11. Long-Term Debt

Long-term debt consisted of the following (in thousands):



	December 31,
	2018			2017
Credit Facility	$	—		$	56,000
Partnership Credit Facility	839,500			674,306

Partnership’s 6% senior notes due April 2021	350,000			350,000
Less: Debt discount, net of amortization	(1,789		)	(2,523		)
Less: Deferred financing costs, net of amortization	(2,311		)	(3,338		)
	345,900			344,139

Partnership’s 6% senior notes due October 2022	350,000			350,000
Less: Debt discount, net of amortization	(2,766		)	(3,441		)
Less: Deferred financing costs, net of amortization	(3,133		)	(3,951		)
	344,101			342,608
Long-term debt	$	1,529,501		$	1,417,053

Archrock Credit Facility

On April 26, 2018, in connection with the Merger and Amendment No. 1, the Archrock Credit Facility was terminated. Upon termination, we repaid $63.2 million in borrowings and accrued and unpaid interest and fees outstanding. All commitments under the Archrock Credit Facility were terminated and the $15.4 million of letters of credit outstanding under the Archrock Credit Facility were converted to letters of credit under the Partnership Credit Facility. As a result of the termination, we recorded a debt extinguishment loss of $2.5 million.

At December 31, 2017, the weighted average annual interest rate, excluding the effect of interest rate swaps, on the outstanding balance under the Archrock Credit Facility was 3.3%. During the year ended December 31, 2017, we incurred $0.7 million in commitment fees on the daily unused amount of the Archrock Credit Facility. We incurred $0.2 million in commitment fees in 2018 prior to the facility’s termination and were in compliance with all covenants under the Archrock Credit Facility through its closing.

As the result of delayed quarterly filings in 2016, on May 10, 2016, July 21, 2016, September 21, 2016 and December 9, 2016 we entered into amendments to the Archrock Credit Facility whereby the deadline to deliver our delayed reports and related covenant compliance certificates to the lenders was extended and the lenders waived, among other things, certain potential events of default and requirements under the facility agreement. On February 14, 2017, prior to the extended deadline, we delivered our delayed 2016 quarterly reports and the related compliance certificates to the lenders. We incurred $0.7 million in transaction costs related to these amendments during the year ended December 31, 2016 which were included in other long-term assets in our consolidated balance sheets.

Partnership Credit Facility

The Partnership Credit Facility will mature on March 30, 2022 except that if any portion of the Partnership’s 6% senior notes due April 2021 are outstanding as of December 2, 2020, it will instead mature on December 2, 2020. In March 2017, the Partnership incurred $14.9 million in transaction costs related to the formation of the Partnership Credit Facility which were included in other long-term assets in our consolidated balance sheets and are being amortized over the term of the facility. Concurrent with entering into the Partnership Credit Facility, the Partnership terminated its Former Credit Facility, and all commitments under the facility, and repaid $648.4 million in borrowings and accrued and unpaid interest and fees outstanding. As a result of the termination, the Partnership expensed $0.6 million of unamortized deferred financing costs, which were included in interest expense in our consolidated statements of operations, and recorded a debt extinguishment loss of $0.3 million.

On February 23, 2018, the Partnership amended the Partnership Credit Facility to, among other things:


•	increase the maximum Total Debt to EBITDA ratios, as defined in the Partnership Credit Facility agreement (see below for the revised ratios), effective as of the execution of Amendment No. 1 on February 23, 2018; and


•	effective upon completion of the Merger on April 26, 2018:


–	increase the aggregate revolving commitment from $1.1 billion to $1.25 billion;


–	increase the amount available for the issuance of letters of credit from $25.0 million to $50.0 million;


–	increase the basket sizes under certain covenants including covenants limiting our ability to make investments, incur debt, make restricted payments, incur liens and make asset dispositions;


–	name Archrock Services, L.P., one of our subsidiaries, as a borrower under the Partnership Credit Facility and certain of our other subsidiaries as loan guarantors; and


–	amend the definition of “Borrowing Base” to include certain assets of ours and our subsidiaries.

The Partnership incurred $3.3 million in transaction costs related to Amendment No. 1 which were included in other long-term assets in our consolidated balance sheet and are being amortized over the term of the Partnership Credit Facility.

Subject to certain conditions, including the approval by the lenders, the Partnership is able to increase the aggregate commitments under the Partnership Credit Facility by up to an additional $250.0 million. Portions of the Partnership Credit Facility up to $50.0 million will be available for the issuance of swing line loans.

The Partnership Credit Facility bears interest at a base rate or LIBOR, at the Partnership’s option, plus an applicable margin. Depending on the Partnership’s leverage ratio, the applicable margin varies (i) in the case of LIBOR loans, from 2.00% to 3.25% and (ii) in the case of base rate loans, from 1.00% to 2.25%. The base rate is the highest of (i) the prime rate announced by JPMorgan Chase Bank, (ii) the Federal Funds Effective Rate plus 0.50% and (iii) one-month LIBOR plus 1.00%. At December 31, 2018, the applicable margin on amounts outstanding was 2.7%. The weighted average annual interest rate at December 31, 2018 and 2017 on the outstanding balance under the facility, excluding the effect of interest rate swaps, was 5.4% and 4.8%, respectively.

Additionally, the Partnership is required to pay commitment fees based on the daily unused amount of the Credit Facility in an amount, depending on its leverage ratio, ranging from 0.375% to 0.50%. The Partnership incurred $2.1 million, $2.1 million and $1.4 million in commitment fees on the daily unused amount of its facilities during the years ended December 31, 2018, 2017 and 2016, respectively.

