Callon Petroleum Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Borrowings

Borrowings

12 Months Ended

Dec. 31, 2013



	For the year ended December 31,
	2013		2012
Principal components:
Credit Facility	$	22,000	$	10,000
13% Senior Notes due 2016, principal	48,481		96,961
Total principal outstanding	$	70,481	$	106,961

Non-cash components:
13% Senior Notes due 2016 unamortized deferred credit	5,267		13,707
Total carrying value of borrowings	$	75,748	$	120,668

Senior Secured Revolving Credit Facility (the “Credit Facility”)

The Company’s $200,000 Credit Facility, for which Regions Bank serves as the Administrative Agent, matures March 15, 2016 and includes Citibank, NA, IberiaBank, Whitney Bank and OneWest Bank, FSB as participating lenders. The Company’s Credit Facility had an approved borrowing base at December 31, 2013 of $83,000. The Credit Facility was secured by mortgages covering the Company’s major producing fields. As of December 31, 2013, the balance outstanding on the Credit Facility was $22,000 with an interest rate of 2.92%, calculated as the London Interbank Offered Rate (LIBOR), plus a tiered rate ranging from 2.5% to 3.0%, which is determined by utilization of the facility. In addition, the Credit Facility carries a commitment fee of 0.5% per annum on the unused portion of the borrowing base, which is payable quarterly.

Subsequent to December 31, 2013, the Company amended its existing Credit Facility as discussed below. Additionally, the Company executed the Second Lien Facility also discussed below.

Amended Credit Facility (“the Amended Credit Facility”)

On March 11, 2014, the Company entered into the Fifth Amended and Restated Credit Agreement million with JPMorgan Chase Bank, National Association as Administrative Agent.

The Amended Credit Facility includes the following key provisions:


•	$500,000 notional amount, with an initial borrowing base of $95,000;


•	Maturity date of March 11, 2019;


•	First redetermination scheduled with an effective date of May 30, 2014, with subsequent redeterminations occurring every six months beginning on September 1, 2014;


•	Pricing grid providing from Eurodollar-based draws ranging from LIBOR plus 1.75% to 2.75% depending on utilization;


•	A quarterly commitment fee equal to 0.5% per year of the unused portion of the borrowing base; and


•	Secured by mortgages covering all major producing fields.

The Amended Credit Facility contains various affirmative and restrictive covenants.

Second Lien Term Loan Facility (the “Second Lien Facility”)

In conjunction with the Amended Credit Facility, the Company entered into the Second Lien Facility in an aggregate amount of up to $125,000 with JPMorgan Chase Bank, National Association as Administrative Agent. The Second Lien Facility is structured as a multiple advance term loan facility, with initial commitments of $100,000. If any portion of the committed Second Lien Facility remains undrawn on the first anniversary of the closing date, then the unfunded commitments under the Second Lien Facility, if any, will terminate on such date.

The Second Lien Facility includes the following key provisions:


•	$125,000 master note, with initial commitments $100,000 and additional availability of $25,000 with consent of 66 2/3% of the lenders and compliance with financial covenants after giving effect to such increase;


•	Maturity date of September 11, 2019;


•	No mandatory prepayments unless new debt is issued;

•

Prepayable at any time. The prepayment premium shall be applicable to the amount of the applicable prepayment multiplied by (i) 102% if such prepayment event occurs prior to the first anniversary of the Closing Date and (ii) 101% if such prepayment event occurs on or after the first but prior to the second anniversary of the Closing Date. No such prepayment premium shall be payable for prepayments made on or after the second anniversary of the closing date;


•	Interest expense at a rate of LIBOR plus 7.75%, calculated on a per annum basis;


•	A commitment fee equal to 0.5% calculated on a per annum basis on the unused portion of the initial commitment amount until March 11, 2015;


•	The amounts funded on the initial draw date shall be issued with an original issue discount of 1.00% and each subsequent draw shall be subject to the same 1.00% original issue discount on the drawn amount, applied on the date such draw is funded; and


•	Secured by junior liens on properties mortgaged under the Amended Credit Facility, subject to an intercreditor agreement.

The Second Lien Facility contains various affirmative and restrictive covenants.

13% Senior Notes due 2016 (the “Senior Notes”) and Deferred Credit

As of December 31, 2013, the Company had principal outstanding of $48,481 related to its 13% Senior Notes. The interest coupon is payable on the last day of each quarter. Certain of the Company’s subsidiaries guarantee the Company’s obligations under the unsecured Senior Notes. The subsidiary guarantors are 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 guarantors are minor. Upon issuing the Senior Notes in November 2009, the Company reduced the carrying amount of the Old Notes by the fair value of the common and preferred stock issued in the amount of $11,527. The $31,507 difference between the adjusted carrying amount of the Old Notes and the face value of the Senior Notes was recorded as a deferred credit, which is being amortized as a reduction in interest expense over the life of the Senior Notes at an 8.5% effective interest rate.

The following table summarizes the Company’s deferred credit balance at December 31, 2013:



Gross Carrying	Accumulated Amortization at	Carrying Value at	Amortization Recorded during Current Year	Estimated Annual Amortization Expense Expected to be Recognized in
Amount	December 31, 2013	December 31, 2013	(a)	2014
$31,507	$26,240	$5,267	$8,440	$5,267


(a)	Of the amount recorded as amortization during the current year, $3,165 was recorded as a reduction of interest expense and $5,275 (discussed below) was recorded as a component of the gain on early extinguishment of debt.

Using a portion of the proceeds from the sale of our interest in Medusa on December 17, 2013, the Company redeemed $48,481 of its Senior Notes, which resulted in a net $3,696 gain on the early extinguishment of debt. The gain represents the difference between the $50,057 paid (inclusive of $1,576 of redemption expenses, primarily the call premium) for Senior Notes with a carrying value of $53,756 (inclusive of the $5,275 of accelerated deferred credit amortization).

In June 2012, the Company redeemed $10,000 of its Senior Notes, which resulted in a net $1,366 gain on the early extinguishment of debt. The gain represents the difference between the $10,225 paid (inclusive of $225 of redemption expenses, primarily the call premium) for Senior Notes with a carrying value of $11,591 (inclusive of the $1,591 of accelerated deferred credit amortization).

In March 2011, the Company redeemed $31,000 of its Senior Notes using proceeds from its February 2011 equity offering, which resulted in a $1,974 gain on the early extinguishment of debt. The gain represents the difference between the $35,062 paid (inclusive of the$4,062 of redemption expenses, primarily the call premium) for Senior Notes with a carrying value of $37,004 (inclusive of the $6,004 of accelerated deferred credit amortization).

On March 11, the Company provided notice to holders of its outstanding Senior Notes that it expects to redeem those notes on April 11, 2014 using proceeds from the previously discussed Second Lien Facility. The redemption will result in the acceleration of the amortization of the remaining $5,267 of deferred credit as reflected in the table above.

Restrictive Covenants

The Indenture governing our Senior Notes and the Company’s Credit Facility contains various covenants including restrictions on additional indebtedness and payment of cash dividends. In addition, Callon’s Credit Facility contains covenants for maintenance of certain financial ratios. The Company was in compliance with these covenants at December 31, 2013.

- Definition

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.

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