LONG-TERM DEBT | 3 Months Ended |
Mar. 31, 2014 |
Debt Disclosure [Abstract] | ' |
LONG-TERM DEBT | ' |
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NOTE 10 - DEBT |
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Long-term debt at March 31, 2014 and December 31, 2013 consisted of the following: |
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| March 31, 2014 | | December 31, 2013 |
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Senior Notes payable due May 15, 2020, interest rate of 9.75%, net of unamortized net discount of $2.8 million at March 31, 2014 and December 31, 2013 | $ | 597,251 | | | $ | 597,230 | |
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Various equipment and real estate notes payable with maturity dates January 2015 - April 2021, interest rates of 4.25% - 7.94%(1) | 25,609 | | | 18,615 | |
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Eureka Hunter Pipeline Credit Agreement due March 28, 2018, interest rate of 5.75% | 55,000 | | | — | |
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Eureka Hunter Pipeline second lien term loan due August 16, 2018, interest rate of 12.5% | — | | | 50,000 | |
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MHR Senior Revolving Credit Facility due April 13, 2016, interest rate of 2.96% | 226,000 | | | 218,000 | |
at March 31, 2014 and 3.56% at December 31, 2013 |
| 903,860 | | | 883,845 | |
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Less: current portion | (9,986 | ) | | (3,967 | ) |
Total long-term debt obligations, net of current portion | $ | 893,874 | | | $ | 879,878 | |
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(1) | Includes notes classified as liabilities associated with assets held for sale of which $4.6 million is current and $2.3 million is long-term at March 31, 2014, and $0.2 million is current and $3.8 million is long-term at December 31, 2013. | | | | | | |
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The following table presents the scheduled or expected approximate annual maturities of debt, gross of unamortized discount of $2.8 million: |
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2014 | $ | 4,354 | | | | | |
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2015 | 9,989 | | | | | |
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2016 | 234,548 | | | | | |
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2017 | 2,358 | | | | | |
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2018 | 55,360 | | | | | |
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Thereafter | 600,000 | | | | | |
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Total | $ | 906,609 | | | | | |
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MHR Senior Revolving Credit Facility |
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On December 13, 2013, the Company entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) by and among the Company, Bank of Montreal, as Administrative Agent, the lenders party thereto and the agents party thereto. The Credit Agreement amended and restated that certain Second Amended and Restated Credit Agreement, dated as of April 13, 2011, by and among such parties, as amended (the "Prior Credit Agreement"). The terms of the Credit Agreement are substantially similar to the Prior Credit Agreement. |
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As of March 31, 2014, the borrowing base under this facility was $232.5 million, and $226.0 million of borrowings were outstanding ($218.0 million outstanding as of December 31, 2013). On May 6, 2014, the Company entered into an amendment to the Credit Agreement and the borrowing base was increased to $325.0 million. See "Note 20 - Subsequent Events". The borrowing base is subject to certain automatic reductions upon the issuance of additional Senior Notes and in certain other circumstances. |
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At March 31, 2014, the Company was in compliance with all of its covenants, as amended, contained in the MHR Senior Revolving Credit Facility. |
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Eureka Hunter Pipeline Credit Agreement |
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On March 28, 2014, Eureka Hunter Pipeline entered into a credit agreement (the “Eureka Hunter Pipeline Credit Agreement”), by and among Eureka Hunter Pipeline, as borrower, ABN AMRO Capital USA, LLC, as a lender and as administrative agent, and the other lenders party thereto. |
