Quarterly report pursuant to Section 13 or 15(d)

Borrowings

v3.20.1
Borrowings
 3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Borrowings
NOTE 8 — BORROWINGS
The following tables summarize the Company’s borrowings as of March 31, 2020, and December 31, 2019 (in thousands):
 
 
 
March 31, 2020
 
 
 
Principal repayment obligation (1)
 
Unamortized DFC and discounts
 
Carrying value
Amended 2019 Term Loan, due November 2021
 
$
73,130

 
$
(2,931
)
 
$
70,199

2018 Term Loan, due September 2021
 
60,000

 
(1,610
)
 
58,390

Total borrowings
 
$
133,130

 
$
(4,541
)
 
$
128,589

 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
Principal repayment obligation and
other fees (2)
 
Unamortized DFC and discounts
 
Carrying value
2019 Term Loan, due May 2020
 
$
84,955

 
$
(6,427
)
 
$
78,528

2018 Term Loan, due September 2021
 
60,000

 
(1,879
)
 
58,121

Total borrowings
 
$
144,955

 
$
(8,306
)
 
$
136,649

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Includes paid-in-kind interest on the 2019 Term loan of $0.1 million
(2) Includes paid-in-kind interest on the 2019 Term loan of $1.8 million as well as a final payment fee equal to 20% of the principal amount less financing costs and cash interest amounts paid.
2019 Term Loan
On May 23, 2019, Driftwood Holdings LP , a wholly owned subsidiary of the Company (“Driftwood Holdings”), entered into a senior secured term loan agreement (the “2019 Term Loan”) to borrow an aggregate principal amount of $60.0 million. Fees
associated with entering into the 2019 Term Loan of approximately $2.2 million have been capitalized as deferred financing costs. The 2019 Term Loan agreement provided Driftwood Holdings the right to borrow an additional $15.0 million, which it did on July 16, 2019. The 2019 Term Loan bore a fixed annual interest rate of 12%, of which 4% Driftwood Holdings could add to the outstanding principal as paid-in-kind interest at the end of each reporting period. In addition to the fixed annual interest rate, upon maturity or early repayment of the 2019 Term Loan, Driftwood Holdings was also obligated to pay a final fee that equal to 20% of the principal amount borrowed less financing costs and cash interest paid (the “Final Payment Fee”) to the lender.    
On March 23, 2020, Driftwood Holdings entered into the second amendment (the “Amended 2019 Term Loan”) to the 2019 Term Loan. The outstanding principal amount as of the Amendment date was $75.0 million. The Amendment, among other things, made the following changes to the Credit Agreement:
•
Extended the maturity date from May 23, 2020 to November 23, 2021;
•
Modified the frequency of interest payments from quarterly to monthly;
•
Modified the interest rate from 12%, with the ability to defer 4% per quarter as paid-in-kind, to 16%, with the ability to defer 8% per month as paid-in-kind;
•
Required a principal payment of $3.0 million by April 22, 2020; and
•
Reduced the required month-end collateral amount from $30.0 million to $12.0 million.
In consideration for the above changes, on the Amendment date we paid $2.0 million in principal and issued 11,019,298 shares of common stock in exchange for cancellation of the Final Payment Fee (as defined in the Credit Agreement) and all accrued paid-in-kind interest through March 22, 2020.
The Amended 2019 Term Loan was accounted for as a debt modification with no gain or loss recognized and any differences in fair value for amounts settled or paid being capitalized as part of the 2019 Term Loan debt issuance discount. The Amended 2019 Term Loan resulted in a $0.9 million increase in our issuance discount associated with the 2019 Term Loan.
The Amended 2019 Term Loan can be terminated prior to maturity, only in full, without an early termination penalty. Borrowings under the 2019 Term Loan are guaranteed by Tellurian Inc. and certain of its subsidiaries and are secured by substantially all of the assets of Tellurian Inc. and certain of its subsidiaries, other than Tellurian Production Holdings LLC and its subsidiaries, under one or more security agreements and pledge agreements.
In conjunction with the Amended 2019 Term Loan, the Common Stock Purchase Warrant (the “Warrant”) previously issued as part of the 2019 Term Loan was replaced with a new warrant (the “Replacement Warrant”). Refer to Note 10, Stockholders’ Equity, for further details. The difference in fair value between the Warrant and the Replacement Warrant was a $0.3 million increase and has been recognized as a debt issuance discount to the Amended 2019 Term Loan.
For further information regarding the Amended 2019 Term Loan, see Note 15, Subsequent Events.
2018 Term Loan
On September 28, 2018 (the “Closing Date”), Tellurian Production Holdings LLC (“Production Holdings”), our wholly owned subsidiary, entered into a three-year senior secured term loan credit agreement (the “2018 Term Loan”) in an aggregate principal amount of $60.0 million.
Our use of proceeds from the 2018 Term Loan is predominantly restricted to capital expenditures associated with certain development and drilling activities and fees related to the transaction itself and is presented within Non-current restricted cash on our Condensed Consolidated Balance Sheets. At March 31, 2020, unused proceeds from the 2018 Term Loan totaled $3.6 million and were classified as Non-current restricted cash.
We have the right, but not the obligation, to make voluntary principal payments starting six months following the Closing Date in a minimum amount of $5 million or any integral multiples of $1 million in excess thereof. If no voluntary principal payments are made, the principal amount, together with any accrued interest, is payable at the maturity date of September 28, 2021. The 2018 Term Loan can be terminated without penalty, with an early termination payment equal to the outstanding principal plus accrued interest.
Amounts borrowed under the 2018 Term Loan are guaranteed by Tellurian Inc. and each of Production Holdings’ subsidiaries. The 2018 Term Loan is collateralized by a first priority lien on all assets of Production Holdings and its subsidiaries, including our proved natural gas properties.
Covenant Compliance
As of March 31, 2020, the Company is in compliance with all covenants under its credit agreements. Refer to Note 6, Financial Instruments, for details of hedging transactions, as of and for the period ended March 31, 2020, entered into as required by the 2018 Term Loan described above.
Fair Value
As of March 31, 2020, the fair value of the 2018 Term Loan, on a discounted cash flow basis, was approximately $51.6 million as the 2018 Term Loan effective interest rate was higher than current market levels. As of March 31, 2020, the fair value of the Amended 2019 Term Loan, on a discounted cash flow basis, was approximately $56.3 million as the Amended 2019 Term Loan effective interest rate was higher than current market levels. Both the 2018 Term Loan and the Amended 2019 Term Loan represent Level 3 instruments in the fair value hierarchy.