Debt | Note 9. Debt Our consolidated debt obligations consisted of the following at the dates indicated: December 31, December 31, 2016 2015 (In thousands) OLLC $2.0 billion revolving credit facility, variable-rate, due March 2018 (1) $ 511,652 $ 836,000 2021 Senior Notes, fixed-rate, due May 2021 (2) (4) 646,287 700,000 2022 Senior Notes, fixed-rate, due August 2022 (3) (4) 464,965 496,990 Senior notes debt issuance costs, net (5) — (18,297 ) Unamortized discounts (5) — (14,114 ) Total debt 1,622,904 2,000,579 Current portion of long-term debt (6) (1,622,904 ) — Total long-term debt $ — $ 2,000,579 (1) The carrying amount of our revolving credit facility approximates fair value because the interest rates are variable and reflective of market rates. (2) The estimated fair value of our 2021 Senior Notes was $314.3 million and $210.0 million at December 31, 2016 and 2015, respectively. (3) The estimated fair value of our 2022 Senior Notes was $223.2 million and $149.1 million at December 31, 2016 and 2015, respectively. (4) The estimated fair value is based on quoted market prices and is classified as Level 2 within the fair value hierarchy. (5) Approximately $25.0 million in net discounts and deferred financing fees were written off due to a default and event of default and the uncertainty regarding anticipated financial covenant violation at December 31, 2016. (6) Due to an existing and anticipated financial covenant violations, the Partnership’s revolving credit facility and senior notes were classified as current at December 31, 2016. Subsidiary Guarantors Our outstanding debt securities are, and any debt securities issued in the future will likely be, jointly and severally, fully and unconditionally guaranteed (subject to customary release provisions) by certain of the Partnership’s subsidiaries (collectively, the “Guarantor Subsidiaries”). The Guarantor Subsidiaries are 100% owned by the Partnership. The Partnership has no material assets or operations independent of the Guarantor Subsidiaries and there are no significant restrictions upon the ability of the Guarantor Subsidiaries to distribute funds to the Partnership. Borrowing Base Credit facilities tied to a borrowing base are common throughout the oil and gas industry. The borrowing base for our revolving credit facility was the following at the date indicated: December 31, 2016 (In thousands) OLLC $2.0 billion revolving credit facility, variable-rate, due March 2018 $ 530,653 OLLC Revolving Credit Facility OLLC is a party to a $2.0 billion revolving credit facility, which is guaranteed by us and certain of our current and future subsidiaries. The borrowing base is subject to redetermination on at least a semi-annual basis based on an engineering report with respect to our estimated oil, NGL and natural gas reserves, which will take into account the prevailing oil, NGL and natural gas prices at such time, as adjusted for the impact of commodity derivative contracts. Unanimous approval by the lenders is required for any increase to the borrowing base. In January 2017, we monetized certain hedge positions and used a portion of the cash proceeds to repay outstanding borrowings under our revolving credit facility and kept the remaining portion as cash on hand for general partnership purposes. In conjunction with the hedge monetization, our borrowing base was reduced to $457.2 million on January 13, 2017. See Note 6 for additional information regarding the hedge monetization. In December 2016, with the anticipation of the financial restructuring and to reduce exposure under the revolving credit facility, the Partnership monetized certain hedge positions and used the cash proceeds to repay outstanding borrowings under our revolving credit facility. In conjunction with the hedge monetization, our borrowing base was reduced from $720.0 million to $619.0 million on December 21, 2016 and then further reduced to $530.7 million on December 22, 2016. See Note 6 for additional information regarding the hedge monetization. On November 1, 2016, the Partnership, OLLC, certain subsidiaries of the Partnership, the administrative agent, and the lenders under our revolving credit facility, dated as December 14, 2011 (as the context may require, as amended, supplemented or otherwise modified, the “Credit Agreement” or “revolving credit facility”) entered into the limited waiver and twelfth amendment (the “Waiver and Twelfth Amendment”) to the Credit Agreement. See discussion noted below under “Deferral of Interest Payment, Waiver and Forbearance Agreement” for additional information on the Waiver and Twelfth Amendment. On