Business Context and Reporting Period
Company: W&T Offshore, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: October 18, 2018
Event: The Company executed a significant capital structure refinancing, issuing new senior second lien notes, amending its credit facility, and retiring a substantial portion of its existing debt obligations.
Key Financial Metrics and Capital Structure
New Debt Issuance
- Notes Issued: $625 million aggregate principal amount of 9.75% Senior Second Lien Notes due 2023.
- Interest Payments: Payable semi-annually on May 1 and November 1, commencing May 1, 2019.
- Security: Secured by second-priority liens on collateral, contractually subordinated to the Credit Facility.
Credit Facility Amendment
- Facility Type: Sixth Amended and Restated Credit Agreement (Revolving credit and letter of credit facility).
- Initial Commitments: $250 million with a $30 million letter of credit sublimit.
- Maturity: October 18, 2022.
- Security: First-priority lien on substantially all natural gas and oil properties and personal property assets.
- Interest Rates: LIBOR or ABR plus margins ranging from 2.50% to 3.50% (LIBOR) and 1.50% to 2.50% (ABR) based on utilization.
Debt Retirement
- Term Loans Repaid: $75.0 million 11.00% 1.5 Lien Term Loan and $300.0 million 9.00% Second Lien Term Loan.
- Existing Notes Retired: $464.4 million repurchased via tender offer; remaining $63.8 million called for redemption.
- Total Existing Notes Retired: Approximately $528.2 million (8.500% Senior Notes due 2019, 9.00%/10.75% Senior Second Lien PIK Toggle Notes due 2020, and 8.50%/10.00% Senior Third Lien PIK Toggle Notes due 2021).
Material Changes Versus Prior Period
The filing represents a material change in the Company's capital structure. The Company replaced a mix of higher-cost term loans and PIK toggle notes with a new $625 million second lien note issuance and a $250 million revolving credit facility. This transaction eliminated the Company's outstanding 1.5 Lien Term Loan, Second Lien Term Loan, and all outstanding Senior Notes due 2019, 2020, and 2021.
Guidance, Covenants, and Risks
Covenants and Restrictions
- Notes Covenants: Limit investments, additional indebtedness, liens, asset sales, dividends, and mergers. Covenants terminate if the Notes receive an investment-grade rating from S&P and Moody's.
- Credit Facility Covenants: Limit indebtedness, loans, investments, mergers, dividends, hedging, and asset transfers.
- Liquidity Ratios: Must maintain a consolidated current assets to current liabilities ratio of at least 1.00 to 1.00.
- Leverage Ratios: Must maintain a consolidated total debt to EBITDAX ratio of no greater than 3.50:1.00 (Q4 2018/Q1 2019), 3.25:1.00 (Q2/Q3 2019), and 3.00:1.00 (Q4 2019 and thereafter).
Redemption Terms
- Pre-November 1, 2020: Redeemable at 100% principal plus "Applicable Premium" or up to 35% at 109.75% using equity proceeds.
- Post-November 1, 2020: Step-down redemption prices of 104.875% (2020-2021), 102.438% (2021-2022), and 100.000% (2022 onwards).
Risks and Contingencies
- Borrowing Base Redeterminations: The Credit Facility borrowing base is subject to semi-annual redeterminations and unscheduled reductions based on reserve reports or asset sales. Excess borrowing over the base requires immediate repayment or additional collateral.
- Events of Default: Include payment defaults, covenant breaches, bankruptcy, and failure to pay judgments exceeding $50 million.
Investor Verification Checklist
- Verify the exact amount of cash proceeds net of issuance costs from the $625 million note offering.
- Confirm the current utilization level of the new $250 million Credit Facility and the resulting interest margin.
- Review the most recent reserve report to assess the stability of the borrowing base and potential for future redeterminations.
- Monitor the Company's ability to meet the new Total Debt to EBITDAX leverage ratios (starting at 3.50:1.00).
- Check for any subsequent filings regarding the settlement of the $63.8 million redemption scheduled for November 19, 2018.