| LONG-TERM DEBT | NOTE 7. LONG–TERM DEBT
Long–term debt, net consisted of the following:
March 31,
December 31,
2017
2016
Credit facility
$ 270,000
$ 265,000
8.0% senior notes due April 2019:
Principal outstanding
343,348
343,348
Unamortized discount and debt issuance costs (1)
(2,642)
(2,946)
Unaccreted premium (2)
1,389
1,546
342,095
341,948
Total
$ 612,095
$ 606,948
_____________
(1) Imputed interest rate of 8.59 % and 8.99% for March 31, 2017 and December 31, 2016, respectively.
(2) Imputed interest rate of 7.54 % and 7.22% for March 31, 2017 and December 31, 2016, respectively.
Credit Facility
As of March 31, 2017, we have a $ 1.0 billion credit facility that expires in February 2020 . Borrowings under the facility are secured by a first priority lien on substantially all of our oil and natural gas properties. We may use borrowings under the facility for acquiring and developing oil and natural gas properties, for working capital purposes, for general corporate purposes and for funding distributions to partners. We also may use up to $ 100.0 million of available borrowing capacity for letters of credit. As of March 31, 2017, we have a $0.3 million letter of credit outstanding.
The facility does not require any repayments of amounts outstanding until it expires in February 2020. Borrowings under the facility bear interest at a floating rate based on, at our election, a base rate or the London Inter–Bank Offered Rate plus applicable premiums based on the percent of the borrowing base that we have outstanding (weighted average effective interest rate of 3.98 % and 3.75% at March 31, 2017 and December 31, 2016, respectively).
Borrowings under the facility may not exceed a “borrowing base” determined by the lenders under the facility based on our oil and natural gas reserves. As of March 31, 2017, the borrowing base under the facility was $ 450.0 million. The borrowing base is subject to scheduled redeterminations as of April 1 and October 1 of each year with an additional redetermination once per calendar year at our request or at the request of the lenders and with one calculation that may be made at our request during each calendar year in connection with material acquisitions or divestitures of properties. In April 2017, the borrowing base under the facility was decreased to $375.0 million.
The facility requires the maintenance of the following (as defined in the facility):
·
the senior secured funded debt to earnings plus interest expense, taxes, depreciation, depletion and amortization expense and exploration expense (“EBITDAX”) ratio covenant to be no greater than (a) for the fiscal quarters ending March 31, 2017 and June 30, 2017, 3.5 to 1.0 and (b) for the fiscal quarter ending September 30, 2017 and December 31, 2017, 4.0 to 1.0;
·
the total funded debt to EBITDAX ratio covenant to be no greater than (a) for the fiscal quarter ending March 31, 2018, 5.50 to 1.0, (b) for the fiscal quarters ending June 30, 2018 and September 30, 2018, 5.25 to 1.0 and (c) for the fiscal quarter ending December 31, 2018 and thereafter, 4.25 to 1.0;
·
the cash interest expense to EBITDAX ratio covenant to be no less than (a) for the fiscal quarters ending March 31, 2017 and June 30, 2017, 2.0 to 1.0 and (b) for the fiscal quarters ending September 30, 2017 and thereafter, 1.5 to 1.0; and
·
limits cash held by us to the greater of 5% of the current borrowing base or $30.0 million.
As of March 31, 2017, we were in compliance with these financial covenants. Should prices decline significantly from current levels, the borrowing base could be reduced again in future redeterminations, which would impact our short–term liquidity. At the end of first quarter of 2018, the leverage covenant in our credit agreement changes from a senior secured debt to EBITDAX ratio to a total debt to EBITDAX ratio. Based on current forward commodity prices, at the end of first quarter of 2018, we project that we would likely have a total debt to EBITDAX ratio in excess of the level prescribed in the most recent Ninth Amendment of our credit agreement, and therefore we would not be in compliance with our leverage covenant at the end of the first quarter of 2018. Noncompliance with this covenant would be an event of default and could result in the acceleration of all our indebtedness under the credit agreement. If the lenders under the credit agreement were to accelerate the loans outstanding thereunder, we would also be in default under the indenture governing the Senior Notes, in which case the lenders under the indenture could accelerate repayment of the Senior Notes.
8.0% Senior Notes due April 2019
Our senior notes due April 2019 are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by all of our existing wholly-owned subsidiaries other than EV Energy Finance Corp. (“Finance”), which is a co–issuer of the Notes. Neither EV Energy Partners, L.P. nor Finance have independent assets or operations apart from the assets and operations of our subsidiaries. |
