DEBT:

Our debt consisted of the following at:



	December 31,
	2016			2015
1 3⁄4% Senior Convertible Notes due 2017	$	300,000		$	279,244
7 1⁄2% Senior Notes due 2022	775,000			770,009
Revolving credit facility	341,500			—
4.20% Building Loan	11,284			11,702
Total debt	$	1,427,784		$	1,060,955
Less: current portion of long-term debt	(408		)	—
Less: liabilities subject to compromise (see Note 2)	(1,075,000		)	—
Long-term debt	$	352,376		$	1,060,955

Bankruptcy Filing

On December 14, 2016, the Debtors filed voluntary petitions seeking relief under Chapter 11 of the Bankruptcy Code. The Bankruptcy Petitions constituted an event of default that accelerated the Company's obligations under all of its outstanding debt instruments, resulting in the principal and interest due thereunder immediately due and payable. However, any efforts to enforce such payment obligations were automatically stayed as a result of the filing of the Bankruptcy Petitions, and the creditors' rights of enforcement in respect of the debt instruments were subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. On February 15, 2017, the Bankruptcy Court confirmed the Plan. See Note 2 – Chapter 11 Proceedings for additional information on the Bankruptcy Proceedings.

Current Portion of Long-Term Debt

As of December 31, 2016, the current portion of long-term debt of $408 represented principal payments due within one year on the 4.20% Building Loan (the "Building Loan").

Reclassification of Debt

The face value of the 2017 Convertible Notes of $300,000 and the 2022 Notes of $775,000 have been reclassified as liabilities subject to compromise in the accompanying consolidated balance sheet at December 31, 2016. Additionally, we recognized a charge of approximately $8,332 to write-off the remaining unamortized deferred financing costs, discounts and premiums related to the 2017 Convertible Notes and 2022 Notes and a charge of $2,615 for costs directly related to the bankruptcy proceedings, including legal and financial advisory costs for Stone, our bank group and our noteholders incurred post-bankruptcy filing, which are included in reorganization items in the accompanying consolidated statement of operations for the year ended December 31, 2016. See Note 1 – Organization and Summary of Significant Accounting Policies.

Revolving Credit Facility

On June 24, 2014, we entered into the Credit Facility with commitments totaling $900,000 (subject to borrowing base limitations) through a syndicated bank group, with an initial borrowing base of $500,000. The Credit Facility matures on July 1, 2019. On April 13, 2016, our borrowing base under the Credit Facility was reduced from $500,000 to $300,000. On that date, we had $457,000 of outstanding borrowings and $18,269 of outstanding letters of credit, or $175,269 in excess of the redetermined borrowing base (referred to as a borrowing base deficiency). Our agreement with the banks provides that within 30 days after notification of a borrowing base deficiency, we must elect to cure the borrowing base deficiency through any combination of the following actions: (1) repay amounts outstanding sufficient to cure the deficiency within 10 days after our written election to do so; (2) add additional oil and gas properties acceptable to the banks to the borrowing base and take such actions necessary to grant the banks a mortgage in the properties within 30 days after our written election to do so; and/or (3) arrange to pay the deficiency in six equal monthly installments. We elected to pay the deficiency in six equal monthly installments, making the first payment of $29,212 on May 13, 2016 and the second payment of $29,212 on June 13, 2016.

On June 14, 2016, we entered into Amendment No. 3 (the "June Amendment") to the Credit Facility to (i) increase the borrowing base to $360,000 from $300,000, (ii) provide for no redetermination of the borrowing base by the lenders until January 15, 2017, other than an automatic reduction upon the sale of certain of our properties, (iii) permit second lien indebtedness to refinance the existing 2017 Convertible Notes and 2022 Notes, (iv) revise the maximum Consolidated Funded Leverage financial covenant to be 5.25 to 1 for the fiscal quarter ended June 30, 2016, 6.50 to 1 for the fiscal quarter ended September 30, 2016, 9.50 to 1 for the fiscal quarter ended December 31, 2016 and 3.75 to 1 thereafter, (v) require minimum liquidity (as defined in the June Amendment) of at least $125,000 until January 15, 2017, (vi) impose limitations on capital expenditures of $60,000 for the period of June 1, 2016 through December 31, 2016, but allowing for an additional $25,000 to be expended for Appalachian drilled but uncompleted wells, (vii) grant the lenders a perfected security interest in all deposit accounts and (viii) provide for anti-hoarding cash provisions for amounts in excess of $50,000 to apply after December 10, 2016. Upon execution of the June Amendment, we repaid $56,845 in borrowings under the Credit Facility, which eliminated the borrowing base deficiency and brought the total borrowings and letters of credit outstanding under the Credit Facility in conformity with the borrowing base limitation.

