(8) DEBT

The components of debt as of December 31, 2018 and 2017 consisted of the following:


	December 31, 2018
(in millions)	Debt Instrument		Unamortized Issuance Expense			Unamortized Debt Discount		Total
Variable rate (3.920% at December 31, 2018) 2018 revolving credit facility, due April 2023	$	–	$	–	(1)	$	–	$	–
4.05% Senior Notes due January 2020 (2) (3)		52		–			–		52
4.10% Senior Notes due March 2022 (3)		213		(1)			–		212
4.95% Senior Notes due January 2025 (2) (3)		927		(7)			(1)		919
7.50 % Senior Notes due April 2026		650		(8)			–		642
7.75 % Senior Notes due October 2027		500		(7)			–		493
Total debt	$	2,342	$	(23)		$	(1)	$	2,318


	December 31, 2017
(in millions)	Debt Instrument		Unamortized Issuance Expense		Unamortized Debt Discount		Total
Variable rate (3.980% at December 31, 2017) 2016 term loan facility, due December 2020 (4)	$	1,191	$	(8)	$	–	$	1,183
4.05% Senior Notes due January 2020 (2) (3)		92		–		–		92
4.10% Senior Notes due March 2022 (3)		1,000		(7)		–		993
4.95% Senior Notes due January 2025 (2) (3)		1,000		(8)		(2)		990
7.50% Senior Notes due April 2026		650		(10)		–		640
7.75% Senior Notes due October 2027		500		(7)		–		493
Total debt	$	4,433	$	(40)	$	(2)	$	4,391

(1)

Unamortized issuance expense of $11 million associated with the 2018 revolving credit facility is classified as other long-term assets on the consolidated balance sheets and includes approximately $4 million in unamortized issuance expense associated with the Company’s previous 2016 term loan facility.

(2)

In February and June 2016, Moody’s and S&P downgraded certain senior notes, which increased the interest rates by 175 basis points effective July 2016. As a result of the downgrades, interest rates increased to 5.80% for the 2020 Notes and 6.70% for the 2025 Notes. In April and May 2018, S&P and Moody’s upgraded certain senior notes. As a result of these upgrades, interest rates decreased to 5.30% for the 2020 Notes and 6.20% for the 2025 Notes effective July 2018. The first coupon payment to the bondholders at the lower interest rate was paid in January 2019.

(3)

In December 2018, the Company repurchased $40 million of its 4.05% senior notes due January 2020, $787 million of its 4.10% senior notes due March 2022 and $73 million of its 4.95% senior notes due January 2025.

(4)

In April 2018, the Company repaid the $1,191 million secured term loan balance with cash on hand and borrowings under the 2018 credit facility.

The following is a summary of scheduled debt maturities by year as of December 31, 2018:


		(in millions)
2019	$	–
2020		52
2021		–
2022		213
2023		–
Thereafter		2,077
	$	2,342

Credit Facilities

2013 Credit Facility

In December 2013, the Company entered into a credit agreement that exchanged its previous revolving credit facility. Under the revolving credit facility, the Company had a borrowing capacity of $2.0 billion. The revolving credit facility was unsecured and was not guaranteed by any subsidiaries. In June 2016, this credit facility was substantially exchanged for a new credit facility comprised of a $1,191 million secured term loan and a new $743 million revolving credit facility. The borrowing capacity of the original 2013 credit agreement was reduced from $2.0 billion to $66 million, remained unsecured and the maturity remained December 2018. On April 26, 2018 the Company replaced its 2016 credit facility with the 2018 credit facility and terminated the 2013 credit facility.

2016 Credit Facility

In June 2016, the Company reduced its existing $2.0 billion unsecured revolving credit facility, entered into in December 2013, to $66 million and entered into a new credit agreement for $1,934 million, consisting of a $1,191 million secured term loan and a new $743 million unsecured revolving credit facility, maturing in December 2020.

