| Debt | NOTE 5—DEBT Total debt consists of the following at the dates indicated (in thousands):
June 30,
December 31,
2016
2015
Term loan facilities
$
72,619
$
72,700
Deferred financing costs
(257
)
(3,813
)
ARP First Lien Credit Facility
669,500
592,000
ARP Second Lien Term Loan
244,534
243,783
ARP 7.75% Senior Notes—due 2021
354,385
374,619
ARP 9.25% Senior Notes—due 2021
312,096
324,080
ARP deferred financing costs
(27,238
)
(31,055
)
Total debt, net
1,625,639
1,572,314
Less current maturities
(1,553,277
)
(4,250
)
Total long-term debt, net
$
72,362
$
1,568,064
In April 2015, the FASB updated the accounting guidance related to the balance sheet presentation of debt issuance costs. The updated accounting guidance requires that debt issuance costs be presented as a direct deduction from the associated debt obligation. We adopted this accounting guidance upon its effective date of January 1, 2016. The retrospective effect of the reclassification resulted in the following changes:
Condensed Combined Consolidated Balance Sheet
Previously Filed
Adjustment
Restated
December 31, 2015:
Other assets, net
$
88,980
$
(34,868
)
$
54,112
Long-term debt, less current portion
$
1,602,932
$
(34,868
)
$
1,568,064
Cash Interest . Cash payments for interest by us and our subsidiaries on our/their respective borrowings were $16.4 million and $13.2 million for the three months ended June 30, 2016 and 2015, respectively, and $59.1 million and $51.7 million for the six months ended June 30, 2016 and 2015, respectively. Term Loan Facilities First Lien Credit Facility . On March 30, 2016, we, together with New Atlas Holdings, LLC (the “Borrower”) and Atlas Lightfoot, LLC, entered into a third amendment (the “Third Amendment”) to our credit agreement with Riverstone Credit Partners, L.P., as administrative agent (“Riverstone”), and the lenders (the “Lenders”) from time to time party thereto (the “First Lien Credit Agreement”). The outstanding loans under the First Lien Credit Agreement were bifurcated between the existing First Lien Credit Agreement and the new Second Lien Credit Agreement (defined below), with $35.0 million and $35.8 million (including $2.4 million in deemed prepayment premium) in borrowings outstanding, respectively. In connection with the execution of the Third Amendment, the Borrower made a prepayment of approximately $4.25 million of the outstanding principal, which was classified as current portion of long-term debt on our condensed combined consolidated balance sheet at December 31, 2015, and $0.5 million of interest. The Third Amendment amended the First Lien Credit Agreement to, among other things:
·
provide the ability for us and the Borrower to enter into the new Second Lien Credit Agreement (defined below);
·
shorten the maturity date of the First Lien Credit Agreement to September 30, 2017, subject to an optional extension to September 30, 2018 by the Borrower, assuming certain conditions are met, including a First Lien Leverage Ratio (as defined in the First Lien Credit Agreement) of not more than 6:00 to 1:00 and a 5% extension fee;
·
modify the applicable cash interest rate margin for ABR Loans and Eurodollar Loans to 0.50% and 1.50%, respectively, and add a pay-in-kind interest payment of 11% of the principal balance per annum;
·
allow the Borrower to make mandatory pre-payments under the First Lien Credit Agreement or the new Second Lien Credit Agreement, in its discretion, and add additional mandatory pre-payment events, including a monthly cash sweep for balances in excess of $4 million;
·
provide that the First Lien Credit Agreement may be prepaid without premium;
·
replace the existing financial covenants with (i) the requirement that we maintain a minimum of $2 million in EBITDA on a trailing twelve-month basis, beginning with the quarter ending June 30, 2016, and (ii) the incorporation into the First Lien Credit Agreement of the financial covenants included in ARP’s credit agreement, beginning with the quarter ending June 30, 2016;
·
prohibit the payment of cash distributions on our common and preferred units;
·
require the receipt of quarterly distributions from AGP and Lightfoot; and
·
