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Debt and Banking Arrangements
9 Months Ended
Sep. 30, 2011
Debt and Banking Arrangements [Abstract] 
Debt and Banking Arrangements

Note 9. Debt and Banking Arrangements

 

Credit Facilities

 

In June 2011, we entered into three new separate five-year senior unsecured revolving credit facility agreements. The replacements of our previous $900 million credit facility and WPZ's $1.75 billion credit facility, as discussed further below, are considered modifications for accounting purposes.

 

We established a new $900 million unsecured revolving credit facility agreement which replaced our existing unsecured $900 million credit facility agreement that was scheduled to expire May 1, 2012. There were no outstanding borrowings under the existing agreement at the time it was terminated. The new credit facility may, under certain conditions, be increased up to an additional $250 million. Significant financial covenants require our ratio of debt to EBITDA (each as defined in the credit facility) to be no greater than 4.5 to 1. For the fiscal quarter and the two following fiscal quarters in which one or more acquisitions for a total aggregate purchase price equal to or greater than $50 million has been executed, we are required to maintain a ratio of debt to EBITDA of no greater than 5 to 1. At September 30, 2011, we are in compliance with these financial covenants. On November 1, 2011, the new credit facility was amended primarily to revise certain defined terms for further clarity and to accommodate our revised reorganization plan.

 

WPZ also established a new $2 billion unsecured revolving credit facility agreement that includes Transco and Northwest Pipeline as co-borrowers that replaced an existing unsecured $1.75 billion credit facility agreement that was scheduled to expire on February 17, 2013. This credit facility is only available to named borrowers. At the closing, WPZ refinanced $300 million outstanding under the existing facility via a non-cash transfer of the obligation to the new credit facility. The new credit facility may, under certain conditions, be increased up to an additional $400 million. The full amount of the credit facility is available to WPZ to the extent not otherwise utilized by Transco and Northwest Pipeline. Transco and Northwest Pipeline each have access to borrow up to $400 million under the credit facility to the extent not otherwise utilized by the other co-borrowers. Significant financial covenants include:

 

  • WPZ's ratio of debt to EBITDA (each as defined in the credit facility) must be no greater than 5 to 1. For the fiscal quarter and the two following fiscal quarters in which one or more acquisitions for a total aggregate purchase price equal to or greater than $50 million has been executed, WPZ is required to maintain a ratio of debt to EBITDA of no greater than 5.5 to 1;

     

  • The ratio of debt to capitalization (defined as net worth plus debt) must be no greater than 65 percent for each of Transco and Northwest Pipeline.

 

At September 30, 2011, WPZ is in compliance with these financial covenants.

 

WPX entered into a new $1.5 billion unsecured revolving credit facility agreement that would be effective upon meeting certain conditions. This agreement was amended on November 1, 2011 and became effective the same day. The amendment provides for WPX granting a priority lien on at least 80 percent of the present value of its proved reserves (as defined in the agreement) if, upon the first issuance of WPX senior unsecured notes, WPX's long-term senior unsecured debt rating is equal to or less than Ba2 and BB by Moody's and S&P, respectively.  This provision is only applicable upon the first issuance of WPX senior unsecured notes and any liens granted pursuant to these terms would automatically terminate upon WPX achieving investment grade credit ratings, as described in the agreement, or upon termination of the agreement. Also, on November 1, 2011, Exploration & Production terminated its existing unsecured credit agreement which had served to reduce margin requirements and transaction fees related to hedging activities, thus satisfying a condition necessary for effectiveness of the new WPX credit facility. All outstanding hedges under the terminated agreement were transferred to new agreements with various financial institutions that participate in the new credit facility. Neither WPX nor the participating financial institutions are required to provide collateral support related to hedging activities under the new agreements. The new credit facility is only available to WPX and may, under certain conditions, be increased up to an additional $300 million. WPX may also request a swingline loan to obtain same-day funds of up to $125 million under the agreement.

 

Significant financial covenants include:

 

  • WPX's PV to debt (each as defined in the credit facility and PV primarily relating to the present value of proved oil and gas reserves) of at least 1.5 to 1;

     

  • The ratio of WPX's debt to capitalization (defined as net worth plus debt) must be no greater than 60 percent.

     

    These covenants will be measured beginning December 31, 2011.

     

    The three new credit agreements contain the following terms and conditions:

     

  • Each time funds are borrowed, with the exception of swingline loans under the WPX agreement, the applicable borrower may choose from two methods of calculating interest: a fluctuating base rate equal to Citibank N.A.'s adjusted base rate plus an applicable margin or a periodic fixed rate equal to LIBOR plus an applicable margin. Interest on swingline loans is payable at a rate per annum equal to a fluctuating base rate equal to Citibank N.A.'s adjusted base rate plus an applicable margin. The applicable borrower is required to pay a commitment fee (currently 0.25 percent for our agreement, 0.25 percent for the WPZ agreement and 0.325 percent for the WPX agreement) based on the unused portion of their respective credit facility. The applicable margin and the commitment fee are determined for each borrower by reference to a pricing schedule based on such borrower's senior unsecured long-term debt ratings.

     

  • Various covenants may limit, among other things, a borrower's and its material subsidiaries' ability to grant certain liens supporting indebtedness, a borrower's ability to merge or consolidate, sell all or substantially all of its assets, enter into certain affiliate transactions, make certain distributions during an event of default, make investments, and allow any material change in the nature of its business. WPX's credit agreement further limits WPX and its material subsidiaries' ability to make certain investments, loans, or advances or enter into certain hedging agreements beyond the ordinary course of business.

     

  • If an event of default with respect to a borrower occurs under their respective credit facility agreement, the lenders will be able to terminate the commitments for the respective borrowers and accelerate the maturity of any loans of the defaulting borrower under the respective credit facility agreement and exercise other rights and remedies.

 

Letters of credit issued and loans outstanding under the credit facility agreements in effect at September 30, 2011, are:

       Letters    
    Expiration   of Credit  Loans
           
       (Millions)
$900 million unsecured credit facility (1)June 3, 2016 $ - $ -
$2 billion WPZ unsecured credit facility (2)June 3, 2016   -   400
Bilateral bank agreements for letters of credit    89   
      $ 89 $ 400

________

  • $700 million letter of credit capacity.
  • $1.3 billion letter of credit capacity.

 

Issuances and Retirements

 

Utilizing cash on hand, WPZ retired $150 million of 7.5 percent senior unsecured notes that matured on June 15, 2011.

 

In August 2011, Transco issued $375 million of 5.4 percent senior unsecured notes due 2041 to investors in a private debt placement.  A portion of these proceeds were used to repay Transco's $300 million 7 percent senior unsecured notes that matured on August 15, 2011.  As part of the new issuance, Transco entered into a registration rights agreement with the initial purchasers of the unsecured notes.  Transco is obligated to file a registration statement for an offer to exchange the notes for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended, within 180 days from closing and to use commercially reasonable efforts to cause the registration statement to be declared effective within 270 days after closing and to consummate the exchange offer within 30 business days after such effective date. Transco is required to provide a shelf registration statement to cover resales of the notes under certain circumstances.  If Transco fails to fulfill these obligations, additional interest will accrue on the affected securities. The rate of additional interest will be 0.25 percent per annum on the principal amount of the affected securities for the first 90-day period immediately following the occurrence of default, increasing by an additional 0.25 percent per annum with respect to each subsequent 90-day period thereafter, up to a maximum amount for all such defaults of 0.5 percent annually.  Following the cure of any registration defaults, the accrual of additional interest will cease.