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10. Third-Party Long-Term Debt

12 Months Ended

Dec. 31, 2021

10. Third-Party Long-Term Debt

Third-Party Long-Term Debt

(10) Third-Party Long-Term Debt

Loan Agreements Summary

Loan Description

Parties

Original Principal Amount

(in millions)

Maturity Date

Monthly Principal and Interest Payment

Interest Rate

Loan Purpose

Veritex Loans

LE Term Loan Due 2034 (in default)⁽¹⁾⁽²⁾

Veritex

25.0

Jun 2034

$0.2 million

WSJ Prime + 2.75%

Refinance loan; capital improvements

LRM Term Loan Due 2034 (in default)⁽¹⁾

LRM

Veritex

10.0

Dec 2034

$0.1 million

WSJ Prime + 2.75%

Refinance bridge loan; capital improvements

Kissick Debt (in default)⁽³⁾⁽⁴⁾

Kissick

11.7

Jan 2018

16.00%

Working capital; reduced LE’s obligation to GEL

GNCU Loan (in default)

NPS Term Loan Due 2031⁽⁵⁾

NPS

GNCU

10.0

Oct 2031

$0.1 million

5.75%

Working capital

SBA EIDLs

BDEC Term Loan Due 2051

(as modified)⁽⁶⁾

Blue Dolphin

SBA

2.0

Jun 2051

$0.01 million

3.75%

Working capital

LE Term Loan Due 2050⁽⁷⁾

SBA

0.15

Aug 2050

$0.0007 million

3.75%

Working capital

NPS Term Loan Due 2050⁽⁷⁾

NPS

SBA

0.15

Aug 2050

$0.0007 million

3.75%

Working capital

Equipment Loan Due 2025⁽⁸⁾

Texas First

0.07

Oct 2025

$0.0013 million

4.50%

Equipment Lease Conversion

	⁽¹⁾	At December 31, 2021 and 2020, restricted cash, noncurrent was $0 and $0.5 million, respectively; restricted cash noncurrent represents amounts held by Veritex in a disbursement account for the payment of construction-related expenses.
	⁽²⁾	At both December 31, 2021 and 2020, restricted cash (current portion) was $0.05 million; restricted cash (current portion) represents amounts paid by LE into a $1.0 million payment reserve account held by Veritex.
	⁽³⁾	Original principal amount was $8.0 million; the debt is currently held by John Kissick. Pursuant to a 2017 sixth amendment, the Kissick Debt was amended to increase the principal amount by $3.7 million.

	⁽⁴⁾	Under a 2015 subordination agreement, John Kissick agreed to subordinate his right to payments, as well as any security interest and liens on the Nixon facility’s business assets, in favor of Veritex as holder of the LE Term Loan Due 2034.
	⁽⁵⁾	The loan requires monthly interest-only payments for the first thirty-six (36) months. Afterwards, principal and interest payments due monthly through loan maturity. The first payment is due in November 2024.
	⁽⁶⁾	Original principal amount was $0.5 million; the BDEC Term Loan Due 2051 was modified to increase the principal amount by $1.5 million. Payments were initially deferred for twenty-four (24); the deferral period was later extended to thirty (30) months; under the modification, the first payment is due in December 2023; interest accrues during the deferral period. The BDEC Term Loan Due 2051 is not forgivable. See “Note (17)” to our consolidated financial statements for more information regarding the loan modification.
	⁽⁷⁾	For disaster loans made in 2020, the SBA initially deferred payments for the first twelve (12) months. The SBA later extended the payment deferral period from twelve (12) months to twenty-four (24) months and again to thirty (30) months; under the extension, the first payment is due in March 2023; interest accrues during the deferral period. The LE Term Loan Due 2050 and NPS Term Loan Due 2050 are not forgivable.
	⁽⁸⁾	In May 2019, LE entered into a 12-month equipment rental agreement with the option to purchase the backhoe at maturity. The equipment rental agreement matured in May 2020. In October 2020, LE entered into the Equipment Loan Due 2025 to finance the backhoe purchase. We use the backhoe at the Nixon facility.

