Long-Term Debt

6 Months Ended

Jun. 30, 2020

The Company’s outstanding debt is summarized below:


		As of June 30, 2020										As of December 31, 2019
	Maturity Date	Principal		Debt Issuance Costs		Carrying Amount		Principal		Debt Issuance Costs		Carrying Amount
		(in thousands)
Amended Credit Facility	September 14, 2023	$	175,000	$	—	$	175,000	$	140,000	$	—	$	140,000
7.0% Senior Notes	October 15, 2022	350,000		(1,954)		348,046		350,000		(2,372)		347,628
8.75% Senior Notes	June 15, 2025	275,000		(3,373)		271,627		275,000		(3,717)		271,283
Total Long-Term Debt		$	800,000	$	(5,327)	$	794,673	$	765,000	$	(6,089)	$	758,911

Amended Credit Facility

On May 21, 2020, the Company entered into an amendment to the fourth amended and restated credit facility (the “Amended Credit Facility”), which decreased the aggregate elected commitment amount and the borrowing base from $500.0 million to $300.0 million, increased the applicable margins for interest and commitment fee rates and added provisions requiring the availability under the Amended Credit Facility to be at least $50.0 million and the Company’s weekly cash balance (subject to certain exceptions) to not exceed $35.0 million. The Company had $175.0 million and $140.0 million outstanding under the Amended Credit Facility as of June 30, 2020 and December 31, 2019, respectively. As credit support for future payments under a contractual obligation, a $21.7 million letter of credit has been issued under the Amended Credit Facility, which reduced the available borrowing capacity under the Amended Credit Facility as of June 30, 2020 to $53.3 million after taking into account the $50.0 million availability requirement. While the stated maturity date in the Amended Credit Facility is September 14, 2023, the maturity date is accelerated if the Company has more than $100.0 million of “Permitted Debt” or “Permitted Refinancing Debt” (as those terms are defined in the Amended Credit Facility) that matures prior to December 14, 2023. If that is the case, the accelerated maturity date is 91 days prior to the earliest maturity of such Permitted Debt or Permitted Refinancing Debt. Because the Company’s 7.0% Senior Notes will mature on October 15, 2022, the aggregate amount of those notes exceeds $100.0 million and the notes represent “Permitted Debt”, the maturity date specified in the Amended Credit Facility is accelerated to the date that is 91 days prior to the maturity date of those notes, or July 16, 2022.

As of May 21, 2020, interest rates on outstanding loans under the Amended Credit Facility are either adjusted LIBOR plus applicable margins of 2.5% to 3.5% or an alternate base rate, which is generally the prime rate, plus applicable margins of 1.5% to 2.5%, and the unused commitment fee is 0.5%. The applicable margins and the unused commitment fee rate are determined based on borrowing base utilization. The weighted average annual interest rate incurred on the Amended Credit Facility was 2.7% and 4.2% for the three months ended June 30, 2020 and 2019, respectively, and 3.0% and 4.1% for the six months ended June 30, 2020 and 2019, respectively.

The borrowing base under the Amended Credit Facility is determined at the discretion of the lenders and is subject to regular re-determination on or about April 1 and October 1 of each year, as well as following any property sales. The lenders can also request an interim redetermination during each six month period. The borrowing base is computed based on proved oil, natural gas and NGL reserves that have been mortgaged to the lenders, hedge positions and estimated future cash flows from the reserves calculated using future commodity pricing provided by the lenders, as well as any other outstanding debt.

The Company has financial covenants associated with its Amended Credit Facility that are measured each fiscal quarter. The Company is currently in compliance with all financial covenants and has complied with all financial covenants since issuance. However, if current market conditions continue, the Company may not be able to maintain compliance with these financial covenants. In particular, the Company may breach the debt-to-EBITDAX ratio and the current ratio covenants in the Amended Credit Facility in the latter part of 2021. Further, if the Company’s independent auditor were to include an explanatory paragraph regarding the Company’s ability to continue as a “going concern” in the auditors’ report on the Company’s financial statements for the year ending December 31, 2020, this would also cause a default under the Amended Credit Facility. If a covenant breach occurs or is likely, the Company may attempt to obtain a waiver from the lenders under the Amended Credit Facility, seek to amend the terms of the Amended Credit Facility to prevent the breach or seek to obtain alternative financing to repay the Amended Credit Facility balance outstanding. If these efforts are unsuccessful, all or a portion of the amount borrowed under the Amended Credit Facility could become due, and cross-defaults could occur under the Company’s senior notes and the Company may not have other sources of capital to repay the amounts due.

Senior Notes

The issuer of the 7.0% Senior Notes and the 8.75% Senior Notes is HighPoint Operating Corporation (f/k/a Bill Barrett), or Subsidiary Issuer. Pursuant to supplemental indentures entered into in connection with the Merger, HighPoint Resources Corporation, or the Parent Guarantor, became a guarantor of the 7.0% Senior Notes and the 8.75% Senior Notes in March 2018. In addition, Fifth Pocket Production, LLC, or the Subsidiary Guarantor, became a subsidiary of the Subsidiary Issuer on August 1, 2019 and also guarantees the 7.0% Senior Notes and the 8.75% Senior Notes. The Parent Guarantor and the Subsidiary Guarantor, on a joint and several basis, fully and unconditionally guarantee the debt securities of the Subsidiary Issuer. The Company has no additional subsidiaries or non-guarantor subsidiaries. All covenants in the indentures governing the notes limit the activities of the Subsidiary Issuer and the Subsidiary Guarantor, including limitations on the ability to pay dividends, incur additional indebtedness, make restricted payments, create liens, sell assets or make loans to the Parent Guarantor, but in most cases the covenants in the indentures are not applicable to the Parent Guarantor. HighPoint Operating Corporation is currently in compliance with all covenants and has complied with all covenants since issuance.

Nothing in the indentures governing the 7.0% Senior Notes or the 8.75% Senior Notes prohibits the Company from repurchasing any of the notes from time to time at any price in open market purchases, negotiated transactions or by tender offer or otherwise without any notice to or consent of the holders.