October 28, 2016, we entered into an eleventh amendment to our Credit Agreement by and among the Partnership, OLLC, the administrative agent and the other agents and lenders party thereto (the “Eleventh Amendment”). The Eleventh Amendment, among other things, (i) pursuant to a regularly-scheduled semi-annual redetermination of the borrowing base, decreased our borrowing base from $925.0 million to $740.0 million, effective October 28, 2016, and scheduled a further decrease of the borrowing base to $720.0 million, which was effective December 1, 2016 and (ii) amended the Credit Agreement to add a new event of default limiting the Partnership’s, OLLC and their respective subsidiaries’ ability to call, make or offer to make any redemption of, or make any other payments in respect of the Partnership’s senior unsecured notes if, on a pro forma basis, the Partnership’s and its subsidiaries’ aggregate liquidity (unrestricted cash and cash equivalents plus amounts available to be drawn under the Credit Agreement), is less than $30.0 million. On April 14, 2016, we entered into the tenth amendment to our Credit Agreement, by and among the Partnership, OLLC, the administrative agent and the other agents and lenders party thereto (the “Tenth Amendment”). The Tenth Amendment, among other things, amended the Credit Agreement to: • establish a new Applicable Margin (as defined in the Credit Agreement) that ranges from 1.25% to 2.25% per annum (based on borrowing base usage) on alternate base rate loans and from 2.25% to 3.25% per annum (based on borrowing base usage) on Eurodollar or LIBOR loans and sets the committee fee for the unused portion of the borrowing base to 0.50% per annum regardless of the borrowing base usage; • reduce the borrowing base thereunder from $1,175 million to $925 million; • require the Partnership to maintain a ratio of Consolidated First Lien Net Secured Debt (as defined in the Credit Agreement) to Consolidated EBITDAX (as defined in the Credit Agreement) of not greater than 3.25 to 1.00 as of the end of each fiscal quarter; • permit the issuance by the Partnership of secured second lien notes solely in exchange for the Partnership’s outstanding senior unsecured notes pursuant to one or more senior debt exchanges; provided that, among other things: (i) such debt shall be (A) in an aggregate principal amount not to exceed $600 million (plus any principal representing payment of interest in kind) and (B) such debt is subject to an intercreditor agreement at all times; and (ii) such debt shall not (A) have any scheduled principal amortization or have a scheduled maturity date or a date of mandatory redemption in full prior to 180 days after March 19, 2018, or (B) not contain any covenants or events of default that are more onerous or restrictive than those set forth in the Credit Agreement other than covenants or events of default that are contained in the Partnership’s existing senior unsecured notes and (C) the Consolidated Net Interest Expense (as defined in the Credit Agreement) for the 12-month period following the exchange, after giving pro forma effect to the exchange, shall be no greater than the Consolidated Net Interest Expense for such period had the exchange not occurred; • permit the payment by the Partnership of cash distributions to its equity holders out of available cash in accordance with its partnership agreement so long as, among other things, the pro forma Availability (as defined in the Credit Agreement) shall be not less than the greater of $75 million or (x) 10% of the borrowing base then in effect with respect to any such distributions made prior to June 1, 2016 or (y) 15% of the borrowing base then in effect with respect to any such distributions made on or after June 1, 2016; provided that the aggregate amount of all such payments made in any fiscal quarter for which the ratio of the Partnership’s total debt at the time of such payment to its Consolidated EBITDAX for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available is greater than or equal to 4.00 to 1.00 will not exceed $4.15 million during such fiscal quarter; • permit the repurchase of the Partnership’s (i) outstanding senior unsecured notes, or if any, second lien debt with proceeds from Swap Liquidations (as defined in the Credit Agreement) or the sale or other disposition of oil and gas properties and (ii) outstanding senior unsecured notes with the proceeds from the release of cash securing certain governmental obligations located in the Beta Field offshore Southern California, provided that, among other things, (A) the pro forma Availability is not