NOTE 5 DEBT

Debt consisted of the following:

	December 31,
	2016			2015
	(in millions)
2014 First-Out Credit Facilities (Secured First Lien)
Revolving Credit Facility	$	847		$	739
Term Loan Facility	650			1,000
2016 Second-Out Credit Agreement (Secured First Lien)	1,000			—
Senior Notes (Secured Second Lien)
8% Notes Due 2022	2,250			2,250
Senior Unsecured Notes
5% Notes Due 2020	193			433
5½% Notes Due 2021	135			829
6% Notes Due 2024	193			892

Total Debt - Principal Amount	5,268			6,143
Less Current Maturities of Long-Term Debt	(100		)	(100		)

Long-Term Debt - Principal Amount	$	5,168		$	6,043

At December 31, 2016, deferred gain and issuance costs were $397 million net, consisting of $489 million of deferred gains offset by $92 million of deferred issuance costs and original issue discounts. The December 31, 2015 deferred gain and issuance costs were $491 million net, consisting of $560 million of deferred gains offset by $69 million of deferred issuance costs.

Credit Facilities

2014 First-Out Credit Facilities

Our first-lien, first-out credit facilities (2014 First-Out Credit Facilities) comprise (i) a $650 million senior term loan facility (the Term Loan Facility) and (ii) a $1.4 billion senior revolving loan facility (the Revolving Credit Facility). We are permitted to increase the size of the Revolving Credit Facility by up to $250 million if we obtain additional commitments from new or existing lenders. The facilities mature at the earlier of November 2019 and the 182nd day prior to the maturity of our 5% senior unsecured notes due January 15, 2020 (2020 notes), to the extent more than $100 million of such notes remain outstanding at such date. The Revolving Credit Facility includes a sub-limit of $400 million for the issuance of letters of credit. Our credit limit under our 2014 First-Out Credit Facilities is $2.05 billion. Borrowings under these facilities are also subject to a borrowing base, which was reaffirmed at $2.3 billion as of November 1, 2016.

As of December 31, 2016 and 2015, we had outstanding borrowings of $847 million and $739 million under our Revolving Credit Facility, and $650 million and $1 billion under the Term Loan Facility, respectively. At December 31, 2016, we had $1 billion outstanding under a new first-lien, second-out term loan credit facility (2016 Second-Out Credit Agreement). We made payments on the Term Loan Facility during each of the four quarters in 2016 totaling $100 million and a $250 million prepayment from proceeds of the 2016 Second-Out Credit Agreement.

As of February 2016, we amended the 2014 First-Out Credit Facilities to change certain of our financial and other covenants. We again amended this agreement in April 2016 to facilitate certain types of deleveraging transactions, in August 2016 to further change certain of the covenants, grant additional collateral to our lenders and permit the incurrence of debt under the 2016 Second-Out Credit Agreement and in February 2017 to facilitate additional joint venture transactions and note repurchases, eliminate our capital expenditure restriction and adopt a minimum liquidity covenant.

We have granted the lenders under the 2014 First-Out Credit Facilities a first-priority lien in a substantial majority of our assets, including our Elk Hills power plant and midstream assets. We also granted a lien in the same assets to the lenders under our 2016 Second-Out Credit Agreement and the holders of our 8% senior secured second lien notes due in 2022 (2022 notes).

Borrowings under the 2014 First-Out Credit Facilities bear interest, at our election, at either a LIBOR rate or an alternate base rate (ABR) (equal to the greatest of (i) the administrative agent’s prime rate, (ii) the one-month LIBOR rate plus 1.00% and (iii) the federal funds effective rate plus 0.50%), in each case plus an applicable margin. This applicable margin is based, while our total leverage ratio exceeds 3.00:1.00, on our borrowing base utilization and will vary from (a) in the case of LIBOR loans, 2.50% to 3.50% and (b) in the case of ABR loans, 1.50% to 2.50%. The unused portion of the Revolving Credit Facility commitments is subject to a commitment fee equal to 0.50% per annum. We also pay customary fees and expenses under the 2014 First-Out Credit Facilities. Interest on ABR loans is payable quarterly in arrears. Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly.

