Business Context and Reporting Period
This Form 8-K Current Report was filed by Midstates Petroleum Company, Inc. on April 3, 2014, covering events occurring on March 28, 2014, and effective April 1, 2014. The filing details a material amendment to the company's credit facility to facilitate a new bridge loan and announces a change in Board composition.
Key Financial Metrics and Agreements
- Bridge Facility: The company secured a Senior Secured Bridge Facility of $125 million.
- Borrowing Base: The existing Credit Facility borrowing base was affirmed at $475 million, with provisions to decrease to this amount upon certain events.
- Amendment Fee: A fee of 0.10% was paid on the $475 million borrowing base as consideration for lender consent.
- Interest Margins: Applicable margins for LIBOR Loans increased from a range of 1.75% to 2.75% to a new range of 2.00% to 3.00% based on utilization.
- Leverage Ratios: The leverage ratio covenant was amended to 4.75:1.00 for the quarter ending March 31, 2014, stepping down to 4.00:1.00 for quarters thereafter.
Material Changes Versus Prior Period
The filing reports a significant restructuring of debt terms compared to the prior credit agreement:
- Increased Cost of Debt: Interest rate margins were raised across the board.
- Relaxed Covenants: Leverage ratio limits were temporarily increased to accommodate the company's financial position, with a specific provision to increase the ratio by 0.50 for three quarters following a potential $100 million asset sale in Louisiana.
- Collateral Structure: The amendment permits the release of Louisiana assets from liens securing the Credit Facility and allows the new Bridge Facility to be secured by a second lien on Mississippian assets.
Guidance, Outlook, and Corporate Governance
Management Commentary and Risks: The amendment was necessary to permit the entry into the Bridge Facility. The filing notes that the leverage ratio may be adjusted upward if the company consummates the sale of its ownership interest in the Pine Prairie field area of Evangeline Parish, Louisiana, for consideration of at least $100 million.
Board Changes:
- George A. DeMontrond was elected as a Class III director, effective April 1, 2014.
- He replaces Anastasia Deulina, who resigned effective April 1, 2014.
- Mr. DeMontrond was designated by FR Midstates Interholding, L.P. (FRMI) under a Stockholders' Agreement and will serve on the Compensation Committee.
- Mr. DeMontrond will not receive compensation for his board service.
Important Facts for Investor Verification
- Verify the status of the $100 million asset sale in Evangeline Parish, Louisiana, which triggers specific leverage ratio adjustments.
- Confirm the utilization rate of the $475 million borrowing base to determine the exact applicable interest margin (2.00% to 3.00%).
- Review the full text of the Fifth Amendment (Exhibit 10.1) for detailed covenants and release of Louisiana assets.
- Monitor the company's ability to meet the stepped-down leverage ratio targets starting June 30, 2014.