The Partnership Credit Facility borrowing base consists of eligible accounts receivable, inventory and compressor units. The largest component is eligible compressor units. Borrowings under the Partnership Credit Facility are secured by substantially all of the personal property assets of the Partnership and its Significant Domestic Subsidiaries (as defined in the Partnership Credit Facility agreement), including all of the membership interests of the Partnership’s Domestic Subsidiaries (as defined in the Partnership Credit Facility agreement).

The Partnership Credit Facility agreement contains various covenants including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on the Partnership’s ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay distributions. The Partnership Credit Facility agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers. In addition, if as of any date the Partnership has cash and cash equivalents (other than proceeds from a debt or equity issuance received in the 30 days prior to such date reasonably expected to be used to fund an acquisition permitted under the Partnership Credit Facility agreement) in excess of $50.0 million, then such excess amount will be used to pay down outstanding borrowings of a corresponding amount under the Partnership Credit Facility.

The Partnership must maintain the following consolidated financial ratios, as defined in the Partnership Credit Facility agreement:



EBITDA to Interest Expense	2.5 to 1.0
Senior Secured Debt to EBITDA	3.5 to 1.0
Total Debt to EBITDA
Through fiscal year 2018	5.95 to 1.0
Through fiscal year 2019	5.75 to 1.0
Through second quarter of 2020	5.50 to 1.0
Thereafter ⁽¹⁾	5.25 to 1.0

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⁽¹⁾	Subject to a temporary increase to 5.5 to 1.0 for any quarter during which an acquisition satisfying certain thresholds is completed and for the two quarters immediately following such quarter.

A material adverse effect on the Partnership’s assets, liabilities, financial condition, business or operations that, taken as a whole, impacts its ability to perform its obligations under the Partnership Credit Facility agreement, could lead to a default under that agreement. A default under one of the Partnership’s debt agreements would trigger cross-default provisions under the Partnership’s other debt agreements, which would accelerate its obligation to repay its indebtedness under those agreements. As of December 31, 2018, the Partnership was in compliance with all financial covenants under the Partnership Credit Facility agreement.

As of December 31, 2018, the Partnership had $15.2 million outstanding letters of credit under the Partnership Credit Facility and undrawn capacity of $395.3 million. As a result of the ratio requirements above, $391.6 million of the $395.3 million of undrawn capacity was available for additional borrowings as of December 31, 2018. As of December 31, 2018, the Partnership was in compliance with all covenants under the Partnership Credit Facility agreement.

During the year ended December 31, 2016, the Partnership incurred transaction costs of $1.7 million and expensed $0.4 million of unamortized deferred financing costs related to an amendment to the Former Credit Facility which were reflected in other long-term assets in our consolidated balance sheet and interest expense in our consolidated statement of operations, respectively.

Notes

The Notes are guaranteed on a senior unsecured basis by all of the Partnership’s existing subsidiaries (other than Archrock Partners Finance Corp., which is a co-issuer of the Partnership’s 6% Senior Notes due April 2021) and certain of the Partnership’s future subsidiaries. The Notes and the guarantees, respectively, are the Partnership’s and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of the Partnership’s and the guarantors’ other senior obligations and are effectively subordinated to all of the Partnership’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the Notes and guarantees are effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries. Guarantees by the Partnership’s subsidiaries are full and unconditional, subject to customary release provisions, and constitute joint and several obligations. The Partnership has no assets or operations independent of its subsidiaries and there are no significant restrictions upon its subsidiaries’ ability to distribute funds to the Partnership.

Partnership’s 6% Senior Notes Due April 2021

In March 2013, the Partnership issued $350.0 million aggregate principal amount of 6% senior notes due April 2021. These notes were issued at an original issuance discount of $5.5 million, which is being amortized at an effective interest rate of 6.25% over their term. In January 2014, holders of these notes exchanged their notes for registered notes with the same terms.

The Partnership may redeem all or a part of these notes at redemption prices (expressed as percentages of principal amount) equal to 101.5% for the 12-month period beginning on April 1, 2018 and 100.0% for the 12-month period beginning on April 1, 2019 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date.

Partnership’s 6% Senior Notes Due October 2022

In April 2014, the Partnership issued $350.0 million aggregate principal amount of 6% senior notes due October 2022. These notes were issued at an original issuance discount of $5.7 million, which is being amortized at an effective interest rate of 6.25% over their term. In February 2015, holders of these notes exchanged their notes for registered notes with the same terms.

On or after April 1, 2018, the Partnership may redeem all or a part of these notes at redemption prices (expressed as percentages of principal amount) equal to 103.0% for the 12-month period beginning on April 1, 2018, 101.5% for the 12-month period beginning on April 1, 2019 and 100.0% for the 12-month period beginning on April 1, 2020 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date.

Long-Term Debt Maturity Schedule

Contractual maturities of long-term debt, excluding interest to be accrued, at December 31, 2018 were as follows (in thousands):



2019	$	—
2020	—
2021 ⁽¹⁾	350,000
2022 ⁽¹⁾	1,189,500
2023	—
Total debt ⁽¹⁾	$	1,539,500

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⁽¹⁾	Includes the full face value of the Notes and has not been reduced by the aggregate unamortized discount of $4.6 million and the aggregate unamortized deferred financing costs of $5.4 million as of December 31, 2018.