Our financial performance covenants under the 2014 First-Out Credit Facilities require that (i) the ratio of our first-lien, first-out secured debt to trailing four quarter EBITDAX (the First-Lien First-Out Leverage Ratio) not exceed 3.50 to 1.00 at any quarter end through the quarter ending June 30, 2017 and 3.25 to 1.00 for the quarters ending September 30 and December 31, 2017 and (ii) the total interest expense coverage ratio at each quarter end not be less than 1.20 to 1.00 at any quarter end through the quarter ending December 31, 2017. Beginning with the end of the first quarter of 2018, the First-Lien First-Out Leverage Ratio may not exceed 2.25 to 1.00 and the total interest expense coverage ratio may not be less than 2.00 to 1.00. The covenants also include a requirement that the first-lien asset coverage ratio of 1.20 to 1.00 as of any June 30 and December 31 beginning December 31, 2016 and a requirement that minimum monthly liquidity be not less than $250 million. As of January 31, 2017, we had approximately $486 million of liquidity, subject to the minimum liquidity requirement.

We must apply 100% of the proceeds from asset sales to repay loans outstanding under the 2014 First-Out Credit Facilities; except that we are permitted to (i) use up to 50% (or, if our leverage ratio is less than 4:00 to 1:00, 60%) of proceeds from non-borrowing base asset sales or monetizations to repurchase our notes to the extent available at a significant minimum discount to par, as specified in the facilities and (ii) purchase up to $140 million of certain of our unsecured notes at a discount. The 2014 First-Out Credit Facilities also permit us to incur up to an additional $50 million of non-facility indebtedness, which may be secured by non-borrowing base assets, subject to compliance with our financial covenants and indentures, the proceeds of which must be applied to repay the Term Loan Facility. We must apply cash on hand in excess of $150 million daily to repay amounts outstanding under our Revolving Credit Facility. Further, we are restricted from paying dividends or making other distributions to common stockholders.

Our borrowing base under the 2014 First-Out Credit Facilities is redetermined each May 1 and November 1. The borrowing base will be based upon a number of factors, including commodity prices and reserves. Increases in our borrowing base require approval of at least 80% of our revolving lenders, as measured by exposure, while decreases or affirmations require a two-thirds approval. We and the lenders (requiring a request from the lenders holding two-thirds of the revolving commitments and outstanding loans) each may request a special redetermination once in any period between three consecutive scheduled redeterminations. We will be permitted to have collateral released when both (i) our credit ratings are at least Baa3 from Moody’s and BBB- from S&P, in each case with a stable or better outlook, and (ii) certain permitted liens securing other debt are released.

2016 Second-Out Credit Agreement

The net borrowings under the 2016 Second-Out Credit Agreement were used to (i) prepay $250 million of the Term Loan Facility and (ii) reduce our Revolving Credit Facility by $740 million. The proceeds received were net of a $10 million original issue discount. The loan under the 2016 Second-Out Credit Agreement bears interest at a floating rate per annum equal to 10.375% plus LIBOR, subject to a 1.00% LIBOR floor, determined for the applicable interest period (or ABR rates in certain circumstances). Interest on ABR loans is payable quarterly in arrears. Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly.

The 2016 Second-Out Credit Agreement is secured by a security interest in the same collateral used to secure the 2014 First-Out Credit Facilities, but, under intercreditor arrangements with our 2014 First-Out Credit Facilities lenders, are second in collateral recovery behind such lenders. Prepayment of the 2016 Second-Out Credit Agreement is subject to a make-whole premium prior to the third anniversary of closing and a premium to par equal to 50% of coupon between the third anniversary and the fourth anniversary. Following the fourth anniversary, we may redeem at par. The 2016 Second-Out Credit Agreement matures on December 31, 2021, but if the aggregate principal amount outstanding of either our 2020 Notes or our 5½% senior unsecured notes due September 15, 2021 (2021 Notes) exceeds $100 million 91 days prior to their respective maturity dates, the maturity date of the term loans will accelerate to such prior 91st day. As of December 31, 2016, we had $193 million and $135 million in aggregate principal amount of outstanding 2020 notes and 2021 notes, respectively.

The 2016 Second-Out Credit Agreement provides for customary covenants and events of default consistent with, or generally less restrictive than, the covenants in our 2014 First-Out Credit Facilities, including limitations on additional indebtedness, liens, asset dispositions, investments, restricted payments and other negative covenants, in each case subject to certain limitations and exceptions. Additionally, the 2016 Second-Out Credit Agreement requires us to maintain a first-lien asset coverage ratio of 1.20 to 1.00 as of any June 30 and December 31 beginning December 31, 2016, consistent with the 2014 First-Out Credit Facilities.

