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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BORROWINGS |
NOTE 9 — BORROWINGS
The following tables summarize the Company’s borrowings as of December 31, 2020, and December 31, 2019 (in thousands):
2020 Senior Unsecured Note
On April 29, 2020, we issued a zero coupon $56.0 million face amount senior unsecured note (the “2020 Unsecured Note”) to an unrelated third party. Net proceeds raised from the 2020 Unsecured Note were approximately $47.4 million, after deducting approximately $2.6 million in fees and $6.0 million in original issue discount. The 2020 Unsecured Note is required to be repaid in installments on the first day of every month, and these repayments began on June 1, 2020. As of December 31, 2020, we repaid $40.0 million of the 2020 Unsecured Note. The remaining repayments are scheduled as follows (in thousands):
The 2020 Unsecured Note contains certain cash sweep provisions requiring that a portion of the proceeds from certain of our equity offerings and convertible securities offerings be used to repay the outstanding principal balance through additional amortization payments. Due to the amount of proceeds generated from the sale of our common stock under our at-the-market program in June 2020, as well as the equity offering completed on July 24, 2020, these cash sweep provisions were triggered on July 1, 2020 and August 3, 2020, requiring us to make the maximum amount of additional amortization payments for a total of $8.0 million in additional repayments of the outstanding principal balance. As a result of these additional repayments, the final payment associated with the 2020 Unsecured Note is scheduled to occur on April 1, 2021 instead of June 1, 2021 as originally scheduled. For more information about the transactions that triggered the cash sweep provisions, see Note 11, Stockholders’ Equity.
In conjunction with the 2020 Unsecured Note, we issued to the lender a warrant to purchase 20.0 million shares of our common stock (the “Unsecured Warrant”). The fair value of the Unsecured Warrant of approximately $16.1 million has been recognized as an original issue discount to the 2020 Unsecured Note. For more information about the Unsecured Warrant, see Note 11, Stockholders’ Equity.
The lender may require us to repurchase the 2020 Unsecured Note upon a Fundamental Change (as defined in the 2020 Unsecured Note) or an event of default at 105% and 115%, respectively, of the remaining outstanding principal balance. If an event of default occurs which cannot be cured within certain time periods, we have the right to pay in cash. However, to the extent that we do not pay in cash, the lender will have the right to convert the outstanding face amount into shares of our
common stock based on a formula defined in the 2020 Unsecured Note. We may prepay the 2020 Unsecured Note in whole or in part from time to time without premium or penalty.
2019 Term Loan
On May 23, 2019, Driftwood Holdings LP (“Driftwood Holdings”), a wholly owned subsidiary of the Company, entered into a senior secured term loan agreement (the “2019 Term Loan”) to borrow an aggregate principal amount of $60.0 million. On July 16, 2019, the principal amount was increased by an additional $15.0 million after certain criteria stipulated in the 2019 Term Loan agreement were met. Borrowings under the 2019 Term Loan bore a fixed annual interest rate of 12%, of which 4% could be added 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 to the lender a fee equal to 20% of the principal amount borrowed less financing costs and cash interest paid (the “Final Payment Fee”). We issued to the lender a warrant to purchase approximately 1.5 million shares of our common stock at $10.00 per share (the “Original Warrant”). Fees associated with entering into the 2019 Term Loan of approximately $2.2 million have been capitalized as deferred financing costs.
On February 28, 2020, Driftwood Holdings entered into an amendment (the “First Amendment”) to the 2019 Term Loan which allowed us to enter into a land lease for the Driftwood Project. There was no financial statement impact as a result of the First Amendment.
On March 23, 2020, Driftwood Holdings entered into a second amendment (the “Second Amendment”) to the 2019 Term Loan. The Second Amendment, among other things, modified the 2019 Term Loan as follows:
•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% per annum, with the ability to defer 4% per annum as paid-in-kind, to 16% per annum, with the ability to defer 8% per annum 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.
Upon entering into the Second Amendment, we repaid a portion of the outstanding principal and issued approximately 11.0 million shares of our common stock in exchange for cancellation of the Final Payment Fee and all accrued paid-in-kind interest through March 22, 2020 of approximately $11.0 million. Further, as part of the Second Amendment, the Original Warrant was replaced with a new warrant (the “Replacement Warrant”).
On April 28, 2020, Driftwood Holdings entered into a third amendment (the “Third Amendment”) to the 2019 Term Loan, in order to seek the lender’s consent with specific operational needs. As part of the Third Amendment, we issued to the lender a common stock purchase warrant (the “Third Amendment Warrant”). On September 21, 2020, Driftwood Holdings entered into a fourth amendment (the “Fourth Amendment”), which extended the maturity date of the 2019 Term Loan from November 23, 2021 to March 23, 2022.
In connection with the Second Amendment, Third Amendment and Fourth Amendment (collectively, the “Amendments”), we issued to the lender a total of approximately 9.3 million shares of our common stock to retire approximately $15.0 million of principal amount of the 2019 Term Loan and repaid in cash approximately $19.1 million of principal amount of the 2019 Term Loan.
The result of the Replacement and Third Amendment Warrants was an increase of approximately $6.0 million in the debt issuance discount associated with the 2019 Term Loan. Refer to Note 11, Stockholders’ Equity, for further details.
The Amendments were accounted for as debt modifications with no gain or loss recognized, and differences in fair value for amounts settled or paid were capitalized as part of the 2019 Term Loan debt issuance discount.
On December 2, 2020, we repaid $1.0 million of the outstanding principal due to the lender exercising a portion of the Replacement Warrant. See Note 11, Stockholders’ Equity, for further information.
We may prepay the 2019 Term Loan in whole or in part from time to time without premium or 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 (“Production Holdings”) and its subsidiaries, under one or more security agreements and pledge agreements.
2018 Term Loan
On September 28, 2018 (the “Closing Date”), Production Holdings 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. At December 31, 2020, unused proceeds from the 2018 Term Loan totaled $3.4 million and were classified as Non-current restricted cash on our Consolidated Balance Sheets.
We have the right, but not the obligation, to make voluntary principal repayments 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 repayments 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 December 31, 2020, the Company was 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 December 31, 2020, entered into as required by the 2018 Term Loan described above.
Fair Value
As of December 31, 2020, the fair value of the 2020 Unsecured Note, on a discounted cash flow basis, was approximately $15.8 million as the 2020 Unsecured Note effective interest rate was higher than current market levels. As of December 31, 2020, the fair value of the 2019 Term Loan, on a discounted cash flow basis, was approximately $47.6 million as the 2019 Term Loan effective interest rate was higher than current market levels. As of December 31, 2020, the fair value of the 2018 Term Loan, on a discounted cash flow basis, was approximately $60.6 million as the 2018 Term Loan effective interest rate was higher than current market levels. The 2020 Unsecured Note, 2019 Term Loan and 2018 Term Loan represent Level 3 instruments in the fair value hierarchy.
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