Business Context and Reporting Period
This Form 8-K, filed on October 21, 2016, reports that Midstates Petroleum Company, Inc. (the "Company") and its affiliate Midstates Petroleum Company LLC (the "Debtors") officially emerged from Chapter 11 bankruptcy reorganization on the Effective Date of October 21, 2016. The Company filed voluntary petitions for reorganization on April 30, 2016, and the Bankruptcy Court confirmed the First Amended Joint Chapter 11 Plan of Reorganization on September 28, 2016.
Key Financial Metrics and Capital Structure
The filing details the establishment of a new capital structure and financing arrangements effective upon emergence. No historical revenue, profit, or cash flow figures are provided in this specific filing.
- Exit Facility: The Company entered into a Senior Secured Credit Agreement with an initial borrowing base of $170 million.
- Interest Rates: Borrowings bear interest at Base Rate + 3.50% or LIBOR + 4.50% (subject to a 1.00% LIBOR floor).
- Maturity: The facility matures on the earlier of September 30, 2020, or four years from the Effective Date.
- Covenants:
- Minimum EBITDA to interest expense ratio of 3.00 to 1.00 (commencing December 31, 2016).
- Maximum total net indebtedness to EBITDA ratio of 2.50 to 1.00 during the "Borrowing Base Holiday" (until April 2018) and 3.00 to 1.00 thereafter.
- Capital expenditure caps: $50 million for the six months ended December 31, 2016; $81 million for 2017; $85 million for 2018; and $78 million for 2019.
- Liquidity requirement: Maintain liquidity equal to at least 20% of the effective borrowing base after the Borrowing Base Holiday.
- Debt Cancellation: All prepetition indebtedness was cancelled, including 10.75% senior notes due 2020, 9.25% senior notes due 2021, 10% senior secured second lien notes due 2020, and 12% senior secured third lien notes due 2020.
Material Changes Versus Prior Period
The Company underwent a fundamental restructuring of its equity and debt obligations:
- Equity Cancellation: All shares of common stock outstanding prior to the Effective Date were cancelled and extinguished.
- New Equity Issuance:
- 24,062,500 shares issued to holders of Second Lien Notes Claims.
- 625,000 shares issued to holders of Third Lien Note Claims.
- 312,500 shares to be issued to holders of Allowed Unsecured Notes Claims and Allowed General Unsecured Claims.
- Warrant Issuance:
- 4,411,765 Third Lien Notes Warrants issued (exercise price $24.00 per share).
- 2,213,789 Unsecured Creditor Warrants issued (exercise price $46.00 per share).
- All warrants expire on April 21, 2020.
- Board Composition: Robert Ogle and Bruce Stover ceased to be directors. The new Board consists of seven members, including Frederic F. Brace (CEO) and Alan J. Carr (Non-executive Chairman), alongside five new directors: Patrice Douglas, Neal P. Goldman, Todd R. Snyder, Michael S. Reddin, and Bruce H. Vincent.
Guidance, Outlook, and Management Commentary
The filing does not provide specific financial guidance or revenue outlooks. However, it outlines strict operational constraints via the Exit Facility covenants, including capped capital expenditures and mandatory liquidity maintenance. Management commentary is limited to the confirmation of the Plan's effectiveness and the execution of new employment agreements.
Executive Compensation: New employment agreements were executed for Frederic F. Brace (CEO), Nelson M. Haight (CFO), and Mitchell G. Elkins (EVP of Operations). Key terms include:
- Frederic F. Brace: Base salary of $700,000; target bonus of 100% of base salary.
- Nelson M. Haight: Base salary of $375,000; target bonus of 80% of base salary.
- Mitchell G. Elkins: Base salary of $400,000; target bonus of 80% of base salary.
- Incentive Plan: The 2016 Long Term Incentive Plan was adopted, reserving 3,513,950 shares for issuance. Initial "Emergence Grants" were awarded to executives consisting of 50% restricted stock units and 50% stock options (exercise price $19.66), vesting over 36 months.
Risks and Contingencies
- Covenant Compliance: The Company must strictly adhere to financial covenants (EBITDA/Interest, Debt/EBITDA) and capital expenditure caps to avoid default on the Exit Facility.
- Liquidity Constraints: During the Borrowing Base Holiday, the Available Commitment is reduced by $40 million. Post-holiday, the Company must maintain liquidity equal to 20% of the borrowing base.
- Regulatory Curtailment: Capital expenditure caps include a $10 million cumulative carve-out for mitigating effects of Regulatory Curtailment issued by the Oklahoma Corporation Commission.
- Registration Rights: The Company is obligated to file a Shelf Registration Statement within 90 days of emergence for pre-emergence creditors who received stock, subject to customary limitations.
Important Facts for Investor Verification
- Verify the Company's ability to meet the 3.00x EBITDA to interest expense ratio commencing December 31, 2016.
- Confirm the status of the $170 million borrowing base and any scheduled redeterminations after April 2018.
- Monitor capital expenditure spending against the strict caps ($50M for H2 2016, $81M for 2017) to ensure covenant compliance.
- Review the dilution impact of the 6,625,554 outstanding warrants (Third Lien and Unsecured Creditor) with exercise prices of $24.00 and $46.00.
- Assess the liquidity position relative to the requirement to maintain 20% of the borrowing base in cash after the Borrowing Base Holiday.