Debt

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Debt

Debt

Credit facility. The Company has a $2.5 billion credit facility that expires in July 2022.

The Company had $0.8 billion of letters of credit outstanding under its credit facility as of June 30, 2020 and no letters of credit outstanding under its credit facility as of December 31, 2019.

Under the Company's credit facility, for the three months ended June 30, 2020 and 2019, the maximum amounts of outstanding borrowings were $173 million and $572 million, respectively, the average daily balances were approximately $35 million and $276 million, respectively, and interest was incurred at weighted average annual interest rates of 2.4% and 4.0%, respectively. Under the Company's credit facility, for the six months ended June 30, 2020 and 2019, the maximum amounts of outstanding borrowings were $356 million and $1,108 million, respectively, the average daily balances were approximately $60 million and $459 million, respectively, and interest was incurred at weighted average annual interest rates of 2.9% and 4.0%, respectively.

Based on the Company's senior notes credit rating as of June 30, 2020, the margin on base rate loans under the Company's credit facility was 1.00% and the margin on Eurodollar rate loans was 2.00%.

Term loan facility. The Company had a $1.0 billion term loan facility that was scheduled to mature in May 2021. During the second quarter 2020, the Company used proceeds from the offering of its Convertible Notes (see below), income tax refunds received during the quarter (see Note 5) and proceeds from the 2020 Divestiture (see Note 10) to fully repay its term loan facility. For the three and six months ended June 30, 2020, the average daily balances were approximately $431 million and $692 million, respectively, and interest was incurred on the Company's term loan facility borrowings at a weighted average annual interest rate of 2.2% and 2.6%, respectively. As of June 30, 2019, the Company had $1.0 billion of outstanding borrowings under its term loan facility. For the period May 31, 2019 through June 30, 2019, interest was incurred on the Company's term loan facility borrowings at a weighted average annual interest rate of 3.4%. Based on the Company's senior notes credit rating as of June 30, 2020 and December 31, 2019, the margin on the Company's term loan facility borrowings was 1.50% and 1.00%, respectively.

Adjustable Rate Notes. On January 21, 2020, the Company issued $1.0 billion aggregate principal amount of 6.125% senior notes due February 1, 2025 and $750 million aggregate principal amount of 7.000% senior notes due February 1, 2030 (together, the Adjustable Rate Notes). The Company used the net proceeds from the Adjustable Rate Notes to repay $500 million aggregate principal amount of the Company's floating rate notes, $500 million aggregate principal amount of the Company's 2.50% senior notes, $500 million aggregate principal amount of the Company's 4.875% senior notes and $200 million of the Company's term loan facility borrowings. The Company fully redeemed its floating rate notes and 2.50% senior notes at a price of 100% and 100.446% (inclusive of a make whole call premium), respectively, of each note's principal amount plus accrued but unpaid interest of $1.2 million and $4.2 million, respectively. This resulted in the payment of make whole call premiums of $2.2 million related to the Company's 2.50% senior notes. The $500 million aggregate principal amount of the Company's 4.875% senior notes was redeemed at a total cost of $517.4 million, inclusive of a tender premium of $10.0 million and accrued but unpaid interest of $7.4 million. In addition, in April 2020, the Company repurchased $4.6 million aggregate principal amount of its 4.875% senior notes pursuant to open market purchases.

As a result of downgrades of the Company's senior notes credit rating that occurred subsequent to the issuance of the Adjustable Rate Notes, the interest rate on the 6.125% senior notes will increase to 7.875% and the interest rate on the 7.000% senior notes will increase to 8.750% beginning with the interest payment period that starts on August 1, 2020. The adjusted interest rate under the Adjustable Rate Notes cannot exceed 2% of the original interest rate first set forth on the face of the senior notes.

Convertible Notes. On April 28, 2020, the Company issued $500 million aggregate principal amount of 1.75% convertible senior notes (the Convertible Notes) due May 1, 2026 unless earlier redeemed, repurchased or converted. The Convertible Notes were issued in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. After deducting offering costs of $16.9 million and Capped Call Transactions (defined and described below) costs of $32.5 million, the net proceeds from the offering of $450.6 million were used to repay $450 million of the Company's term loan facility borrowings as well as for general corporate purposes.

Interest under the Convertible Notes is payable semiannually in arrears on May 1 and November 1 of each year beginning on November 1, 2020.