less than the greater of $75 million or (x) 10% of the borrowing base then in effect through May 31, 2016 or (y) 15% of the borrowing base then in effect on or after June 1, 2016, (B) the Partnership’s pro forma ratio of Consolidated First Lien Net Secured Debt to Consolidated EBITDAX is not greater than 3.00 to 1.00, and (C) the amount of proceeds from all Swap Liquidations and sales or other dispositions of oil and gas properties used to repurchase outstanding senior unsecured notes or secured second lien notes does not exceed $40 million in the aggregate, or in the case of the release of cash securing such obligations, the amount of proceeds used to repurchase outstanding senior unsecured notes does not exceed $60 million in the aggregate; • require that the oil and gas properties of the Partnership mortgaged as collateral security for the loans under the Credit Agreement represent not less than 90% of the total value of the oil and gas properties of the Partnership evaluated in the most recently completed reserve report; and • require the Partnership, in the event that at the close of any business day the aggregate amount of any unrestricted cash or cash equivalents exceeds $25 million in the aggregate, to prepay the loans under the Credit Agreement and cash collateralize any letter of credit exposure with such excess. Due to (i) the uncertainty regarding the Partnership’s ability to cure the default and event of default as discussed in Note 2, (ii) our inability to comply with certain financial covenants contained in our revolving credit facility and (iii) the default or cross default provisions in the indentures governing the 2021 Senior Notes and 2022 Senior Notes, the Partnership classified the outstanding revolving credit facility balance as a current liability on its balance sheet as of December 31, 2016. As a result of the Chapter 11 filing, the debt has been accelerated. 2021 Senior Notes On April 17, 2013, May 23, 2013 and October 10, 2013, we and Finance Corp.’s (collectively, the “Issuers”) issued $300.0 million, $100.0 million and $300.0 million, respectively, of 7.625% senior unsecured notes due 2021 (the “2021 Senior Notes”). The 2021 Senior Notes are fully and unconditionally guaranteed (subject to customary release provisions) on a joint and several basis by the Guarantor Subsidiaries and by certain future subsidiaries of the Partnership. The 2021 Senior Notes will mature on May 1, 2021 with interest accruing at a rate of 7.625% per annum and payable semi-annually in arrears on May 1 and November 1 of each year. The 2021 Senior Notes are governed by an indenture and are subject to optional redemption at prices specified in the indenture plus accrued and unpaid interest, if any. The Issuers may also be required to repurchase the 2021 Senior Notes upon a change of control. The indenture contains customary covenants and restrictive provisions, many of which will terminate if at any time no default exists under the indenture and the 2021 Senior Notes receive an investment grade rating from both of two specified ratings agencies. The indenture also provides for customary and other events of default. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to either of the Issuers or any subsidiary guarantor that is a significant subsidiary, all outstanding 2021 Senior Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding 2021 Senior Notes may declare all the 2021 Senior Notes to be due and payable immediately. During the year ended December 31, 2016, the Partnership repurchased on the open market an aggregate principal amount of approximately $53.7 million of its 2021 Senior Notes. In connection with the repurchases, the Partnership paid approximately $26.4 million and recorded a gain of $27.5 million. 2022 Senior Notes On July 17, 2014, the Issuers completed a private placement of $500.0 million aggregate principal amount of 6.875% senior unsecured notes due 2022 (the “2022 Senior Notes”). The 2022 Senior Notes were issued at 98.485% of par and are fully and unconditionally guaranteed (subject to customary release provisions) on a joint and several basis by the Guarantor Subsidiaries and by certain future subsidiaries of the Partnership. The 2022 Senior Notes will mature on August 1, 2022 with interest accruing at 6.875% per annum and payable semi-annually in arrears on February 1 and August 1 of each year, commencing February 1, 2015. The 2022 Senior Notes are governed by an indenture and are subject to optional redemption at prices specified in the indenture plus accrued and unpaid interest, if any. The Issuers may also be required to