Quarterly report pursuant to Section 13 or 15(d)

BORROWINGS

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BORROWINGS
 3 Months Ended
Mar. 31, 2024
Debt Disclosure [Abstract]  
BORROWINGS
NOTE 8 — BORROWINGS
The Company’s borrowings consist of the following (in thousands):
March 31, 2024
Principal repayment obligation Unamortized DFC Carrying value
Senior Secured Convertible Notes due 2025, current $ 25,000  $ —  $ 25,000 
Senior Secured Convertible Notes due 2025 58,334  (8,912) 49,422 
Senior Secured Notes due 2025 223,910  (12,639) 211,271 
Senior Unsecured Notes due 2028 57,678  (2,150) 55,528 
Total borrowings $ 364,922  $ (23,701) $ 341,221 
December 31, 2023
Principal repayment obligation Unamortized DFC Carrying value
Senior Secured Convertible Notes due 2025 $ 83,334  $ (10,415) $ 72,919 
Senior Secured Notes due 2025 250,000  (16,954) 233,046 
Senior Unsecured Notes due 2028 57,678  (2,241) 55,437 
Total borrowings $ 391,012  $ (29,610) $ 361,402 
Amortization of the borrowings’ DFC is a component of Interest expense, net in the Company’s Condensed Consolidated Statements of Operations. We amortized approximately $3.3 million and $0.9 million during the three months ended March 31, 2024 and 2023, respectively.
Senior Secured Convertible Notes due 2025
On August 15, 2023, we issued and sold in a private placement approximately $83.3 million aggregate principal amount of 6% Secured Convertible Notes due October 1, 2025 (the “Secured Convertible Notes” or “Convertible Notes”). The Secured Convertible Notes have quarterly interest payments due in cash on the first day of January, April, July, and October of each year.
The holders of the Convertible Notes now have the right to convert the notes into shares of our common stock at an initial conversion price of approximately $1.05 per share of common stock (the “Conversion Price”), subject to adjustment in certain circumstances, at any time until the second trading day immediately prior to the maturity date, with the number of shares of common stock of the Company issuable upon conversion limited to approximately 42.7 million shares (the “Conversion Feature”). The Company will force the holders of the Secured Convertible Notes to convert all of the notes if the trading price of our common stock closes above 300% of the Conversion Price for 20 consecutive trading days and certain other equity conditions are satisfied. Holders of the Secured Convertible Notes may force the Company to redeem the applicable Notes for cash upon (i) a fundamental change or (ii) an event of default.
Following a full exercise of the Conversion Feature, the balance of the principal amount of the Convertible Notes will remain outstanding as a non-convertible instrument. The Convertible Notes, including the non-convertible component of those notes, are required to be paid monthly over a period of 10 months beginning on January 1, 2025. The current portion of the Convertible Notes that is contractually scheduled to amortize within one year is classified as a current borrowing in our Condensed Consolidated Balance Sheets.
As of March 31, 2024, the estimated fair value of the Secured Convertible Notes was approximately $78.6 million. The Level 3 fair value was estimated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and inputs that are not observable in the market. As of March 31, 2024, we remained in compliance with all covenants under the Secured Convertible Notes.
Senior Secured Notes due 2025
On August 15, 2023, we issued and sold in a private placement $250.0 million aggregate principal amount of 10% Senior Secured Notes due October 1, 2025 (the “Senior Notes”). The Senior Notes have quarterly interest payments in cash due on the first day of January, April, July, and October of each year. Holders of the Senior Notes may force the Company to redeem such notes for cash upon (i) a fundamental change or (ii) an event of default. The Company may provide written notice to each holder of the Senior Notes calling all of such holder’s Senior Notes for redemption for a cash purchase price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest.
As of March 31, 2024, the estimated fair value of the Senior Notes was approximately $194.4 million. The Level 3 fair value was estimated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and inputs that are not observable in the market. As of March 31, 2024, we remained in compliance with all covenants under the Senior Notes.
January 2024 Amendments
On January 2, 2024, we amended the supplemental indentures governing the Senior Notes and Senior Convertible Notes (collectively the “Replacement Notes”) and issued approximately 47.8 million shares of common stock to partially repay approximately $37.9 million of Senior Notes principal plus accrued interest of approximately $7.5 million. We also agreed to make a conditional top-up payment based on the trading price of our common stock over a specified period (the “Top-up Payment”). The minimum cash balance was reduced from $50.0 million to $40.0 million for the limited period set forth in the related indentures and the liquidity threshold was also reduced. As a result of the partial redemption, we recognized a $4.6 million Loss on extinguishment of debt, net, in our Condensed Consolidated Statements of Operations.
February 2024 Amendments
On February 22, 2024, we executed an additional amendment (the “February Amendment”) to the Replacement Notes. At closing, we paid $4.0 million of the Top-up Payment in cash, with the remaining balance of approximately $11.8 million added to the aggregate Senior Notes principal amount in March 2024. The quarterly cash interest and cash shortfall payments due related to the first quarter of 2024 were added to the aggregate principal amount of the applicable notes in April 2024.