add a cross-default provision for defaults by ARP. Second Lien Credit Agreement . Also on March 30, 2016, we and the Borrower entered into a new second lien credit agreement (the “Second Lien Credit Agreement”) with Riverstone and the Lenders. As described above, $35.8 million of the indebtedness previously outstanding under the First Lien Credit Agreement was moved under the Second Lien Credit Agreement. The Second Lien Credit Agreement is presented in the table above net of an unamortized discount of $1.9 million as of June 30, 2016, related to the 4,668,044 warrants issued in connection with the Second Lien Credit Agreement (see Note 10). The Second Lien Credit Agreement matures on March 30, 2019, subject to an optional extension (the “Extension Option”) to March 30, 2020, assuming certain conditions are met, including a Total Leverage Ratio (as defined in the Second Lien Credit Agreement) of not more than 6:00 to 1:00 and a 5% extension fee. Borrowings under the Second Lien Credit Agreement are secured on a second priority basis by security interests in the same collateral that secures borrowings under the First Lien Credit Agreement. Borrowings under the Second Lien Credit Agreement bear interest at a rate of 30%, payable in-kind through an increase in the outstanding principal. If the First Lien Credit Agreement is repaid in full prior to March 30, 2018, the rate will be reduced to 20%. If the Extension Option is exercised, the rate will again be increased to 30%. If our market capitalization is greater than $75 million, we can issue common units in lieu of increasing the principal to satisfy the interest obligation. The Borrower may prepay the borrowings under the Second Lien Credit Agreement without premium at any time. The Second Lien Credit Agreement includes the same mandatory prepayment events as the First Lien Credit Agreement, subject to the Borrower’s discretion to prepay either the First Lien Credit Agreement or the Second Lien Credit Agreement. The Second Lien Credit Agreement contains the same negative and affirmative covenants and events of default as the First Lien Credit Agreement, including customary covenants that limit the Borrower’s ability to incur additional indebtedness, grant liens, make loans or investments, make distributions if a default exists or would result from the distribution, merge into or consolidate with other persons, enter into swap agreements that do not conform to specified terms or that exceed specified amounts, or engage in certain asset dispositions. In addition, the Second Lien Credit Agreement requires that we maintain an Asset Coverage Ratio (as defined in the Second Lien Credit Agreement) of not less than 2.00 to 1.00 as of September 30, 2017 and each fiscal quarter ending thereafter. As a result of the cross-default, on July 11, 2016, we entered into waiver agreements (the “Waivers”) with Riverstone and the Lenders in connection with the First Lien Credit Agreement and the Second Lien Credit Agreement. Pursuant to the Waivers, Riverstone and the Lenders agreed to waive under the First Lien Credit Agreement and the Second Lien Credit Agreement:
·
the cross-defaults relating to ARP’s default, for so long as the forbearing parties continue to forbear from exercising their rights and remedies; and
·
the potential default relating to ARP’s ongoing negotiations with its lenders and noteholders to the extent any resulting restructuring is completed prior to October 31, 2016 We and ARP’s future debt maturities, excluding any future payment-in-kind interest payments, are as follows: $1,580.5 million, $35.0 million and $35.8 million, respectively, for the years ending December 31, 2016, 2017 and 2019, respectively. In connection with the Term Loan Facilities, the lenders thereunder syndicated participations in loans underlying the facilities. As a result, certain of the Company’s current and former officers participated in approximately 12% of the loan syndication and warrants and a foundation affiliated with a 5% or more unitholder participated in approximately 12% of the loan syndication. ARP First Lien Credit Facility ARP is party to a Second Amended and Restated Credit Agreement, dated as of July 31, 2013 by and among ARP, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent, as amended, supplemented or modified from time to time (the “ARP First Lien Credit Facility”), which provides for a senior secured revolving credit facility with a maximum borrowing base of $1.5 billion scheduled to mature in July 2018. On June 8, 2016, ARP received notice