over the next twelve months and the lender's ability to call the debt in the event of a default. As of the Petition Date, the remaining outstanding principal on our Revolving Credit Agreement was $89.9 million, including $25.7 million of such principal held by an affiliate of Värde which was subordinated to the indebtedness of the other bank lenders under the Revolving Credit Agreement. As a result of the filing of the Chapter 11 Cases, all indebtedness under the Revolving Credit Agreement was automatically accelerated and became due and payable.

The Company capitalizes certain direct costs associated with the debt issuance under the Revolving Credit Agreement and amortizes such costs over the term of the debt instrument. The deferred financing costs related to the Revolving Credit Agreement are classified in assets. For the three months ended March 31, 2020 and 2019, the Company amortized debt issuance costs associated with the Revolving Credit Agreement of $0.7 million and $0.1 million, respectively. As of March 31, 2020, the Company had $2.1 million of unamortized deferred financing costs in other current assets. As of December 31, 2019, the Company had $2.6 million of unamortized deferred financing costs in other current assets.

The Revolving Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants, including covenants relating to: maintenance of books and records; financial reporting and notification; compliance with laws; maintenance of properties and insurance; and limitations on incurrence of indebtedness, liens, fundamental changes, international operations, asset sales, certain debt payments and amendments, restrictive agreements, investments, dividends and other restricted payments and hedging. It also requires the Company to maintain a ratio of total debt to EBITDAX (the “Leverage Ratio”) of not more than 4.00 to 1.00 and a ratio of current assets to current liabilities (the “Current Ratio”) of not less than 1.00 to 1.00 as of the last day of each fiscal quarter.

As of March 31, 2020, the Company was not in compliance with the Leverage Ratio and Current Ratio covenants. Pursuant to the Fourteenth Amendment, the Company obtained a waiver from the requisite lenders of its compliance with the Leverage Ratio and Current Ratio covenants as of March 31, 2020. As the Company is not expecting to be able to meet future covenants without obtaining additional sources of liquidity and as a result of the filing of the Chapter 11 cases, the outstanding amount on our Revolving Credit Agreement as of March 31, 2020 has been classified as current. Pursuant to the Forbearance Agreement, the Administrative Agent and the requisite lenders under the Revolving Credit Agreement agreed to refrain from exercising certain of their rights and remedies under the Revolving Credit Agreement and related documents during the Forbearance Period that arose solely as a result of the Company’s breach of the Leverage Ratio and Current Ratio covenants, the Company’s failure to pay remaining borrowing base deficiency and certain other defaults or events of default. See Note 2 - Chapter 11 Filing, Liquidity and Going Concern, for additional information.

The Revolving Credit Agreement also provides for the Company to have and maintain swap agreements in respect of crude oil and natural gas, on not less than 75% of the projected production from proved reserves classified as “Developed Producing Reserves” attributable to the oil and natural gas properties of the Company, as reflected in the most recently delivered reserves report, for a period through at least 24 months after the end of each applicable quarter. For further information on our hedges, see Note 9 - Derivatives. Pursuant to the Twelfth Amendment, the Company obtained a waiver from the requisite lenders of the requirement to comply with certain hedging obligations set forth in the Revolving Credit Agreement until the quarter ending June 30, 2020.

Subject to certain exceptions, under the Bankruptcy Code, the commencement of the Chapter 11 Cases automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or the filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Creditors are stayed from taking any actions against the Debtors as a result of debt defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. There can be no assurances that the Administrative Agent and the RBL lenders will consensually agree to a restructuring of the Revolving Credit Agreement. Any proposed non-consensual restructuring of the Revolving Credit Agreement could result in substantial delay in emergence from bankruptcy and there can be no assurances that the Bankruptcy Court would approve such proposed non-consensual restructuring.

Prior to the Forbearance Agreement entered into on June 5, 2020 and the filing of the Chapter 11 Cases on June 28, 2020, subsequent to December 31, 2019, and through the date of this quarterly report, the Company entered into various amendments to the Revolving Credit Agreement which included:


•	a borrowing base redetermination as of January 14, 2020 resulting in the borrowing base reduced to $90 million and a borrowing base deficiency in the amount of $25 million under the Revolving Credit Agreement, required to be paid in four equal monthly installments;


•	various amendments to extend the installment payments required as a result of the borrowing base deficiency;


•	waived the requirement under the Revolving Credit Agreement that the Company comply with a leverage ratio and a current ratio, in each case, as of December 31, 2019, and March 31, 2020, and granted certain other waivers, including the requirement to comply with certain hedging obligations set forth in the Revolving Credit Agreement until June 30, 2020;


•	an extension of an additional 45 days for the Company to provide its audited annual financial statements for the fiscal year ended December 31, 2019, and waived the requirement that such financial statements be delivered without a “going concern” or like qualification or exception; and


•	defer the timing of the scheduled spring redetermination of the borrowing base under the Revolving Credit Agreement from on or about May 1, 2020 to on or about June 5, 2020 (which was further extended to on or about June 26, 2020 pursuant to the Forbearance Agreement).

