Long-Term Debt

9 Months Ended

Sep. 30, 2019

Note 7 – Long-Term Debt

Long-term debt consists of the following:



	September 30, 2019			December 31, 2018
	(in thousands)
Credit Facility	$	732,639		$	514,639

Term Loan	$	50,000		$	—
Unamortized original issue discount on Term Loan	(1,022		)	—
Repayment premium on Term Loan	97			—
Deferred financing costs on Term Loan	(3,480		)	—
Term Loan, net	$	45,595		$	—

Credit Facility

In September 2017, the Company entered into a $750.0 million credit agreement with a maturity date of September 5, 2022 (as amended, the “Credit Facility”). Redetermination of the borrowing base of the Credit Facility generally occurs semiannually on or about October 1 and April 1. In October 2019, the Company entered into an amendment to its Credit Facility to postpone the October 2019 redetermination to January 2020 as well as to limit the Company’s borrowings under the Credit Facility to the lesser of (i) $732.6 million, (ii) the borrowing base, (iii) the maximum aggregate amount (as defined in the credit agreement), or (iv) the total commitments (as defined in the agreement) until the January 2020 redetermination is effective.

As of September 30, 2019, the Company had $732.6 million of outstanding borrowings and no letters of credit outstanding under the Credit Facility. The Credit Facility is secured by substantially all of the assets of Roan LLC. As discussed below, the Company entered into a Term Loan in June 2019 and used a majority of the proceeds from the initial borrowing to pay down $45.0 million of outstanding borrowings under the Credit Facility.

The Company amended the Credit Facility in March 2019 to increase the borrowing base as well as to allow for (i) secured permitted additional debt of up to $250 million before any reduction in the borrowing base would occur and (ii) unsecured permitted additional debt of up to $400 million before any reduction in the borrowing base would occur.

Effective June 2019, the Credit Facility was amended to (i) reaffirm the borrowing base at $750.0 million, (ii) temporarily reduce the current ratio to 0.85 to 1.00 at June 30, 2019 and to 0.80 to 1.00 at September 30, 2019, (iii) increase the rates in the utilization grid for London Interbank Offered Rate (“LIBOR”) and alternate base rate (“ABR”) loans by 0.25% until the Company delivers a compliance certificate demonstrating a current ratio of not less than 1.00 to 1.00, (iv) increase the mortgage coverage requirements from 85% to 95%; and (v) restrict certain payments between Roan Inc. and Roan LLC in the event that Roan LLC transfers any of its oil and natural gas properties to Roan Inc.

Amounts borrowed under the Credit Facility bear interest at LIBOR or the ABR at the Company’s election. The rate used for ABR loans is based on the higher of the prime rate, the federal funds effective rate plus 0.50% or the one-month LIBOR rate plus 1%. Either rate is adjusted upward by an applicable margin, based on the utilization percentage of the Credit Facility. Additionally, the Credit Facility provides for a commitment fee, which is payable at the end of each calendar quarter. The pricing grid below shows the applicable margin for LIBOR or ABR loans as well as the commitment fee depending on the Utilization Level (as defined in the credit agreement) for the Company during the nine months ended September 30, 2019.



Utilization Level	Utilization	LIBOR Margin	ABR Margin	Commitment Fee
Level I	<25%	2.00%	1.00%	0.375%
Level II	>25% but <50%	2.25%	1.25%	0.375%
Level III	>50% but <75%	2.50%	1.50%	0.500%
Level IV	>75% but <90%	2.75%	1.75%	0.500%
Level V	>90%	3.00%	2.00%	0.500%

Due to the Company’s current ratio at September 30, 2019 being less than 1.00 to 1.00, the LIBOR margin and ABR margin will increase by 0.25% from the amounts noted in the table above for the fourth quarter of 2019.

The Credit Facility contains representations, warranties, covenants, conditions and defaults customary for transactions of this type, including but not limited to: (i) limitations on liens and incurrence of debt covenants; (ii) limitations on the sale of property, mergers, consolidations and other similar transactions covenants; (iii) limitations on investments, loans and advances covenants; and (iv) limitations on dividends, distributions, redemptions and restricted payments covenants. Additionally, the Company is prohibited from hedging in excess of (a) 80% of reasonably anticipated projected production for the first thirty (30) month rolling period (based upon the Company’s internal projections) and (b) 80% of reasonably anticipated projected production from proved reserves for the second thirty (30) month rolling period of such sixty (60) month period (based on the most recently delivered reserve report). If the amount of borrowings outstanding exceed 50% of the borrowing base, the Company is required to hedge a minimum of 50% of the future production expected to be derived from proved developed reserves for the next eight quarters per its most recent reserve report.

