Debt

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Debt

7. Debt

First Amended and Restated Credit Agreement

The Predecessor was party to a credit agreement with a syndicate of banks led by Bank of America N.A. as Administrative Agent, Issuing Bank and Syndication Agent (the “Predecessor Revolving Credit Facility”).

Availability under our Predecessor Revolving Credit Facility was governed by a borrowing base, which was subject to redetermination semi-annually each year. In addition, lenders holding two-thirds of the aggregate commitments may request one additional redetermination each year. The Company can also request one additional redetermination each year, and such other redeterminations as appropriate when significant acquisition opportunities arise. The borrowing base was subject to further adjustments for asset dispositions, material title deficiencies, certain terminations of hedge agreements and issuances of permitted additional indebtedness. Increases to the borrowing base required unanimous approval of the lenders, while decreases only required approval of lenders holding two-thirds of the aggregate commitments at such time. The determination of the borrowing base takes into consideration the estimated value of the Company’s oil and gas mineral interests in accordance with the lenders’ customary practices for oil and gas loans. The Predecessor Revolving Credit Facility was guaranteed by the Predecessor and is collateralized by substantially all of the assets of the Predecessor and its subsidiaries.

In October 2021, KMF Land, LLC as borrower and Desert Peak, as parent, entered into the Amended and Restated Credit Agreement with a syndicate of banks led by Bank of America N.A. as Administrative Agent, Issuing Bank and Syndication Agent, pursuant to which the lenders thereunder made loans and extensions of credit to the borrower thereunder (the "A&R Credit Agreement").

Falcon Credit Agreement

On the Closing Date and in connection with the closing of the Merger, the Company repaid the outstanding borrowings under the Credit Agreement, dated as of August 23, 2018, among Falcon Minerals Operating Partnership, LP, as the borrower, the lenders from time to time party thereto, Citibank, N.A., as administrative agent and collateral agent for the lenders from time to time party thereto and each other issuing bank from time to time party thereto and terminated such Credit Agreement.

Second Amended and Restated Credit Agreement

Upon closing of the Merger on June 7, 2022, the A&R Credit Agreement was amended, restated, and refinanced in its entirety pursuant to the Second Amended and Restated Credit Agreement (the "Credit Agreement"), led by Bank of America N.A. as Administrative Agent, Issuing Bank and Syndication Agent. Pursuant to the terms and conditions of the Revolving Credit Facility, the Lenders committed to providing a credit facility to Sitio OpCo in an aggregate principal amount of up to $750 million (the "Revolving Credit Facility"). The availability under the Revolving Credit Facility, including availability for letters of credit, is generally limited to a borrowing base, which is determined by the required number of lenders in good faith by calculating a loan value of the proved reserves of Sitio OpCo and its subsidiaries and elected commitments provided by the Lenders. As of the Closing Date, the Revolving Credit Facility has a $300 million borrowing base and $300 million elected commitment amount. As part of the aggregate commitments under the revolving advances, the Revolving Credit Facility provides for letters of credit to be issued at the request of the borrower in an aggregate amount not to exceed $15 million.

First Amendment to Second Amendment and Restated Credit Agreement

On June 24, 2022, Sitio OpCo and the other guarantors party thereto entered into the First Amendment to Credit Agreement (the “RBL First Amendment”). The RBL First Amendment, among other things, amends the Credit Agreement to permit the borrowings under the Bridge Loan Agreement and permit the transactions contemplated by the Bridge Loan Agreement and the Foundation Acquisition described in “Note 6 – Acquisitions”. The RBL First Amendment waives the borrowing base reduction that would otherwise apply to the incurrence of permitted additional debt up to an aggregate amount of $400 million incurred prior to the next borrowing base redetermination. The RBL First Amendment also amends the maturity date of the Revolving Credit Facility to include a springing maturity date concept, pursuant to which the Revolving Credit Facility would mature on the date that is 91 days prior to the maturity of the Bridge Loan Agreement (or any refinancing thereof), if any portion of the Bridge Loan Facility remains outstanding on such date.

As of June 30, 2022, the borrowing base was $300 million as determined by the lenders and the outstanding balance under our Revolving Credit Facility was $255 million. As of December 31, 2021, the borrowing base was $150 million as determined by the lenders and the outstanding balance under our Revolving Credit Facility was $134 million.

The Revolving Credit Facility bears interest at a rate per annum equal to, at our option, at a Term SOFR rate or a base rate, plus an applicable margin. The applicable margin is based on utilization of our Revolving Credit Facility and ranges from (a) in the case of adjusted base rate loans, 1.500% to 2.500% and (b) in the case of Term SOFR rate loans and letter of credit fees ranges from 2.500% to 3.500%. The Company may elect an interest period of one, two, three, six, or if available to all lenders, twelve months. Interest is payable in arrears at the end of each interest period, but no less frequently than quarterly. A commitment fee is payable quarterly in arrears on the daily undrawn available commitments under our Revolving Credit Facility in an amount ranging from 0.375% to 0.500% based on utilization of our Revolving Credit Facility. The Revolving Credit Facility is subject to other customary fee, interest and expense reimbursement provisions.

