Business Context and Reporting Period
This Form 8-K filing by Midstates Petroleum Company, Inc. (not Amplify Energy Corp.) reports material definitive agreements entered into on May 21, 2015. The filing details a significant capital restructuring involving the issuance of new secured debt and the exchange of existing unsecured notes.
Key Financial Metrics and Debt Structure
- Second Lien Notes Issuance: The company issued and sold $625 million aggregate principal amount of 10% Senior Secured Second Lien Notes in a private placement.
- Third Lien Notes Issuance: The company issued approximately $504.1 million in Senior Secured Third Lien Notes.
- Third Lien Interest Rate: The Third Lien Notes carry a 12% annual interest rate, comprised of 10% cash interest and 2% paid-in-kind (PIK) interest.
- Debt Exchange: The Third Lien Notes were issued in exchange for approximately $279.8 million of 10.75% Senior Unsecured Notes due 2020 and $350.3 million of 9.25% Senior Unsecured Notes due 2021. This exchange occurred at 80% of par value.
- Maturity Dates: Both the Second and Third Lien Notes mature on the earlier of June 1, 2020, or 12 months after the maturity date of the Company's Revolving Credit Facility.
- Borrowing Base Reduction: The company's borrowing base under its Revolving Credit Facility was reduced to $253 million.
Material Changes Versus Prior Period
The filing represents a material change in the company's capital structure. The company converted approximately $630.1 million of existing unsecured debt into secured Third Lien Notes at a discount (80% of par). Concurrently, the company raised $625 million in new Second Lien debt. These actions increased the company's secured debt obligations and introduced new covenants regarding asset sales, dividends, and additional indebtedness.
Guidance, Outlook, and Risks
- Registration Rights: The company is obligated to file a registration statement within 270 days for an exchange offer for both the Second and Third Lien Notes. Failure to do so may result in liquidated damages in the form of additional interest.
- Covenants: The new indentures include customary covenants restricting the incurrence of debt, payment of dividends, transactions with affiliates, and asset sales.
- Security Priority: The new notes are secured by second and third-priority liens on substantially all assets securing the Revolving Credit Facility. They rank junior to the Revolving Credit Facility but senior to existing unsecured indebtedness.
- Next Review: The next scheduled redetermination of the borrowing base is October 2015.
Investor Verification Checklist
- Verify the impact of the 2% paid-in-kind (PIK) interest on the Third Lien Notes on future cash flow requirements.
- Confirm the specific terms of the borrowing base reduction to $253 million and its effect on liquidity.
- Review the full text of the Seventh Amendment to the Credit Agreement for additional covenant flexibility or restrictions.
- Monitor the company's ability to file the required exchange offer registration statements within 270 days to avoid liquidated damages.
- Assess the seniority of the new debt relative to the Revolving Credit Facility and the implications for future refinancing.