SandRidge eases loan terms to avoid breach, as oil slump threatens

By Susanna Moon

Chicago, Feb. 27 – SandRidge Energy Inc. further amended its loan terms because it was concerned about breaching financial covenants in 2015 due to depressed oil and natural gas prices.

The amendment suspends until June 30, 2016 the financial covenant that requires maintaining certain levels for the ratio of total net debt to EBITDA and allows up to $500.million of additional junior debt, which may be secured.

The amendment also increases the interest spread under the senior credit facility, according to a 10-K filing with the Securities and Exchange Commission.

The financial covenants also require

• Ratio of total debt secured by assets of the company and some of its subsidiaries to EBITDA, which may not exceed 2.25 times at each quarter-end;

• Ratio of EBITDA to interest expense, which must be at least 2 times as of March 31 and June 30, 2015, 1.75 times as of Sept. 30, 2015, 1.5 times at each quarter-end from Dec. 31, 2015 to Sept. 30, 2016 and 2 times as of Dec. 31, 2016 and thereafter;

• Ratio of current assets to current liabilities, which must be at least 1 times at each quarter -end; and

• Ratio of total net debt to EBITDA, which may not exceed 6.25 times as of June 30, 2016, 6 times as of Sept. 30, 2016 and Dec. 31, 2016, 5.5 times as of March 31, 2017 and June 30, 2017, 5 times as of Sept. 30, 2017 and Dec. 31, 2017 and 4.5 times as of March 31, 2018 and thereafter, calculated using annualized EBITDA for the fiscal quarter ended June 30, 2016 and the two subsequent fiscal quarters and otherwise calculated using the last four completed fiscal quarters.

More details

If no amounts are drawn under the senior credit facility when calculating the ratio of total net debt to EBITDA, the company’s debt is reduced by its cash balance in excess of $10 million. In the current ratio calculation, any amounts available to be drawn under the senior credit facility are included in current assets, and unrealized assets and liabilities resulting from mark-to-market adjustments on the company’s derivative contracts are disregarded, the company said.

Also, the amended senior credit agreement allows the company and some of its subsidiaries to incur additional debt of up to $500 million, which may be secured by collateral securing the senior credit facility on a junior-lien basis. Any junior-lien debt will be subject to the terms and conditions in an intercreditor agreement, the terms of which are subject to the approval of the lenders, and will mature no earlier than Jan. 21, 2020. The borrowing base under the senior credit facility will be reduced by $0.25 for every $1.00 of junior debt incurred. As of Feb. 23, the company had neither incurred junior debt nor entered into any intercreditor agreement.

“If the current depressed oil or natural gas prices persist for a prolonged period or further decline, they would have a material adverse effect on the company’s financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced, likely resulting in a full cost pool ceiling impairment,” the filing noted.

In addition, continued low oil and natural gas prices or further declines could result in a reduction in the size of the borrowing base under the senior credit facility, which would limit borrowings to fund capital expenditures, the company noted.

There is a “significant risk” that the company will fail to comply with the financial covenants under its amended senior credit facility if the slump in oil or natural gas prices continues, the filing noted.

In light of this, the company said it is “analyzing a variety of transactions and mechanisms designed to reduce debt and/or increase net income, including the monetization of non-income-producing assets, the retirement or purchase of its outstanding debt securities through cash purchases and/or exchanges for equity or other company securities in open market purchases, privately negotiated transactions or otherwise and opportunistic acquisitions.”

SandRidge is an oil and natural gas company based in Oklahoma City.

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