DEBT

May 11, 2017,

the Partnership entered into an amended and restated credit agreement. On

June 28, 2018,

the credit agreement was amended to, among other things, reduce the revolving loan facility from

$450.0

million to

$400.0

million and amend the maximum permitted consolidated total leverage ratio as discussed below.

As of

March 23, 2020

, approximately

$273.6

million of revolver borrowings and

$1.0

million of letters of credit were outstanding under the credit agreement, leaving the Partnership with available capacity of approximately

$125.4

million for additional revolver borrowings and letters of credit under the credit agreement, although the Partnership’s ability to borrow such funds

may

be limited by the financial covenants in the credit agreement. The proceeds of loans made under the amended and restated credit agreement

may

be used for working capital and other general corporate purposes of the Partnership.

The credit agreement is guaranteed by all of the Partnership’s existing subsidiaries. Obligations under the credit agreement are secured by

first

priority liens on substantially all of the Partnership’s assets and those of the guarantors.

The credit agreement includes procedures for additional financial institutions to become revolving lenders, or for any existing lender to increase its revolving commitment thereunder, subject to an aggregate maximum of

$600.0

million for all revolving loan commitments under the credit agreement.

The credit agreement will mature on

May

11,

2022,

and all amounts outstanding under the credit agreement will become due and payable on such date. The credit agreement requires mandatory prepayments of amounts outstanding thereunder with the net proceeds from certain asset sales, property or casualty insurance claims and condemnation proceedings, unless the Partnership reinvests such proceeds in accordance with the credit agreement, but these mandatory prepayments will

not

require any reduction of the lenders’ commitments under the credit agreement.

Borrowings under the credit agreement bear interest, at the Partnership’s option, at either the reserve-adjusted eurodollar rate (as defined in the credit agreement) plus an applicable margin which ranges from

2.0%

3.25%

or the alternate base rate (the highest of the agent bank’s prime rate, the federal funds effective rate plus

0.5%

and the

-day eurodollar rate plus

1.0%

) plus an applicable margin which ranges from

1.0%

2.25%.

The Partnership pays a per annum fee on all letters of credit issued under the credit agreement, which fee equals the applicable margin for loans accruing interest based on the eurodollar rate, and the Partnership pays a commitment fee ranging from

0.375%

0.5%

on the unused commitments under the credit agreement. The applicable margins for the Partnership’s interest rate, the letters of credit fee and the commitment fee vary quarterly based on the Partnership’s consolidated total leverage ratio (as defined in the credit agreement, being generally computed as the ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges).

The credit agreement includes financial covenants which are tested on a quarterly basis, based on the rolling

four

-quarter period that ends on the last day of each fiscal quarter.

Prior to the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds

$200.0

million, the maximum permitted consolidated total leverage ratio will be

5.00

1.00

for the fiscal quarter ending and

December 31, 2019,

and

4.75

1.00

for the fiscal quarter ending

March 31, 2020,

and each fiscal quarter thereafter; provided that the maximum permitted consolidated total leverage ratio

may

be increased to

5.25

1.00

for certain quarters after

December 31, 2019,

based on the occurrence of a specified acquisition (as defined in the credit agreement, but generally being an acquisition for which the aggregate consideration is

$15.0

million or more).

From and after the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds

$200.0

million, the maximum permitted consolidated total leverage ratio is

5.00

1.00;

provided that from and after the fiscal quarter ending immediately preceding the fiscal quarter in which a specified acquisition occurs, to and including the last day of the

second

full fiscal quarter following the fiscal quarter in which such acquisition occurred, the maximum permitted consolidated total leverage ratio is

5.50

1.00.

The maximum permitted consolidated senior secured leverage ratio (as defined in the credit agreement, but generally computed as the ratio of consolidated total secured debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) is

3.50

1.00,

but this covenant is only tested from and after the date on which the Partnership issues qualified senior notes in an aggregate principal amount (when combined with all other qualified senior notes previously or concurrently issued) that equals or exceeds

$200.0

million.

The minimum permitted consolidated interest coverage ratio (as defined in the credit agreement, but generally computed as the ratio of consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges to consolidated interest expense) is

2.50

1.00.

In addition, the credit agreement contains various covenants that, among other restrictions, limit the Partnership’s ability to:

•

create, issue, incur or assume indebtedness;

•

create, incur or assume liens;

•

engage in mergers or acquisitions;

•

sell, transfer, assign or convey assets;

•

repurchase the Partnership’s equity, make distributions to unitholders and make certain other restricted payments;

•

make investments;

•

modify the terms of certain indebtedness, or prepay certain indebtedness;

•

engage in transactions with affiliates;

•

enter into certain hedging contracts;

•

enter into certain burdensome agreements;

•

change the nature of the Partnership’s business; and

•

make certain amendments to the Partnership’s partnership agreement.

December 31, 2019

, the Partnership’s consolidated total leverage ratio was

4.05

1.00

and the consolidated interest coverage ratio was

4.24

1.00.

The Partnership was in compliance with all covenants of its credit agreement as of

December 31, 2019

Management evaluates whether conditions and/or events raise substantial doubt about the Partnership’s ability to continue as a going concern within

one

year after the date that the consolidated financial statements are issued (the “assessment period”). In performing this assessment, management considered the risk associated with its ongoing ability to meet the financial covenants.