repurchase the 2022 Senior Notes upon a change of control. The indenture contains customary covenants and restrictive provisions, many of which will terminate if at any time no default exists under the indenture and the 2022 Senior Notes receive an investment grade rating from both of two specified ratings agencies. The indenture also provides for customary and other events of default. In the case of an event of default arising from certain events of bankruptcy or insolvency with respect to either of the Issuers, all outstanding 2022 Senior Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding 2022 Senior Notes may declare all the 2022 Senior Notes to be due and payable immediately. During the year ended December 31, 2016, the Partnership repurchased on the open market an aggregate principal amount of $32.0 million of its 2022 Senior Notes. In connection with the repurchases, the Partnership paid approximately $14.9 million and recorded a gain of $14.8 million. During the year ended December 31, 2015, the Partnership repurchased on the open market approximately $3.0 million of its 2022 Senior Notes. In connection with the repurchase, the Partnership paid approximately $2.9 million and recorded a gain on extinguishment of debt of approximately $0.4 million. Deferral of Interest Payment, Waiver and Forbearance Agreements In November 2016, we elected to defer an approximately $24.6 million interest payment due on November 1, 2016 with respect to the 2021 Senior Notes. The interest payment was subject to a 30-day grace period under the indenture. Failure to pay such interest payment on November 1, 2016 would have resulted in certain defaults and events of default under our revolving credit facility, which defaults were waived by the lenders under the our revolving credit facility. Pursuant to the Waiver and Twelfth Amendment, the requisite lenders under the Credit Agreement agreed to the limited waiver of certain defaults and events of default that would have occurred under the Credit Agreement as a result of the Issuers election to avail themselves of the 30-day grace period under the indenture governing the Issuers’ 2021 Senior Notes for the payment of the semi-annual interest payment in respect to such senior notes due November 1, 2016. Further pursuant to the Waiver and Twelfth Amendment, from the date thereof until November 30, 2016 (such period from November 1, 2016 to November 30, 2016, the “Waiver Period”), the Partnership and OLLC agreed to pay 100% of the net cash proceeds from any asset sale, transfer or other disposition (including with respect to notes receivable and accounts receivable) and from the liquidation of any swap transaction or hedge transaction arising under swap or hedge agreements between or among the Partnership, OLLC and/or any other loan party and any lender under the Credit Agreement and/or its affiliates, in each case, to the administrative agent for the ratable account of each lender under the Credit Agreement, for application to the outstanding loans under the Credit Agreement. Amounts so applied would have also reduced the aggregate elected commitments of the lenders under the Credit Agreement by an equivalent amount. Further, pursuant to the Waiver and Twelfth Amendment, from the date thereof until the termination of the Waiver Period the Partnership and OLLC agreed, to additional restrictive covenants. These restrictions further limited, until the expiration of the Waiver Period, the ability of, among other things, the Partnership, OLLC and certain of their respective subsidiaries from incurring additional indebtedness, creating liens on assets, paying certain dividends and distributions, making any optional or voluntary payments or redemptions in respect of any other indebtedness, making investments (including in respect of the creation of subsidiaries), entering into certain lease agreements, entering into certain business combinations, entering into any sale-leaseback transaction and entering into certain transactions with affiliates. Finally, pursuant to the Waiver and Twelfth Amendment, the Partnership and OLLC agreed to amend, to be effective from and after the date of the Waiver and Twelfth Amendment, subject to the Chapter 11 proceedings, the Credit Agreement to increase, from 90% to 95% (or such lesser amount agreed to by the administrative agent in its sole discretion, which lesser amount shall not be less than 92%), the percentage of the total value of OLLC’s and its subsidiary-loan parties’ oil and gas properties subject to a mortgage or similar instruments in favor of the administrative agent. On November 30, 2016, the Partnership, OLLC, certain subsidiaries of the partnership, the administrative agent, and the lenders consenting thereto entered into the first amendment to the limited waiver under our revolving credit facility, extending the Waiver Period to December 16, 2016. On November 30, 2016, the Partnership entered into (i) a forbearance (the “2021 Notes Forbearance”) among the Issuers, certain guarantors party thereto, and certain beneficial owners and/or investment advisors or managers of discretionary accounts for the holders or beneficial owners (the “2021 Holders”) of 51.7% of the aggregate principal amount of the Partnership’s 2021 Senior Notes and (ii) a Forbearance (the “2022 Notes Forbearance” and, together with the 2021 Notes Forbearance, the “Forbearances”) among the Issuers, certain guarantors party thereto, and certain beneficial owners and/or investment advisors or managers of discretionary accounts for the holders or beneficial owners (the “2022 Holders”) of 69% of the aggregate principal amount of the Partnership’s 2022 Senior Notes. Pursuant to each Forbearance, among other provisions, each of the 2021 Holders and 2022 Holders agreed that during the forbearance period, subject to certain conditions, they would not enforce, or otherwise take any action to direct enforcement of, any of the rights and remedies available to the 2021 Holders, the 2022 Holders or the trustee, as applicable, including, without limitation, any action to accelerate, or join in any request for acceleration of, the 2021 Senior Notes or the 2022 Senior Notes, solely with respect to the failure to make the interest payment due on November 1, 2016 on the 2021 Senior Notes, and the subsequent default for 30 days in such payment, which constituted an event of default under the 2021 Senior Notes indenture and may result in a cross default under the 2022 Senior Notes indenture. The forbearance agreements initially extended through December 7, 2016, and were subsequently extended through December 16, 2016. On December 16, 2016, the Partnership, OLLC, certain subsidiaries of the partnership, the administrative agent, and the lenders consenting thereto entered into the second amendment to limited waiver under our revolving credit facility, which among other things, extending the Waiver Period to January 13, 2017. In addition, the forbearance agreements were extended through January 13, 2017. On December 22, 2016, the Partnership entered into a Plan Support Agreement (the “Noteholder PSA”) with holders of over an aggregate of 50.2% of the aggregate outstanding principal amount of the 2021 Senior Notes and the 2022 Senior Notes (collectively, the “Notes”), as well as reached an agreement-in-principle with the administrative agent under our revolving credit facility on the terms of a financial restructuring. Under the terms of the Noteholder PSA, the financial restructuring would be effected through a prepackaged or prenegotiated plan of reorganization (the “Plan”). Pursuant to the terms of the Plan, which would be subject to approval of the Bankruptcy Court, it is anticipated that, among other things, on the effective date of the Plan (the “Effective Date”): • A newly formed corporation, as successor to the Partnership (“Reorganized Memorial”) would issue (i) new common shares (the “New Common Shares”) and (ii) five year warrants (the “Warrants”) entitling their holders upon exercise thereof, on a pro rata basis, to 8% of the total issued and outstanding New Common Shares, at a per share exercise price equal to the principal and accrued interest on the senior notes as of December 31, 2016, divided by the number of issued and outstanding New Common Shares (including New Common Shares issuable upon exercise of the Warrants), which New Common Shares and Warrants will be distributed as set forth below; • The Notes would be cancelled and discharged and the holders of those Notes would receive (directly or indirectly) New Common Shares representing, in the aggregate, 98% of the New Common Shares issued on the Effective Date (subject to dilution by the post-emergence management incentive plan and the New Common Shares issuable upon exercise of the Warrants); • The noteholders, at their election, would be entitled to receive an additional cash payment of up to approximately $24.6 million; • Each holder of existing equity interests in the Partnership would receive its pro rata share of (i) New Common Shares representing, in the aggregate, 2% of the New Common Shares issued on the Effective Date and (ii) the Warrants (in each case, subject to dilution by the post-emergence management incentive