Senior Notes

In October 2014, we issued $5.00 billion in aggregate principal amount of our senior unsecured notes, including $1.00 billion of 2020 notes, $1.75 billion of 2021 notes and $2.25 billion of 6% senior unsecured notes due November 15, 2024 (the 2024 notes, and together with the 2020 notes and the 2021 notes, the unsecured notes). We used the net proceeds from the issuance of the unsecured notes to make a $4.95 billion cash distribution to Occidental in October 2014.

In December 2015, we exchanged $534 million, $921 million and $1,358 million in aggregate principal amount of the 2020 notes, the 2021 notes, and the 2024 notes, respectively, for $2.25 billion in aggregate principal amount of the newly issued 2022 notes. We recorded a deferred gain of approximately $560 million on the debt exchange, which will be amortized using the effective interest rate method over the term of the 2022 notes. Our 2022 notes are secured on a second-priority basis, subject to the terms of an intercreditor agreement and collateral trust agreement, by a lien on the same collateral used to secure our obligations under our 2014 First-Out Credit Facilities and 2016 Second-Out Credit Agreement (the Credit Facilities).

In January and February 2016, we repurchased over $100 million in aggregate principal amount of our unsecured notes for under $13 million in cash, for a gain of $87 million, net of related expenses. In May 2016, we entered into privately negotiated exchange agreements with a holder of our 2024 notes and our 2021 notes to exchange a total of approximately 2.1 million shares of our common stock on a post-split basis for notes in the aggregate principal amount of $80 million, resulting in a $44 million pre-tax gain, net of related expenses.

In August 2016, we repurchased $197 million, $605 million and $613 million in aggregate principal amount of our 2020 notes, 2021 notes and 2024 notes, respectively, for $750 million using our Revolving Credit Facility, resulting in a $660 million pre-tax gain, net of related expenses.

In October 2016, we entered into privately negotiated exchange agreements with certain holders of our 2024 notes and 2021 notes to exchange a total of 1.3 million shares of our common stock for notes in the aggregate principal amount of $22 million, resulting in a $8 million pre-tax gain, net of related expenses.

In the fourth quarter of 2016, we repurchased $11 million in aggregate principal amount of our 2024 and 2021 notes for $6 million, resulting in a $4 million pre-tax gain, net of related expenses.

We will pay interest semiannually in cash in arrears on January 15 and July 15 for the 2020 notes, on March 15 and September 15 for the 2021 notes, on June 15 and December 15 for the 2022 notes and on May 15 and November 15 for the 2024 notes.

The indentures governing the unsecured notes and the 2022 notes each include covenants that, among other things, limit our and our subsidiaries’ ability to incur debt secured by liens. The indentures also restrict our ability to merge or consolidate with, or transfer all or substantially all of our assets to, another entity. These covenants are subject to a number of important qualifications and limitations that are set forth in the indenture. The covenants are not, however, directly linked to measures of our financial performance. In addition, if we experience a “change of control triggering event” (as defined in the indentures) with respect to a series of notes, we will be required, unless we have exercised our right to redeem the notes of such series, to offer to purchase the notes of such series at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest. The indenture governing our second lien secured notes also restricts our ability to sell certain assets and to release collateral from liens securing the second lien secured notes, unless the collateral is released in compliance with our Credit Facilities.

All obligations under the Credit Facilities and the notes are guaranteed jointly and severally by all of our material wholly owned subsidiaries. The assets and liabilities of subsidiaries not guaranteeing the debt are de minimis.

At December 31, 2016, we were in compliance with all the financial and other covenants under our Credit Facilities.

Principal maturities of long-term debt outstanding at December 31, 2016 are as follows (in millions):

2017	$	100
2018	100
2019	1,297
2020	193
2021	1,561
Thereafter	2,017

Total(a)	$	5,268

(a)

For information on potential springing maturities, see the “Credit Facilities” and “Senior Notes” sections above.

We estimate the fair value of fixed-rate debt, which is classified as Level 1, based on prices from known market transactions for our instruments. The estimated fair value of our debt at December 31, 2016 and December 31, 2015, including the fair value of the variable rate portion, was approximately $4.9 billion and $3.6 billion, respectively, compared to a carrying value of approximately $5.3 billion and $6.1 billion. A one-eighth percent change in the variable interest rates on the borrowings under our Credit Facilities on December 31, 2016, would result in a $3 million change in annual interest expense.

As of December 31, 2016, we had letters of credit of approximately $130 million under the Revolving Credit Facility. As of December 31, 2015, we had letters of credit in the aggregate amount of $70 million (including $49 million under the Revolving Credit Facility). These letters of credit were issued to support ordinary course marketing, insurance, regulatory and other matters.