Long-Term Debt

Long-term debt consists of the following:



	December 31, 2016			December 31, 2015
	(In thousands)
7.75% Senior Notes, due 2019	$	500,000		$	600,000
Original issue discount	(144		)	(241		)
Debt issuance costs	(4,405		)	(7,349		)
Net 7.75% Senior Notes, due 2019	$	495,451		$	592,410

Second Lien Term Loan, due March 2021	$	377,196		$	—
Original issue discount	(14,961		)	—
Debt issuance costs	(9,691		)	—
Net Second Lien Term Loan, due March 2021	$	352,544		$	—

Revolving Credit Facility, due April 2019	$	—		$	150,000
	$	847,995		$	742,410

Revolving Credit Facility

We have a revolving credit facility with a syndicate of 16 banks led by JP Morgan Chase Bank, N.A. On March 8, 2016, we entered into an amendment to the revolving credit facility in connection with the Refinancing (as defined below) (see “— Term Loan Credit Facility”). The amendment, among other things, reduced the borrowing base and aggregate commitments of the lenders from $450 million to $100 million. The aggregate commitments may be increased to $150 million if we meet a minimum ratio of the discounted present value of our proved developed producing reserves to our debt under the revolving credit facility of 1.2 to 1.0. Increases in aggregate lender commitments require the consent of each lender.

The amendment also increased the applicable interest rates under our revolving credit facility by 0.75% at every borrowing base utilization level. At our election, interest under the revolving credit facility is determined by reference to (1) LIBOR plus an applicable margin between 2.5% and 3.5% per year or (2) the greatest of (A) the prime rate, (B) the federal funds rate plus 0.5% or (C) one-month LIBOR plus 1% plus, in any of (A), (B) or (C), an applicable margin between 1.5% and 2.5% per year. We are also required to pay a commitment fee on the unused portion of the commitments under the revolving credit facility of 0.5% per year. The applicable margin is determined based on the utilization of the borrowing base. Interest and fees are payable quarterly, except that interest on LIBOR-based tranches is due at maturity of each tranche but no less frequently than quarterly.

The revolving credit facility also contains various covenants and restrictive provisions that may, among other things, limit our ability to sell assets, incur additional indebtedness, make investments or loans and create liens. One such covenant requires that we maintain a ratio of consolidated current assets to consolidated current liabilities of at least 1 to 1. The March 2016 amendment replaced a requirement that we maintain certain ratios of consolidated funded indebtedness to consolidated EBITDAX with a less restrictive ratio of debt outstanding solely under the revolving credit facility to consolidated EBITDAX to be less than 2.0 to 1.0.

The revolving credit facility matures in April 2019 and is subject to an accelerated maturity date of October 1, 2018 unless our existing 7.75% Senior Notes due 2019 (the “2019 Senior Notes”) are refinanced or extended in accordance with the terms of the revolving credit facility prior to October 1, 2018.

The borrowing base, which is based on the discounted present value of future net cash flows from oil and gas production, is redetermined by the banks semi-annually in May and November. We or the banks may also request an unscheduled borrowing base redetermination at other times during the year. If, at any time, the borrowing base is less than the amount of outstanding credit exposure under the revolving credit facility, we will be required to (1) provide additional security, (2) prepay the principal amount of the loans in an amount sufficient to eliminate the deficiency, (3) prepay the deficiency in not more than five equal monthly installments plus accrued interest, or (4) take any combination of options (1) through (3).

The revolving credit facility is collateralized by a first lien on substantially all of our assets, including at least 90% of the adjusted engineered value (as defined in the revolving credit facility) attributed to our proved oil and gas interests evaluated in determining the borrowing base. The obligations under the revolving credit facility are guaranteed by each of CWEI’s material restricted domestic subsidiaries.

At December 31, 2016, we had $98.1 million available under the revolving credit facility after allowing for outstanding letters of credit totaling $1.9 million. The effective annual interest rate on borrowings under the revolving credit facility, excluding bank fees and amortization of debt issue costs, for the year ended December 31, 2016 was 2.5%. We were in compliance with all financial and non-financial covenants at December 31, 2016 and December 31, 2015.

The failure to comply with the foregoing covenants will constitute an event of default (subject, in the case of certain covenants, to applicable notice and/or cure periods) under the revolving credit facility. Other events of default under the revolving credit facility include, among other things, (1) the failure to timely pay principal, interest, fees or other amounts due and owing, (2) the inaccuracy of representations or warranties in any material respect, (3) the occurrence of certain bankruptcy or insolvency events, and (4) the loss of lien perfection or priority. The occurrence and continuance of an event of default could result in, among other things, acceleration of all amounts outstanding.

Term Loan Credit Facility

On March 8, 2016, we entered into the term loan credit facility with funds managed by Ares providing for the lenders to make secured term loans to us in the principal amount of $350 million (the “Refinancing”). As part of the Refinancing, we issued warrants to purchase 2,251,364 shares of our common stock at a price of $22.00 per share and required certain amendments to the revolving credit facility. The term loans were issued at an original issue discount of $16.8 million, which amount equaled the cash consideration received by us for the issuance of the related warrants and shares of special voting preferred stock. Aggregate cash proceeds from the Refinancing of approximately $340 million, net of transaction costs, were used to fully repay the then-outstanding balance on the revolving credit facility of $160 million, plus accrued interest and fees.

