W&T Offshore, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Long-Term Debt

Long-Term Debt

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

Long-Term Debt

5. Long-Term Debt

Our long-term debt was as follows (in thousands):

	June 30,			December 31,
	2015			2014
8.50% Senior Notes due 2019	$	900,000		$	900,000
Debt premiums, net of amortization		11,805			13,057
9.00% Term Loan due 2020		300,000			—
Debt discounts, net of amortization		(2,935	)		—
Revolving bank credit facility		260,000			447,000
Total long-term debt		1,468,870			1,360,057
Current maturities of long-term debt		—			—
Long term debt, less current maturities	$	1,468,870		$	1,360,057

At June 30, 2015 and December 31, 2014, our outstanding senior notes, which bear an annual interest rate of 8.50% and mature on June 15, 2019 (the “8.50% Senior Notes”), were classified as long-term at their carrying value. Interest on the 8.50% Senior Notes is payable semi-annually in arrears on June 15 and December 15. The estimated annual effective interest rate on the 8.50% Senior Notes is 8.4%, which includes amortization of debt issuance costs and premiums. The debt premiums, net of amortization, are related to the 8.50% Senior Notes. We are subject to various financial and other covenants under the indenture governing the 8.50% Senior Notes, and we were in compliance with those covenants as of June 30, 2015.

In May 2015, we entered into the 9.00% Term Loan, which has a principal of $300.0 million, bears an annual interest rate of 9.00%, was issued at a 1% discount to par and matures on May 15, 2020. The 9.00% Term Loan is secured by a second priority lien covering our oil and gas properties to the extent such properties secure first priority liens granted to secure indebtedness under our Credit Agreement. Interest on the 9.00% Term Loan is payable in arrears semi-annually on May 15 and November 15. The estimated annual effective interest rate on the 9.00% Term Loan is 9.7%, which includes amortization of debt issuance costs and discounts. The net proceeds were used to repay a portion of the outstanding borrowings incurred under our revolving bank credit facility governed by the Credit Agreement. A related party, which was an entity controlled by the Company’s Chairman and Chief Executive Officer, participated in the 9.00% Term Loan for a $5.0 million principal commitment on the same terms as the other lenders. We are subject to various covenants under the terms governing the 9.00% Term Loan, including without limitation covenants that limit our ability to incur other debt, pay dividends or distributions on our equity, merge or consolidate with other entities and make certain investments in other entities. We were in compliance with those covenants as of June 30, 2015.

As of June 30, 2015, our revolving bank credit facility governed by the Credit Agreement matures on November 8, 2018. Borrowings under our revolving bank credit facility are secured by our oil and natural gas properties. Availability under such facility is subject to a semi-annual redetermination of our borrowing base that occurs in the spring and fall of each year and is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria.

At both June 30, 2015 and December 31, 2014, we had $0.6 million of letters of credit outstanding under the revolving bank credit facility. The estimated annual effective interest rate was 3.2% for the six months ended June 30, 2015 for borrowings under the revolving bank credit facility. The estimated annual effective interest rate includes amortization of debt issuance costs and excludes commitment fees and other costs. As of June 30, 2015, our borrowing base was $500.0 million and our borrowing availability was $239.4 million.

During the second quarter of 2015, we entered into two amendments to the Credit Agreement. Following is a summary of the primary terms of the amendments:

The applicable margin applied to borrowings under the Credit Agreement was increased by 50 basis points (0.5%) on an annual basis. The margins on London Interbank Offered Rate (“LIBOR”) based borrowings range from 2.25% to 3.25% and the margins on alternate base rate borrowings range from 1.25% to 2.25%.

The Amendments permit us to incur additional unsecured indebtedness, or incur additional indebtedness which is subordinate in security compared to the indebtedness under the Credit Agreement, provided that, (A) no event of default has occurred or would result from such incurrence, (B) the Company is in compliance with its financial ratios after giving pro forma effect to the incurrence of the additional indebtedness, (C) such additional indebtedness matures at least six months after the maturity date of the Credit Agreement, and (D) such additional indebtedness is not subject to covenants and events of default that are, taken as a whole, materially more onerous than those provided for in the Credit Agreement.

Upon the incurrence of additional unsecured indebtedness, or the incurrence of additional indebtedness which is subordinate in security compared to the indebtedness under the Credit Agreement, the borrowing base will be reduced by $0.33 for each dollar of additional indebtedness until the borrowing base is redetermined. After giving effect to the issuance of the 9.00% Term Loan and the resulting reduction in the borrowing base, the borrowing base was adjusted to $500.0 million.

We are restricted on making distributions or repurchasing the existing 8.50% Senior Notes, the 9.00% Term Loan or other permitted indebtedness (i) until June 30, 2016, (ii) if an event of default is continuing or would result from such distribution or (iii) if a borrowing base deficiency is continuing or would result therefrom; provided that the restriction in clause (i) of this sentence does not apply to (A) scheduled payments of interest, principal or redemptions on the Company’s existing 8.50% Senior Notes, the 9.00% Term Loan or other permitted additional debt and (B) the redemption or repurchase by the Company of its outstanding indebtedness in an aggregate principal amount equal to the aggregate principal amount of any new indebtedness, provided that any such new notes are not subject to covenants and events of default that are, taken as a whole, materially more restrictive on the Company.

The financial covenants, with definitions of capitalized terms contained in the Credit Agreement, were set as follows:

The maximum Leverage Ratio was suspended for the first quarter of 2016; then is limited to 5.00:1.00 for the second quarter of 2016; 4.50:1.00 for the third quarter of 2016; and 4.00:1.00 thereafter.

The minimum Current Ratio is 0.75:1.00 effective for the first quarter of 2015 through the fourth quarter of 2015; and 1.00:1.00 thereafter.

The maximum First Lien Leverage Ratio is 2.50:1.00 effective for the first quarter of 2015 and thereafter.

The maximum Secured Debt Leverage Ratio is 3.50:1.00 effective for the first quarter of 2015 and thereafter.

The minimum Interest Coverage Ratio is 2.20:1.00 effective for the first quarter of 2015 and thereafter.

The mortgaged collateral requirement was increased from 80% to 90% of the total value of both the (i) total proved oil and gas reserves and (ii) the proved developed producing reserves.

We are required to maintain minimum derivative positions of 25% of estimated oil and natural gas production for the second half of 2015 and 35% of estimated oil and natural gas production for 2016.

The amendment authorized the Administrative Agent under the Credit Agreement governing our revolving credit facility to enter into an Intercreditor Agreement with the lenders under the 9.00% Term Loan, which established the relationship and the priority of the liens securing the revolving bank credit facility and the 9.00% Term Loan.

The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the agreement.

During the second quarter of 2015, the borrowing base on the revolving bank credit facility was reduced after the semi-annual redetermination and further reduced in conjunction with the issuance of the 9.00% Term Loan pursuant to the terms of the Credit Agreement. The reductions in the borrowing base resulted in proportional reductions in the unamortized debt issuance costs of $2.0 million related to the Credit Agreement, which is recorded within the line Debt issuance costs write-off and other, net on the Statements of Operations.

Under the Credit Agreement, we are subject to various financial covenants, as listed above, which are calculated as of the last day of each fiscal quarter. We were in compliance with all applicable covenants of the Credit Agreement as of June 30, 2015.

For information about fair value measurements for our 8.50% Senior Notes, 9.00% Term Loan and revolving bank credit facility, refer to Note 6.