NOTE 2 — DEBT

The components of debt are presented in the following tables (in thousands):

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Aggregate annual maturities of principal amounts recorded as of December 31, 2022 are as follows (in millions):

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Current portion of Long-Term Debt

As of December 31, 2022, the current portion of long-term debt of $582.2 million represented net principal payments due within one year on the Term Loan and 9.75% Senior Second Lien Notes. See Note 20 – Subsequent Events for additional information.

Term Loan (Subsidiary Credit Agreement)

On May 19, 2021, A-I LLC and A-II LLC, subsidiaries of W&T Offshore, Inc., entered into a credit agreement (the “Subsidiary Credit Agreement”) providing for a term loan (the “Term Loan”) in an aggregate principal amount equal to $215.0 million. The Term Loan requires quarterly amortization payments which commenced on September 30, 2021. The Term Loan bears interest at a fixed rate of 7.0% per annum and will mature on May 19, 2028.

At that time, in exchange for the net cash proceeds received by the Subsidiary Borrowers from the Term Loan, the Company assigned to (a) A-I LLC all of its interests in certain oil and gas leasehold interests and associated wells and units located in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, Mobile Bay region (such assets, the “Mobile Bay Properties”) and (b) A-II LLC its interest in certain gathering and processing assets located (i) in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, Mobile Bay region and (ii) onshore near Mobile, Alabama, including offshore gathering pipelines, an onshore crude oil treating and sweetening facility, an onshore gathering pipeline, and associated assets (such assets, the “Midstream Assets”). During 2021, a portion of the proceeds to the Company was used to repay the $48.0 million outstanding balance on its reserve-based lending facility under the Credit Agreement.

The Term Loan is non-recourse to the Company and any subsidiaries other than the Subsidiary Borrowers and the subsidiary that owns the equity in the Subsidiary Borrowers, and is secured by the first lien security interests in the equity of the Subsidiary Borrowers and a first lien mortgage security interest and mortgages on certain assets of the Subsidiary Borrowers (the Mobile Bay Properties, defined below). See Note 4 – Subsidiary Borrowers for additional information.

During the years ended December 31, 2022 and 2021, the Company repaid $43.0 million and $24.1 million of principal outstanding, respectively. As of December 31, 2022 and 2021, the Company had $147.9 million and $190.9 million in principal amount of the Term Loan, respectively.

Credit Agreement

On November 2, 2021, the Company entered into the Ninth Amendment to the Sixth Amended and Restated Credit Agreement (the “Ninth Amendment”), which established a short-term $100.0 million first priority lien secured revolving facility with borrowings limited to a borrowing base of $50.0 million (the “Credit Agreement”) provided by Calculus Lending, LLC, (“Calculus”) a company affiliated with, and controlled by W&T’s Chairman and Chief Executive Officer, Tracy W. Krohn, as sole lender under the Calculus Lending facility. Additionally, as of November 2, 2021, the Company cash collateralized each of the outstanding letters of credit in the aggregate amount of $4.4 million. Alter Domus (US) LLC was appointed to replace Toronto Dominion (Texas) LLC as administrative agent under the Credit Agreement.

On March 8, 2022, the Company entered into the Tenth Amendment to the Sixth Amended and Restated Credit Agreement (the “Tenth Amendment”), which extended the maturity date and Calculus’ commitment to January 3, 2023. On November 7, 2022, the Company entered into the Eleventh Amendment to the Credit Agreement (the “Eleventh Amendment”), which extended the maturity date and Calculus’ commitment to January 3, 2024, and shifted the rate at which outstanding borrowings will accrue interest to a SOFR-based rate.

A committee of the independent members of the Board of Directors reviewed and approved these amendments given the CEO’s affiliation with Calculus. See Note 17 – Related Parties for additional information.

As a result of the Ninth Amendment, Tenth Amendment and Eleventh Amendment and related assignments and agreements, the primary terms and covenants associated with the Credit Agreement as of December 31, 2022, are as follows:

Availability under the Credit Agreement is subject to redetermination of the borrowing base that may be requested at the discretion of either the lender or the Company. The borrowing base is calculated by the lender based on their evaluation of proved reserves and their own internal criteria. Any redetermination by the lender to change the borrowing base will result in a similar change in the availability under the Credit Agreement. The Credit Agreement is secured by a first priority lien on substantially all of the Company’s oil and natural gas properties and personal property, excluding those assets of the Subsidiary Borrowers, which liens were released (as described in Note 4 – Subsidiary Borrowers).

As of December 31, 2022 and 2021, there were no borrowings outstanding or incurred under the Credit Agreement. As of December 31, 2022 and 2021, the Company had $4.4 million, outstanding in letters of credit which are cash collateralized.

9.75% Senior Second Lien Notes Due 2023

On October 18, 2018, the Company issued $625.0 million of 9.75% Senior Second Lien Notes due 2023 (the “9.75% Senior Second Lien Notes”), which were issued at par with an interest rate of 9.75% per annum that matures on November 1, 2023, and are governed under the terms of the Indenture of the 9.75% Senior Second Lien Notes entered into by and among the Company, the Guarantors, and Wilmington Trust, National Association, as trustee. The estimated annual effective interest rate on the 9.75% Senior Second Lien Notes was 10.3%, which includes debt issuance costs. Interest on the 9.75% Senior Second Lien Notes is payable in arrears on May 1 and November 1 of each year.

During the year ended December 31, 2020, the Company acquired $72.5 million in principal of the outstanding 9.75% Senior Second Lien Notes for $23.9 million and recorded a non-cash gain on purchase of debt of $47.5 million, which included a reduction of $1.1 million related to the write-off of unamortized debt issuance costs.

Subsequent to December 31, 2022, the Company redeemed all of the outstanding 9.75% Senior Second Lien Notes using cash on hand and the net proceeds from the offering of the 11.75% Senior Second Lien Notes. See Note 20 – Subsequent Events for additional information.

Covenants

As of December 31, 2022 and for all presented measurement periods, the Company was in compliance with all applicable covenants of the Credit Agreement and 9.75% Senior Second Lien Notes.