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DEBT
 9 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
DEBT DEBT
The components of debt as of September 30, 2022 and December 31, 2021 consisted of the following:
September 30, 2022
(in millions)Debt InstrumentUnamortized Issuance ExpenseUnamortized Debt Premium/DiscountTotal
Current portion of long-term debt:
Variable rate (6.20% at September 30, 2022) Term Loan B due June 2027
$5 
(1)
$— $— $5 
Total current portion of long-term debt$5 $— $— $5 
Long-term debt:
Variable rate (4.83% at September 30, 2022)
2022 revolving credit facility due April 2027 (4)
$180 $— 
(2)
$— $180 
4.95% Senior Notes due January 2025 (3)
389 (1)— 388 
Variable rate (6.20% at September 30, 2022) Term Loan B due June 2027
541 (6)(1)534 
7.75% Senior Notes due October 2027
421 (3)— 418 
8.375% Senior Notes due September 2028
304 (4)— 300 
5.375% Senior Notes due February 2029
700 (6)22 716 
5.375% Senior Notes due September 2030
1,200 (15)— 1,185 
4.75% Senior Notes due February 2032
1,150 (16)— 1,134 
Total long-term debt$4,885 $(51)$21 $4,855 
Total debt$4,890 $(51)$21 $4,860 
December 31, 2021
(in millions)Debt InstrumentUnamortized Issuance ExpenseUnamortized Debt Premium/DiscountTotal
Current portion of long-term debt:
4.10% Senior Notes due March 2022
$201 $— $— $201 
Variable rate (3.0% at December 31, 2021) Term Loan B due June 2027
5 
(1)
— — 5 
Total current portion of long-term debt$206 $— $— $206 
Long-term debt:
Variable rate (2.08% at December 31, 2021) 2022 revolving credit facility, due April 2027 (4)
$460 $— 
(2)
$— $460 
4.95% Senior Notes due January 2025 (3)
389 (1)— 388 
Variable rate (3.0% at December 31, 2021) Term Loan B due June 2027
545 (7)(1)537 
7.75% Senior Notes due October 2027
440 (4)— 436 
8.375% Senior Notes due September 2028
350 (5)— 345 
5.375% Senior Notes due September 2029
700 (6)25 719 
5.375% Senior Notes due March 2030
1,200 (17)— 1,183 
4.75% Senior Notes due February 2032
1,150 (17)— 1,133 
Total long-term debt$5,234 $(57)$24 $5,201 
Total debt$5,440 $(57)$24 $5,407 
(1)The Term Loan requires quarterly principal repayments of $1.375 million, subject to adjustment for voluntary prepayments, beginning in March 2022.
(2)At September 30, 2022 and December 31, 2021, unamortized issuance expense of $21 million and $10 million, respectively, associated with the 2022 credit facility (as defined below) was classified as other long-term assets on the consolidated balance sheets.
(3)Effective in July 2018, the interest rate was 6.20% for the 2025 Notes, reflecting a net downgrade in the Company’s bond ratings since the initial offering. 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% following the July 23, 2020 interest payment date. The first coupon payment to the bondholders at the higher interest rate was paid in January 2021. On
September 1, 2021, S&P upgraded the Company’s bond rating to BB, and on January 6, 2022, S&P further upgraded the Company’s bond rating to BB+, which decreased the interest rate on the 2025 Notes to 5.95% beginning with coupon payments paid after January 2022. On May 31, 2022, Moody’s upgraded the Company’s bond rating to Ba1, which decreased the interest rate on the 2025 Notes from 5.95% to 5.70% for coupon payments paid after July 2022.
(4)The Company’s 2018 credit facility was amended and restated in April 2022.
