Annual report pursuant to Section 13 and 15(d)

Borrowings

v3.22.4
Borrowings
 12 Months Ended
Dec. 31, 2022
Debt Disclosure [Abstract]  
Borrowings Borrowings
The Company’s borrowings consisted of the following:
As of December 31,
2022 2021
(In thousands)
6.125% Senior Notes due 2024
 —  460,241 
9.0% Second Lien Senior Secured Notes due 2025
 —  319,659 
8.25% Senior Notes due 2025
 187,238  187,238 
6.375% Senior Notes due 2026
 320,783  320,783 
Senior Secured Revolving Credit Facility due 2027 503,000  785,000 
8.0% Senior Notes due 2028
 650,000  650,000 
7.5% Senior Notes due 2030
 600,000  — 
Total principal outstanding 2,261,021  2,722,921 
Unamortized premium on 6.125% Senior Notes
 —  2,373 
Unamortized discount on 9.0% Second Lien Notes
 —  (14,852)
Unamortized premium on 8.25% Senior Notes
 1,715  2,477 
Unamortized deferred financing costs for 9.0% Second Lien Notes
 —  (2,910)
Unamortized deferred financing costs for Senior Unsecured Notes (21,441) (15,894)
Total carrying value of borrowings (1)
$2,241,295  $2,694,115 
(1)    Excludes unamortized deferred financing costs related to the Company’s senior secured revolving credit facility of $18.8 million and $18.1 million as of December 31, 2022 and 2021, respectively, which are classified in “Deferred financing costs” in the consolidated balance sheets.
Senior Secured Revolving Credit Facility
On December 20, 2019, upon consummation of the acquisition of Carrizo Oil & Gas, Inc. (the “Merger” or the “Carrizo Acquisition”), the Company entered into the credit agreement with a syndicate of lenders (the “Prior Credit Facility”). The Prior Credit Facility provided for interest-only payments until December 20, 2024, when the Prior Credit Facility would mature and any outstanding borrowings would become due. The maximum credit amount under the Prior Credit Facility was $5.0 billion.
On May 2, 2022, as part of the Company’s spring 2022 redetermination, the borrowing base and elected commitment amount of $1.6 billion was reaffirmed for the Prior Credit Facility.
On October 19, 2022, the Company entered into the Amended & Restated Credit Agreement (the “Credit Agreement” and the senior secured revolving credit facility thereunder, the “Credit Facility”) on substantially similar terms as those in the credit agreement governing the Prior Credit Facility. The Credit Agreement, among other things, extended the term to provide for interest-only payments until October 19, 2027 when the Credit Agreement matures and any outstanding borrowings are due, established a borrowing base of $2.0 billion, with an elected commitment amount of $1.5 billion, replaced all provisions and related definitions regarding LIBOR with SOFR, and decreased the maximum leverage ratio from 4.00 to 1.00 to 3.50 to 1.00.
As a result of entering into the Credit Facility, as defined below, the Company recognized a loss on extinguishment of debt of $3.2 million, which was comprised solely of the write-off of certain of the unamortized deferred financing costs associated with the Prior Credit Facility.
As of December 31, 2022, the borrowing base under the Credit Facility was $2.0 billion, with an elected commitment amount of $1.5 billion, and borrowings outstanding of $503.0 million at a weighted-average interest rate of 6.56%, and letters of credit outstanding of $16.4 million.
Borrowings outstanding under the Credit Agreement bear interest at the Company’s option at either (i) a base rate for a base rate loan plus a margin between 0.75% to 1.75%, where the base rate is defined as the greatest of the prime rate, the federal funds rate plus 0.50%, and the SOFR plus 0.1% (“Adjusted SOFR”) for a one month period plus 1.00%, or (ii) an Adjusted SOFR plus a margin between 1.75% to 2.75%. The Company also incurs commitment fees at rates ranging between 0.375% to 0.500% on the unused portion of lender commitments, which are included in “Interest expense, net of capitalized amounts” in the consolidated statements of operations.
The borrowing base under the Credit Agreement is subject to regular redeterminations in the spring and fall of each year, as well as special redeterminations described in the Credit Agreement, which in each case may reduce the amount of the borrowing base. The Credit Facility is secured by first preferred mortgages covering the Company’s major producing properties.
Senior Unsecured Notes
7.5% Senior Notes. On June 24, 2022, the Company issued and sold $600.0 million in aggregate principal amount of 7.5% senior unsecured notes due 2030 (the “7.5% Senior Notes”) in a private placement for proceeds of approximately $588.0 million, net of initial purchasers’ discounts and commissions. The 7.5% Senior Notes mature on June 15, 2030, and interest is payable semi-annually each June 15 and December 15, commencing on December 15, 2022.
At any time prior to June 15, 2025, the Company may, from time to time, redeem up to 35% of the aggregate principal amount of the 7.5% Senior Notes in an amount of cash not greater than the net cash proceeds from certain equity offerings at the redemption price of 107.5% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, if at least 65% of the aggregate principal amount of the 7.5% Senior Notes remains outstanding after such redemption and the redemption occurs within 180 days of the closing date of such equity offering. Prior to June 15, 2025, the Company may, at its option, on any one or more occasions, redeem all or a portion of the 7.5% Senior Notes at 100.0% of the principal amount plus an applicable make-whole premium and accrued and unpaid interest. On or after June 15, 2025, the Company may redeem all or a portion of the 7.5% Senior Notes at redemption prices decreasing annually from 103.75% to 100.0% of the principal amount redeemed plus accrued and unpaid interest. Upon the occurrence of certain kinds of change of control that are accompanied by a ratings decline, each holder of the 7.5% Senior Notes may require the Company to repurchase all or a portion of such holder’s 7.5% Senior Notes for cash at a price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest.