The warrants expire in 2026 and contain various anti-dilution provisions. Pursuant to FASB ASC 815-40, we account for the warrants as derivative instruments and carry the warrants as a non-current liability at their fair value, with the calculated increase or decrease in fair value each quarter being recognized in the statement of operations and comprehensive income (loss) (see Note 9). The warrants had a fair value of $16.8 million at the date of issuance and a fair value of $246.7 million at December 31, 2016. As a result, for the year ended December 31, 2016, we recorded a loss on revaluation of the warrant liability of $230 million.

Interest on the term loans is payable quarterly in cash at 12.5% per year; however, during the period from March 15, 2016 through March 31, 2018, we may elect to pay interest for any quarter in-kind at 15% per year. We paid interest for the period commencing from March 15, 2016 and ending March 31, 2016 in cash, and elected to pay interest for the quarterly periods ended June 30, 2016 and September 30, 2016 in-kind. We paid interest for the quarterly period ending December 31, 2016 in cash. In February 2017, we elected to pay interest for the quarterly period ending March 31, 2017 in cash. Future quarterly elections to pay in-kind must be made 30 days prior to the beginning of each calendar quarter.

The term loan credit facility matures on March 15, 2021, but is subject to an earlier maturity on December 31, 2018, if we do not extend or refinance our existing 2019 Senior Notes on or prior to that date.

The term loan credit facility is collateralized by a second lien on substantially all of our assets, including at least 90% of the adjusted engineered value (as defined in the term loan credit facility) attributed to our proved oil and gas interests. The obligations under the term loan credit facility are guaranteed by each of CWEI’s material restricted domestic subsidiaries. Optional and mandatory prepayments made prior to September 15, 2020 are subject to make-whole or prepayment premiums.

The term loan credit facility also contains various covenants and restrictive provisions which may, among other things, limit our ability to sell assets, incur additional indebtedness, make investments or loans and create liens. One such covenant requires that we maintain an asset-to-secured debt coverage ratio as of each December 31 and June 30 of each year, beginning with December 31, 2018, of at least 1.2 to 1.0. We were in compliance with all covenants at December 31, 2016.

The failure to comply with these covenants will constitute an event of default (subject, in the case of certain covenants, to applicable notice and/or cure periods) under the term loan credit facility. Other events of default under the term loan credit facility include, among other things, (1) the failure to timely pay principal, interest, fees or other amounts due and owing, (2) the inaccuracy of representations or warranties in any material respect, (3) the occurrence of certain bankruptcy or insolvency events, and (4) the loss of lien perfection or priority. The occurrence and continuance of an event of default could result in, among other things, acceleration of all amounts outstanding.

On July 22, 2016, we entered into an agreement to sell 5,051,100 shares of common stock to funds managed by Ares for cash proceeds of $150 million, or approximately $29.70 per share (the “Private Placement”), which transaction closed on August 29, 2016. In connection with the Private Placement, we entered into an amendment to the term loan facility, waiving certain restrictions to enable us to use proceeds from equity issuances and specified asset sales for debt reduction and capital expenditures.

Senior Notes

In March 2011, we issued $300 million of aggregate principal amount of 2019 Senior Notes. The 2019 Senior Notes, which are unsecured, were issued at par and bear interest at 7.75% per year, payable semi-annually on April 1 and October 1 of each year. In April 2011, we issued an additional $50 million aggregate principal amount of the 2019 Senior Notes with an original issue discount of 1% or $0.5 million. In October 2013, we issued an additional $250 million of aggregate principal amount of the 2019 Senior Notes at par to yield 7.75% to maturity. All of the 2019 Senior Notes are treated as a single class of debt securities under the same indenture. In August 2016, we redeemed $100 million in aggregate principal amount of the 2019 Senior Notes in a tender offer and for the year ended December 31, 2016 recorded a $4 million gain on early extinguishment of long-term debt, consisting of a $5 million discount and a $1 million write-off of debt issuance costs. We may redeem some or all of the 2019 Senior Notes at redemption prices (expressed as percentages of principal amount) equal to 100% beginning on April 1, 2017 or for any period thereafter, in each case plus accrued and unpaid interest.

The Indenture contains covenants that restrict our ability to: (1) borrow money; (2) issue redeemable or preferred stock; (3) pay distributions or dividends; (4) make investments; (5) create liens without securing the 2019 Senior Notes; (6) enter into agreements that restrict dividends from subsidiaries; (7) sell certain assets or merge with or into other companies; (8) enter into transactions with affiliates; (9) guarantee indebtedness; and (10) enter into new lines of business. One such covenant generally restricts our ability to incur indebtedness if our ratio of consolidated EBITDAX to consolidated interest expense (as these terms are defined in the Indenture) is less than 2.25 times. However, this restriction does not prevent us from incurring indebtedness under a credit facility (as defined in the Indenture) in an aggregate principal amount at any time outstanding not to exceed the greater of (a) $500 million and (b) 30% of Adjusted Consolidated Net Tangible Assets (as defined in the Indenture). These covenants are subject to a number of additional important exceptions and qualifications as described in the Indenture. We were in compliance with these covenants at December 31, 2016 and December 31, 2015.