The following is a summary of scheduled debt maturities by year as of September 30, 2022 and includes the quarterly Term Loan principal repayments of $1.375 million, subject to adjustment for voluntary prepayments, beginning in March 2022:
(in millions)
2022$1 
20236 
20245 
2025395 
20265 
Thereafter4,478 
$4,890 
Credit Facilities
2022 Credit Facility
On April 8, 2022, the Company entered into an Amended and Restated Credit Agreement that replaces its previous credit facility with a group of banks, that as amended, has a maturity date of April 2027 (the “2022 credit facility”). As of September 30, 2022, the 2022 credit facility has an aggregate maximum revolving credit amount and borrowing base of $3.5 billion and elected five-year revolving commitments of $2.0 billion (the “Five-Year Tranche”) and elected short-term commitments of $500 million (the “Short-Term Tranche”). The borrowing base is subject to redetermination at least twice a year, which typically occurs in April and October, and is secured by substantially all of the assets owned by the Company and its subsidiaries. On September 29, 2022, the Company’s borrowing base was reaffirmed at $3.5 billion and the Five-Year Tranche and Short-Term Tranche were reaffirmed at $2.0 billion and $500 million, respectively. The Five-Year Tranche and Short-Term Tranche have maturity dates of April 8, 2027 and April 30, 2023, respectively.
Effective August 4, 2022, the Company elected to temporarily increase commitments under the 2022 credit facility by $500 million under the Short-Term Tranche as a temporary working capital liquidity resource. Any loans under the Short-Term Tranche bear interest at either (i) term SOFR plus an applicable rate of 2.75% plus a 0.10% credit spread adjustment or (ii) the base rate described below plus an applicable rate of 1.75%, and unused commitments thereunder incur commitment fees at a rate of 0.50% per annum. As of September 30, 2022, the Company had no borrowings under the Short-Term Tranche.
The Company may utilize the 2022 credit facility in the form of loans and letters of credit. Loans under the Five-Year Tranche of the 2022 credit facility are subject to varying rates of interest based on whether the loan is a Secured Overnight Financing Rate (“SOFR”) loan or an alternate base rate loan. Term SOFR loans bear interest at term SOFR plus an applicable rate ranging from 1.75% to 2.75% based on the Company’s utilization of the Five-Year Tranche of the 2022 credit facility, plus a 0.10% credit spread adjustment. Base rate loans bear interest at a base rate per year equal to the greatest of: (i) the prime rate; (ii) the federal funds effective rate plus 0.50%; and (iii) the adjusted term SOFR rate for a one-month interest period plus 1.00%, plus an applicable margin ranging from 0.75% to 1.75%, depending on the percentage of the commitments utilized. Commitment fees on unused commitment amounts under the Five-Year Tranche of the 2022 credit facility range between 0.375% to 0.50%, depending on the percentage of the commitments utilized.
The 2022 credit facility contains customary representations and warranties and 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, declaring dividends, repurchasing junior debt, transactions with affiliates, or change of principal business; and
•maintenance of the following financial covenants, commencing with the fiscal quarter ended March 31, 2022:
1.Minimum current ratio of not 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 not greater than, with respect to the prior four fiscal quarters ending on or after March 31, 2022, 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 2022 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 2022 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 2022 credit facility may become immediately due and payable. As of September 30, 2022, the Company was in compliance with all of the covenants of the credit agreement in all material respects.
Currently, each United States domestic subsidiary of the Company for which the Company owns 100% of its equity guarantees the 2022 credit facility. Pursuant to requirements under the indentures governing its senior notes, each subsidiary that becomes a guarantor of the 2022 credit facility also must become a guarantor of each of the Company’s senior notes.
Certain features of the facility depend on whether Southwestern has obtained any of the following ratings:
•An unsecured long-term debt credit rating (an “Index Debt Rating”) of BBB- or higher with S&P;
•An Index Debt Rating of Baa3 or higher with Moody’s; or
•An Index Debt Rating of BBB- or higher with Fitch (each of the foregoing an “Investment Grade Rating”).