As of December 31, 2016 and February 23, 2017, we had $341,500 of outstanding borrowings and $12,469 of outstanding letters of credit, leaving $6,031 of availability under the Credit Facility. The weighted average interest rate under the Credit Facility was approximately 3.2% at December 31, 2016. Subject to certain exceptions, the Credit Facility is required to be guaranteed by all of our material domestic direct and indirect subsidiaries. As of December 31, 2016, the Credit Facility was guaranteed by our only material subsidiary, Stone Offshore. On August 29, 2016, our subsidiaries SEO A LLC and SEO B LLC were merged into Stone Offshore.

The borrowing base under the Credit Facility is redetermined semi-annually, typically in May and November, by the lenders, taking into consideration the estimated loan value of our oil and gas properties and those of our subsidiaries that guarantee the Credit Facility in accordance with the lenders’ customary practices for oil and gas loans. In addition, we and the lenders each have discretion at any time, but not more than two additional times in any calendar year, to have the borrowing base redetermined. The Credit Facility is collateralized by substantially all of our assets and the assets of our material subsidiaries. We are required to mortgage, and grant a security interest in, our oil and natural gas reserves representing at least 86% of the discounted present value of the future net cash flows from our proved oil and natural gas reserves reviewed in determining the borrowing base. Interest on loans under the Credit Facility is calculated using the London Interbank Offering ("LIBOR") rate or the base rate, at our election. The margin for loans at the LIBOR rate is determined based on borrowing base utilization and ranges from 1.500% to 2.500%.

In addition to the covenants discussed above, the Credit Facility provides that we must maintain a ratio of consolidated EBITDA to consolidated Net Interest Expense, as defined in the Credit Facility, for the preceding four quarterly periods of not less than 2.5 to 1. As of December 31, 2016, our Consolidated Funded Debt to consolidated EBITDA ratio was 6.90 to 1 and our consolidated EBITDA to consolidated Net Interest Expense ratio was approximately 3.24 to 1. The Credit Facility also includes certain customary restrictions or requirements with respect to disposition of properties, incurrence of additional debt, change of control and reporting responsibilities. These covenants may limit or prohibit us from paying cash dividends but do allow for limited stock repurchases. These covenants also restrict our ability to prepay other indebtedness under certain circumstances. We were in compliance with all covenants as of December 31, 2016, however, the Bankruptcy Petitions constituted an event of default that accelerated the Company's obligations under the Credit Facility, resulting in the principal and interest due thereunder immediately due and payable. Any efforts to enforce such payment obligations were automatically stayed as a result of the filing of the Bankruptcy Petitions, and the lenders' rights of enforcement in respect of such amounts were subject to the applicable provisions of the Bankruptcy Code.

On December 14, 2016, the Debtors and the Banks holding 100% of the aggregate principal amount owing under the Credit Facility entered into the A&R RSA, pursuant to which the Banks will receive their respective pro rata share of commitments and obligations under the Amended Credit Facility on the terms set forth in Exhibit 1(a) to the Term Sheet, as well as their respective share of the Company’s unrestricted cash, as of the effective date of the Plan, in excess of $25,000, net of certain fees, payments, escrows or distributions pursuant to the Plan and the PSA. The terms of the Amended Credit Facility under the Plan are substantially consistent with the pre-petition facility, except, the borrowing base will be reduced to $200,000, subject to a $150,000 borrowing cap until the first redetermination of the borrowing base scheduled for November 1, 2017, and subject to decrease under certain circumstances. Additionally, the Consolidated Funded Leverage financial covenant will be adjusted to levels ranging from 2.50 to 1 to 3.00 to 1 for 2017 and ranging from 2.50 to 1 to 3.50 to 1 thereafter. The margin for loans at the LIBOR rate will be increased to a range of 3.00% to 4.00%.

Building Loan

On November 20, 2015, we entered into an $11,802 term loan agreement, the Building Loan, maturing on December 20, 2030. The Building Loan bears interest at a rate of 4.20% per annum and is to be repaid in 180 equal monthly installments of $73 commencing on December 20, 2015. The Building Loan is collaterized by our two Lafayette, Louisiana office buildings. Under the financial covenants of the Building Loan, we must maintain a ratio of EBITDA to Net Interest Expense of not less than 2.00 to 1.00. As of December 31, 2016, our EBITDA to Net Interest Expense ratio was 3.24 to 1. In addition, the Building Loan contains certain customary restrictions or requirements with respect to change of control and reporting responsibilities. There will be no changes to the terms of the Building Loan pursuant to the Plan.

