Debt

12 Months Ended

Dec. 31, 2023

Debt Disclosure [Abstract]

Debt

DEBT

The components of debt as of December 31, 2023 and 2022 consisted of the following:

	December 31, 2023
(in millions)	Debt Instrument		Unamortized Issuance Expense			Unamortized Debt Premium / Discount		Total
Variable rate (7.20% at December 31, 2023) 2022 revolving credit facility, due April 2027	$	220	$	—	(1)	$	—	$	220
4.95% Senior Notes due January 2025 (2)	389		—			—		389
8.375% Senior Notes due September 2028	304		(3)			—		301
5.375% Senior Notes due February 2029	700		(5)			18		713
5.375% Senior Notes due March 2030	1,200		(13)			—		1,187
4.75% Senior Notes due February 2032	1,150		(13)			—		1,137
Total debt	$	3,963	$	(34)		$	18	$	3,947

	December 31, 2022
(in millions)	Debt Instrument		Unamortized Issuance Expense			Unamortized Debt Premium / Discount		Total
Variable rate (6.15% at December 31, 2022) 2022 revolving credit facility, due April 2027	$	250	$	—	(1)	$	—	$	250
4.95% Senior Notes due January 2025 (2)	389		(1)			—		388
7.75% Senior Notes due October 2027	421		(3)			—		418
8.375% Senior Notes due September 2028	304		(3)			—		301
5.375% Senior Notes due February 2029	700		(5)			22		717
5.375% Senior Notes due March 2030	1,200		(16)			—		1,184
4.75% Senior Notes due February 2032	1,150		(16)			—		1,134
Total debt	$	4,414	$	(44)		$	22	$	4,392

(1)At December 31, 2023 and 2022, unamortized issuance expense of $15 million and $19 million, respectively, associated with the 2022 credit facility (as defined below) was classified as other long-term assets on the consolidated balance sheet.

(2)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 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 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.

The following is a summary of scheduled debt maturities by year as of December 31, 2023:

(in millions)
2024	$	—
2025	389
2026	—
2027 (1)	220
2028	304
Thereafter	3,050
	$	3,963

(1)The Company’s 2022 credit facility matures in 2027.

Credit Facility

2022 Credit Facility

On April 8, 2022, the Company entered into an Amended and Restated Credit Agreement that replaces its previous credit facility, that as amended, has a maturity date of April 2027 (the “2022 credit facility”). As of December 31, 2023, 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”). 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 October 4, 2023, the Company’s borrowing base was reaffirmed $3.5 billion and the Five-Year Tranche was reaffirmed at $2.0 billion with a maturity date of April 8, 2027.

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. The Company had no borrowings under the Short-Term Tranche which expired on April 30, 2023 and was not renewed.

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 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 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, 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. Consolidated 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 December 31, 2023, 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 became a guarantor of the 2022 credit facility also became 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 December 31, 2023, the Company had no outstanding letters of credit and $220 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

On December 22, 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”). 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 required minimum quarterly payments of $1.375 million, subject to adjustment for voluntary prepayments.

On December 30, 2022, the Company repaid in full all outstanding indebtedness under the Term Loan. The payoff amount included the principal amount of approximately $546 million, plus accrued but unpaid interest, fees, and expenses, which satisfied all of the Company’s indebtedness obligations thereunder. In connection with the repayment of such outstanding indebtedness obligations, all security interests, mortgages, liens and encumbrances securing the obligations under the Term Loan, the Term Loan, related loan documents, and all guarantees of such indebtedness obligations were terminated. The Company funded the repayment of the obligations under the Term Loan with approximately $305 million in cash on hand and approximately $250 million of borrowings under the Company’s 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 2015 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 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 $845 million, and the Company recognized a $60 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, which were 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 our 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.

For the year ended December 31, 2022, the Company retired $816 million of long term debt at a cost of $822 million and recorded a loss on early debt extinguishment of $14 million, which included $6 million of premiums and fees and the write off of $8 million in related unamortized debt discounts and issuance costs. The debt retirements included the repurchase of $46 million of its 8.375% Senior Notes due September 2028, $19 million of its 7.75% Senior Notes due October 2027, and the full redemption of $201 million of its outstanding 4.10% Senior Notes due March 2022, and its $550 million Term Loan.

On February 26, 2023, the Company redeemed all of its 7.75% Senior Notes due October 2027 (the “2027 Notes”) at a redemption price equal to 103.875% of the principal amount thereof plus accrued and unpaid interest of $13 million for a total payment of $450 million. The Company recognized a $19 million loss on the extinguishment of debt, which included the write-off of $3 million in related unamortized debt discounts and debt issuance costs. The Company funded the redemption of the 2027 Notes using approximately $316 million of cash on hand and approximately $134 million of borrowings under the 2022 credit facility.