12.  Subsequent Events

Amendment to the Credit Agreement. On April 23, 2015, the Company entered into the Amendment among the Company, as the borrower, Toronto Dominion (Texas) LLC, as the administrative agent, the lenders and other parties thereto.  The Credit Agreement, as amended, provides a secured revolving bank credit facility that matures on November 8, 2018.  The Amendment set the borrowing base as of the date of the Amendment at $600.0 million, subject to adjustments as described below.  

The Amendment increased the applicable margin applied to borrowings under the Credit Agreement by 50 basis points (0.5%) on an annual basis such that the LIBOR borrowings are subject to applicable margins ranging from 2.25% to 3.25% and alternate base rate borrowings are subject to applicable margins ranging from 1.25% to 2.25%.  

The Amendment permits the Company to issue additional unsecured indebtedness, or indebtedness which is subordinate in security compared to the lien securing the indebtedness under the Credit Agreement, above its current $900.0 million in aggregate principal amount of outstanding senior notes, provided that, among other things, (A) no event of default has occurred or would result from such incurrence, (B) the Company is in compliance with its current ratio, leverage ratio, secured debt leverage ratio and interest coverage ratio after giving pro forma effect to the incurrence of the additional  indebtedness, and (C) such additional indebtedness matures at least six months after the maturity date of the Credit Agreement and is not subject to covenants and events of default that are, taken as a whole, materially more onerous than those provided for in the Credit Agreement.  

Following the Amendment, if the Company issues additional unsecured indebtedness in excess of the $900.0 million in aggregate principal amount of existing senior notes or if the Company issues debt that is subordinated in security to the indebtedness secured under the Credit Agreement, the borrowing base then in effect will be reduced by $0.33 for each dollar of such excess until the borrowing base is redetermined.  In addition, the borrowing base will be reduced to $550.0 million effective October 1, 2015 irrespective of whether any additional indebtedness is issued.  The Amendment also restricts the ability of the Company to make distributions or repurchase the existing senior notes or other permitted indebtedness (i)  until June 30, 2016, (ii) if an event of default is continuing or would result from such distribution or (iii) if a borrowing base deficiency is continuing or would result therefrom; provided that the restriction in clause (i) of this sentence does not apply to (A) scheduled payments of interest, principal or redemptions on the Company’s existing senior notes or other permitted additional debt and (B) the redemption or repurchase by the Company of  its outstanding senior notes in an aggregate principal amount equal to the aggregate principal amount of any new issuance of senior unsecured notes, provided that any such new notes are not subject to covenants and events of default that are, taken as a whole, materially more restrictive on the Company than its outstanding senior notes and such new notes mature at least six months after the maturity date of the Credit Agreement.

The Amendment revised the financial covenants, with definitions of capitalized terms contained in the Credit Agreement, as follows:  

The Amendment increases the mortgaged collateral requirement from 80% to 90% of the total value of both the (i) total proved oil and gas reserves of the loan parties and (ii) the proved developed producing reserves of the loan parties.  The Amendment requires the Company to establish and maintain minimum hedge positions by June 1, 2015 of 25% of estimated oil and gas production for the period of June 1 to December 31, 2015 and 35% of estimated oil and gas production for 2016.  

The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the Amendment and the Original Credit Agreement.

Second Lien Term Loan.  On May 5, 2015, we announced the pricing and marketing of a $300.0 million five-year second-lien term loan.  The term loan is expected to be made subject to a 1.0% discount to principal bearing interest at an annual rate of 9.0%.  It is expected that the CEO, or an entity controlled by the CEO, will participate in the term loan for a $5.0 million principal commitment on the same terms as the other lenders.  Net borrowings under the term loan will be used to repay a portion of the outstanding borrowings under the revolver bank credit facility.  Upon issuance of the term loan, the borrowing base of the revolving bank credit facility will be reduced from $600.0 million to $500.0 million pursuant to the terms of the Credit Agreement, as amended.  

The lender commitments and making of the term loan are subject to the negotiation, approval and execution of definitive loan documentation, which includes an intercreditor agreement to be approved by the lenders under the Credit Agreement, as amended.  The transaction did not close prior to the filing of this Form 10-Q.  While the transaction is expected to close during May 2015, there is no assurance the term loan will be finalized and made.