Concurrent with the closing of the new 2018 credit facility agreement on April 26, 2018, the Company repaid the $1,191 million secured term loan balance and recognized a loss on early debt extinguishment of $8 million on the consolidated income statement related to the unamortized issuance expense. In addition, approximately $4 million of unamortized issuance expense associated with the closed $743 million revolving credit facility was carried forward into the unamortized issuance expenses of the 2018 credit facility. At December 31, 2017, the $1,191 million secured term loan was fully drawn, there were no borrowings under the revolving credit facility, but $323 million in letters of credit was outstanding under the 2016 revolving credit facility.

2018 Revolving Credit Facility

In April 2018, as part of the Company’s strategic effort to simplify the capital structure, increase financial flexibility and reduce costs, the Company replaced its 2016 credit facility (which consisted of a $1,191 million secured term loan and an unsecured $743 million revolving credit facility) with a new revolving credit facility (the “2018 credit facility”). The 2018 credit facility has an aggregate maximum revolving credit amount of $3.5 billion, and at December 31, 2018, had a current borrowing base of $2.1 billion with a current aggregate commitment of $2.0 billion. The borrowing base is subject to redetermination twice a year in April and October. The 2018 credit facility matures in April 2023 and is secured by substantially all of the assets owned by the Company and its subsidiaries.

Loans under the 2018 credit facility are subject to varying rates of interest based on whether the loan is a Eurodollar loan or an alternate base rate loan. Eurodollar loans bear interest at the Eurodollar rate, which is adjusted LIBOR for such interest period plus the applicable margin (as those terms are defined in the 2018 credit facility documentation). The applicable margin for Eurodollar loans under the 2018 credit facility ranges from 1.50% to 2.50% based on the Company’s utilization of the borrowing base under the 2018 credit facility. Alternate base rate loans bear interest at the alternate base rate plus the applicable margin. The applicable margin for alternate base rate loans under the 2018 credit facility ranges from 0.50% to 1.50% based on the Company’s utilization of the borrowing base under the 2018 credit facility.

The 2018 credit facility contains customary representations and warranties and contains covenants including, among others, the following:

a prohibition against incurring debt, subject to permitted exceptions;

a restriction on creating liens on assets, subject to permitted exceptions;

restrictions on mergers and asset dispositions;

restrictions on use of proceeds, investments, transactions with affiliates, or change of principal business; and

maintenance of the following financial covenants, commencing with the fiscal quarter ended June 30, 2018:

Minimum current ratio of no less than 1.00 to 1.00, whereby current ratio is defined as the Company’s consolidated current assets (including unused commitments under the credit agreement, but excluding non-cash derivative assets) to consolidated current liabilities (excluding non-cash derivative obligations and current maturities of long-term debt).

Maximum total net leverage ratio of no less than (i) with respect to each fiscal quarter ending during the period from June 30, 2018 through March 31, 2019, 4.50 to 1.00, (ii) with respect to each fiscal quarter ending during the period from June 30, 2019 through March 31, 2020, 4.25 to 1.00, and (iii) with respect to each fiscal quarter ending on or after June 30, 2020, 4.00 to 1.00. Total net leverage ratio is defined as total debt less cash on hand (up to the lesser of 10% of credit limit or $150 million) divided by consolidated EBITDAX for the last four consecutive quarters. EBITDAX, as defined in the Company’s 2018 credit agreement, excludes the effects of interest expense, depreciation, depletion and amortization, income tax, any non-cash impacts from impairments, certain non-cash hedging activities, stock-based compensation expense, non-cash gains or losses on asset sales, unamortized issuance cost, unamortized debt discount and certain restructuring costs.