Redemption of 6.125% Senior Notes and 9.0% Second Lien Notes. On June 24, 2022, the Company used the proceeds from the offering of the 7.5% Senior Notes, along with borrowings under its credit facility, to redeem all of its outstanding 6.125% Senior Notes and 9.0% Second Lien Notes (the “Second Lien Notes”). The Company recognized a loss on extinguishment of debt of approximately $42.4 million in its consolidated statements of operations as a result of the redemptions, which primarily related to redemption premiums and to the write-off of the remaining unamortized premium associated with the 6.125% Senior Notes, partially offset by the write-offs of the remaining unamortized discount associated with the Second Lien Notes and deferred financing costs.
8.0% Senior Notes. On July 6, 2021, the Company issued $650.0 million aggregate principal amount of 8.0% Senior Notes due 2028 (the “8.0% Senior Notes”) in a private placement for proceeds of approximately $638.1 million, net of underwriting discounts and commissions and offering costs. The 8.0% Senior Notes mature on August 1, 2028 and have interest payable semi-annually each February 1 and August 1.
At any time prior to August 1, 2024, the Company may, from time to time, redeem up to 35% of the aggregate principal amount of the 8.0% Senior Notes in an amount of cash not greater than the net cash proceeds from certain equity offerings at the redemption price of 108.0% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, if at least 65% of the aggregate principal amount of the 8.0% Senior Notes remains outstanding after such redemption and the redemption occurs within 180 days of the closing date of such equity offering. Prior to August 1, 2024, the Company may, at its option, on any one or more occasions, redeem all or a portion of the 8.0% Senior Notes at 100.0% of the principal amount plus an applicable make-whole premium and accrued and unpaid interest. On or after August 1, 2024, the Company may redeem all or a portion of the 8.0% Senior Notes at redemption prices decreasing annually from 104.0% to 100.0% of the principal amount redeemed plus accrued and unpaid interest. Upon the occurrence of certain kinds of change of control, the Company must make an offer to repurchase all or a portion of each holder’s 8.0% Senior Notes for cash at a price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest.
8.25% Senior Notes. The Company’s 8.25% Senior Notes due 2025 (the “8.25% Senior Notes”) mature on July 15, 2025 and have interest payable semi-annually each January 15 and July 15. Since July 15, 2022, the Company may redeem all or a portion of the 8.25% Senior Notes at redemption prices decreasing annually from 102.063% to 100% of the principal amount redeemed plus accrued and unpaid interest. Following a change of control, each holder of the 8.25% Senior Notes may require the Company to repurchase the 8.25% Senior Notes for cash at a price equal to 101% of the principal amount purchased, plus any accrued and unpaid interest.
6.375% Senior Notes. The Company’s 6.375% Senior Notes due 2026 (the “6.375% Senior Notes”) mature on July 1, 2026 and have interest payable semi-annually each January 1 and July 1. Since July 1, 2022, the Company may redeem all or a portion of the 6.375% Senior Notes at redemption prices decreasing annually from 102.125% to 100% of the principal amount redeemed plus accrued and unpaid interest. Following a change of control, each holder of the 6.375% Senior Notes may require the Company to repurchase all or a portion of the 6.375% Senior Notes at a price of 101% of principal of the amount repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.
Each of the Senior Unsecured Notes described above are guaranteed on a senior unsecured basis by the Company’s wholly owned subsidiary, Callon Petroleum Operating Company, and may be guaranteed by certain future subsidiaries. The subsidiary guarantor is 100% owned, all of the guarantees are full and unconditional and joint and several, the parent company has no independent assets or operations and any subsidiaries of the parent company other than the subsidiary guarantor are minor.
Second Lien Notes
Exchange. On November 5, 2021, the Company closed on its transaction with Chambers Investments, LLC, a private investment vehicle managed by Kimmeridge Energy Management, LLC, to exchange $197.0 million of its outstanding Second Lien Notes for a notional amount of approximately $223.1 million of the Company’s common stock. The value of equity to be delivered was based on the optional redemption language in the indenture for the Second Lien Notes. The price of the Company’s common stock used to calculate the shares issued was based on the 10-day volume-weighted average price as of August 2, 2021 and equated to 5.5 million shares. As a result of the Second Lien Note Exchange, the Company recognized a loss on the extinguishment of debt of approximately $43.4 million in its consolidated statement of operations for the year ended December 31, 2021, calculated as the notional amount of common stock issued less aggregate principal amount of Second Lien Notes exchanged, net of a pro-rata write-off of associated unamortized discount of $16.9 million and fees incurred.
Covenants
The Company’s Credit Facility and the indentures governing the 8.25% Senior Notes, the 6.375% Senior Notes, the 8.0% Senior Notes, and the 7.5% Senior Notes (collectively, the “Senior Unsecured Notes”) limit the Company and certain of its subsidiaries with respect to the amount of additional indebtedness, liens, dividends and other payments to shareholders, repurchases or redemptions of the Company’s common stock, redemptions of senior notes, investments, acquisitions, mergers, asset dispositions, transactions with affiliates, hedging transactions and other matters, along with maintenance of certain financial ratios.
Under the Credit Agreement, the Company must maintain the following financial covenants determined as of the last day of the quarter: (1) a Leverage Ratio (as defined in the credit agreement governing the Credit Facility) of no more than 3.50 to 1.00 and (2) a Current Ratio (as defined in the credit agreement governing the Credit Facility) of not less than 1.00 to 1.00. The Company was in compliance with these covenants at December 31, 2022.
The Credit Agreement and indentures are subject to customary events of default. If an event of default occurs and is continuing, the holders or lenders may elect to accelerate amounts due (except in the case of a bankruptcy event of default, in which case such amounts will automatically become due and payable).