UPDATE 1: 10:18 a.m. ET 10/8/2018:
This article has been updated to reflect updated deal terms.
For a complete overview of the terms and provisions of W&T’s new 2023 Second Lien Notes, click HERE.
Capital Structure and Use of Proceeds
W&T Offshore Inc. (“W&T”) recently
announced that it would be issuing $625 million of senior second lien notes due 2023 (the “2023 2L Notes”), with proceeds to be used, together with borrowings under its asset-based revolving credit facility (the “Revolver”), to repay or redeem all of its other outstanding debt.
W&T’s capital structure as of June 30, adjusted for the issuance of the 2023 2L Notes, is illustrated below for reference.
The 2023 2L Notes will be guaranteed by each of W&T’s wholly owned domestic subsidiaries that guarantee the Revolver and will be secured on a junior lien basis by the assets that secure the Revolver. Notably, amendments to release the liens securing the 2023 2L Notes only require consent from holders holding 66-2/3% of the 2023 2L Notes.
Notable Concerns
Leverage-Based Baskets - If W&T can meet a 2x fixed charge coverage ratio (“FCCR”), the 2023 2L Notes permit it to incur ratio debt and make restricted payments out of a builder basket based on 50% of consolidated net income from July 1, 2018.
If it can meet a 2x secured leverage test, it can secure any permitted debt on a
pari passu basis with the 2023 2L Notes. Additionally, if the company is unable to meet a 2x secured leverage test, a $60 million annual restricted payments basket, that allows unused amounts to be carried forward, will be limited to $40 million in the subsequent 12-month period.
As illustrated below, W&T can likely meet a 2x FCCR but likely is unable to meet a 2x secured leverage test. Although our FCCR calculations below are
not adjusted for the issuance of the 2023 2L Notes, we assume that, given how large a cushion W&T had as of June 30, it would continue to remain above the 2x threshold after the 2023 2L Notes issuance.
Debt and Liens - As we discuss in the
2023 2L Notes Summary, the 2023 2L Notes likely currently permit W&T to incur $368 million of additional senior lien debt, which includes Revolver draws and $100 million of additional
pari passu debt. General debt and liens baskets permit the company to incur $100 million of additional secured debt.
Restricted Payments and Investments - As we discuss in the
2023 2L Notes Summary, the 2023 2L Notes likely currently permit W&T to make $40 million of annual restricted payments,
plus $30 million of additional restricted payments; the company is also likely permitted to make $50 million of non-ordinary-course investments.
Fall-Away Covenant - If the 2023 2L Notes are rating investment grade, certain covenants, including the debt and restricted payments covenants, would be terminated. If the 2023 2L Notes are subsequently downgraded, it does
not appear that the covenants would be reinstated.
Affiliate Transactions - Although the affiliate transactions covenant explicitly permits “Restricted Payments” permitted under the restricted payment covenants, it does
not explicitly permit transactions permitted under the “Permitted Investments” definition. As such, to the extent W&T makes an investment in an unrestricted subsidiary, such transfer would likely need to comply with the affiliate transactions covenant.
Original Story 4:07 p.m. UTC on Oct. 1, 2018Primary Coverage: Certain Covenants Under W&T’s New 2023 2L Notes Terminate Upon Receipt of Investment-Grade RatingsFor a complete overview of the terms and provisions of W&T’s new 2023 Second Lien Notes, click HERE.
Capital Structure and Use of Proceeds
W&T Offshore Inc. (“W&T”) recently
announced that it would be issuing $625 million of senior second lien notes due 2023 (the “2023 2L Notes”), with proceeds to be used, together with borrowings under its asset-based revolving credit facility (the “Revolver”), to repay or redeem all of its other outstanding debt.
W&T’s capital structure as of June 30, adjusted for the issuance of the 2023 2L Notes, is illustrated below for reference.
The 2023 2L Notes will be guaranteed by each of W&T’s wholly owned domestic subsidiaries that guarantee the Revolver and will be secured on a junior lien basis by the assets that secure the Revolver. Notably, amendments to release the liens securing the 2023 2L Notes only require consent from holders holding 66-2/3% of the 2023 2L Notes.
Notable Concerns
Leverage-Based Baskets - If W&T can meet a 2x fixed charge coverage ratio (“FCCR”), the 2023 2L Notes permit it to incur ratio debt and make restricted payments out of a builder basket based on 50% of consolidated net income from July 1, 2018.
If it can meet a 2x secured leverage test, it can secure any permitted debt on a
pari passu basis with the 2023 2L Notes. Additionally, if the company is unable to meet a 2x secured leverage test, a $60 million annual restricted payments basket, that allows unused amounts to be carried forward, will be limited to $40 million in the subsequent 12-month period.
As illustrated below, W&T can likely meet a 2x FCCR but likely is unable to meet a 2x secured leverage test. Although our FCCR calculations below are
not adjusted for the issuance of the 2023 2L Notes, we assume that, given how large a cushion W&T had as of June 30, it would continue to remain above the 2x threshold after the 2023 2L Notes issuance.
Debt and Liens - As we discuss in the
2023 2L Notes Summary, the 2023 2L Notes likely currently permit W&T to incur $368 million of additional senior lien debt, which includes Revolver draws and $100 million of additional
pari passu debt. General debt and liens baskets permit the company to incur $100 million of additional secured debt.
Restricted Payments and Investments - As we discuss in the
2023 2L Notes Summary, the 2023 2L Notes likely currently permit W&T to make $40 million of annual restricted payments,
plus $30 million of additional restricted payments; the company is also likely permitted to make $50 million of non-ordinary-course investments.
Fall-Away Covenant - If the 2023 2L Notes are rating investment grade, certain covenants, including the debt and restricted payments covenants, would be terminated. If the 2023 2L Notes are subsequently downgraded, it does
not appear that the covenants would be reinstated.
Affiliate Transactions - Although the affiliate transactions covenant explicitly permits “Restricted Payments” permitted under the restricted payment covenants, it does
not explicitly permit transactions permitted under the “Permitted Investments” definition. As such, to the extent W&T makes an investment in an unrestricted subsidiary, such transfer would likely need to comply with the affiliate transactions covenant.