from Wells Fargo Bank, National Association, as administrative agent under the ARP First Lien Credit Facility that its borrowing base had been redetermined in accordance with the ARP First Lien Credit Facility and reduced from $700.0 million to $530.0 million. As of June 30, 2016, $669.5 million in borrowings were outstanding (which includes $4.2 million in letters of credit) under the ARP First Lien Credit Facility, resulting in a borrowing base deficiency of $143.7 million. The ARP First Lien Credit Facility provides that within 30 days after ARP’s receipt of a notification of a borrowing base deficiency, ARP must elect to cure the borrowing base deficiency through any combination of the following actions: (i) repay amounts outstanding under the ARP First Lien Credit Facility sufficient to cure the borrowing base deficiency, either within 30 days after receipt of the borrowing base deficiency notice or in four equal monthly installments beginning on July 11, 2016; or (ii) pledge as collateral additional oil and gas properties acceptable to the administrative agent and lenders sufficient to cure the borrowing base deficiency within 60 days after receipt of the borrowing base deficiency notice. As part of the discussions with ARP’s lenders and noteholders (see Notes 1 and 3), ARP determined not to make the first installment payment that was due on July 11, 2016. In connection therewith and in support of negotiations with ARP’s First Lien Lenders, Second Lien Lenders, and Consenting Noteholders, on July 11, 2016, ARP and certain of its subsidiaries entered into two forbearance agreements: (i) with Wells Fargo Bank, National Association, as administrative agent, and the other lenders under the ARP First Lien Credit Facility (the “ARP First Lien Credit Forbearance”) and (ii) with the Consenting Noteholders of the 7.75% ARP Senior Notes and the 9.25% ARP Senior Notes (the “ARP Notes Forbearance”). Pursuant to the ARP First Lien Credit Forbearance, the administrative agent and the lenders representing approximately 81% of the outstanding indebtedness under the ARP First Lien Credit Facility agreed to forbear from exercising their rights and remedies arising from non-payment of the first installment of the borrowing base deficiency cure due on July 11, 2016 and related cross-defaults (the “ARP Specified Default”) until the earliest to occur of (i) July 27, 2016, (ii) the occurrence of an event of default under the ARP First Lien Credit Facility (unrelated to the ARP Specified Default) or (iii) the exercise by any holder of indebtedness outstanding under the ARP Second Lien Term Loan, the ARP Notes or any other material indebtedness of ours of rights or remedies against us or the other loan parties or their respective property. Pursuant to the ARP Notes Forbearance, the holders of approximately 78% of the aggregate outstanding principal amount of the 7.75% ARP Senior Notes and approximately 82% of the 9.25% ARP Senior Notes agreed to forbear from exercising their rights and remedies arising from the cross-default that resulted from the ARP Specified Default until the earliest to occur of (i) July 27, 2016, (ii) another event of default under the 7.75% ARP Senior Notes indenture or the 9.25% ARP Senior Notes indenture or (iii) any other holder of the ARP Notes commences a legal proceeding against us or the other loan parties or their respective property. The holders of a majority of the Second Lien Term Loan were supportive of the forbearance. ARP’s borrowing base is scheduled for semi-annual redeterminations in May and November of each year. Up to $20.0 million of the ARP First Lien Credit Facility may be in the form of standby letters of credit, of which $4.2 million was outstanding at June 30, 2016. ARP’s obligations under the ARP First Lien Credit Facility are secured by mortgages on ARP’s oil and gas properties and first priority security interests in substantially all of ARP’s assets. Additionally, obligations under the ARP First Lien Credit Facility are guaranteed by certain of ARP’s material subsidiaries, and any non-guarantor subsidiaries of ARP are minor. At June 30, 2016, the weighted average interest rate on outstanding borrowings under the ARP First Lien Credit Facility was 4.0%. The ARP First Lien Credit Facility contains customary covenants including, without limitation, covenants that limit