Second Lien Credit Agreement

On March 5, 2019, the Company entered into a transaction agreement (the “2019 Transaction Agreement”) by and among the Company and the Värde Parties pursuant to which, among other matters, the Company issued to the Värde Parties shares of two new series of its preferred stock and shares of its common stock, as consideration for the termination of the Second Lien Credit Agreement and the satisfaction in full, in lieu of repayment in cash, of the Second Lien Term Loan. Specifically, in exchange for satisfaction of the outstanding principal amount of the Second Lien Term Loan, accrued and unpaid interest thereon and the make-whole amount totaling approximately $133.6 million (the “Second Lien Exchange Amount”), the Company issued to the Värde Parties:


•	an aggregate of 55,000 shares of a newly created series of preferred stock of the Company, designated as “Series F 9.00% Participating Preferred Stock” (the “Series F Preferred Stock”), corresponding to $55 million of the Second Lien Exchange Amount based on the aggregate initial Stated Value (as defined in Note 14 - Preferred Stock) of the shares of Series F Preferred Stock;

•

an aggregate of 60,000 shares of a newly created series of preferred stock of the Company, designated as “Series E 8.25% Convertible Participating Preferred Stock” (the “Series E Preferred Stock”), corresponding to $60 million of the Second Lien Exchange Amount based on the aggregate initial Stated Value (as defined in Note 14 - Preferred Stock) of the shares of Series E Preferred Stock; and


•	9,891,638 shares of common stock, corresponding to approximately $18.6 million of the Second Lien Exchange Amount, based on the closing price of the Company’s common stock on the NYSE American on March 4, 2019 of $1.88.

Subsequent to this transaction, the Company’s indebtedness consists solely of borrowings under the Revolving Credit Agreement and, subject to the Bankruptcy Court’s approval, the DIP credit facility.

As a result of the satisfaction in full of the Second Lien Term Loan pursuant to the 2019 Transaction Agreement, the Company recorded a gain on extinguishment of debt of $7.1 million, which was recorded as an increase in additional paid in capital due to the Värde Parties, being existing shareholders of the Company.

Debtor-in-Possession Credit Agreement

On June 30, 2020, Lilis Energy, Inc., as borrower, and the other Debtors as guarantors, entered into a Senior Secured Super-Priority Debtor-in-Possession Credit Agreement, or the DIP Credit Agreement among the Debtors, the Non-Affiliate RBL Lenders, and the Administrative Agent. Under the Initial DIP Facility, the Initial DIP Lenders agreed to provide a superpriority senior secured debtor-in-possession credit facility providing for an aggregate principal amount of (i) $15.0 million of new money revolving commitments, of which up to $5.0 million became available upon entry of the Interim DIP Order, with the remainder to become available on a final basis, plus (ii) a tranche of roll-up term loans to refinance $15.0 million of the outstanding loans under the Revolving Credit Facility, including $1.5 million pre-petition bridge loans that the Non-Affiliate RBL Lenders advanced to the Company on June 17, 2020, of which $1.5 million of roll-up term loans were incurred upon entry of the Interim DIP Order, with the remaining $13.5 million to be incurred upon entry of a final order. On June 29, 2020, the Bankruptcy Court entered the Interim DIP Order granting interim approval of the Initial DIP Facility, thereby permitting the Debtors to incur up to $5.0 million new money loans on an interim basis. A final hearing on the Initial DIP Facility and Initial DIP Credit Agreement is scheduled for August 18, 2020.

Subject to approval by the Bankruptcy Court, the proceeds of the Initial DIP Facility will be used to pay fees, expenses and other expenditures of the Company RSA Parties to be set forth in rolling budgets prepared as part of the Chapter 11 Cases, subject to approval by the Initial DIP Lenders. Closing the Initial DIP Facility is contingent on the satisfaction of customary conditions, including receipt of a final order by the Bankruptcy Court approving the Initial DIP Facility and the Initial DIP Credit Agreement.

Borrowings under the Initial DIP Facility bear interest at a floating rate of either LIBOR or a specified base rate plus a margin determined based upon the usage of the borrowing base. Borrowings under the Initial DIP Facility mature on the earliest of (i) November 30, 2020, (ii) the effective date of an approved plan of reorganization and (iii) the date on which the Debtors consummate a sale of all or substantially all of their assets pursuant to Section 363 of Chapter 11 of the Bankruptcy Code or otherwise.

The Initial DIP Credit Agreement contains events of default customary for debtor-in-possession financings, including events related to the Chapter 11 proceedings, the occurrence of which could cause the acceleration of the Debtors’ obligation to repay borrowings outstanding under the Initial DIP Facility. The Debtors’ obligations under the Initial DIP Credit Agreement are secured by a security interest in, and lien on, substantially all present and after-acquired property (whether tangible, intangible, real, personal or mixed) of the Debtors, including a superpriority priming lien on the property of the Debtors that secure their obligations under the Revolving Credit Facility.

Interest Expense

The components of interest expense are as follows for the three months ended March 31, 2020 and 2019 (in thousands):



	Three Months Ended March 31,
	2020		2019
Interest on debt	$	1,501	$	1,441
Net revenue payments on financing arrangement	1,594		—
Paid-in-kind interest on term loans	—		1,590
Amortization of debt financing costs	707		140
Amortization of discount on term loans	—		1,657
Total	$	3,802	$	4,828