Debt

3 Months Ended

Mar. 31, 2020

DEBT

The components of debt as of March 31, 2020 and December 31, 2019 consisted of the following:


	March 31, 2020
(in millions)	Debt Instrument		Unamortized Issuance Expense			Unamortized Debt Discount		Total




Long-term debt:
Variable rate (2.120% at March 31, 2020) 2018 revolving credit facility due April 2024	$	149	$	—	⁽¹⁾	$	—	$	149
4.10% Senior Notes due March 2022	210		(1)			—		209
4.95% Senior Notes due January 2025⁽²⁾	864		(5)			(1)		858
7.50% Senior Notes due April 2026	621		(6)			—		615
7.75% Senior Notes due October 2027	453		(5)			—		448
Total long-term debt	$	2,297	$	(17)		$	(1)	$	2,279



	December 31, 2019
(in millions)	Debt Instrument		Unamortized Issuance Expense			Unamortized Debt Discount		Total
Long-term debt:
Variable rate (4.310% at December 31, 2019) 2018 term loan facility due April 2024	$	34	$	—	⁽¹⁾	$	—	$	34
4.10% Senior Notes due March 2022	213		(1)			—		212
4.95% Senior Notes due January 2025⁽²⁾	892		(5)			(1)		886
7.50% Senior Notes due April 2026	639		(7)			—		632
7.75% Senior Notes due October 2027	484		(6)			—		478
Total long-term debt	$	2,262	$	(19)		$	(1)	$	2,242

(1)At March 31, 2020 and December 31, 2019, unamortized issuance expense of $10 million and $11 million, respectively, associated with the 2018 credit facility (as defined below) was classified as other long-term assets on the consolidated balance sheets.

(2)At March 31, 2020 and December 31, 2019, respectively, the interest rate was 6.20% for the 2025 Notes, reflecting a net downgrade in the Company’s bond ratings since the initial offering. This rate has been in effect since January 2019. On April 7, 2020, S&P downgraded the Company’s bond rating to BB-, which has the effect of increasing the interest rate on the 2025 Notes to 6.45%. The first coupon payment to the bondholders at the higher interest rate will be paid in January 2021.

Credit Facilities

2018 Revolving Credit Facility

In April 2018, the Company replaced its credit facility that was entered into in 2016 with a new revolving credit facility (the “2018 credit facility”) with a group of banks that, as amended, has a maturity date of April 2024. The 2018 credit facility has an aggregate maximum revolving credit amount of $3.5 billion and, at March 31, 2020, had a borrowing base of $2.1 billion with aggregate bank commitments of $2.0 billion. The Company may utilize the credit facility in the form of loans and letters of credit. The borrowing base is subject to redetermination at least twice a year, in April and October. On April 13, 2020, the banks participating in the 2018 credit facility redetermined the borrowing base to be $1.8 billion, which also changed the aggregate commitments to that amount. 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 or 25% of adjusted consolidated net tangible assets.

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 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 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 credit agreement governing the Company’s 2018 credit facility, 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 March 31, 2020, the Company was in compliance with all of the covenants contained in the credit agreement governing the 2018 credit facility. Beginning late in the first quarter of 2020, decreased transportation, manufacturing and general economic activity levels prompted by COVID-19 and related governmental and societal actions reduced the demand for

oil-based products such as gasoline, jet fuel and other refined products, as well as NGLs. Reduced demand, along with geopolitical events such as the disagreements between the Organization of Petroleum Exporting Countries (“OPEC”) and Russia on production levels, have caused a significant decline in commodity pricing since the beginning of 2020. Additionally, space to store oil and condensate production is reaching or may reach capacity in some areas, which has prompted purchasers of oil and condensate to reduce future purchase levels and, in some cases, to claim force majeure for purchases already contracted. Consequently, during the second half of April 2020, the Company received notices from two companies asserting force majeure and curtailing approximately 3,200 gross barrels per day of condensate. To the extent that this decreased demand for the Company’s commodities continues or storage for its production is not available, Southwestern expects to reduce production from or completely shut in portions of its currently producing wells. If the current market conditions persist or deteriorate further, the Company would proactively continue to adjust its activities and plans. Absent any actions taken by Southwestern, and under these conditions or if they worsen, current modeling indicates that the Company would not be in compliance with its Net Leverage Ratio covenant under the 2018 credit facility in late 2020. Under such circumstances, Southwestern would seek waivers or a modification of the covenant package from the lenders in advance of any covenant non-compliance. Additionally, the Company has other mitigating options including but not limited to the monetization of derivative asset positions, the reduction or elimination of non-essential expenditures or the sale of non-core assets.

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.

As of March 31, 2020, the Company had $172 million in letters of credit and $149 million borrowings outstanding under the 2018 credit facility. As of April 28, 2020, the Company had been requested to post an additional $150 million in letters of credit related to firm transportation. The Company currently does not anticipate being required to supply a materially greater amount of letters of credit under its existing contracts.

Senior Notes

In January 2015, the Company completed a public offering of $1.0 billion aggregate principal amount of its 4.95% senior notes due 2025 (the “2025 Notes”). The interest rate on the 2025 Notes is determined based upon the public bond ratings from Moody’s and S&P. Downgrades on the 2025 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. At March 31, 2020, the interest rate for the 2025 Notes was 6.20%, reflecting a net downgrade in the Company’s bond ratings since the initial offering. This rate has been in effect since January 2019. On April 7, 2020, S&P downgraded the Company’s bond rating to BB- which had the effect of increasing the interest rate on the 2025 Notes to 6.45%. The first coupon payment to the bondholders at the higher interest rate will be paid in January 2021. In the event of future downgrades, the coupons for this series of notes have been capped at 6.95%.

In the first quarter of 2020, the Company repurchased $3 million of its 4.10% Senior Notes due 2022, $28 million of its 4.95% Senior Notes due 2025, $18 million of its 7.50% Senior Notes due 2026 and $31 million of its 7.75% Senior Notes due 2027 for $52 million, and recognized a $28 million gain on the extinguishment of debt.