plan and, in the case of the New Common Shares, subject to dilution by the Warrants); • General unsecured claims, on or after the effective date, would be paid in the ordinary course; and • Reorganized Memorial would enter an Exit Credit Facility, in the form of an amendment and restatement of the existing revolving credit facility. See Note 2 for additional information related to the expected terms of the Exit Credit Facility. The Partnership expects to emerge from the Chapter 11 proceedings as a corporation, including for U.S. federal income tax purposes. On January 13, 2017, the Partnership entered into the third amendment to limited waiver, which extended the outside date of the Waiver Period from January 13, 2017 to January 16, 2017. In addition, the Partnership entered into a Plan Support Agreement (the “RBL PSA”) with lenders holding 100% of the loans under our revolving credit facility. The RBL PSA was entered into on terms substantially similar to those of the Noteholder PSA. In addition, among other things, the RBL PSA provided that (i) the consenting lenders (as defined in the RBL PSA) may terminate the RBL PSA upon the termination of the Noteholder PSA or if there is an amendment to the Noteholder PSA that is, or would reasonably be expected to be, adverse to the administrative agent under our revolving credit facility or the Consenting Lenders and (ii) each of the Debtors agreed to not file a voluntary petition for relief under Chapter 11 until the Debtors terminated certain swap agreements identified in the RBL PSA and used the net proceeds thereof to repay outstanding amounts under the revolving credit facility. The Partnership did not pay the interest due on the 2021 Senior Notes prior to the expiration of the 30-day grace period. Due to (i) the uncertainty regarding the Partnership’s ability to cure the default and event of default as discussed in Note 2, (ii) our inability to comply with certain financial covenants contained in our revolving credit facility and (iii) the default or cross default provisions in the indentures governing the 2021 Senior Notes and 2022 Senior Notes, the Partnership classified the outstanding balance of the senior notes as a current liability on its balance sheet as of December 31, 2016. As a result of the Chapter 11 filing, the debt has been accelerated. Weighted-Average Interest Rates The following table presents the weighted-average interest rates paid on variable-rate debt obligations for the periods presented: For the Year Ended December 31, 2016 2015 2014 OLLC revolving credit facility (1) 3.28% 2.12% 2.67% (1) The Applicable Margin (as defined in our revolving credit facility), or credit spread, varies based on the total commitment usage (which is the ratio of outstanding borrowings and letters of credit to the borrowing base then in effect). The Applicable Margin for the year ended for December 31, 2016, 2015, and 2014 was 2.76%, 1.90%, and 1.80% respectively. Deferred Financing Costs At December 31, 2016, approximately $1.3 million in deferred financing fees were written off related to our revolving credit facility, approximately $8.5 million were written off for the 2021 Senior Notes and approximately $5.7 million were written off for the 2022 Senior Notes due to (i) the uncertainty regarding the Partnership’s ability to cure the default as discussed in Note 2, (ii) our inability to comply with certain financial covenants contained in our revolving credit facility and (iii) the default or cross default provisions in the indentures governing the 2021 Senior Notes and 2022 Senior Notes. Unamortized deferred financing costs associated with our consolidated debt obligations were as follows at the dates indicated: December 31, December 31, 2016 (3) 2015 (In thousands) OLLC $2.0 billion revolving credit facility, variable-rate, due March 2018 (1) $ — $ 3,672 2021 Senior Notes (2) — 11,194 2022 Senior Notes (2) — 7,103 Total $ — $ 21,969 (1) Unamortized deferred financing costs are amortized over the remaining life of our revolving credit facility. (2) Unamortized deferred financing costs are amortized using the straight line method which generally approximates the effective interest method. (3) At December 31, 2016, there were no remaining unamortized deferred financing costs as such costs were written off due to a default and event of default and the uncertainty regarding anticipated financial covenant violation at December 31, 2016. See discussion noted above. Letters of credit At December 31, 2016, we had $2.4 million letters of credit outstanding, all related to operations at our Wyoming properties. |