On August 30, 2005, El Paso Production Holding Company (“EPPH”) and certain of our subsidiaries, El Paso Production Company (“EPC”), El Paso Energy Raton Corporation (“Raton”), and El Paso Production GOM, Inc., (“GOM”, together with EPPH, EPC and Raton, the “Borrowers”), entered into a $500 million senior secured Credit Agreement (“Credit Agreement”) which is attached as an exhibit hereto and incorporated herein by reference. The several banks and other financial institutions that are parties to these agreements are identified in the exhibits hereto.
The Credit Agreement allows revolving credit loans and the issuance of letters of credit . Pursuant to the terms of the Credit Agreement, all obligations under the Credit Agreement are joint and several obligations of the Borrowers and are secured by certain oil and gas reserves and properties of the Borrowers. Certain of EPPH’s other subsidiaries may from time to time guarantee all of the borrowings under the Credit Agreement.
On August 30, 2005, we borrowed $500 million under revolving loans to pay a portion of the purchase price of our Medicine Bow acquisition described under Item 2.01 below. The revolving loans mature in August 2010, but amounts may be repaid and reborrowed thereunder during the term of the facilities.
Generally, outstanding borrowings under the Credit Agreement, if the usage is more than 90 percent, are priced at LIBOR plus 1.875 percent or at our option a domestic bank rate plus 0.875 percent and step down to LIBOR plus 1.25 percent or a domestic bank rate plus 0.25 percent if the usage is at 50 percent or less. We are charged the above pricing plus an additional fronting fee of 0.125 percent on outstanding letters of credit, which are considered usage of the revolving credit facility, plus a nominal administrative fee. We will pay an amount of 0.375 percent for unborrowed funds.
This Credit Agreement contains covenants, subject to specific exceptions, restricting the ability of EPPH and our subsidiaries to: (1) incur additional indebtedness; (2) grant certain liens; (3) enter into certain merger or consolidation transactions; (4) dispose of assets; (5) make certain restricted payments; and (6) enter into certain other agreements.
This Credit Agreement also requires EPPH on a consolidated basis to satisfy certain financial covenants at the end of each fiscal quarter, including: (1) an Interest Coverage Ratio, as defined in the Credit Agreement, shall not exceed 2.0 to 1; and (2) a Debt Leverage Ratio, as defined in the Credit Agreement, shall not be greater than 4.50 to 1, for the period of the first four consecutive fiscal quarters after August 30, 2005, and then 4.0 to 1 each quarter thereafter until maturity. Furthermore, we have a restriction on the incurrence of incremental borrowings if such debt would cause the Debt Leverage Ratio to exceed 3.5 to 1.
Pursuant to the terms of the Credit Agreement, the following constitute events of default under the credit facility:
| | • | a failure to pay principal or interest on any loan under the Credit Agreement; |
| | • | if a representation or warranty is proven to be incorrect when made; |
| | • | the failure to observe or perform covenants or agreements; |
| | • | the commencement of proceedings under federal, state or foreign bankruptcy, insolvency, receivership or similar laws; |
| | • | inability or general failure to pay debts as they become due; |
| | • | the entry of one or more judgments in an aggregate uninsured amount equal to or greater than $25,000,000 that remains undischarged; or |
| | • | suffering an event of default and the lapse of any applicable grace period under any other Indebtedness (as defined in the Credit Agreement) in excess of $25,000,000. |
If an event of default occurs, then the lenders may: (1) terminate their commitments under the Credit Agreement; (2) declare any outstanding loans under the Credit Agreement to be immediately due and payable after applicable grace periods; and (3) foreclose on the collateral.
On August 31, 2005, EPPH entered into a Third Supplemental Indenture to that certain Indenture, dated as of May 23, 2003 (as amended and supplemented, the “Indenture”), among EPPH, as Issuer, the Subsidiary Guarantors from time to time party thereto and Wilmington Trust Company, as Trustee. The Third Supplemental Indenture was entered into among EPPH, as Issuer, EPC, GOM, Raton, Medicine Bow Energy Corporation (“MBEC”), Medicine Bow Operating Company (“MBOC”) and MBOW Four Star Corporation (“MBOW”), as Subsidiary Guarantors, and Wilmington Trust Company, as Trustee, and added MBEC, MBOC and MBOW, acquired as described in Item 2.01 below, as Subsidiary Guarantors under the Indenture. Each of the Subsidiary Guarantors is a direct or indirect wholly owned subsidiary of EPPH. The Third Supplemental Indenture is attached as an exhibit hereto and incorporated herein by reference.
