|12 Months Ended|
Dec. 31, 2019
|Debt Disclosure [Abstract]|
NOTE 10 — BORROWINGS
(1) Subject to two six-month extensions if specific criteria are met.
(2) Of this amount, we may defer up to 4% each quarter as paid-in-kind interest.
(3) The applicable margin is 5% through the end of the first year from September 28, 2018 (the “Closing Date”), 7% through the end of the second year following the Closing Date and 8% thereafter.
As of December 31, 2019, the Company is in compliance with all covenants under its two credit agreements.
Short-term Borrowings — 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 by August 31, 2019, subject to certain criteria. On July 16, 2019, after all criteria were met, Driftwood Holdings borrowed the additional funds.
Borrowings under the 2019 Term Loan bear a fixed annual interest rate of 12%, of which 4% may be added by Driftwood Holdings to the outstanding principal as paid-in-kind interest at the end of each reporting period. This election was made in all of the 2019 reporting periods, which resulted in adding approximately $1.8 million to the outstanding principal of the 2019 Term Loan. The 2019 Term Loan can be terminated prior to maturity, only in full, without an early termination penalty. Pursuant to the
terms of the 2019 Term Loan, we are required to maintain an aggregate $30.0 million balance at each month end in accounts constituting collateral.
Upon maturity or early repayment of the 2019 Term Loan, Driftwood Holdings will also pay a final fee equal to 20% of the principal amount borrowed less financing costs and cash interest paid (the “Final Payment Fee”) to the lender. As of December 31, 2019, approximately $12.6 million related to the Final Payment Fee has been recognized as a discount to the 2019 Term Loan within our Consolidated Balance Sheets.
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 2019 Term Loan, the Company issued a Common Stock Purchase Warrant (the “Warrant”) to the lender. The fair value of the Warrant of approximately $3.3 million has been recognized as an original issue discount to the 2019 Term Loan. Refer to Note 12, Stockholders’ Equity, for further details.
Long-term Borrowings — 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. As of December 31, 2019, the unused proceeds from the 2018 Term Loan were $3.9 million and are presented within Non-current restricted cash on our Consolidated Balance Sheet.
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 $5.0 million or any integral multiples of $1.0 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.
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 domestic properties described in Note 5, Property, Plant and Equipment.
A summary of borrowings maturities as of December 31, 2019, is as follows (in thousands):
As of December 31, 2019 and 2018, the outstanding principal of the 2018 Term Loan approximated fair value as the interest rate for the 2018 Term Loan was reflective of market rates. As of December 31, 2019, the fair value of the 2019 Term Loan, on a discounted cash flow basis, was approximately $83.0 million as the 2019 Term Loan effective interest rate was higher than current market levels after giving effect to the Final Payment Fee. Both the 2018 Term Loan and the 2019 Term Loan represent Level 3 instruments in the fair value hierarchy.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef