Royal’s historical primary sources of indebtedness were its first lien credit facility, which it entered into in October 2012, and the RNR credit facility:

•

First lien credit facility: As of December 31, 2017, the borrowing base on the first lien credit facility was $57 million. The borrowing base is re-determined semi-annually. Borrowings are either at LIBOR or at the Base Rate, at Royal’s option, plus a variable credit spread. The variable credit spread is based on the percentage of the borrowing base utilized. In connection with the pre-Transactions sale of a portion of Royal’s interests in certain oil and natural gas properties, Royal repaid $27.0 million towards the first lien credit facility. The first lien credit facility was extinguished on the Closing Date.

•

RNR credit facility: As of December 31, 2017, the borrowing base on the RNR credit facility was $2 million. Borrowings are between 7% and 9% for London InterBank Offered Rate based loans (“LIBOR”), and between 6% and 8% for base rate loans. The interest rate is based on the percentage of the borrowing based utilized. The RNR credit facility was incurred by Riverbend Natural Resources, LP, which was not contributed in the Transactions.

The availability under each facility was subject to Royal’s compliance with certain customary contractual financial and non-financial covenants and non-financial covenants and each facility was secured by Royal’s assets.

On the Closing Date, the Company entered into a credit facility with Citibank, N.A., as administrative agent and collateral agent for the lenders from time to time party thereto (the “Credit Facility”). The Credit Facility provides for a maximum credit amount of $500.0 million and a borrowing base based on its oil and natural gas reserves and other factors of $105.0 million, subject to scheduled semi-annual and other borrowing base redeterminations and expires on the fifth anniversary of the Closing Date. On the Closing Date, $38.0 million was drawn under the Credit Facility to fund a portion of the purchase price of the Transactions, to pay transaction expenses, to fund any original issue discount or upfront fees in connection with the “market flex” provisions previously agreed upon and to finance working capital needs and other general corporate purposes. Effective May 24, 2019, in connection with the Company’s spring 2019 redetermination, the borrowing base decreased from $115.0 million to $105.0 million and, as of September 30, 2019, the Company had borrowings of $38.0 million under the Credit Facility at an interest rate of 4.29% and $67.0 million available for future borrowings under the Credit Facility. The Company incurred $3.2 million of expenses in connection with the closing of the Credit Facility. These amounts are being amortized over the term of the Credit Facility. Unamortized deferred issuance costs were $2.5 million as of September 30, 2019.

Principal amounts borrowed are payable on the maturity date. The Company has a choice of borrowing at an alternative base rate (which is equal to the greatest of the federal funds rate plus one-half of 1.0%, the prime rate or the one-month LIBOR rate plus 1.0%) or LIBOR, with such borrowings bearing interest, payable quarterly in arrears for base rate loans and one month, two-month, three month or six-month periods for LIBOR loans. LIBOR loans bear interest at a rate per annum equal to the rate appearing on the Reuters Reference LIBOR01 or LIBOR02 page as the LIBOR, for deposits in dollars at 12:00 noon (London, England time) for one, two, three, or six months plus an applicable margin ranging from 200 to 300 basis points. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one-month LIBOR loans plus 1%, plus an applicable margin ranging from 100 to 200 basis points. The scheduled redeterminations of our borrowing base take place on April 1^st and October 1^st of each year.

Obligations under the Credit Facility are guaranteed by the Company and each of its existing and future, direct and indirect domestic subsidiaries (the “Credit Parties”) and are secured by all the present and future assets of the Credit Parties, subject to customary carve-outs.

The Credit Facility contains various affirmative, negative and financial maintenance covenants. These covenants, among other things, include restrictions on the Company’s ability to incur additional indebtedness, acquire and sell assets, create liens, enter into certain lease agreements, make investments, make distributions and require the maintenance of the financial ratios described below.

Financial Covenant		Required Ratio
Ratio of total net debt to EBITDAX, as defined in the Credit Facility		Not greater than 4.0 to 1.0
Ratio of current assets to current liabilities, as defined in the Credit Facility		Not less than 1.0 to 1.0