DEBT

12 Months Ended

Dec. 31, 2023

DEBT

DEBT

6. DEBT

As of December 31, 2023 and 2022, the Company’s debt consisted of the following (in thousands):

	December 31, 2023		December 31, 2022
Term loan credit facility	$	200,000	$	235,000
Other		215		190
Total debt (Face Value)		200,215		235,190
Less:
Current Portion of Long-Term Debt(1)		(50,106)		(35,067)
Other(2)		(9,833)		(17,447)
Long-Term Debt, net	$	140,276	$	182,676

(1) Amounts primarily reflect payments due of $50.0 million and $35.0 million under the Amended Term Loan Agreement due within one year as of December 31, 2023 and December 31, 2022, respectively.

(2) Amounts primarily reflect unamortized debt issuance costs of approximately $6.9 million and $13.0 million at December 31, 2023 and December 31, 2022, respectively, but also include an unamortized debt discount associated with an embedded derivative separately presented and further described in Note 7. “Fair Value Measurements”. For the years ended December 31, 2023 and 2022, we recorded approximately $7.6 million and $5.4 million, respectively, in interest expense reflecting the amortization/accretion of these amounts.

Term Loan Credit Facility

On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into an Amended and Restated Senior Secured Credit Agreement (Term Loan Agreement) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. The Term Loan Agreement amended and restated in its entirety the senior secured revolving credit agreement, as amended, (the Senior Credit Agreement) entered into in 2019.

On November 14, 2022, the Company paid approximately $2.4 million and entered into a further Amended Credit Agreement (the “Amended Term Loan Agreement”) with its lenders which modified certain provisions of its original Term Loan Agreement. The Amended Term Loan Agreement also contains certain financial covenants (as defined in the Amended Term Loan Agreement), including the maintenance of the following ratios:

● Asset Coverage Ratio of not less than 1.80 to 1.00 as of December 31, 2023 and the last day of each fiscal quarter thereafter;

● Total Net Leverage Ratio of not greater than 2.50 to 1.00 as of December 31, 2023 and each fiscal quarter thereafter, and

● Current Ratio of not less than 1.00 to 1.00, determined as of the last day of any fiscal quarter period, as of December 31, 2023 and each fiscal quarter thereafter.

As of December 31, 2023, the Company was in compliance with the financial covenants under the Amended Term Loan Agreement.

The Company may elect, at its option, to prepay any borrowings outstanding under the Amended Term Loan Agreement subject to the following prepayment premiums:

Period (after applicable borrowing date(1))	Premium
Months 0 - 12	Make-whole amount equal to 12 months of interest plus 2.00%
Months 13 - 24	2.00%
Months 25 - 36	1.00%
Months 37 - 48	0.00%

(1) Applicable borrowing dates are November 2021 for the original $200.0 million borrowed and April and November 2022 for the $20.0 million and $15.0 million in delayed borrowings, respectively.

The Company’s prepayment premiums would differ from those noted in the table above if a change of control results in prepayment within the second anniversary of the amendment date, as a 2% payment premium will apply.

As of December 31, 2023, the Company had $200.0 million of indebtedness outstanding and approximately $0.3 million of letters of credit outstanding under the Amended Term Loan Agreement. An additional $4.7 million is available for the issuance of letters of credit. The Company has a variable interest rate on its borrowings based on SOFR plus an applicable margin of 7.5%. The weighted average interest rate on the Company’s borrowings for the year ended December 31, 2023 was approximately 12.68%. The maturity date of the Amended Term Loan Agreement is November 24, 2025.

The Company may be required to make mandatory prepayments under the Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales, or with excess cash on hand in excess of certain maximum levels beginning in 2023. For each fiscal quarter after January 1, 2023, the Company is required to make mandatory prepayments when the Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, exceeds $20.0 million. Until December 31, 2024, the forecasted capital expenditures for the succeeding fiscal quarter on the approved plan of development (“APOD”) wells (i.e. oil and natural gas wells located within a specified boundary as set by the Amended Term Loan Agreement) are excluded for purposes of determining the Consolidated Cash Balance. As of December 31, 2023, the Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, did not exceed $20.0 million when considering forecasted APOD capital expenditures and cash held in unrestricted subsidiaries; therefore, no mandatory prepayment was necessary.

The Company is required to make scheduled remaining amortization payments in the aggregate amount of $85.0 million from the fiscal quarter ending March 31, 2024 through the fiscal quarter ending September 30, 2025 with $10.0 million due at the end of the first quarter of 2024, $12.5 million due at the end of each of the second and third quarters of 2024, $15.0 million due at the end of the fourth quarter of 2024 and the first quarter of 2025, and $10.0 million due at the end of each of the second and third quarters of 2025. The Company will be required to make a final payment of $115.0 million at maturity on November 24, 2025. Amounts outstanding under the Amended Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and by the equity interests of the Borrower held by the Company. As part of the Amended Term Loan Agreement there are certain restrictions on the transfer of assets, including cash, to Battalion from the guarantor subsidiaries.

The Amended Term Loan Agreement also contains an APOD for the Company’s Monument Draw acreage through the drilling and completion of certain wells. The Amended Term Loan Agreement contains a proved developed producing production test and an APOD economic test which the Company must maintain compliance with; otherwise, subject to any available remedies or waivers, the Company is required to immediately cease making expenditures in respect of the APOD other than any expenditures deemed necessary by the Company in respect of no more than six additional APOD wells.

The Amended Term Loan Agreement also contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.

In conjunction with entering into the original Term Loan Agreement in November 2021, the Company agreed to pay a premium to the lenders upon a future change of control event in which a majority of the board of directors or the Chief Executive Officer (the “CEO”) or the Principal Chief Financial Officer positions do not remain held by the same persons as before the change of control event (“Change of Control Call Option”). The premium is reduced over time through the payment of interest and certain fees. The Change of Control Call Option is accounted for as an embedded derivative not clearly and closely related to the host debt instrument. Accordingly, the Company recorded the initial fair value separately on the consolidated balance sheet within “Other noncurrent liabilities” and records changes in the fair value of the embedded derivative each reporting period in “Interest expense and other” on the consolidated statements of operations. Refer to Note 7, “Fair Value Measurements,” for a discussion of the valuation approach used, the significant inputs to the valuation, and for a reconciliation of the change in fair value of the Change of Control Call Option.

Debt Maturities

Aggregate maturities required on debt at December 31, 2023 due in future years are as follows (in thousands):

2024	$	50,106
2025		150,096
2026		13
Total	$	200,215