The 2018 credit facility contains customary events of default that include, among other things, the failure to comply with the financial covenants described above, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments and cross-defaults to material indebtedness. If an event of default occurs and is continuing, all amounts outstanding under the 2018 credit facility may become immediately due and payable. In the fourth quarter of 2018, the Company entered into hedges that, when added to existing hedges including hedges put in place as part of the Fayetteville Shale sale that the buyer was obligated to assume at closing of that sale, exceeded a cap on hedges for the month of December 2018 under a covenant under the Company’s credit agreement. In conjunction with the closing, the buyer paid for the settlement of the December 2018 hedges it was to assume. The lenders have subsequently waived all matters associated with this default. Otherwise, as of December 31, 2018, the Company was in compliance with all of the remaining covenants of this credit agreement in all material respects.

Each United States domestic subsidiary of the Company for which the Company owns 100% of its equity guarantees the 2018 credit facility. Pursuant to requirements under the indentures governing the Company’s senior notes, each subsidiary that became a guarantor of the 2018 credit facility also became a guarantor of each of the Company’s senior notes. See Note 15 for the Company’s Condensed Consolidated Financial Information, presented in accordance with Rule 3-10 of Regulation S-X. At the closing of the Fayetteville Shale sale, its subsidiaries being sold were released from these guarantees.

As of December 31, 2018, the Company had $112 million in letters of credit and no borrowings outstanding under the 2018 revolving credit facility.

Senior Notes

In January 2015, the Company completed a public offering of $850 million aggregate principal amount of its 4.05% Senior Notes due 2020 (the “2020 Notes”) and $1.0 billion aggregate principal amount of its 4.95% Senior Notes due 2025 (the “2025 Notes” together with the 2020 Notes, the “Notes”). The interest rates on the Notes are determined based upon the public bond ratings from Moody’s and S&P. Downgrades on the Notes from either rating agency increase interest costs by 25 basis points per downgrade level and upgrades decrease interest costs by 25 basis points per upgrade level, up to the stated coupon rate, on the following semi-annual bond interest payment. In February and June 2016, Moody’s and S&P downgraded the Notes, which increased the interest rates by 175 basis points effective July 2016. As a result of these downgrades, interest rates increased to 5.80% for the 2020 Notes and 6.70% for the 2025 Notes. In the event of future downgrades, the coupons for this series of notes are capped at 6.05% and 6.95%, respectively. The first coupon payment to the bondholders at the higher interest rates was paid in January 2017. S&P and Moody’s upgraded the Notes in April and May 2018, respectively. As a result of these upgrades, interest rates decreased to 5.30% for the 2020 Notes and 6.20% for the 2025 Notes effective July 2018. The first coupon payment to bondholders at the lower interest rates will be paid in January 2019.

During the first half of 2017, the Company redeemed or repurchased (i) the remaining $38 million principal amount of its outstanding 3.30% Senior Notes due 2018, (ii) the remaining $212 million principal amount of its outstanding 7.50% Senior Notes due February 2018 and (iii) the remaining $26 million principal amount of its outstanding 7.15% Senior Notes due June 2018, and recognized an $11 million loss on the extinguishment of debt.

In September 2017, the Company completed a public offering of $650 million aggregate principal amount of its 7.50% Senior Notes due 2026 (the “2026 Notes”) and $500 million aggregate principal amount of its 7.75% Senior Notes due 2027 (the “2027 Notes”), with net proceeds from the offering totaling approximately $1.1 billion after underwriting discounts and offering expenses. Both series of senior notes were sold to the public at face value. The proceeds from this offering were used to purchase $758 million of the 2020 Notes in a tender offer and to repay the outstanding balance of $327 million on the 2015 term loan. The Company recognized a loss on extinguishment of debt of $59 million, which included $53 million of premiums paid.

As discussed in Note 3 above, in December 2018, the Company closed on the Fayetteville Shale sale and used a portion of the proceeds to repurchase $40 million of its 4.05% Senior Notes due January 2020, $787 million of its 4.10% Senior Notes due March 2022 and $73 million of its 4.95% Senior Notes due January 2025. The Company recognized a loss on extinguishment of debt of $9 million, which included $2 million of premiums paid.