Annual report pursuant to Section 13 and 15(d)

Borrowings

v2.4.0.6
Borrowings
 12 Months Ended
Dec. 31, 2011
Debt Disclosure [Abstract]  
Borrowings
Borrowings

 
For the year ended December 31,
 
2011
 
2010
Principal components:
 
 
 
     Credit Facility
$
—

 
$
—

     13% Senior Notes due 2016, principal
106,961

 
137,961

          Total principal outstanding
$
106,961

 
$
137,961

 
 
 
 
Non-cash components:
 
 
 
     13% Senior Notes due 2016 Unamortized deferred credit
18,384

 
27,543

          Total carrying value of borrowings
$
125,345

 
$
165,504


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

In January 2010, the Company amended its Credit Facility agreement to include Regions Bank as the sole arranger and administrative agent. The third amended and restated Credit Facility, which matures on September 25, 2012, provides for a $100,000 facility. Amounts borrowed under the Credit Facility may not exceed a borrowing base which is reviewed and re-determined on a semi-annual basis using second and fourth quarter financial results and reserve information available at the time of the redetermination. During the second quarter of 2011, the lender completed their borrowing base redetermination, which resulted in a 50% increase in the borrowing base from $30,000 at December 31, 2010 to $45,000 at December 31, 2011. As of December 31, 2011, the interest rate on the facility was 3%, defined in the amended agreement as the London Interbank Offered Rate (“LIBOR”), with a minimum of 0.5%, plus a tiered rate ranging from 2.5% to 3.0%, which is based on the amount drawn on 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. No amounts were outstanding under this facility as of December 31, 2011.

9.75% Senior Notes (“Old Notes”) (Due December 2010)

During the fourth quarter of 2009, Callon offered to exchange its 13% Senior Notes and convertible preferred stock for any and all of its outstanding Old Notes.  Holders of approximately 92% of the Old Notes tendered their Notes in the exchange offer.   

On April 30, 2010, the Company redeemed all of the $16,052 remaining Old Notes for $16,343, which included the 1% call premium and $130 of accrued interest through the repurchase date.  The Company also recognized $179 of additional interest expense related to the accelerated amortization of the Old Notes’ remaining discount and debt issuance costs, which when added to the $160 call premium resulted in a $339 loss on early extinguishment of this debt. 

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

During the fourth quarter of 2009, the Company exchanged $137,961 of Senior Notes for $183,948 of Old Notes.  The exchange resulted in a 25% reduction in the principal amount of the Old Notes tendered.  In addition, holders of the tendered notes received 3,794 shares of common stock and 311 shares of Convertible Preferred Stock which was valued on November 24, 2009 in the amount of $11,527 and recorded as an increase to stockholders’ equity.  On December 31, 2009, each share of the Convertible Preferred Stock was automatically converted by the Company into 10 shares of common stock following shareholder approval and the filing of an amendment to the Company’s charter increasing the number of authorized shares of common stock as necessary to accommodate such conversion.  The Senior Notes’ 13% interest coupon is payable on the last day of each quarter.

Upon issuing the Senior Notes during 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, 2011:
Gross Carrying Amount
 
Accumulated Amortization
 
Carrying Value
 
Amortization Recorded during Current Year as a Reduction of Interest Expense (1)
 
Estimated Annual Amortization Expense Expected to be Recognized Over Next 12-Months (2)
$
31,507

 
$
13,123

 
$
18,384

 
$
9,159

 
$
3,350


(1)
As discussed below, the Company completed in March 2011 the redemption of $31,000 face value of its 13% Senior Notes.  As a result of the early redemption of this debt, the Company recognized accelerated amortization of $6,004 for a proportionate share of the deferred credit, thereby increasing amortization recorded during 2011 to the amount reflected in the table.  

(2)
Deferred credit amortization expected to be recorded as a reduction in interest expense during 2013, 2014, 2015 and 2016 is $3,647, $3,971, $4,323 and $3,093, respectively.

Following the completion of an equity offering during February 2011, the Company redeemed $31,000 of the Notes. This redemption was completed in March 2011, and resulted in a gain on the early extinguishment of debt of $1,974. The gain represents the difference between the $35,062 paid for $37,004 (including $31,000 principal amount of the notes plus $6,004 of accelerated deferred credit amortization) carrying value of the Notes, offset by the $4,030 charge related to the 13% call premium required by the terms of the call option and $32 of redemption expenses.

Certain of the Company’s subsidiaries guarantee the Company’s obligations under the 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.

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, 2011.