12.  Subsequent Events

On October 18, 2018, we entered into a series of transactions to effect a refinancing of substantially all of our outstanding indebtedness.  On such date, we issued $625.0 million of the Senior Second Lien Notes at par with an interest rate of 9.75% per annum that matures on November 1, 2023, which are governed under the terms of the Indenture of the Senior Second Lien Notes (the “Indenture”).  Interest on the Senior Second Lien Notes is payable in arrears on May 1 and November 1 of each year, beginning on May 1, 2019.  The Senior Second Lien Notes will be recorded at their carrying value consisting of principal and unamortized debt issuance costs.

   Prior to November 1, 2020, we may redeem all or any portion of the Senior Second Lien Notes at a redemption price equal to 100% of the principal amount of the outstanding Senior Second Lien Notes plus accrued and unpaid interest, if any, to the redemption date, plus the “Applicable Premium” (as defined in the Indenture).  In addition, prior to November 1, 2020, we may, at our option, on one or more occasions redeem up to 35% of the aggregate original principal amount of the Senior Second Lien Notes in an amount not greater than the net cash proceeds from certain equity offerings at a redemption price of 109.750% of the principal amount of the outstanding Senior Second Lien Notes plus accrued and unpaid interest, if any, to the redemption date.

On and after November 1, 2020, we may redeem the Senior Second Lien Notes, in whole or in part, at redemption prices (expressed as percentages of the principal amount thereof) equal to 104.875% for the 12-month period beginning November 1, 2020, 102.438% for the 12-month period beginning November 1, 2021, and 100.000% on November 1, 2022 and thereafter, plus accrued and unpaid interest, if any, to the redemption date. The Senior Second Lien Notes are guaranteed by Energy VI and W & T Energy VII, LLC (together, the “Guarantor Subsidiaries”). If we experience certain change of control events, we will be required to offer to repurchase the notes at 101.000% of the principal amount, plus accrued and unpaid interest, if any, to the repurchase date.

Certain entities controlled by Tracy W. Krohn, Chairman and Chief Executive Officer of the Company, and his family were invested in certain existing notes of the Company that were repurchased by the Company in connection with the 2018 Refinancing Transaction.  The Krohn entities tendered their existing notes on the same terms as were made available to all other holders of the existing notes pursuant to the publicly disclosed Company offer to purchase any and all such notes and reinvested an amount approximately equal to the proceeds from such tenders by purchasing approximately $8.0 million principal in Senior Second Lien Notes at the same price offered to other initial investors in the offering of such notes.  As part of the 2018 Refinancing Transaction, the Krohn entities also had their previously disclosed $5.0 million investment in the Company’s Second Lien Term Loan liquidated as the loan was repaid in full.

The Senior Second Lien Notes are secured by a second-priority lien on all of our assets that are secured under the New Revolving Credit Agreement.  The Senior Second Lien Notes contain covenants that limit or prohibit our ability and the ability of certain of our subsidiaries to: (i) make investments; (ii) incur additional indebtedness or issue certain types of preferred stock; (iii) create certain liens; (iv) sell assets; (v) enter into agreements that restrict dividends or other payments from the Company’s subsidiaries to the Company; (vi) consolidate, merge or transfer all or substantially all of the assets of the Company; (vii) engage in transactions with affiliates; (viii) pay dividends or make other distributions on capital stock or subordinated indebtedness; and (ix) create subsidiaries that would not be restricted by the covenants of the Indenture entered into by and among the Company, the Guarantors, and Wilmington Trust, National Association, as trustee (the “Trustee”).  These covenants are subject to exceptions and qualifications set forth in the Indenture.  In addition, most of the above described covenants will terminate if both S&P Global Ratings, a division of S&P Global Inc., and Moody’s Investors Service, Inc. assign the Senior Second Lien Notes an investment grade rating and no default exists with respect to the Senior Second Lien Notes.