As of June 30, 2022 and December 31, 2021, the weighted average interest rate related to our outstanding borrowings was 4.64% and 3.36%, respectively. As of June 30, 2022 and December 31, 2021, the Company had unamortized debt issuance costs of $4.5 million and $2.1 million, respectively, in connection with its entry into the facility and subsequent amendments. Such costs are capitalized as deferred financing costs within other long-term assets and are amortized over the life of the facility. For the three months ended June 30, 2022 and 2021, the Company recognized $260,000 and $74,000, respectively in interest expense related to the amortization of deferred financing costs. For the six months ended June 30, 2022 and 2021, we recognized $464,000 and $141,000, respectively, in interest expense related to the amortization of deferred financing costs.

Our Revolving Credit Facility matures in June 2026. Loans drawn under our Revolving Credit Facility may be prepaid at any time without premium or penalty (other than customary LIBOR breakage) and must be prepaid in the event that exposure exceeds the lesser of the borrowing base and the elected availability at such time. The principal amount of loans that are prepaid are required to be accompanied by accrued and unpaid interest and fees on such amounts. Loans that are prepaid may be reborrowed. In addition, the Company may permanently reduce or terminate in full the commitments under our Revolving Credit Facility prior to maturity. Any excess exposure resulting from such permanent reduction or termination must be prepaid. Upon the occurrence of an event of default under our Revolving Credit Facility, the administrative agent acting at the direction of the lenders holding a majority of the aggregate commitments at such time may accelerate outstanding loans and terminate all commitments under our Revolving Credit Facility, provided that such acceleration and termination occurs automatically upon the occurrence of a bankruptcy or insolvency event of default.

Our Revolving Credit Facility contains customary affirmative and negative covenants, including, without limitation, reporting obligations, restrictions on asset sales, restrictions on additional debt and lien incurrence and restrictions on making distributions (subject only to no default or borrowing base deficiency) and investments. In addition, for the quarter ending on September 30, 2022, our Revolving Credit Facility will begin to require us to maintain (a) a current ratio of not less than 1.00 to 1.00 and (b) a ratio of total net funded debt to consolidated EBITDA of not more than 3.50 to 1.00. EBITDA for the period ending on September 30, 2022 is equal to EBITDA for the period beginning on July 1, 2022 and ending on September 30, 2022 multiplied by four. Our Revolving Credit Facility

does not include covenants to maintain a stated current ratio or net debt to EBITDA ratio for the quarter ended June 30, 2022. The Company was in compliance with the terms and covenants of the Revolving Credit Facility at June 30, 2022 and December 31, 2021.

Due to the fact that the Bridge Loan Facility discussed below is classified as a current liability, and given covenant requirements at September 30, 2022, the Company intends to refinance the Bridge Loan Facility or will seek to obtain certain waivers related to the Company’s financial covenants under the Revolving Credit Facility at September 30, 2022.

364-Day Bridge Loan Agreement

On June 24, 2022, Sitio OpCo, as borrower, entered into an unsecured 364-Day Bridge Loan Agreement with Bank of America, N.A. as Administrative Agent for the Lenders, BofA Securities, Inc., as joint lead arranger and sole bookrunner, and Barclays Bank PLC and KeyBank National Association, as joint lead arrangers (the "Bridge Loan Agreement").

The Bridge Loan Agreement provides for a 364-day term loan credit facility (the "Bridge Loan Facility") in the aggregate principal amount of $250.0 million. The Bridge Loan Facility matures on June 23, 2023. The Bridge Loan Facility is guaranteed by Sitio OpCo.

As of June 30, 2022, the outstanding balance under the Bridge Loan Facility was $250.0 million. There was no balance outstanding as of December 31, 2021.

Interest accrues on the Bridge Loan Facility, at the borrower’s option, at either (1) a Term SOFR rate or (2) a base rate (defined on the basis of prime rate) plus an ABR margin. The SOFR margin ranges from 6.000% to 7.500%, determined by reference to the time of the calculation. The ABR margin ranges from 5.000% to 6.500%, determined by reference to the time of calculation. The borrower will also pay a duration fee to each Lender based on such Lender’s credit exposure as of the specified payment date, ranging from 0.500% to 1.000%.

As of June 30, 2022, the weighted average interest rate related to our outstanding borrowings was 7.49%. As of June 30, 2022, the Company had unamortized debt issuance costs of $6.7 million in connection with its entry into the facility. Such costs are reported as a direct deduction from the outstanding balance within current liabilities and are amortized over the life of the facility. For the six months ended June 30, 2022, we recognized $113,000 in interest expense related to the amortization of issuance costs. No such expense was recognized for the six months ended June 30, 2021.

The Bridge Loan Agreement includes, among other terms and conditions, a maximum leverage ratio covenant and a minimum current ratio covenant, as well as customary representations, warranties, covenants and events of default, including, among others, a change of control event of default and limitations on the incurrence of indebtedness and liens, new lines of business, mergers, transactions with affiliates and burdensome agreements. During the continuance of an event of default, the Lenders may take a number of actions, including, among others, declaring the entire amount then outstanding under the Bridge Loan Agreement to be due and payable.