Outstanding Principal, Debt Issue Costs, and Accrued Interest

Third-party long-term debt (outstanding principal and accrued interest), as of the dates indicated was as follows:

	December 31,
	2021			2020
	(in thousands)
Veritex Loans
LE Term Loan Due 2034 (in default)	$	23,789		$	22,840
LRM Term Loan Due 2034 (in default)		9,861			9,473
Kissick Debt (in default)		10,210			9,413
GNCU Loan
NPS Term Loan Due 2031 (in default)		10,094			-
SBA EIDLs
BDEC Term Loan Due 2051		512			-
LE Term Loan Due 2050		156			152
NPS Term Loan Due 2050		156			152
Equipment Loan Due 2025		53			71
		54,831			42,101

Less: Current portion of long-term debt, net		(42,953	)		(33,692	)
Less: Unamortized debt issue costs		(2,351	)		(1,749	)
Less: Accrued interest payable (in default)		(8,689	)		(6,305	)
	$	838		$	355

Unamortized debt issue costs associated with the Veritex and GNCU loans as of the dates indicated consisted of the following:

	December 31,
	2021			2020
	(in thousands)
Veritex Loans
LE Term Loan Due 2034 (in default)	$	1,674		$	1,674
LRM Term Loan Due 2034 (in default)		768			768
GNCU Loan
NPS Term Loan Due 2031 (in default)		730			-

Less: Accumulated amortization		(821	)		(693	)
	$	2,351		$	1,749

Amortization expense was $0.1 million for both twelve-month periods ended December 31, 2021 and 2020.

Accrued interest related to third-party long-term debt, reflected as accrued interest payable in our consolidated balance sheets, as of the dates indicated consisted of the following:

	December 31,
	2021			2020
	(in thousands)
Notre Dame Debt (in default)	$	5,232		$	4,435
Veritex Loans
LE Term Loan Due 2034 (in default)		2,338			1,295
LRM Term Loan Due 2034 (in default)		959			571
GNCU Loan
NPS Term Loan Due 2031 (in default)		136			-
SBA EIDLs
BDEC Term Loan Due 2051		12			-
LE Term Loan Due 2050		6			2
NPS Term Loan Due 2050		6			2
		8,689			6,305
Less: Accrued interest payable (in default)		(8,689	)		(6,305	)
Long-term Interest Payable, Net of Current Portion	$	-		$	-

Payment Deferments

Veritex Loans. In 2020, LE and LRM were each granted a two-month payment deferment on their respective Veritex loans. The moratorium was from April 2020 to June 2020. LE and LRM were not required to make payments during the deferment period. However, interest continued to accrue at the stated rates of the loans. In July 2020, Veritex re-amortized the loans to recast principal and interest payments. Veritex also reinstated previous defaults. See ‘Defaults’ within this “Note (10) for additional disclosures related to defaults.

GNCU Loan. Payments under the NPS Term Loan Due 2031 are deferred for the first thirty-six (36) months. Interest accrues during the deferral period. Principal and interest payments begin in October 2024.

SBA EIDLs. SBA EIDLs include a payment deferral period. Interest accrues during the deferral period. The deferral period for the BDEC Term Loan Due 2051 (as modified) is the first thirty (30) months; principal and interest payments begin in December 2023. See “Note (17)” to our consolidated financial statements for more information regarding the loan modification. The deferral period for the LE Term Loan Due 2050 and the NPS Term Loan Due 2050 is the first thirty (30) months; principal and interest payments begin in March 2023.

Guarantees and Security

Loan Description	Guarantees	Security
Veritex Loans
LE Term Loan Due 2034 (in default)	· 100% USDA-guarantee · Jonathan Carroll⁽¹⁾ · Affiliate cross-guarantees	· First priority lien on Nixon facility’s business assets (excluding accounts receivable and inventory) · Assignment of all Nixon facility contracts, permits, and licenses · Absolute assignment of Nixon facility rents and leases, including tank rental income · $5.0 million life insurance policy on Jonathan Carroll
LRM Term Loan Due 2034 (in default)	· 100% USDA-guarantee · Jonathan Carroll⁽¹⁾ · Affiliate cross-guarantees	· Second priority lien on rights of LE in crude distillation tower and other collateral of LE · First priority lien on real property interests of LRM · First priority lien on all LRM fixtures, furniture, machinery, and equipment · First priority lien on all LRM contractual rights, general intangibles, and instruments, except with respect to LRM rights in its leases of certain specified tanks for which Veritex has second priority lien · All other collateral as described in the security documents
Kissick Debt (in default)⁽²⁾	---	· Subordinated deed of trust that encumbers the crude distillation tower and general assets of LE
GNCU Loan
NPS Term Loan Due 2031 (in default)	· 90% USDA-guarantee · Jonathan Carroll⁽¹⁾ · Affiliate cross-guarantees	· Deed of trust lien on approximately 56 acres of land and improvements owned by LE · Leasehold deed of trust lien on certain property leased by NPS from LE · