Debt

Bankruptcy Filing. On December 31, 2015, the Company and eight of its subsidiaries filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code. The Chapter 11 filing constituted an event of default with respect to our existing debt obligations. As a result of the Chapter 11 filing, the Company's pre-petition unsecured senior notes and secured debt under the revolving credit facility became immediately due and payable, but any efforts to enforce such payment obligations are automatically stayed as a result of the Chapter 11 filing. If the bankruptcy plan of reorganization is approved, the senior notes (along with certain unsecured claims) will be exchanged for 88.5% of the common stock of the reorganized entity upon emergence from the bankruptcy proceedings. Additional information regarding the bankruptcy proceedings is included in Note 1A of the consolidated financial statements.

Our debt balances as of December 31, 2015 and 2014, were as follows (in thousands):



	December 31, 2015			December 31, 2014
7.125% senior notes due in 2017 ⁽¹⁾	$	—		$	250,000
8.875% senior notes due in 2020 ⁽¹⁾	—			222,775
7.875% senior notes due in 2022 ⁽¹⁾	—			404,459
Bank Borrowings	324,900			197,300
Total Debt	$	324,900		$	1,074,534
Less: Current portion of long-term debt ⁽²⁾	(324,900		)	—
Long-Term Debt	$	—		$	1,074,534
(1) Classified as Liabilities Subject to Compromise as of December 31, 2015
(2) As a result of our Chapter 11 filing, we have classified our credit facility borrowings as current at December 31, 2015.

Reclassification of Senior Notes Liabilities. Senior Notes due in 2017 of $250.0 million, Senior Notes due in 2020 of $225.0 million and Senior Notes due in 2022 of $400.0 million are included in Liabilities Subject to Compromise in the consolidated balance sheet as of December 31, 2015. Additionally, a non-cash charge to write-off all of the unamortized debt issuance costs and associated discounts and premiums related to the Company's senior notes is included in "Reorganization Items" in the Consolidated Statement of Operations as of December 31, 2015. Debt issuance costs of $0.8 million on the senior notes due in 2017, $2.6 million on the senior notes due in 2020 and $5.3 million on the senior notes due in 2022 were also written-off as of December 31, 2015. A loss of $1.9 million was recognized on the extinguishment of the 2020 senior note unamortized discount, while a gain of $4.0 million was recognized on the extinguishment of the 2022 unamortized senior note premium.

Reclassification of Revolving Credit Facility Liabilities. Amounts outstanding under our revolving credit facility due in 2017 of $324.9 million were reclassified as a current liability in the Consolidated Balance Sheet dated December 31, 2015 due to cross-default provisions as a result of the bankruptcy filings. The associated remaining unamortized debt issuance costs of $3.3 million on the credit facility were reclassified to Other Current Assets in the Company's Consolidated Balance Sheet as of December 31, 2015.

Debtor-In-Possession Financing. As part of the Chapter 11 filings, the Bankruptcy Court has entered a final order authorizing the Company and the Chapter 11 Subsidiaries to obtain debtor-in-possession financing on the terms and conditions set forth in the Debtor-In-Possession (DIP) Credit Agreement, subject to the terms of the order.

As of February 29, 2016, the Company has $30.0 million available under the DIP Facility. The remaining $45.0 million under the DIP Facility will become available to the Company upon the Company’s satisfaction of certain contingencies, including the amendment and restatement or refinancing of the indebtedness under the Existing First Lien Credit Agreement and the securing of exit financing. The proceeds of the DIP Facility may be used to, among other things, pay certain costs, fees and expenses related to the Chapter 11 cases, pay authorized pre-petition claims, and pay amounts due in connection with the DIP Credit Agreement, including on account of certain “adequate protection” obligations. The proceeds may also be used to fund working capital needs and for other general corporate purposes in all cases subject to the terms of the DIP Credit Agreement, and applicable orders of the Court.

The maturity date of the DIP Facility is expected to be the earliest to occur of six months from the effective date of a plan of reorganization or liquidation in the Chapter 11 cases, the consummation of a sale of all or substantially all of the assets of the Company and its subsidiaries pursuant to Section 363 of the Bankruptcy Code, or the date of termination of the DIP Lenders’ commitment amounts pursuant to an event of default under the DIP Credit Agreement. Interest will accrue at a rate per year equal to LIBOR plus 12.0% for Eurodollar Rate Loans or the alternative base rate plus 11.0%. We have paid the DIP Lenders a total of $0.9 million during the first two months of 2016 as a commitment fee, and if the remaining $45.0 million under the DIP Facility becomes available we will be required to pay an additional commitment fee of 3.0% of the $45.0 million made available to the Company on that date. We are also required to pay to each Backstop Lender (as defined in the DIP Credit Agreement) a non-refundable backstop fee of 7.5% on the pro rata share of such Backstop Lender’s share of the loan commitments, payable in the form of common stock issued by the Company or its successor upon its emergence from the Chapter 11 cases, or, if the Restructuring Support Agreement is terminated, in cash when the principal amounts outstanding under the DIP Facility come due. An original issue discount of 5% will be paid by the Company at the time of any drawdowns against the DIP facility, resulting in net proceeds to the Company of 95% of the gross drawdown amount.

The DIP Facility is secured by security interests in substantially all of the Company’s assets, which are (1) second priority to the existing pre-petition liens of the lenders and JPMorgan Chase Bank, N.A., as administrative agent with respect to the collateral (generally required to be at least 95% of our oil and gas properties) set forth in the Second Amended and Restated Credit Agreement, dated as of September 21, 2010 (the “Existing First Lien Credit Agreement”), and (2) first priority with respect to all other property of the Company. These security interests are subject to certain carve-outs (such as Bankruptcy Court costs and professional fees), and permitted liens under the DIP Credit Agreement. The DIP Facility is subject to customary covenants, prepayment events, events of default and other provisions.

Bank Borrowings. Effective November 2, 2015, our syndicate of 11 banks executed an amendment to our credit facility agreement lowering our borrowing base and commitment amount from $375.0 million to $330.0 million.

At December 31, 2015 and 2014, we had $324.9 million and $197.3 million in outstanding borrowings under our credit facility, respectively. As of December 31, 2015, the interest rate on our credit facility is either (a) the lead bank’s prime rate plus an applicable margin or (b) the Eurodollar rate plus an applicable margin. However with respect to (a), if the lead bank’s prime rate is not higher than each of the federal funds rate plus 0.5%, and the adjusted London Interbank Offered Rate (“LIBOR”) plus 1%, the greatest of these three rates will then apply. The applicable margins vary depending on the level of outstanding debt with escalating rates of 100 to 200 basis points above the Alternative Base Rate and escalating rates of 200 to 300 basis points for Eurodollar rate loans. During 2015, the lead bank’s prime rate fluctuated between 3.25% and 3.5% while the commitment fee associated with the credit facility fluctuated between 0.38% and 0.50%. Since the filing of the petition in Bankruptcy Court, we have been paying interest on our credit facility in the normal course.

Interest expense on the credit facility, including commitment fees and amortization of debt issuance costs, totaled $9.4 million, $7.5 million and $6.0 million for the years ended December 31, 2015, 2014 and 2013, respectively. The amount of commitment fees included in interest expense, net was $0.5 million, $0.8 million and $1.1 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Additionally, we have capitalized interest on our unproved properties in the amount of $4.9 million, $5.0 million and $7.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Due to the bankruptcy proceedings, most acts to exercise remedies under our credit facility, including those related to defaults of various financial covenants and ratios, were stayed as of December 31, 2015 and continue to be stayed. No further funds are available to us under the credit facility. The terms of our credit facility include, among other restrictions, a limitation on the level of cash dividends (not to exceed $15.0 million in any fiscal year), a remaining aggregate limitation on purchases of our stock of $50.0 million, and limitations on incurring other debt.

