Debt

9 Months Ended

Sep. 30, 2019

DEBT

The components of debt as of September 30, 2019 and December 31, 2018 consisted of the following:


	September 30, 2019
(in millions)	Debt Instrument		Unamortized Issuance Expense			Unamortized Debt Discount		Total
Current portion of long-term debt:
4.05% Senior Notes due January 2020⁽¹⁾	$	52	$	—		$	—	$	52
Total current portion of long-term debt	$	52	$	—		$	—	$	52

Long-term debt:
Variable rate (3.420% at September 30, 2019) 2018 revolving credit facility, due April 2023	$	—	$	—	⁽²⁾	$	—	$	—
4.10% Senior Notes due March 2022	213		(1)			—		212
4.95% Senior Notes due January 2025⁽¹⁾⁽³⁾	896		(7)			(1)		888
7.50% Senior Notes due April 2026⁽³⁾	639		(7)			—		632
7.75% Senior Notes due October 2027⁽³⁾	492		(5)			—		487
Total long-term debt	$	2,240	$	(20)		$	(1)	$	2,219

Total debt	$	2,292	$	(20)		$	(1)	$	2,271

	December 31, 2018
(in millions)	Debt Instrument		Unamortized Issuance Expense			Unamortized Debt Discount		Total
Long-term debt:
Variable rate (3.920% at December 31, 2018) 2018 term loan facility, due April 2023	$	—	$	—	⁽²⁾	$	—	$	—
4.05% Senior Notes due January 2020⁽¹⁾	52		—			—		52
4.10% Senior Notes due March 2022	213		(1)			—		212
4.95% Senior Notes due January 2025⁽¹⁾	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 long-term debt	$	2,342	$	(23)		$	(1)	$	2,318

(1)In February and June 2016, Moody’s and S&P downgraded certain senior notes, increasing 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. S&P and Moody’s upgraded certain senior 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 the bondholders at the lower interest rate was paid in January 2019.

(2)At September 30, 2019 and December 31, 2018, unamortized issuance expense of $9 million and $12 million, respectively, associated with the 2018 revolving credit facility is classified as other long-term assets on the consolidated balance sheets.

(3)During the third quarter of 2019, the Company purchased $31 million in 2025 Notes, $11 million in 2026 Notes and $8 million in 2027 Notes for $43 million in cash, reducing the Company’s outstanding debt by $50 million. This resulted in a gain on early extinguishment of debt of $7 million for the three and nine months ended September 30, 2019.

Credit Facilities

2018 Revolving Credit Facility

In April 2018, 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”). Concurrent with the closing of the 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.

The 2018 credit facility has an aggregate maximum revolving credit amount of $3.5 billion with a current aggregate commitment of $2.0 billion and a borrowing base (limit on availability) that is redetermined each April and October. The 2018 credit facility is secured by substantially all of the assets owned by the Company and its subsidiaries. The permitted lien provisions in the senior note indentures currently limit liens securing indebtedness to the greater of $2.0 billion and 25% of adjusted consolidated net tangible assets. On October 8, 2019, the Company entered into an amendment to the 2018 credit facility that, among other things, established the October 2019 borrowing base at $2.1 billion and extended the maturity date to April 2024.

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 ending June 30, 2018:

1.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).

2.Maximum total net leverage ratio of no greater 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. As of September 30, 2019, the Company was in compliance with all of the covenants of the credit agreement.

Each United States domestic subsidiary of the Company for which the Company owns 100% guarantees the 2018 credit facility. Pursuant to requirements under the indentures governing its 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 19 for the Company’s Condensed Consolidated Financial Information, presented in accordance with Rule 3-10 of Regulation S-X.

As of September 30, 2019, the Company had $172 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, increasing 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 the bondholders at the lower interest rates was paid in January 2019.

In the third quarter of 2019, the Company repurchased $31 million of its 4.95% Senior Notes due 2025, $11 million of its 7.50% Senior Notes due 2025 and $8 million of its 7.75% Senior Notes due 2026 for $43 million, and recognized a $7 million gain on the extinguishment of debt.