Note 5 – Borrowings



The Company’s borrowings consisted of the following at:





Credit Facility



On March 11, 2014, the Company entered into the Fifth Amended and Restated Credit Agreement to the Credit Facility with a maturity date of March 11, 2019. JPMorgan Chase Bank, N.A. is Administrative Agent, and participants include several institutional lenders. The total notional amount available under the Credit Facility is $500,000. Amounts borrowed under the Credit Facility may not exceed the borrowing base, which is generally reviewed on a semi-annual basis. The Credit Facility is secured by first preferred mortgages covering the Company’s major producing properties.



Effective July 13, 2016, the Credit Facility’s borrowing base was increased to $385,000 and the Company’s capacity to hedge oil and natural gas volumes was effectively increased with a change in the capacity calculation to a percentage of total proved reserves from proved producing reserves. In addition, the interest rate for borrowings under the Credit Facility was increased 0.25% across all tiers of the pricing grid, resulting in a range of interest costs equal to LIBOR plus 2.00% to 3.00%. There were no modifications to other terms or covenants of the Credit Facility.



Effective November 21, 2016, the Company achieved an indication to increase the Credit Facility’s borrowing base to $500,000, but elected to maintain the borrowing base at $385,000. As of December 31, 2016, the Credit Facility’s borrowing base remained at $385,000.



As of December 31, 2016, there was no balance outstanding on the Credit Facility. For the year ended December 31, 2016, the Credit Facility had a weighted-average interest rate of 2.60%, calculated as the LIBOR plus a tiered rate ranging from 2.00% to 3.00%, which is determined based on utilization of the facility. In addition, the Credit Facility carries a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the borrowing base.



Term loans



On March 11, 2014, the Company entered into a term loan in an aggregate amount of up to $125,000, including initial commitments of $100,000 and additional availability of $25,000 subject to the consent of two-thirds of the lenders and compliance with financial covenants after giving effect to such increase. The term loan had a maturity date of September 11, 2019, and was not subject to mandatory prepayments unless new debt or preferred stock was issued. It was prepayable at the Company’s option, subject to a prepayment premium. The prepayment amount was (i) 102% if the prepayment event occurred prior to March 11, 2015, and (ii) 101% if the prepayment event occurred on or after March 15, 2015 but before March 15, 2016, and (iii) 100% for prepayments made on or after March 15, 2016. The term loan was secured by junior liens on properties mortgaged under the Credit Facility, subject to an intercreditor agreement.



On October 8, 2014, the term loan described above was repaid in full using proceeds from a new secured second lien term loan (the “Second Lien Loan”) in conjunction with the closing of the Central Midland Acquisition, resulting in a loss on early extinguishment of debt of $3,054. The Second Lien Loan has a maturity date of October 8, 2021. The Royal Bank of Canada is Administrative Agent, and participants include several institutional lenders. Borrowings under the Second Lien Loan were subject to interest, calculated at a rate of LIBOR (subject to a floor rate of 1.0%) plus 7.5% per annum. The Company elected a LIBOR rate based on various tenors, and was incurring interest based on an underlying three-month LIBOR rate, which was last elected in July 2016. The Second Lien Loan may be prepaid at the Company’s option, subject to a prepayment premium. The prepayment amount was (i) 102% of principal if the prepayment event occurred prior to October 8, 2016, and (ii) 101% of principal if the prepayment event occurred on or after October 8, 2016 but before October 8, 2017, and (iii) 100% of principal for prepayments made on or after October 8, 2017. The Second Lien Loan was secured by junior liens on properties mortgaged under the Credit Facility, subject to an intercreditor agreement.



On October 11, 2016, the Second Lien Loan was repaid in full at the prepayment rate of 101% using proceeds from the sale of the 6.125% senior unsecured notes due 2024, which resulted in a loss on early extinguishment of debt of $12,883 (inclusive of $3,000 in prepayment fees and $9,883 of unamortized debt issuance costs).



6.125% senior notes due 2024 (“6.125% Senior Notes”)



On October 3, 2016, the Company issued $400,000 aggregate principal amount of 6.125% Senior Notes with a maturity date of October 1, 2024 and interest payable semi-annually beginning on April 1, 2017. The net proceeds of the offering, after deducting initial purchasers’ discounts and estimated offering expenses, were approximately $391,270. The 6.125% Senior Notes 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 Company may redeem the 6.125% Senior Notes in accordance with the following terms; (1) prior to October 1, 2019, a redemption of up to 35% of the principal in an amount not greater than the net proceeds from certain equity offerings, and within 180 days of the closing date of such equity offerings, at a redemption price of 106.125% of principal, plus accrued and unpaid interest, if any, to the date of the redemption, if at least 65% of the principal will remain outstanding after such redemption; (2) prior to October 1, 2019, a redemption of all or part of the principal at a price of 100% of principal of the amount redeemed, plus an applicable make-whole premium and accrued and unpaid interest, if any, to the date of the redemption; (3) a redemption, in whole or in part, at a redemption price, plus accrued and unpaid interest, if any, to the date of the redemption, (i) of 104.594% of principal if the redemption occurs on or after October 1, 2019, but before October 1, 2020, and (ii) of 103.063% of principal if the redemption occurs on or after October 1, 2020, but before October 1, 2021, and (iii) of 101.531% of principal if the redemption occurs on or after October 1, 2021, but before October 1, 2022, and (iv) of 100% of principal if the redemption occurs on or after October 1, 2022.



Following a change of control, each holder of the 6.125% Senior Notes may require the Company to repurchase all or a portion of the 6.125% 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.



13% senior notes due 2016 (“13% Senior Notes”) and deferred credit



On April 11, 2014, the Company completed a full redemption of the remaining $48,481 principal amount of outstanding 13% Senior Notes using proceeds from the Second Lien Loan. The redemption resulted in a net $3,205 gain on the early extinguishment of debt (including $4,780 of accelerated deferred credit amortization). The gain represents the difference between the $50,057 paid for the redemption of the 13% Senior Notes ($1,576 of redemption costs, primarily the call premium) and the carrying value of the remaining 13% Senior Notes of $53,261 (inclusive of $4,780 of deferred credit). The Company also paid $193 in accrued interest through the redemption date. Upon the redemption, the indenture governing the 13% Senior Notes was discharged in accordance with its terms.



Restrictive covenants



The Company’s Credit Facility and the indenture governing our 6.125% Senior Notes contain various covenants including restrictions on additional indebtedness, payment of cash dividends and maintenance of certain financial ratios. The Company was in compliance with these covenants at December 31, 2016.