ARP’s ability to incur additional indebtedness (but which permits second lien debt in an aggregate principal amount of up to $300.0 million and third lien debt that satisfies certain conditions including pro forma financial covenants), grant liens, make loans or investments, make distributions if a borrowing base deficiency or default exists or would result from the distribution, merge or consolidate with other persons, or engage in certain asset dispositions including a sale of all or substantially all of its assets. The ARP First Lien Credit Facility also requires that ARP maintain a ratio of First Lien Debt to EBITDA (ratio as defined in the ARP First Lien Credit Facility) of not greater than 2.75 to 1.00, and a ratio of current assets to current liabilities (ratio as defined in the ARP First Lien Credit Facility) of not less than 1.0 to 1.0 as of the last day of any fiscal quarter. ARP was not in compliance with these covenants as of June 30, 2016. ARP’s Chapter 11 Filings constituted an event of default that accelerated ARP’s obligations under the ARP First Lien Credit Facility and as a result, we classified $669.5 million of ARP’s outstanding amounts under the ARP First Lien Credit Facility as current portion of long-term debt and $12.2 million of deferred financing costs related to the ARP First Lien Credit Facility as current assets within our condensed combined consolidated balance sheet as of June 30, 2016.Any efforts to enforce such payments are automatically stayed as a result of the Chapter 11 Filings, and the holders’ rights of enforcement are subject to the applicable provisions of Chapter 11. Pursuant to the ARP Restructuring Support Agreement, ARP completed the sale of substantially all of its commodity hedge positions on July 25, 2016 and July 26, 2016 and used the proceeds to repay $233.5 million of borrowings outstanding under the ARP First Lien Credit Facility. Accordingly, approximately $440 million remained outstanding under the ARP First Lien Credit Facility as of July 27, 2016, the date of ARP’s Chapter 11 Filings. On the Plan Effective Date, ARP expect to enter into the new ARP First Lien Exit Facility, which will replace the ARP First Lien Credit Facility (see Note 3). ARP Second Lien Term Loan ARP is party to a Second Lien Credit Agreement, dated as of February 23, 2015 by and among ARP, the lenders from time to time party thereto, and Wilmington Trust, National Association, as administrative agent, as amended, supplemented or modified from time to time (the “ARP Second Lien Term Loan”), which provides for a second lien term loan in an original principal amount of $250.0 million. The ARP Second Lien Term Loan matures on February 23, 2020. The Second Lien Term Loan is presented in the table above net of unamortized discount of $5.5 million as of June 30, 2016. ARP’s obligations under the ARP Second Lien Term Loan are secured on a second priority basis by security interests in all of ARP’s assets and those of its restricted subsidiaries that guarantee the ARP First Lien Credit Facility. In addition, the obligations under the ARP Second Lien Term Loan are guaranteed by ARP’s material restricted subsidiaries. At June 30, 2016, the weighted average interest rate on outstanding borrowings under the ARP Second Lien Term Loan was 10.0%. The ARP Second Lien Term Loan contains customary covenants including, without limitation, covenants that limit ARP’s ability to make restricted payments, take on indebtedness, issue preferred units, grant liens, conduct sales of assets and subsidiary stock, make distributions from restricted subsidiaries, conduct affiliate transactions and engage in other business activities. In addition, the ARP Second Lien Term Loan contains covenants substantially similar to those in the ARP First Lien Credit Facility, including, among others, restrictions on swap agreements, debt of unrestricted subsidiaries, drilling and operating agreements and the sale or discount of receivables. ARP was not in compliance with the financial covenants as of June 30, 2016. ARP’s Chapter 11 Filings constituted an event of default that accelerated ARP’s obligations under the ARP Second Lien Term Loan and as a result, we classified $244.5 million of ARP’s outstanding amounts under the ARP Second Lien Term Loan, which is net of $5.5 million unamortized discount and $9.4 million