Business Context and Reporting Period
W&T Offshore, Inc. filed this Form 8-K on May 26, 2006, to report the entry into a material definitive agreement. The filing details a new credit facility entered into in connection with the company's pending transaction with Kerr-McGee.
Key Financial Metrics and Debt Structure
The company established a $1.3 billion senior secured credit facility. The filing does not provide current revenue, profit, or cash flow figures, as this report focuses on the debt agreement structure.
- Total Facility Size: $1.3 billion
- Revolving Loan Facility: $300.0 million initial availability
- Tranche A Term Loan: $500.0 million (subject to reduction based on funding date)
- Tranche B Term Loan: $300.0 million
- Letter of Credit Facility: $90.0 million
- Post-Transaction Availability: $1.1 billion upon completion of the Kerr-McGee transaction
- Interest Rates: LIBOR plus 1.25% to 2.75% or Base Rate plus 0.625%, varying by utilization
Material Changes and Covenants
The primary material change is the replacement of the existing credit facility with the new $1.3 billion structure, contingent upon the consummation of the Kerr-McGee transaction by September 30, 2006. The new facility imposes specific financial covenants effective from the fiscal quarter ending March 31, 2007:
- Current Ratio: Must not be less than 0.75:1.0 (until Sept 2007), 0.875:1.0 (until Sept 2008), and 1.0:1.0 thereafter.
- Leverage Ratio: Must not exceed 2.0:1.0.
- Interest Coverage: EBITDA to consolidated interest expense must not be less than 4.0:1.0.
- Asset Coverage Ratio: Must not exceed 1.50:1.00 (first two quarters), 1.75:1.00 (next two quarters), and 2.00:1.00 thereafter.
The Tranche A term loan amount is subject to reduction if funding is delayed: reduced by $37.5 million if funded on or after May 31, 2006; an additional $37.5 million if on or after June 30, 2006; and a further $37.5 million if on or after July 31, 2006.
Outlook, Risks, and Contingencies
The new credit facility is not effective unless the Kerr-McGee transaction is consummated on or before September 30, 2006. Until the new facility becomes effective, no loan advances or letters of credit will be issued under it, and the existing credit facility remains in full force. Borrowings are subject to borrowing base determinations, which are re-determined on March 1 and September 1 annually starting September 1, 2007.
Investor Verification Checklist
- Confirm the status and expected closing date of the Kerr-McGee transaction, as the new credit facility is contingent upon its completion by September 30, 2006.
- Verify the actual funding date of the Tranche A term loan to determine if the principal amount will be reduced due to the scheduled step-downs.
- Monitor the company's ability to meet the new financial covenants, specifically the leverage ratio cap of 2.0:1.0 and the interest coverage ratio of 4.0:1.0, starting with the quarter ending March 31, 2007.
- Review the borrowing base re-determination schedule to understand potential liquidity constraints post-September 2007.