Holders of the Convertible Notes may convert their Convertible Notes, at their option, at any time prior to the close of business on January 30, 2026 under the following circumstances:

•during any quarter commencing after the quarter ended June 30, 2020 as long as the last reported price of EQT common stock for at least 20 trading days (consecutive or otherwise) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding quarter is greater than or equal to 130% of the conversion price on each such trading day;

•during the five-business-day period after any five-consecutive-trading-day period (the measurement period) in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period is less than 98% of the product of the last reported price of EQT common stock and the conversion rate for the Convertible Notes on each such trading day;

•if the Company calls any or all of the Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding such redemption date; and

•upon the occurrence of certain corporate events set forth in the Convertible Notes indenture.

On or after February 1, 2026, holders of the Convertible Notes may convert their Convertible Notes, at their option, at any time until the close of business on the second scheduled trading date immediately preceding May 1, 2026.

Upon conversion of the Convertible Notes, the Company intends to use a combined settlement approach to satisfy its obligation by paying or delivering to holders of the Convertible Notes cash equal to the principal amount of the obligation and EQT common stock for amounts that exceed the principal amount of the obligation.

The Company may not redeem the Convertible Notes prior to May 5, 2023. On or after May 5, 2023 and prior to February 1, 2026, the Company may redeem for cash all or any portion of the Convertible Notes, at its option, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed plus accrued and unpaid interest up to the redemption date as long as the last reported price per share of EQT common stock has been at least 130% of the conversion price in effect for at least 20 trading days (consecutive or otherwise) during any 30-consecutive-trading-day period ending on the trading day immediately preceding the date on which the Company delivers notice of redemption. A sinking fund is not provided for the Convertible Notes.

The initial conversion rate for the Convertible Notes is 66.6667 shares of EQT common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of $15.00 per share of EQT common stock. The initial conversion price represents a premium of 20% to the $12.50 per share closing price of EQT common stock on April 23, 2020. The conversion rate is subject to adjustment under certain circumstances. In addition, following certain corporate events that occur prior to May 1, 2026 or if the Company delivers notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or notice of redemption.

In connection with the Convertible Notes offering, the Company entered into privately negotiated capped call transactions (the Capped Call Transactions), the purpose of which is to reduce the potential dilution to EQT common stock upon conversion of the Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of such obligation, with such reduction and offset subject to a cap. The Capped Call Transactions have an initial strike price of $15.00 per share of EQT common stock and an initial capped price of $18.75 per share of EQT common stock, each of which are subject to certain customary adjustments.

For accounting purposes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the principal value of the Convertible Notes. The equity component is not remeasured as long as it continues to meet the condition for equity classification. The excess of the principal amount of the liability component over its carrying amount (the debt discount) will be amortized to interest expense over the term of the Convertible Notes, which is approximately 6 years, at an effective interest rate of 8.4%. At inception, the Company recorded the Convertible Notes at fair value of approximately $358.1 million, a net deferred tax liability of $41.0 million and an equity component of $100.9 million.

Issuance costs were allocated to the liability and equity components of the Convertible Notes based on their relative fair values. Issuance costs attributable to the liability component of $12.1 million were recorded as a reduction to the liability component of the Convertible Notes and will be amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 8.4%. Issuance costs attributable to the equity component of $4.8 million, representing the conversion option, were netted with the equity component.

The Capped Call Transactions are separate from the Convertible Notes. The Capped Call Transactions were recorded in shareholders' equity and were not accounted for as derivatives. The cost to purchase the Capped Call Transactions were recorded as a reduction to equity and will not be remeasured.

As of June 30, 2020, the net carrying amount of the Convertible Notes liability component consisted of principal of $500 million less the unamortized debt discount of $138.7 million and unamortized issuance costs of $11.9 million. During the three and six months ended June 30, 2020, the Company recognized interest expense related to the Convertible Notes of $4.9 million, consisting of contractual interest expense of $1.5 million, amortization of the debt discount of $3.2 million and amortization of issuance costs of $0.2 million.

For the three months ended June 30, 2020, the Convertible Notes had a net shareholders' equity impact of $63.6 million, which consisted of the conversion option equity component of $100.9 million less the Capped Call Transactions costs of $32.5 million and issuance costs attributable to the equity component of $4.8 million.

Surety Bonds. During the three months ended June 30, 2020, the Company issued approximately $93 million in surety bonds in response to its recent credit downgrades by Moody's, S&P and Fitch.