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The credit agreement, which has a maturity date of March 28, 2018, provides for a revolving credit facility in an aggregate principal amount of up to $117.0 million (with the potential to increase the aggregate commitment under the credit agreement to an aggregate principal amount of up to $150.0 million, subject to the consent of the lender parties and the satisfaction of certain conditions), secured by a first lien on substantially all of the assets of Eureka Hunter Pipeline and its subsidiaries, which include TransTex Hunter, LLC, as well as by Eureka Hunter Pipeline’s pledge of the equity in its subsidiaries. The subsidiaries of Eureka Hunter Pipeline also guarantee Eureka Hunter Pipeline’s obligations under the credit agreement. The credit agreement is non-recourse to Magnum Hunter. The Company incurred deferred financing costs directly associated with entering into the Eureka Hunter Pipeline Credit Agreement in the amount of $1.2 million which will be amortized straight-line over the term of the revolving credit facility. The straight-line method of amortization results in substantially the same periodic amortization as the effective interest method. |
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The terms of the credit agreement provide that the borrowings thereunder may be used, among other specified purposes, (1) to refinance existing indebtedness of Eureka Hunter Pipeline outstanding on the credit agreement closing date, including the term loan of $50.0 million in principal amount owed under the Second Lien Term Loan Agreement, dated August 16, 2011, by and among Eureka Hunter Pipeline and Pennant Park Investment Corporation, as a lender, the other lenders party thereto and U.S. Bank National Association, as collateral agent, (2) to finance future expansion activities related to Eureka Hunter Pipeline’s gathering system in West Virginia and Ohio, (3) to finance acquisitions by Eureka Hunter Pipeline and its subsidiaries permitted under the terms of the credit agreement, (4) to refinance from time to time certain letters of credit of Eureka Hunter Pipeline and its subsidiaries, (5) to provide working capital for their operations, and (6) for their other general business purposes. |
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The Eureka Hunter Pipeline Credit Agreement provides for a commitment fee based on the unused portion of the commitment under the credit agreement of 0.50% per annum when the consolidated leverage ratio is greater than or equal to 3.0 to 1.0 and a commitment fee of 0.375% when the consolidated leverage ratio is less than 3.0 to 1.0. |
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In general terms, borrowings under the credit agreement will, at Eureka Hunter Pipeline’s election, bear interest: |
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• | on base rate loans, at the per annum rate equal to the sum of (A) the base rate (defined as the highest of (i) the per annum rate of interest established by JPMorgan Chase Bank, N.A. as its prime rate for U.S. dollar loans, (ii) the Adjusted Eurodollar Rate (as defined in the Credit Agreement) for an interest period of one-month, plus 1.0%, or (iii) the federal funds rate, plus 0.50% per annum), and (B) a margin of 1.0% to 2.50% per annum; or | | | | | | |
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• | on Eurodollar Loans, at the per annum rate equal to the sum of (A) the Eurodollar Rate (as defined in the Credit Agreement) adjusted for certain statutory reserve requirements for Eurocurrency liabilities, and (B) a margin of 2.0% to 3.50% per annum. | | | | | | |
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If an event of default occurs under the credit agreement, generally, the applicable lenders may increase the interest rate then in effect by an additional 2.0% per annum for the period that the default exists. |
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The credit agreement contains customary affirmative covenants and negative covenants that, among other things, restrict the ability of each of Eureka Hunter Pipeline and its subsidiaries to, with certain exceptions: (1) incur indebtedness; (2) grant liens; (3) enter into hedging transactions; (4) enter into a merger or consolidation or sell, lease, transfer or otherwise dispose of all or substantially all of its assets or the stock of any of its subsidiaries; (5) issue equity; (6) dispose of any material assets or properties; (7) pay or declare dividends or make certain distributions; (8) invest in, extend credit to or make advances or loans to any person or entity; (9) engage in material transactions with any affiliate; (10) enter into any agreement that restricts or imposes any condition upon the ability of (a) any of Eureka Hunter Pipeline or its subsidiaries to create, incur or permit any lien upon any of its assets or properties, or (b) any such subsidiary to pay dividends or other distributions, to make or repay loans or advances, to guarantee indebtedness or to transfer any of its property or assets to Eureka Hunter Pipeline or its subsidiaries; (11) change the nature of its business; (12) amend its organizational documents or material agreements; (13) change its fiscal year; (14) enter into sale and leaseback transactions; (15) make acquisitions; (16) make certain capital expenditures; or (17) take any action that could result in regulation as a utility. |
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The credit agreement requires Eureka Hunter Pipeline to satisfy certain financial covenants, including maintaining: |