Upon receiving one Investment Grade Rating from either S&P or Moody’s, repayment in full of the term loan obligations under Southwestern’s Term Loan Agreement dated December 22, 2021, and delivering a certification to the administrative agent (the period beginning at such time, an “Interim Investment Grade Period”), amongst other changes, the following occurs:
•The Guarantors may be released from their guarantees;
•The collateral under the facility will be released;
•The facility will no longer be subject to a borrowing base; and
•Certain title and collateral-related covenants will no longer be applicable.
During the Interim Investment Grade Period, the Company will be required to maintain compliance with the existing financial covenants as well as a PV-9 coverage ratio of the net present value, discounted at 9% per annum, of the estimated future net revenues expected in the proved reserves to the Company’s total indebtedness as of such date of not less than 1.50 to 1.00 (“PV-9 Coverage Ratio”). In addition, during an Interim Investment Grade Period or Investment Grade Period (as defined below), term SOFR loans will bear interest at term SOFR plus an applicable rate ranging from 1.25% to 1.875%, depending on the Company’s Index Debt Rating (as defined in the 2022 credit facility), plus an additional 0.10% credit spread adjustment. Base rate loans will bear interest at the base rate described above plus an applicable rate ranging from 0.25% to 0.875%, depending on the Company’s Index Debt Rating. During an Interim Investment Grade Period or Investment Grade Period (defined below), the commitment fee on unused commitment amounts under the facility will range from 0.15% to 0.275%, depending on the Company’s Index Debt Rating.
The Interim Investment Grade Period will end, and the facility will revert to its characteristics prior to the Interim Investment Grade Period, including being guaranteed by the Guarantors, being secured by collateral and being subject to a borrowing base, having applicable margins and commitment fee determined based on percentage of commitments utilized, as well as limited to compliance with the leverage ratio and current ratio financial covenants but not the PV-9 Coverage Ratio if both of the following are achieved during the Interim Investment Grade Period:
•An Index Debt Rating from Moody’s that is Ba2 or lower; and
•An Index Debt Rating from S&P that is BB or lower.
Upon receiving two Investment Grade Ratings from S&P, Moody’s, or Fitch (such period following, an “Investment Grade Period”), certain restrictive covenants fall away or become more permissive. Upon Investment Grade Period, the leverage ratio and current ratio financial covenants and PV-9 Coverage Ratio will no longer be effective, and the Company will be required to
maintain compliance with a total indebtedness to capitalization ratio, which is the ratio of the Company’s total indebtedness to the sum of total indebtedness plus stockholders’ equity, not to exceed 65%.
As of September 30, 2022, the Company had $109 million in letters of credit and $180 million in borrowings outstanding under the 2022 credit facility. The Company currently does not anticipate being required to supply a materially greater amount of letters of credit under its existing contracts.
Term Loan Credit Agreement
In December 2021, the Company entered into a term loan credit agreement with a group of lenders that provided for a $550 million secured term loan facility which matures in June 2027 (the “Term Loan”). As of September 30, 2022, the Company had borrowings under this Term Loan of $546 million. The net proceeds from the initial loans of $542 million were used to fund a portion of the GEPH Merger on December 31, 2021. Beginning on March 31, 2022, the Term Loan requires minimum quarterly payments of $1.375 million, subject to adjustment for voluntary prepayments and mandatory prepayments as applicable. The Term Loan is subject to varying rates of interest based on whether the term loan is a term benchmark loan or an alternate base rate loan. Term benchmark loans bear interest at the adjusted term SOFR (which includes a credit spread adjustment and is subject to a floor that is 0.50%) plus an applicable margin equal to 2.50%. Alternate base rate loans bear interest at the alternate base rate plus an applicable margin equal to 1.50%. The current borrowings are considered benchmark loans and are carried at an interest rate of 6.20% as of September 30, 2022 (3.70% credit spread adjustment plus 2.50% margin).