At December 31, 2015, our bank credit agreement contained financial covenants detailing certain minimum financial ratios that must be maintained. The first was an adjusted working capital ratio of adjusted current assets to current liabilities (as defined in the Credit Agreement) of not less than 0.5 for each of the quarters up to and ending on December 31, 2016, returning to a ratio of not less than 1.0 to 1.0 at any time thereafter. The second ratio was also an interest coverage ratio, calculated on a trailing twelve month basis of EBITDAX to interest expense (as defined in the Credit Agreement), of not less than 1.15 to 1.0 for the quarters ending on December 31, 2015 through June 30, 2016, 1.3 to 1.0 for the quarters ending September 30, 2016 through December 31, 2016, and 2.0 to 1.0 any time thereafter. The third ratio was the senior secured leverage ratio (as defined in the Credit Agreement), requiring that the ratio of senior secured liabilities on the last day of the quarter to EBITDAX, calculated on a trailing twelve month basis, not be greater than 3.5 to 1.0 for the quarters ending December 31, 2015 through June 30, 2016, 3.0 to 1.0 for the quarters ending September 30, 2016 through December 31, 2016, and 2.5 to 1.0 any time thereafter.

Since inception, no cash dividends had been declared on our common stock. The terms of the credit facility also required us to secure at least 95% of our oil and natural gas properties. Under the terms of the credit facility, the commitment amount can be less than or equal to the total amount of the borrowing base with unanimous consent of the bank group as it might change from time to time.

Senior Notes Due In 2022. These notes consist of $400.0 million of 7.875% senior notes that were set to mature on March 1, 2022. On November 30, 2011, we issued $250.0 million of these senior notes at a discount of $2.1 million or 99.156% of par, which equates to an effective yield to maturity of 8%. On October 3, 2012, we issued an additional $150.0 million of these senior notes at 105% of par, which equates to a yield to worst of 6.993%. The notes are senior unsecured obligations that rank equally with all of our existing and future senior unsecured indebtedness, are effectively subordinated to all our existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness, including borrowing under our bank credit facility, and will rank senior to any future subordinated indebtedness of Swift Energy. Interest on these notes was payable semi-annually on March 1 and September 1 and commenced on March 1, 2012. The filing of the petition for bankruptcy protection constitutes an “event of default” under the indenture governing these senior notes.

Senior Notes Due In 2020. These notes consist of $225.0 million of 8.875% senior notes issued at 98.389% of par, which equates to an effective yield to maturity of 9.125%. The notes were issued on November 25, 2009 with an original discount of $3.6 million and were set to mature on January 15, 2020. The notes are senior unsecured obligations that rank equally with all of our existing and future senior unsecured indebtedness, are effectively subordinated to all our existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness, including borrowing under our bank credit facility, and will rank senior to any future subordinated indebtedness of Swift Energy. Interest on these notes was payable semi-annually on January 15 and July 15 and commenced on January 15, 2010. The filing of the petition for bankruptcy protection constitutes an “event of default” under the indenture governing these senior notes.

Senior Notes Due In 2017. These notes consist of $250.0 million of 7.125% senior notes due in 2017, which were issued on June 1, 2007 at 100% of the principal amount and will mature on June 1, 2017. The notes are senior unsecured obligations that rank equally with all of our existing and future senior unsecured indebtedness, are effectively subordinated to all our existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness, including borrowing under our bank credit facility, and will rank senior to any future subordinated indebtedness of Swift Energy. Interest on these notes was payable semi-annually on June 1 and December 1, and commenced on December 1, 2007. Prior to the Chapter 11 filing, the Company elected not to make the $8.9 million semi-annual interest payment due December 1, 2015, on its outstanding $250.0 million principal amount of 7.125% Senior Notes due 2017. The filing of the petition for bankruptcy protection constitutes an “event of default” under the indenture governing these senior notes.

Debt Issuance Costs. Legal fees, accounting fees, underwriting fees, printing costs, and other direct expenses associated with extensions of our senior notes were originally capitalized and then amortized on an effective interest basis over the life of each of the respective senior note offerings.

Interest Expense on Senior Notes. Interest expense on the senior notes, including amortization of debt issuance costs, debt discount and debt premium, totaled $70.8 million for the year ended December 31, 2015, $70.7 million for the year ended December 31, 2014, and $70.6 million for the year ended December 31, 2013.