Concurrently with the issuance of the Senior Second Lien Notes, we entered into the New Revolving Credit Agreement with a maturity date of October 18, 2022.  The primary items of the New Revolving Credit Agreement are as follows, with certain terms defined under the New Revolving Credit Agreement:

Availability under the New Revolving Credit Agreement 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.  The first redetermination will be in the spring of 2019.  Any redetermination by our lenders to change our borrowing base will result in a similar change in the availability under the New Revolving Credit Agreement.  The New Revolving Credit Agreement’s security is collateralized by a first priority lien on substantially all of our oil and natural gas properties and certain personal property.  

The New Revolving Credit Agreement contains various customary covenants for certain financial tests, as defined in the New Revolving Credit Agreement, and these tests are measured as of the end of each quarter, and for customary events of default.  The customary events of default include: (i) default in the payment of interest on the Senior Second Lien Notes when due, continued for 30 days; (ii) default in payment of the principal of or premium, if any, on the Senior Second Lien Notes when due; (iii) failure by the Company or any of its restricted subsidiaries, if any, to comply with certain covenants relating to merger and consolidation and offers to purchase Senior Second Lien Notes in connection with certain change of control transactions or asset sales; (iv) failure by the Company to comply for 60 days after notice with any of the other agreements in the Indenture; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any of its restricted subsidiaries (or the payment of which is guaranteed by the Company or any of its restricted subsidiaries) if that default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on such indebtedness prior to the expiration of the grace period provided in such indebtedness (a “Payment Default”); or (b) results in the acceleration of such indebtedness prior to its stated maturity, and, in each case, the principal amount of any such indebtedness, together with the principal amount of any other such indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $50.0 million or more; (vii) certain events of bankruptcy, insolvency or reorganization described in the Indenture with respect to the Company or any of the Company’s restricted subsidiaries that is a significant subsidiary or any group of the Company’s restricted subsidiaries that, taken as a whole, would constitute a significant subsidiary of the Company; (viii) failure by the Company, or any of the Company’s restricted subsidiaries that is a significant subsidiary or any group of the Company’s restricted subsidiaries that, taken as a whole, would constitute a significant subsidiary of the Company, to pay final judgments aggregating in excess of $50.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (ix) any Security Document (as defined in the Indenture) ceases for any reason to be enforceable with respect to any collateral having a fair market value of not more than $25.0 million, which failure is not cured within 45 days; (x) any second lien purported to be granted under any Security Document on collateral, individually or in the aggregate, having a fair market value in excess of $25.0 million, ceases to be an enforceable and perfected second-priority lien, which failure is not cured within 45 days; and (xi) except as permitted by the Indenture, any future subsidiary guarantee entered into by one of the Company’s subsidiaries shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any guarantor, or any person acting on behalf of any guarantor, shall deny or disaffirm its obligations under its subsidiary guarantee of the Senior Second Lien Notes.

After closing the 2018 Refinancing Transaction on October 18, 2018, we had $61.0 million borrowings outstanding, $9.7 million of letters of credit outstanding and our borrowing availability was $179.3 million under the New Revolving Credit Agreement.  We were in compliance with all applicable covenants of the New Revolving Credit Agreement and Senior Second Lien Notes after the 2018 Refinancing Transaction.

The funds from the issuance of the Senior Second Lien Notes, cash on hand and borrowings under the New Revolving Credit Agreement were used to repurchase and retire, repay or irrevocably redeem all of the long-term debt instruments outstanding including accrued interest, tender offer premiums, redemption premiums and debt issuance costs.  The 2018 Refinancing Transaction is expected to result in a net gain of approximately $47.0 million that will be recorded in the consolidated statement of operations and approximately $17.9 million of additional capitalized debt issuance costs fees that will be recorded on the balance sheet during the fourth quarter of 2018.  As the 2018 Refinancing Transaction substantially changed our capital structure, the following table is provided to present the Condensed Consolidated Balance sheet on a pro forma basis as if the 2018 Refinancing Transaction occurred on September 30, 2018:

Pro Forma Adjustments: