Borrowings and Other Obligations |
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Borrowings and Other Obligations | Borrowings and Other Obligations
Credit Agreements ABL Credit Agreement On December 13, 2019, we entered into a senior secured asset-based revolving credit agreement in an aggregate amount of $450 million (the “ABL Credit Agreement”) with the lenders party thereto and Wells Fargo Bank, N.A. as administrative agent. Among other things, proceeds of loans under the ABL Credit Agreement may be used to finance ongoing working capital and general corporate needs of the Company and certain of its subsidiaries. The facility may also be used for issuing letters of credit. The maturity date of loans made under the ABL Credit Agreement is June 13, 2024. At June 30, 2020, borrowings under our ABL Credit Agreement was $20 million, outstanding letters of credit was $123 million, and we had approximately $91 million borrowing and/or letters of credit availability under the facility. The applicable terms, interest rates and fees for borrowings under the ABL Credit Agreement are the same as those presented in “Note 13 – Short-Term Borrowings and other Debt Obligations” in our 2019 Annual Report. LC Credit Agreement On December 13, 2019, we entered into a senior secured letter of credit agreement in an aggregate amount of $195 million (the “LC Credit Agreement,” together with the ABL Credit Agreement, the “Exit Credit Agreements”) with the lenders party thereto and Deutsche Bank Trust Company Americas as administrative agent. The LC Credit Agreement is used for the issuance of bid and performance letters of credit of the Company and certain of its subsidiaries. The maturity date under the LC Credit Agreement is June 13, 2024. At June 30, 2020, we had approximately $129 million in outstanding letters of credit under the LC Credit Agreement and availability of $66 million. The applicable terms, interest rates and fees for borrowings under the LC Credit Agreement are the same as those presented in “Note 13 – Short-Term Borrowings and other Debt Obligations” in our 2019 Annual Report. As of June 30, 2020, we were in compliance with the financial covenants as defined in the Exit Credit Agreements and the covenants under our indentures. However, the full impact that the pandemic and the precipitous decline in oil prices will have on our results of operations, financial condition, liquidity and cash flows in 2020 and future years is uncertain. The actions taken by management to preserve liquidity and capital include the reduction of capital expenditures, consolidation of product lines to eliminate redundancy, exiting from sub-scale locations and a higher level of headcount reductions. The decline in activity has and will continue to result in a significant reduction in our accounts receivable, inventory and rental tools, particularly in North America, which comprise the most significant components of the borrowing base of our credit facility and as a result will impair our ability to comply with the covenants under the ABL Credit Agreement. Despite the actions of management, given the material decline in our business as a result of the decline in demand for oil and gas worldwide, we expect that a breach of our covenants under our ABL Credit Agreement could occur in the first half of 2021. A covenant breach would occur if our Excess Availability and our Fixed Charge Coverage Ratio (as such terms are defined in the ABL Credit Agreement) were to each fall below the minimum requirement as defined in the ABL Credit Agreement. Further, a breach of these financial covenants would constitute an event of default under our ABL Credit Agreement which if not timely cured or waived, would constitute an event of default under our LC Credit Agreement. An event of default under these agreements would result in our obligations being accelerated, including cash collateralizing our letters of credit. Such result would constrain our liquidity and we may not be able to service the interest on our debt or pay other obligations and thus, raises substantial doubt on our ability to continue as a going concern within the next 12 months. See “Note 1 – General” for further details. Other Short-term Arrangements and Debt Activity We have short-term borrowings with various domestic and international institutions pursuant to uncommitted credit facilities and other financing arrangements. At June 30, 2020, we had $24 million in short-term borrowings under these arrangements. As of June 30, 2020, we had $335 million of letters of credit and performance and bid bonds outstanding, consisting of $123 million of letters of credit under the ABL Credit Agreement, $129 million of letters of credit under the LC Credit Agreement and $83 million of letters of credit under various uncommitted facilities. At June 30, 2020, we had cash collateral of $72 million, included in Restricted Cash supporting letters of credit under our various uncommitted facilities. Long-term Debt On December 13, 2019, we issued our Exit Notes in an aggregate principal amount of $2.1 billion. Interest on the Exit Notes accrues at the rate of 11.00% per annum and is payable semiannually in arrears on June 1 and December 1. The Exit Notes are unsecured and mature on December 1, 2024. The indenture governing the Exit Notes contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries, to: incur, assume or guarantee additional indebtedness; pay dividends or distributions on capital stock or redeem or repurchase capital stock; make investments; sell stock of our subsidiaries; transfer or sell assets; create liens; enter into transactions with affiliates; and enter into mergers or consolidations. At June 30, 2020, we are in compliance with our indenture covenants. However, as noted above, a breach of covenants under the ABL Credit Agreement that is not cured or waived, would trigger an event of default under our Exit Notes if it is (a) caused by a failure to pay at its stated maturity principal of an indebtedness within the applicable express grace period and any extensions thereof, or (b) results in the acceleration of such indebtedness prior to its stated maturity, and, in each case, the principal amount of such indebtedness, together with the principal amount of any other indebtedness with respect to which an event described in clause (a) or (b) has occurred and is continuing aggregates $75 million or more. Fair Value of Short and Long-term Borrowings The carrying value of our short-term borrowings approximates their fair value due to their short maturities. These short-term borrowings are classified as Level 2 in the fair value hierarchy. The fair value of our long-term debt fluctuates with changes in applicable interest rates among other factors. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued and will be less than the carrying value when the market rate is greater than the interest rate at which the debt was originally issued. The fair value of our long-term debt is classified as Level 2 in the fair value hierarchy and is established based on observable inputs in less active markets.
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