Business Context and Reporting Period
This Form 8-K is a current report filed by Midstates Petroleum Company, Inc. (Midstates) on March 11, 2014, regarding events occurring on March 5, 2014. The filing discloses a material asset sale and the establishment of new financing facilities to support capital resources for 2014. Note: The input metadata references "Amplify Energy Corp.", but the filing text explicitly identifies the registrant as Midstates Petroleum Company, Inc.
Key Financial Metrics and Agreements
- Asset Sale Transaction: Midstates agreed to sell all ownership interests in developed and undeveloped acreage in the Pine Prairie field area of Evangeline Parish, Louisiana, to Tana Exploration Company LLC for a purchase price of $170 million in cash, subject to standard post-closing adjustments.
- Bridge Facility: A $125 million Senior Secured Bridge Facility was committed by a syndicate of lenders. It bears interest at LIBOR plus 4.5% (subject to market flex and step-ups) and matures on the first anniversary of the closing date.
- Revolving Credit Facility (RBL) Backstop: A commitment to provide a backstop revolver credit facility with a notional amount of $750 million and a maturity date of May 2018, contingent on the inability to amend the existing facility.
- Existing Credit Facility: The filing references an existing secured revolving credit facility with a borrowing base of $500 million, proposed to be reduced to $475 million to accommodate the asset sale.
Material Changes and Financing Terms
The filing details significant changes to Midstates' capital structure and asset base:
- Asset Divestiture: The sale of Louisiana assets is expected to close on May 1, 2014, subject to due diligence and customary conditions. The agreement has an effective date of November 1, 2013.
- Debt Structure: The Bridge Facility is secured by a first priority lien on Gulf Coast assets and a second lien on Midcontinent assets. It includes mandatory prepayment provisions upon the sale of Louisiana assets.
- Covenant Adjustments: The RBL Backstop includes modified leverage ratios, starting at 4.75:1.00 for the quarter ending March 31, 2014, and stepping down to 4.00:1.00 thereafter. The leverage ratio may be increased by 0.50 for the quarter of consummation and the two following quarters if the transaction consideration is $100 million or greater.
- Interest Rate Changes: The applicable margin for LIBOR loans under the existing Credit Facility would increase from a range of 1.75% to 2.75% to a range of 2.00% to 3.00% under the backstop terms.
Guidance, Outlook, and Risks
Management commentary is limited to the disclosure of the transaction and financing arrangements. The filing contains forward-looking statements regarding the expected consummation of the Transaction, the Bridge Facility, and the RBL Backstop. No assurance is given that actual results will not differ materially from these expectations.
Risks and Contingencies:
- Closing Conditions: The asset sale is subject to title and environmental due diligence by the Buyer and satisfaction of other customary closing conditions.
- Liquidity Covenants: Lenders under the Bridge Facility have a securities demand if loans remain outstanding on September 30, 2014, or if total liquidity falls below $50 million (with a waiver until June 1, 2014, if the Agreement remains in place).
- Market Flex: Interest rates and fees are subject to market flex provisions prior to successful syndication.
Investor Verification Checklist
- Verify the final closing date of the $170 million asset sale to Tana Exploration Company LLC, currently expected for May 1, 2014.
- Confirm the final terms of the $125 million Bridge Facility, including the final interest rate after market flex provisions and any step-up adjustments.
- Monitor the status of the amendment to the existing Credit Facility to determine if the RBL Backstop is required.
- Review the post-closing adjustments to the $170 million purchase price to determine the final net proceeds.
- Assess the impact of the increased leverage ratios and interest margins on future cash flow and debt service obligations.