2017 Convertible Notes

On March 6, 2012, we issued in a private offering $300,000 in aggregate principal amount of the 2017 Convertible Notes to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). The 2017 Convertible Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, based on an initial conversion rate of 23.4449 shares of our common stock per $1 principal amount of 2017 Convertible Notes, which corresponded to an initial conversion price of approximately $42.65 per share of our common stock at the time of the issuance of the 2017 Convertible Notes. The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the indenture related to the 2017 Convertible Notes. On June 10, 2016, we completed a 1-for-10 reverse stock split with respect to our common stock (see Note 1 – Organization and Summary of Significant Accounting Policies). Proportional adjustments were made to the conversion price and shares as they relate to the 2017 Convertible Notes, resulting in a conversion rate of 2.34449 shares of our common stock with a corresponding conversion price of $426.50 per share. On December 31, 2016, our closing share price was $7.15.

The 2017 Convertible Notes may be converted by the holder, in multiples of $1 principal amount, under certain circumstances, including on or after December 1, 2016, and prior to the close of business on the second scheduled trading day immediately preceding the maturity date of the 2017 Convertible Notes, which is March 1, 2017, without regard to the conditions specified in the indenture governing the 2017 Convertible Notes.

Upon conversion, we will be obligated to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock. If we satisfy our conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of our common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value (as described in the indenture related to the 2017 Convertible Notes) calculated on a proportionate basis for each trading day in a 25 consecutive trading-day conversion period (as described in the indenture related to the 2017 Convertible Notes). Upon any conversion, subject to certain exceptions, holders of the 2017 Convertible Notes will not receive any cash payment representing accrued and unpaid interest. Instead, interest will be deemed to be paid by the cash, shares of our common stock or a combination of cash and shares of our common stock paid or delivered, as the case may be, upon conversion of a 2017 Convertible Note.

The 2017 Convertible Notes will be due on March 1, 2017, unless earlier converted or repurchased by us at the option of the holder(s), and interest is payable on the 2017 Convertible Notes each March 1 and September 1. On the maturity date, each holder will be entitled to receive $1 in cash for each $1 in principal amount of 2017 Convertible Notes, together with any accrued and unpaid interest to, but excluding, the maturity date.

In connection with the offering, we entered into convertible note hedge transactions with respect to our common stock (the "Purchased Call Options") with Barclays Capital Inc., acting as agent for Barclays Bank PLC and Bank of America, N.A. (the "Dealers"). We paid an aggregate amount of approximately $70,830 to the Dealers for the Purchased Call Options. The Purchased Call Options cover, subject to customary antidilution adjustments, approximately 703,347 shares of our common stock at a strike price that corresponds to the initial conversion price of the 2017 Convertible Notes (after the effectiveness of the reverse stock split of 1-for-10), also subject to adjustment, and are exercisable upon conversion of the 2017 Convertible Notes.

We also entered into separate warrant transactions whereby, in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, we sold to the Dealers warrants to acquire, subject to customary antidilution adjustments, approximately 703,347 shares of our common stock (the "Sold Warrants") at a strike price of $559.10 per share of our common stock (after the effectiveness of the reverse stock split of 1-for-10). We received aggregate proceeds of approximately $40,170 from the sale of the Sold Warrants to the Dealers. If, upon expiration of the Sold Warrants, the price per share of our common stock, as measured under the Sold Warrants, is greater than the strike price of the Sold Warrants, we will be required to issue, without further consideration, under each Sold Warrant a number of shares of our common stock with a value equal to the amount of such difference.

The filing of the Bankruptcy Petitions resulted in an event of default and the early termination of the convertible note hedge transactions. Any efforts to enforce payment obligations under the indenture governing the 2017 Convertible Notes were automatically stayed as a result of the Chapter 11 filings.

As of December 31, 2016, the principal amount of the 2017 Convertible Notes of $300,000 was classified as liabilities subject to compromise. During the year ended December 31, 2016, we recognized $15,407 of interest expense for the amortization of the discount and $1,471 of interest expense for the amortization of deferred financing costs related to the 2017 Convertible Notes. During the year ended December 31, 2015, we recognized $15,019 of interest expense for the amortization of the discount and $1,434 of interest expense for the amortization of deferred financing costs related to the 2017 Convertible Notes. During the year ended December 31, 2014, we recognized $13,951 of interest expense for the amortization of the discount and $1,332 of interest expense for the amortization of deferred financing costs related to the 2017 Convertible Notes. During the year ended December 31, 2016, we recognized $5,010 of interest expense and during each of the years ended December 31, 2015 and 2014, we recognized $5,250 of interest expense related to the contractual interest coupon on the 2017 Convertible Notes.

