Business Context and Reporting Period
This Form 8-K was filed by Midstates Petroleum Company, Inc. on April 1, 2016. The report details significant liquidity events and debt management actions taken by the Company regarding its 2020 Senior Notes and revolving credit agreement.
Key Financial Metrics
- Cash Balance: Approximately $301.4 million as of March 31, 2016.
- Outstanding Borrowings: Approximately $252.0 million under the Credit Agreement as of April 1, 2016.
- Borrowing Base: Reduced to $170.0 million following a scheduled determination.
- Borrowing Base Deficiency: Approximately $82.0 million.
- Deferred Interest Payment: Approximately $16 million on 10.75% Senior Notes due 2020.
Material Changes and Events
The Company elected to exercise a 30-day grace period for an interest payment of approximately $16 million due on its 2020 Notes, avoiding an immediate event of default. Concurrently, the Company received notice that its borrowing base under its revolving credit agreement was reduced to $170.0 million. With outstanding borrowings at $252.0 million, this created a deficiency of $82.0 million that must be cured within 30 days.
Management Commentary, Risks, and Outlook
Management stated it is actively addressing its debt and capital structure and is in discussions with creditors. The Company believes the new borrowing base does not appropriately value its reserves and intends to negotiate with lenders regarding the amount and cure options. Cure options include paying down the deficiency immediately, paying in six monthly installments, or providing a reserve report to increase the borrowing base. The Company confirmed it continues to pay suppliers and trade creditors in the ordinary course.
Investor Verification Checklist
- Verify the Company's ability to cure the $82.0 million borrowing base deficiency within the 30-day window.
- Monitor the outcome of negotiations with lenders regarding the borrowing base valuation.
- Confirm the status of the $16 million interest payment on the 2020 Notes after the grace period expires.
- Assess the impact of the current liquidity position ($301.4 million cash) against total debt obligations.