Based on the Partnership’s forecasted EBITDA during the assessment period, management believes that it will meet these financial covenants. However, the Partnership cannot make any assurances that it will be able to achieve management’s forecasts. If the Partnership is unable to achieve management’s forecasts, further actions

may

be necessary to remain in compliance with the Partnership’s consolidated total leverage ratio covenant, including, but

not

limited to, cost reductions, common and preferred unitholder distribution curtailments, and/or asset sales. The Partnership can make

assurances that it would be successful in undertaking these actions, or that the Partnership will remain in compliance with the consolidated total leverage ratio during the assessment period. Additionally, there are certain inherent risks associated with our continued ability to comply with our consolidated total leverage ratio covenant. These risks relate, among other things, to potential future (a) decreases in storage volumes and rates as well as throughput and transportation rates realized; (b) weather phenomenon that

may

potentially hinder the Partnership’s asphalt business activity; and (c) other items affecting forecasted levels of expenditures and uses of cash resources. Violation of the consolidated total leverage ratio covenant would be an event of default under the credit agreement, which would cause our

$255.6

million in outstanding debt, as of

December 31, 2019

, to become immediately due and payable. If this were to occur, the Partnership would

not

expect to have sufficient liquidity to repay these outstanding amounts then due, which could cause the lenders under the credit facility to pursue other remedies. Such remedies could include exercising their collateral rights to the Partnership’s assets.

The credit agreement permits the Partnership to make quarterly distributions of available cash (as defined in the Partnership’s partnership agreement) to unitholders so long as

default or event of default exists under the credit agreement on a pro forma basis after giving effect to such distribution, provided, however, in

event shall aggregate quarterly distributions in any individual fiscal quarter exceed

$10.7

million through, and including, the fiscal quarter ending

December 31, 2019.

The Partnership is currently allowed to make distributions to its unitholders in accordance with this covenant; however, the Partnership will only make distributions to the extent it has sufficient cash from operations after establishment of cash reserves as determined by the Board of Directors (the “Board”) of Blueknight Energy Partners G.P., L.L.C (the “general partner”) in accordance with the Partnership’s cash distribution policy, including the establishment of any reserves for the proper conduct of the Partnership’s business. See Note

for additional information regarding distributions.

In addition to other customary events of default, the credit agreement includes an event of default if:

(i)

the general partner ceases to own

100%

of the Partnership’s general partner interest or ceases to control the Partnership;

(ii)

Ergon ceases to own and control

50.0%

or more of the membership interests of the general partner; or

(iii)

during any period of

consecutive months, a majority of the members of the Board of the general partner ceases to be composed of individuals:

(A)

who were members of the Board on the

first

day of such period;

(B)

whose election or nomination to the Board was approved by individuals referred to in clause (A) above constituting at the time of such election or nomination at least a majority of the Board; or

(C)

whose election or nomination to the Board was approved by individuals referred to in clauses (A) and (B) above constituting at the time of such election or nomination at least a majority of the Board, provided that any changes to the composition of individuals serving as members of the Board approved by Ergon will

not

cause an event of default.

If an event of default relating to bankruptcy or other insolvency events occurs with respect to the general partner or the Partnership, all indebtedness under the credit agreement will immediately become due and payable. If any other event of default exists under the credit agreement, the lenders

may

accelerate the maturity of the obligations outstanding under the credit agreement and exercise other rights and remedies. In addition, if any event of default exists under the credit agreement, the lenders

may

commence foreclosure or other actions against the collateral.

If any default occurs under the credit agreement, or if the Partnership is unable to make any of the representations and warranties in the credit agreement, the Partnership will be unable to borrow funds or have letters of credit issued under the credit agreement.

Upon the execution of the

first

amendment to its credit agreement in

June 2018,

the Partnership expensed

$0.4

million of debt issuance costs due to the reduction in available borrowing capacity. During the year ended

December 31, 2018

, the Partnership capitalized debt issuance costs related to its credit agreement of

$0.4

million. The debt issuance costs are being amortized over the term of the credit agreement. Interest expense related to debt issuance cost amortization for both of the years ended

December 31, 2018

and

2019

, was

$1.0

million.

During the years ended

December 31, 2018

and

2019

, the weighted average interest rate under the Partnership’s credit agreement, excluding the

$0.4

million of debt issuance costs that were expensed as described above, was

5.49%

and

6.00%

, respectively, resulting in interest expense of approximately

$16.8

million and

$15.9

million, respectively.

The Partnership is exposed to market risk for changes in interest rates related to its credit agreement. Interest rate swap agreements are sometimes used to manage a portion of the exposure related to changing interest rates by converting floating-rate debt to fixed-rate debt. As of

December 31, 2019,

the Partnership had

interest rate swap agreements; interest rate swap agreements with notional amounts totaling

$100.0

million matured on

January 28, 2019.

During the years ended

December 31, 2018

and

2019

, the Partnership recorded swap interest income of less than

$0.1

million for both periods. The interest rate swaps did

not

receive hedge accounting treatment under

ASC

815

- Derivatives and Hedging

The following provides information regarding the Partnership’s assets and liabilities related to its interest rate swap agreements as of the periods indicated (in thousands):

Changes in the fair value of the interest rate swaps are reflected in the consolidated statements of operations as follows (in thousands):

Derivatives Not Designated as	Location of Gain(Loss) Recognized in Net	Amount of Gain(Loss) Recognized
Hedging Instruments	Income on Derivatives	in Net Income on Derivatives
		Year ended December 31,
		2018		2019
Interest rate swaps	Interest expense	$	201	$	(44	)

Fair Value of

Derivatives Not Designated as Hedging Instruments

Balance Sheet Location

Derivatives

December 31, 2018

Interest rate swap assets - current

Other current assets