The Company is required to use its reasonable best efforts to consummate the sale of our upstream assets, and to use the proceeds from such sale to repay amounts due under the Senior Notes.
The minimum cash balance was reduced from $40.0 million to as low as $25.0 million before being reinstated to $40.0 million on July 1, 2024 and continuing thereafter as set forth in the supplemental indentures. Commencing on the earlier of the sale of our upstream assets and the full repayment of the Senior Notes, the minimum cash balance will be reduced to $35.0 million and will be required to be held in a restricted account, with such required amount reducing to $25.0 million when the outstanding principal amount of the Convertible Notes is less than $50.0 million.
Absent the full repayment of the Senior Notes, on or after October 1, 2024, the holders of the Senior Notes may redeem up to the entire principal amount of the Senior Notes for a cash purchase price equal to the principal amount of the Senior Notes being redeemed, plus accrued and unpaid interest, if the Company’s liquidity falls below $240.0 million.
The right of the holder of the Convertible Notes to cause the Company to redeem those notes on or after October 1, 2024 as a result of a failure to satisfy a liquidity threshold has been eliminated.
Tellurian Investments LLC, a wholly owned subsidiary of the Company, provided a non-recourse pledge of its equity interest in the principal properties of the Company comprising the Driftwood Project and a certain intercompany note to secure the obligations under the indentures governing the Replacement Notes. Upon repayment in full of the Senior Notes, all collateral securing the Convertible Notes will be released. Our borrowing obligations under the Replacement Notes are also collateralized by a first priority lien on the Company’s equity interests in Tellurian Production Holdings LLC and mortgages of the material real property oil and gas assets of Tellurian Production Holdings LLC and its subsidiaries (together, the “Collateral”). Tellurian Production Holdings LLC owns all of the Company’s upstream natural gas assets described in Note 3, Property, Plant and Equipment. The Collateral will be removed as a secured obligation under the Secured Convertible Notes if the Senior Notes are no longer outstanding.
Senior Secured Convertible Notes due 2025 (Extinguished)
On June 3, 2022, we issued and sold $500.0 million aggregate principal amount of 6.00% Senior Secured Convertible Notes due May 1, 2025 (the “Extinguished Convertible Notes”). Net proceeds from the Extinguished Convertible Notes were approximately $488.7 million after deducting fees and expenses.
On March 28, 2023, the Company paid approximately $169.1 million in order to satisfy the redemption and retirement of $166.7 million principal amount of the Extinguished Convertible Notes, plus accrued interest. As a result, we wrote off approximately $2.8 million of prorated unamortized DFC, which was recognized within Loss on extinguishment of debt, net, in our Condensed Consolidated Statements of Operations. The issuance of the Replacement Notes resulted in the satisfaction and discharge of the Company’s outstanding principal repayment obligation under the Extinguished Convertible Notes.
Replacement Notes Embedded Derivatives
As part of the issuance of the Replacement Notes, the Company agreed to issue an aggregate total of 25.7 million shares of its common stock (the “Share Coupon”) to the holders of the Replacement Notes. The Share Coupon was fully satisfied as part of the February Amendment. To the extent that the average daily volume-weighted average price of the common stock of the Company during each quarter is less than $1.35, the Company will pay a cash amount equal to that difference multiplied by the number of shares previously issuable for that quarter (the “Cash Shortfall Payments”). Upon any retirement, redemption, or conversion of the Replacement Notes, the Company will issue any and all unpaid Cash Shortfall Payments (the “Make Whole”).
The Company evaluated the potential embedded features within the Replacement Notes host contracts and determined that the Conversion Feature, Cash Shortfall Payments and the Make Whole embedded features continued to require bifurcation as a single unit of account from the Replacement Notes and accounted for them separately at fair value. See Note 5, Financial Instruments, for more information on the fair value measurement of the Replacement Notes embedded derivatives.
Senior Unsecured Notes due 2028
On November 10, 2021, we sold in a registered public offering $50.0 million aggregate principal amount of 8.25% Senior Unsecured Notes due November 30, 2028 (the “Senior Unsecured Notes”). Net proceeds from the Senior Unsecured Notes were approximately $47.5 million after deducting fees. The underwriter was granted an option to purchase up to an additional $7.5 million of the Senior Unsecured Notes within 30 days. On December 7, 2021, the underwriter exercised the option and purchased an additional $6.5 million of the Senior Unsecured Notes, resulting in net proceeds of approximately $6.2 million after deducting fees. The Senior Unsecured Notes have quarterly interest payments due on January 31, April 30, July 31, and October 31 of each year and on the maturity date. As of March 31, 2024, the Company was in compliance with all covenants under the indenture governing the Senior Unsecured Notes. The Senior Unsecured Notes are listed and trade on the NYSE American under the symbol “TELZ,” and are classified as Level 1 within the fair value hierarchy. As of March 31, 2024, the closing market price was $12.94 per Senior Unsecured Note.