Magnum Hunter gives more details about Eureka's $150 million facility

By Angela McDaniels

Tacoma, Wash., Aug. 22 - Magnum Hunter Resources Corp. released more information about subsidiary Eureka Hunter Pipeline, LLC's new $150 million credit facility in an 8-K filing with the Securities and Exchange Commission on Monday.

The subsidiary entered into the facility on Aug. 16, and the company announced the facility in a news release on Aug. 17. The facility is non-recourse to Magnum Hunter.

The facility consists of a $100 million first-lien revolving credit facility due Aug. 16, 2016 and a $50 million second-lien term loan due Aug. 16, 2018.

The initial interest rate for the revolver is Libor plus 350 basis points, and the commitment fee is 50 bps. Beginning with the first full quarter ending after the conversion date, the margin over Libor will range from 225 bps to 325 bps, depending on the company's leverage. The conversion date is the date the borrower achieves a trailing-four-fiscal-quarter consolidated EBITDA of $25 million or more.

The interest rate on the term loan is 12½%, of which 2¾% is payable in cash or Magnum Hunter restricted common stock at Eureka's option.

The revolver has $5 million sublimits for swingline loans and letters of credit.

The initial committed amount of the revolver is $25 million. The entire term loan must be drawn before any portion of the revolver is drawn.

At closing, Eureka drew $31 million of the term loan and distributed $21 million of that to Magnum Hunter, which used it to repay some corporate debt.

The remaining proceeds will be used to finance capital expenditures for the construction of the Eureka Hunter Pipeline system located in northern West Virginia and Ohio.

Advances under the term loan will be limited to 60% of the project's total capital, including equity and debt invested. As of Aug. 15, Magnum Hunter has invested about $52 million of equity capital in the Eureka Hunter Pipeline project.

For the revolver, SunTrust Robinson Humphrey, Inc. was the arranger and bookrunner, and SunTrust Bank is the administrative agent. For the term loan, PennantPark Investment Corp. is the lender, and U.S. Bank NA is the collateral agent.

The financial covenants require Eureka to keep its consolidated total debt-to-capitalization ratio to not more than 60% and its consolidated total debt-to-consolidated EBITDA ratio to not more than 7 times. The cap steps down to 4.25 times for the term loan for the quarter ending Dec. 31, 2014 and to 4 times for the revolver for the quarter ending June 30, 2014.

Houston-based Magnum Hunter is an oil and gas company.

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