deferred financing costs, as current portion of long-term debt within our condensed combined consolidated balance sheet as of June 30, 2016. Any efforts to enforce such payments are automatically stayed as a result of the Chapter 11 Filings, and the holders’ rights of enforcement are subject to the applicable provisions of Chapter 11. On the Plan Effective Date, ARP expects to enter into the new ARP Second Lien Exit Facility, which will replace the ARP Second Lien Term Loan (see Note 3). ARP Senior Notes At June 30, 2016, ARP had $354.4 million outstanding of its 7.75% ARP Senior Notes due 2021. The 7.75% ARP Senior Notes were presented net of a $0.3 million unamortized discount as of June 30, 2016. At June 30, 2016, ARP had $312.1 million outstanding of its 9.25% ARP Senior Notes due 2021. The 9.25% ARP Senior Notes were presented net of a $0.8 million unamortized discount as of June 30, 2016. In January and February 2016, ARP executed transactions to repurchase $20.3 million of its 7.75% Senior Notes and $12.1 million of its 9.25% Senior Notes for $5.5 million, which included $0.6 million of interest. As a result of these transactions, we recognized $26.5 million as gain on early extinguishment of debt, net of accelerated amortization of deferred financing costs of $0.9 million, in our condensed combined consolidated statement of operations for the six months ended June 30, 2016. The 7.75% ARP Senior Notes and 9.25% ARP Senior Notes are guaranteed by certain of ARP’s material subsidiaries. The guarantees under the 7.75% ARP Senior Notes and 9.25% ARP Senior Notes are full and unconditional and joint and several, subject to certain customary automatic release provisions, including, in certain circumstances, the sale or other disposition of all or substantially all the assets of, or all of the equity interests in, the subsidiary guarantor, or the subsidiary guarantor is declared “unrestricted” for covenant purposes, and any subsidiaries of ARP, other than the subsidiary guarantors, are minor. There are no restrictions on ARP’s ability to obtain cash or any other distributions of funds from the guarantor subsidiaries. The indentures governing the 7.75% ARP Senior Notes and 9.25% ARP Senior Notes contain covenants including, without limitation, covenants that limit ARP’s ability to incur certain liens, incur additional indebtedness; declare or pay distributions if an event of default has occurred; redeem, repurchase, or retire equity interests or subordinated indebtedness; make certain investments; or merge, consolidate or sell substantially all of ARP’s assets. ARP was in compliance with these covenants as of June 30, 2016. On June 6, 2016, ARP and certain of its subsidiaries, Wells Fargo Bank, National Association, as resigning trustee (“Wells Fargo”) and U.S. Bank National Association, as successor trustee (“U.S. Bank”), entered into an Instrument of Resignation, Appointment and Acceptance (the “Instrument”). In connection with the Instrument, Wells Fargo resigned as trustee, note custodian, registrar and paying agent under the Indenture dated as of July 30, 2013, as supplemented and amended and ARP accepted such resignation and appointed U.S. Bank as the successor trustee, note custodian, registrar and paying agent under the such indenture. ARP’s Chapter 11 Filings constituted an event of default that accelerated ARP’s obligations under the 7.75% ARP Senior Notes and the 9.25% ARP Senior Notes and as a result, we classified $354.4 million of ARP’s outstanding amounts under the 7.75% ARP Senior Notes, which is net of $0.3 million unamortized discount and $9.5 million deferred financing costs, and $312.1 million of ARP’s outstanding amounts under the 9.25% ARP Senior Notes, which is net of $0.8 million unamortized discount and $8.3 million deferred financing costs, as current portion of long-term debt within our condensed combined consolidated balance sheet as of June 30, 2016. Any efforts to enforce such payments are automatically stayed as a result of the Chapter 11 Filings, and the holders’ rights of enforcement are subject to the applicable provisions of Chapter 11. On the Plan Effective Date, the 7.75% Senior Notes and the 9.25% Senior Notes (together with accrued but unpaid interest) will be cancelled and the holders will receive 90% of the common equity interests of New HoldCo (see Note 3). |