2022 Notes

On November 8, 2012, we completed the public offering of $300,000 aggregate principal amount of our 2022 Notes, which are fully and unconditionally guaranteed on a senior unsecured basis by Stone Offshore and by certain future restricted subsidiaries of Stone. The net proceeds from the offering after deducting underwriting discounts, commissions, fees and expenses totaled $293,203. On November 27, 2013, we completed the public offering of an additional $475,000 aggregate principal amount of our 2022 Notes at a 3% premium. The net proceeds from this offering after deducting underwriting discounts, commissions, fees and expenses totaled $480,195. The 2022 Notes rank equally in right of payment with all of our existing and future senior debt, and rank senior in right of payment to all of our existing and future subordinated debt. The 2022 Notes mature on November 15, 2022, and interest is payable on the 2022 Notes on each May 15 and November 15. We may redeem some or all of the 2022 Notes at any time on or after November 15, 2017 at the redemption prices specified in the indenture, and we may redeem some or all of the 2022 Notes prior to November 15, 2017 at a make-whole redemption price as specified in the indenture. If we sell certain assets and do not reinvest the proceeds or repay senior indebtedness, or we experience certain changes of control, each as described in the indenture, we must offer to repurchase the 2022 Notes. The 2022 Notes provide for certain covenants, which include, without limitation, restrictions on liens, indebtedness, asset sales, dividend payments and other restricted payments. The violation of any of these covenants could give rise to a default, which if not cured could give the holder of the 2022 Notes a right to accelerate payment.

We had an interest payment obligation under our 2022 Notes of approximately $29,063, due on November 15, 2016. The indenture governing the 2022 Notes provides a 30-day grace period that extended the latest date for making this cash interest payment to December 15, 2016 before an event of default occurs under the indenture, which would give the trustee or the holders of at least 25% in principal amount of the 2022 Notes the option to accelerate payment of the principal plus accrued and unpaid interest on the 2022 Notes. Although we had sufficient liquidity to make the interest payment by the due date, we elected to not make this interest payment on the due date and utilized the 30-day grace period provided by the indenture prior to entering into the Chapter 11 proceedings. The filing of the Bankruptcy Petitions constituted an event of default under the indenture governing the 2022 Notes, but any efforts to enforce such payment obligation were automatically stayed as a result of the Chapter 11 filings. The principal amount of $775,000 of the 2022 Notes was classified as liabilities subject to compromise at December 31, 2016.

Deferred Financing Cost and Interest Cost

We recognized a charge to write-off the remaining unamortized deferred financing costs, premiums and discounts related to the 2017 Convertible Notes and the 2022 Notes as of the Petition Date, which is included in reorganization items on the consolidated statement of operations. See Note 1 – Organization and Summary of Significant Accounting Policies. At December 31, 2016, approximately $63 of unamortized deferred financing costs were deducted from the carrying amount of the Building Loan. At December 31, 2015, approximately $6,869 of unamortized deferred financing costs, premiums and discounts were included within the carrying amount of the related debt liabilities for the 2017 Convertible Notes, 2022 Notes and Building Loan. The deferred financing costs, net of accumulated amortization, of $2,761 and $2,845 at December 31, 2016 and 2015, respectively, related to the Credit Facility are classified as other assets.

Prior to the filing of the Bankruptcy Petitions, the costs associated with the 2017 Convertible Notes were being amortized over the life of the notes using a method that applied an effective interest rate of 7.51%. The costs associated with the November 2012 issuance and November 2013 issuance of the 2022 Notes were being amortized over the life of the notes using a method that applied effective interest rates of 7.75% and 7.04%, respectively.

The costs associated with the issuance of the Building Loan are being amortized using the effective interest method over the term of the Building Loan. The costs associated with the Credit Facility are being amortized on a straight-line basis over the term of the facility.

Total interest cost incurred, before capitalization, on all obligations for the years ended December 31, 2016, 2015 and 2014 was $91,092, $85,267 and $84,577, respectively. In accordance with the accounting guidance in ASC 852, we have accrued interest on the Notes only up to the Petition Date, and such amounts are included as liabilities subject to compromise in our consolidated balance sheet at December 31, 2016. Accordingly, there was no interest expense recognized on the 2017 Convertible Notes or the 2022 Notes after the Bankruptcy Petitions were filed.