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Note 6 - Debt
The following table illustrates the Company’s debt portfolio as of September 30, 2019 and December 31, 2018:
Successor Credit Facility
On March 26, 2019, pursuant to the terms of the Plan, we and certain of our subsidiaries, entered into a credit agreement with the lenders party thereto (the “Credit Facility Lenders”), Bank of America, N.A., as administrative agent and Bank of America, N.A. and Deutsche Bank Securities Inc. as joint lead arrangers and joint bookrunners, providing for a revolving credit facility (the “Credit Facility”) with initial aggregate commitments in the amount of $50.0 million, guaranteed by certain of our subsidiaries. Availability under the Credit Facility is subject to a monthly borrowing base calculation based on eligible domestic rental equipment and eligible domestic accounts receivable and requires us to maintain minimum liquidity of $25.0 million, defined as cash in our liquidity account not to exceed $10.0 million and availability under the borrowing base. The Credit Facility allows for an increase to the aggregate commitments by up to an additional $75.0 million, subject to certain conditions. The Credit Facility provides for a $30.0 million sublimit of the aggregate commitments that is available for the issuance of letters of credit. The Credit Facility matures on March 26, 2023. Debt issuance costs of $1.3 million ($1.1 million, net of amortization as of September 30, 2019) are being amortized over the term of the Credit Facility on a straight-line basis.
As of September 30, 2019, the borrowing base availability under the Credit Facility was $87.7 million, allowing full access to the $50.0 million in aggregate commitments, which was further reduced by $15.0 million of restricted availability due to the minimum liquidity covenant and $10.3 million in supporting letters of credit outstanding, resulting in availability under the Credit Facility of $24.7 million.
The Credit Facility bears interest either at a rate equal to:
We are required to pay a commitment fee of 0.5 percent per annum on the actual daily unused portion of the current aggregate commitments under the Credit Facility. We are also required to pay customary letter of credit and fronting fees.
The Credit Facility also contains customary affirmative and negative covenants, including, among other things, as to compliance with laws (including environmental laws and anti-corruption laws), delivery of quarterly and annual consolidated financial statements and monthly borrowing base certificates, conduct of business, maintenance of property, maintenance of insurance, restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments, and other customary covenants. Additionally, the Credit Facility contains customary events of default and remedies for credit facilities of this nature. If we do not comply with the financial and other covenants in the Credit Facility, the Credit Facility Lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Credit Facility, and any outstanding unfunded commitments may be terminated. As of September 30, 2019, we were in compliance with all the financial covenants under the Credit Facility.
On October 8, 2019, we entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”), which amended and restated the Credit Facility. The Amended and Restated Credit Agreement:
As described below, the Amended and Restated Credit Agreement also permitted us to make a voluntary prepayment of $35.0 million on our Term Loan (as defined below) without such prepayment being included in the calculation of our fixed coverage ratio.
If the Amended and Restated Credit Agreement were executed on or before September 30, 2019, the borrowing base availability would have been $41.7 million and, after deducting $10.3 million in letters of credit, would have resulted in net availability of $31.3 million, an increase of $6.7 million under the Credit Facility.
Successor Term Loan, Due March 2024
On March 26, 2019, pursuant to the terms of the Plan, we and certain of our subsidiaries entered into a second lien term loan credit agreement (the “Term Loan Agreement”) with the lenders party thereto (the “Term Loan Lenders”) and UMB Bank, N.A., as administrative agent, providing for term loans (the “Term Loan”) in the amount of $210.0 million, guaranteed by certain of our subsidiaries. The Term Loan matures on March 26, 2024.
The Term Loan bears interest at a rate of 13.0 percent per annum, payable quarterly on the first day of each January, April, July, and October, beginning July 1, 2019, with 11.0 percent paid in cash and 2.0 percent paid in kind and capitalized by adding such amount to the outstanding principal.
We may voluntarily prepay all or a part of the Term Loan and, under certain conditions we are required to prepay all or a part of the Term Loan, in each case, at a premium (1) on or prior to 6 months after the closing date of 0 percent; (2) from 6 months and on or prior to two years after the closing date of 6.50 percent; (3) from two years and on or prior to three years after the closing date of 3.25 percent; and (4) from three years after the closing date and thereafter of 0 percent.
On September 20, 2019, we made a voluntary prepayment on the Term Loan of $35.0 million in principal, plus $1.0 million in interest associated with the principal payment. Since the prepayment occurred within the first six months from the closing date, no premium was applicable on the prepayment. As of September 30, 2019, the Term Loan balance was $177.0 million.
The Term Loan is subject to mandatory prepayments and customary reinvestment rights. The mandatory prepayments include prepayment requirements with respect to a change of control, asset sales and debt issuances, in each case subject to certain exceptions or conditions. The Term Loan Agreement also contains customary affirmative and negative covenants, including as to compliance with laws (including environmental laws and anti-corruption laws), delivery of quarterly and annual financial statements, conduct of business, maintenance of property, maintenance of insurance, restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments and other customary covenants. Additionally, the Term Loan Agreement contains customary events of default and remedies for facilities of this nature. If we do not comply with the covenants in the Term Loan Agreement, the Term Loan Lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Term Loan Agreement. As of September 30, 2019, we were in compliance with all the financial covenants under the Term Loan Agreement.