The Credit Facility also contains financial covenants requiring the Company to comply with a leverage ratio of the Company’s consolidated debt to consolidated EBITDAX (as defined in the credit agreement) for the period of four fiscal quarters then ended of not more than 4.00 to 1.00 and a current ratio of the Company’s consolidated current assets to consolidated current liabilities (as defined in the credit agreement to exclude non-cash assets and liabilities under ASC Topic 815 Derivatives and Hedging and ASC Topic 410 Asset Retirement and Environmental Obligations) of not less than 0.80 to 1.00 for the quarter ended September 30, 2019 and not less than 1.00 to 1.00 for all quarters thereafter.

As of September 30, 2019, the Company was in compliance with the covenants under the Credit Facility and expects to remain in compliance for the next twelve months based on the current borrowing base. If the Company is not able to maintain compliance with the covenants under the Credit Facility in the future, it would be in default under the Credit Facility. A default, if not waived, could result in acceleration of the indebtedness outstanding under the Credit Facility and a default with respect to, and an acceleration of, the indebtedness outstanding under any other debt agreements, including the Term Loan.

Term Loan

In June 2019, Roan Inc. entered into a term loan facility (“Term Loan”) with initial commitments of $100.0 million and a potential incremental commitment of $50.0 million at the Company’s election. The lenders in the facility are funds affiliated with certain significant stockholders of Roan Inc. that are represented on the board of directors. The Term Loan matures in October 2020 and is secured by all of the assets of Roan Inc.

Borrowings under the Term Loan bear interest at the three-month LIBOR rate plus 7.5% or ABR rate plus 6.5%, as elected by the Company. The ABR rate is the highest of the prime rate, the federal funds effective rate plus 0.50% and the one-month LIBOR rate plus 1%. The Company can elect, subject to certain conditions included in the Term Loan agreement, to pay the interest on the Term Loan in kind. Interest is payable semi-annually for LIBOR loans and quarterly for ABR loans. The borrowings under the Term Loan are issued at a discount of 2.5%. Additionally, in conjunction with the initial Term Loan commitment and any future incremental commitments, the Company is required to issue shares to the lenders equal to approximately 1% of the outstanding Class A common stock at the time of the commitment.

As of September 30, 2019, the Company had borrowed $50.0 million and received proceeds of $47.8 million, which were net of the issuance discount and certain issuance fees. These proceeds were primarily used to pay down amounts outstanding under the Credit Facility. As of September 30, 2019, the outstanding borrowings under the Term Loan have an interest rate of 9.60%. The Company issued 1,525,395 shares of Class A common stock in June 2019 to the lenders of the Term Loan and received cash equal to the par value of the shares issued in return. The difference between the fair market value of the shares issued and the amount paid for such shares was considered a fee paid to the lenders and was included as deferred financing costs that will be amortized over the term of the Term Loan. The initial discount and all related financing costs are being amortized over the term of the Term Loan using the effective interest method.

Under the Term Loan, any repayment of outstanding borrowings incurs a premium equal to 1% plus any interest that would have accrued on the repaid amount if it had been outstanding for a year; provided, that such additional interest is only due in the event of prepayment before the maturity date. This premium associated with the initial borrowing, or $0.5 million, is being amortized over the term of the Term Loan.

In September 2019, the Company amended the Term Loan to permit the transfer of specified wellbore rights from Roan Inc. to Roan LLC. Additionally, the Company amended the Term Loan to specify that while the Merger Agreement, as defined in Note 15 – Subsequent Events, is effective no repayment premium would be due on any loans made after the amendment date and to specify that payment of interest in kind would not qualify as an additional loan under the Term Loan.

The Term Loan contains customary negative covenants including, but not limited to, restrictions on the Company’s ability to incur additional indebtedness or create certain liens on assets, restrictions on selling of assets and restrictions on investments, dividends and other specified transactions. These covenants are subject to a number of important exceptions and qualifications. The Term Loan also contains certain affirmative covenants which, among other things, require the Company to maintain $10.0 million of liquidity, defined in the agreement as unrestricted cash plus the available borrowings under the Credit Facility and require periodic financial and reserve reporting. In addition, the Term Loan agreement contains financial covenants consistent with those required by the Credit Facility.

As of September 30, 2019, the Company was in compliance with the covenants under the Term Loan and expects to remain in compliance for the next twelve months. If the Company is not able to maintain compliance with the covenants under the Term Loan in the future, it would be in default under the Term Loan. A default, if not waived, could result in acceleration of the indebtedness outstanding under the Term Loan and a default with respect to, and an acceleration of, the indebtedness outstanding under any other debt agreements, including the Credit Facility.

ROAN RESOURCES, INC. 10-Q