Business Context and Reporting Period
This Form 8-K is a current report filed by Midstates Petroleum Company, Inc. (not Amplify Energy Corp.) on June 2, 2015. The filing discloses the entry into a material definitive agreement involving a private placement of debt securities.
Key Financial Metrics and Transaction Details
- Debt Issuance: The company issued approximately $20 million in aggregate principal amount of Senior Secured Third Lien Notes (Additional Notes).
- Debt Exchange: The new notes were issued in exchange for $26.547 million of 10.75% Senior Unsecured Notes due 2020 and $2.025 million of 9.25% Senior Unsecured Notes due 2021.
- Interest Rate: The Third Lien Notes carry a 12% annual interest rate, comprised of 10% cash interest and 2% paid-in-kind (PIK) interest.
- Maturity: The notes mature on the earlier of June 1, 2020, or 12 months after the maturity of the company's revolving credit facility.
- Security: The notes are secured by third-priority liens on substantially all assets securing the Initial Notes and existing Second Lien Notes.
Material Changes and Agreements
The primary material change is the restructuring of a portion of the company's unsecured debt into secured third-lien debt. This transaction was executed under a Third Lien Indenture dated May 21, 2015, which also governs $504.1 million of Initial Notes issued previously. The filing incorporates an Intercreditor Agreement and a Third Lien Pledge and Security Agreement to define the relationship between lenders and collateral agents.
Guidance, Risks, and Contingencies
- Registration Rights: The company is obligated to file a registration statement within 270 days to offer an exchange of the Additional Notes for registered new notes.
- Liquidated Damages: Failure to file the required exchange offer registration statement within the specified period will trigger liquidated damages in the form of additional interest on the Additional Notes.
- Covenants: The indenture includes restrictions on the incurrence of additional debt, payment of dividends, transactions with unrestricted affiliates, and asset sales.
- Default Provisions: Indebtedness may be accelerated upon an event of default as defined in the Third Lien Indenture.
Investor Verification Checklist
- Verify the total outstanding principal of the Third Lien Notes (Initial + Additional) and the impact on the company's leverage ratios.
- Confirm the status of the revolving credit facility maturity date, as it dictates the final maturity of the Third Lien Notes.
- Review the cash flow implications of the 2% paid-in-kind interest component.
- Monitor the company's progress in filing the required registration statement within the 270-day window to avoid liquidated damages.
- Assess the impact of the new covenants on future capital allocation and dividend policies.