Predecessor 6.75% Senior Notes, Due July 2022
On January 22, 2014, we issued $360.0 million aggregate principal amount of the 6.75% Notes pursuant to the 6.75% Notes Indenture. The 6.75% Notes were general unsecured obligations of the Company and ranked equal in right of payment with all of our existing and future senior unsecured indebtedness. The 6.75% Notes were jointly and severally guaranteed by all of our
subsidiaries that guaranteed indebtedness under the Second Amended and Restated Senior Secured Credit Agreement, as amended from time-to-time (“2015 Secured Credit Agreement”) and our 7.50% Notes. Interest on the 6.75% Notes was payable on January 15 and July 15 of each year, beginning July 15, 2014. Debt issuance costs related to the 6.75% Notes were approximately $7.6 million. After the commencement of the Chapter 11 Cases, the carrying amount of debt was adjusted to the claim amount and all unamortized debt issuance costs prior to the commencement of the Chapter 11 Cases were fully expensed.
Predecessor 7.50% Senior Notes, Due August 2020
On July 30, 2013, we issued $225.0 million aggregate principal amount of the 7.50% Notes pursuant to the 7.50% Notes Indenture. The 7.50% Notes were general unsecured obligations of the Company and ranked equal in right of payment with all of our existing and future senior unsecured indebtedness. The 7.50% Notes were jointly and severally guaranteed by all of our subsidiaries that guaranteed indebtedness under the 2015 Secured Credit Agreement and the 6.75% Notes. Interest on the 7.50% Notes was payable on February 1 and August 1 of each year, beginning February 1, 2014. Debt issuance costs related to the 7.50% Notes were approximately $5.6 million. After the commencement of the Chapter 11 Cases, the carrying amount of debt was adjusted to the claim amount and all unamortized debt issuance costs prior to the commencement of the Chapter 11 Cases were fully expensed.
The commencement of the Chapter 11 Cases constituted an event of default that accelerated the Company’s obligations under the indentures governing the 6.75% Notes and the 7.50% Notes. However, any efforts to enforce such payment obligations were automatically stayed under the provisions of the Bankruptcy Code. The principal balance on the 6.75% Notes and 7.50% Notes of $360.0 million and $225.0 million, respectively, had been reclassed from long-term debt to liabilities subject to compromise as of December 31, 2018. See also Note 2 - Chapter 11 Emergence for further details.
As previously disclosed in our Current Report on Form 8-K filed with the SEC on March 26, 2019, our obligations with respect to the Senior Notes as well as our subsidiaries’ obligations under their respective guarantees under the 6.75% Notes Indenture and the 7.50% Notes Indenture (and the Senior Notes) were cancelled and extinguished as provided in the Plan. From and after March 26, 2019, neither the Company nor its subsidiaries have any continuing obligations under the 6.75% Notes Indenture and 7.50% Notes Indenture or with respect to the Senior Notes or the guarantees related thereto except to the extent specifically provided in the Plan.
Predecessor 2015 Secured Credit Agreement
On January 26, 2015, we entered into the 2015 Secured Credit Agreement. The 2015 Secured Credit Agreement was originally comprised of a $200.0 million revolving credit facility (the “Revolver”). The 2015 Secured Credit Agreement formerly included financial maintenance covenants, including a leverage ratio, consolidated interest coverage ratio, senior secured leverage ratio, and asset coverage ratio, many of which were suspended beginning in September 2015.
We executed various amendments which, among other things: (1) modified the credit facility to an asset-based lending structure, (2) reduced the size of the Revolver to $80.0 million, (3) eliminated the financial maintenance covenants previously in effect and replaced them with a minimum liquidity covenant of $30.0 million and a monthly borrowing base calculation, (4) allowed for the refinancing of our existing Senior Notes with either secured or unsecured debt, (5) added the ability for the Company to designate certain of its subsidiaries as “Designated Borrowers”, and (6) permitted the Company to make restricted payments in the form of certain equity interests.
On October 25, 2018, we entered into a Consent Agreement and a Cash Collateral Agreement, whereby we could open bank accounts not subject to the 2015 Secured Credit Agreement for the purpose of depositing cash to secure certain letters of credit. On October 30, 2018, we deposited $10.0 million into a cash collateral account to support the letters of credit outstanding, which is included in the restricted cash balance on the consolidated balance sheet as of December 31, 2018.
Our obligations under the 2015 Secured Credit Agreement were guaranteed by substantially all of our direct and indirect domestic subsidiaries, other than immaterial subsidiaries and subsidiaries generating revenues primarily outside the United States, each of which has executed guaranty agreements, and were secured by first priority liens on our accounts receivable, specified rigs including barge rigs in the Gulf of Mexico (“GOM”) and land rigs in Alaska, certain U.S.-based rental equipment of the Company and its subsidiary guarantors and the equity interests of certain of the Company’s subsidiaries. In addition to the liquidity covenant and borrowing base requirements, the 2015 Secured Credit Agreement contains customary affirmative and negative covenants, such as limitations on indebtedness and liens, and restrictions on entry into certain affiliate transactions and payments (including certain payments of dividends).
All of the Company’s obligations under the 2015 Secured Credit Agreement were paid prior to the commencement of the Chapter 11 Cases, and the 2015 Secured Credit Agreement, including the Revolver thereunder, was terminated concurrently with
the commencement of the Chapter 11 Cases. See also Note 2 - Chapter 11 Emergence for further details. Unamortized debt issuance costs were fully expensed upon termination of the 2015 Secured Credit Agreement.
Supplemental cash flow information related to interest paid is as follow:
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