Business Context and Reporting Period
This Form 8-K, filed on February 24, 2015 (reporting events through March 2, 2015), details the completion of a merger by Matador Resources Company ("Matador"). On February 27, 2015, Matador consummated the acquisition of Harvey E. Yates Company ("Target") via its subsidiary MRC Delaware Resources, LLC. The transaction adds approximately 58,600 gross (18,200 net) acres of oil and natural gas properties in Eddy and Lea Counties, New Mexico, to Matador's existing Permian Basin portfolio.
Key Financial Metrics and Transaction Details
The filing outlines the consideration paid and debt obligations assumed, though it does not provide consolidated revenue, profit, or cash flow metrics for the reporting period.
- Total Consideration: Approximately $33.6 million in cash (including debt assumption), 3,300,000 shares of Matador Common Stock, and 150,000 shares of Series A Convertible Preferred Stock.
- Cash Adjustment: An additional $3.0 million cash payment was made for production, revenue, and expenditure adjustments from September 1, 2014, to closing.
- Debt Assumption: Matador assumed approximately $12.0 million in continuing debt obligations. The total principal amount of the assumed indebtedness is $12.5 million.
- Debt Terms: The assumed debt bears a variable interest rate (prime rate, minimum 3.25%) and matures on July 24, 2015. It is secured by the acquired assets.
- Liquidity/Covenants: Matador guaranteed the assumed debt and agreed to a funded debt to EBITDA ratio covenant of 4.25 or less.
Material Changes and Amendments
Several material changes occurred in connection with the closing:
- Consideration Adjustment: An amendment to the Merger Agreement increased the Common Stock consideration to 3,300,000 shares and decreased the cash consideration by approximately $3.8 million.
- Board Appointment: The appointment of George M. Yates to the Board of Directors was delayed. Originally scheduled for closing, he was appointed as a Class I director effective upon the earlier of the consummation of specific joint ventures or April 15, 2015.
- Escrow Arrangement: 125,000 of the 150,000 shares of Series A Preferred Stock were placed in escrow to satisfy potential post-closing adjustments for title or environmental defects.
Outlook, Risks, and Contingencies
Management commentary and future obligations include:
- Shareholder Approval: A special meeting is scheduled for April 2, 2015, to approve a Charter Amendment required to increase authorized Common Stock for the conversion of Series A Preferred Stock.
- Preferred Stock Terms: If the Charter Amendment is not approved by August 27, 2015, Series A Preferred Stock holders are entitled to cash dividends at a quarterly rate of $1.80 per share.
- Registration Rights: Matador agreed to file a shelf registration statement for the resale of issued shares one year after closing.
- Default Risk: Failure to meet the 4.25 debt-to-EBITDA covenant or payment obligations under the Guaranty constitutes an event of default under Matador's existing credit agreement.
Investor Verification Checklist
- Verify the outcome of the April 2, 2015, special shareholder meeting regarding the Charter Amendment.
- Confirm the status of the joint ventures with entities affiliated with Mr. Yates, which triggers his Board appointment.
- Monitor Matador's compliance with the 4.25 funded debt to EBITDA covenant following the debt assumption.
- Review the final adjusted acreage count and any post-closing adjustments to the purchase price.
- Check for any release of the 125,000 shares of Series A Preferred Stock held in escrow.