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• | a maximum leverage ratio (defined as the ratio of (i) consolidated funded debt to (ii) annualized consolidated EBITDA), as of the end of each fiscal quarter, not greater than (A) 4.75 to 1.00 for the fiscal quarters ending March 31, 2014 through September 30, 2014, and (B) 4.50 to 1.00 for the fiscal quarter ending December 31, 2014 and each fiscal quarter ending thereafter; and | | | | | | |
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• | a minimum interest coverage ratio (defined as the ratio of (i) annualized consolidated EBITDA to (ii) annualized consolidated interest charges for such period), as of the end of each fiscal quarter, not less than (A) 2.75to 1.00 for the fiscal quarters ending March 31, 2014 through September 30, 2014, and (B) 2.50 to 1.00 for the fiscal quarter ending December 31, 2014 and each fiscal quarter ending thereafter. | | | | | | |
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The obligations of Eureka Hunter Pipeline under the credit agreement may be accelerated upon the occurrence of an event of default. Events of default include customary events for these types of financings, including, among other things, payment defaults, defaults in the performance of affirmative or negative covenants, the inaccuracy of representations or warranties, material defaults under or termination of certain material contracts, defaults relating to judgments, certain bankruptcy proceedings, a change in control and any material adverse change. |
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As of March 31, 2014 the maximum amount available under the credit agreement was $58.7 million, and the Company had $55.0 million in borrowings outstanding. The borrowing capacity is subject to certain upward or downward reductions during the term of the credit agreement. |
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As of March 31, 2014 the Company was in compliance with all of its covenants contained in the Eureka Hunter Pipeline Credit Agreement. |
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Eureka Hunter Pipeline Credit Facilities |
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Upon executing the new Eureka Hunter Pipeline Credit Agreement on March 28, 2014, Eureka Hunter Pipeline terminated its revolving credit agreement with SunTrust Bank and the term loan agreement with Pennant Park (the "Original Eureka Hunter Credit Facilities"). Eureka Hunter Pipeline used proceeds from the Eureka Hunter Pipeline Credit Agreement to pay in full all outstanding obligations related to the termination of those agreements, which included the principal outstanding amount of $50.0 million, a prepayment penalty of $2.2 million, and accrued, unpaid interest of $1.5 million. |
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Equipment Note Payable |
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On January 21, 2014, the Company's wholly owned subsidiary, Alpha Hunter Drilling, LLC entered into a master loan and security agreement with CIT Finance LLC to borrow $5.6 million at an interest rate of 7.94% over a term of forty-eight months. The note is collateralized by field equipment, and the Company is a guarantor on the note. |
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Interest Expense |
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The following table sets forth interest expense for the three-month period ended March 31, 2014 and 2013, respectively: |
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| Three Months Ended |
March 31, |
| 2014 | | 2013 |
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| (in thousands) |
Interest expense incurred on debt, net of amounts capitalized | $ | 20,228 | | | $ | 17,844 | |
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Amortization and write-off of deferred financing costs | 3,621 | | | 857 | |
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Total Interest Expense | $ | 23,849 | | | $ | 18,701 | |
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The Company capitalizes interest on expenditures for significant construction projects that last more than six months while activities are in progress to bring the assets to their intended use. Interest of $610,000 and $848,000 was capitalized on our Eureka Hunter Gas Gathering System during the three months ended March 31, 2014 and 2013, respectively. |
For the three-month period ended March 31, 2014, interest expense incurred on debt includes a $2.2 million prepayment penalty incurred by Eureka Hunter Pipeline as a result of its early termination of the Original Eureka Hunter Credit Facilities, which penalty represents an additional cost of borrowing for a period shorter than contractual maturity. In addition, amortization and write-off of deferred financing costs for the three-month period ended March 31, 2014 includes the write-off of $2.7 million in unamortized deferred financing costs related to those terminated agreements, which costs were expensed at the time of early extinguishment. |