The Term Loan is subject to a quarterly collateral coverage ratio test in which the Company’s PDP PV-10 value, net of derivative mark-to-market value, must be greater than 2.0x its secured debt commitments or all secured debt becomes callable. If necessary, outstanding secured debt principal can be paid down within 45 days of the end of such fiscal quarter to come into compliance with this ratio, either by (i) prepaying the loans, (ii) prepaying the loans under the 2022 credit facility, (iii) prepaying any other secured indebtedness that is secured by a lien, or some combination thereof. As of September 30, 2022, the Company was in compliance with the quarterly coverage ratio test.
The Company’s obligations under the Term Loan are guaranteed by each of the Company’s subsidiaries that guarantee the obligations under the 2022 credit facility and are secured by liens on substantially all the assets of the Company and the Company’s subsidiaries on an equal basis with the liens securing the obligations under the 2022 credit facility.
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. Effective in July 2018, the interest rate for the 2025 Notes was 6.20%, reflecting a net downgrade in the Company’s bond ratings since their issuance. 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% following the July 23, 2020 interest payment due date. The first coupon payment to the 2025 Notes bondholders at the higher interest rate was paid in January 2021. On September 1, 2021, S&P upgraded the Company’s bond rating to BB, and on January 6, 2022, S&P further upgraded the Company’s bond rating to BB+, which decreased the interest rate on the 2025 Notes to 5.95% beginning with coupon payments paid after January 2022. On May 31, 2022, Moody’s upgraded the Company’s bond rating to Ba1, which decreased the interest rate on the 2025 Notes from 5.95% to 5.70% for coupon payments paid after July 2022.
On August 30, 2021, Southwestern closed its public offering of $1,200 million aggregate principal amount of its 5.375% Senior Notes due 2030 (the “2030 Notes”), with net proceeds from the offering totaling $1,183 million after underwriting discounts and offering expenses. The proceeds were used to repurchase the remaining $618 million of the Company’s 7.50% Senior Notes due 2026, $167 million of the Company’s 4.95% Senior Notes due 2025 and $6 million of the Company’s 4.10% Senior Notes due 2022 for $844 million, and the Company recognized a $59 million loss on the extinguishment of debt, which included the write-off of $6 million in related unamortized debt discounts and debt issuance costs. The remaining proceeds were used to pay borrowings under its credit facility and for general corporate purposes.
Upon the close of the Indigo Merger on September 1, 2021, and pursuant to the terms of the Indigo Merger Agreement, Southwestern assumed $700 million in aggregate principal amount of Indigo’s 5.375% Senior Notes due 2029 (“Indigo Notes”). As part of purchase accounting, the assumption of the Indigo Notes resulted in a non-cash fair value adjustment of $26 million, based on the market price of 103.766% on September 1, 2021, the date that the Indigo Merger closed. Subsequent to the Indigo Merger, the Company exchanged the Indigo Notes for approximately $700 million of newly issued 5.375% Senior Notes due 2029, the offering of which was registered with the SEC in November 2021.
On December 22, 2021, Southwestern closed its public offering of $1,150 million aggregate principal amount of its 4.75% Senior Notes due 2032 (the “2032 Notes”), with net proceeds from the offering totaling $1,133 million after underwriting discounts and offering expenses. The net proceeds of this offering, along with the net proceeds from the Term Loan, were used to fund the cash consideration portion of the GEPH Merger, which closed on December 31, 2021, and to pay $332 million to fund tender offers for $300 million of the Company’s 2025 Notes for which the Company recorded an additional loss on extinguishment of debt of $33 million, which included the write-off of $1 million in related unamortized debt discounts and debt issuance costs. The remaining proceeds were used for general corporate purposes.During the nine months ended September 30, 2022, the Company repurchased the remaining outstanding principal balance of $201 million of its 4.10% Senior Notes due 2022, $46 million of its 8.375% Senior Notes due 2028 and $19 million of its 7.75% Senior Notes due 2027 for a total cost of $272 million, and recognized a $6 million loss on debt extinguishment.