Business Context and Reporting Period
This Form 8-K, filed on August 17, 2016, reports material events for California Resources Corporation occurring between August 12 and August 15, 2016. The filing details a significant restructuring of the Company's debt facilities, including the entry into a new $1 billion credit agreement and amendments to its existing credit agreement.
Key Financial Metrics and Debt Structure
- New Credit Facility: Entered into a $1 billion "New Credit Agreement" (New Term Loans) with Goldman Sachs Bank USA as lead arranger.
- Interest Rate: New Term Loans bear interest at 10.375% plus the LIBOR Rate, subject to a 1.00% LIBOR floor.
- Maturity: New Term Loans mature on December 31, 2021, with potential acceleration if certain senior notes exceed $100 million outstanding 91 days prior to their maturity.
- Existing Facility Amendment: Revolver commitments under the Existing Credit Agreement were permanently reduced from $1.6 billion to $1.4 billion.
- Borrowing Base: Remained unchanged at $2.3 billion.
- Use of Proceeds: New Term Loan proceeds were used to pay down $250 million of outstanding term loans under the Existing Credit Agreement and to repay outstanding revolving loans.
Material Changes Versus Prior Period
- Covenant Relief: The Fifth Amendment to the Existing Credit Agreement provides relief from financial maintenance covenants until the end of Q1 2018.
- Leverage Ratio: First-Lien First-Out Leverage Ratio limit increased to 3.25 to 1.00 (previously 2.25 to 1.00).
- Coverage Ratio: Total interest expense coverage ratio minimum lowered to 1.20 to 1.00 (previously 2.00 to 1.00).
- New Covenant: A new First-Lien Asset Coverage Ratio of 1.20 to 1.00 was added, requiring the PV-10 of proved reserves to maintain a specific ratio to secured debt.
- Collateral Structure: Non-borrowing base assets were added as collateral to secure obligations under the Existing Credit Agreement. The New Term Loans share a first priority security interest but are second in collateral recovery behind Existing Credit Agreement lenders.
- Asset Disposition Proceeds: The Company may use up to 40% (or 60% if debt-to-EBITDAX is below 4.00) of proceeds from the sale of non-borrowing base assets for general corporate purposes or to repurchase junior indebtedness.
Outlook, Risks, and Other Events
- Tender Offer: On August 15, 2016, the Company announced the oversubscription and early settlement of its tender offer for outstanding notes.
- Prepayment Penalties: Prepayment of New Term Loans is subject to a make-whole premium prior to the third anniversary and a premium of 50% of the coupon between the third and fourth anniversaries. Redemption at par is permitted after the fourth anniversary.
- Events of Default: Standard events of default apply, including nonpayment, breach of covenants, bankruptcy, and change of control, which may trigger acceleration of repayment.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from projections due to various risk factors.
Investor Verification Checklist
- Verify the exact terms of the "make-whole" premium and prepayment penalties in the New Credit Agreement (Exhibit 10.1).
- Confirm the current status of the 5% Senior Notes due 2020 and 5.5% Senior Notes due 2021 to assess the risk of accelerated maturity for the New Term Loans.
- Review the press release (Exhibit 99.1) for specific details on the volume and price of the tender offer settlement.
- Monitor the Company's compliance with the new First-Lien Asset Coverage Ratio (1.20 to 1.00) based on PV-10 of proved reserves.
- Assess the impact of the reduced revolver commitment ($1.4 billion) on the Company's liquidity position relative to its $2.3 billion borrowing base.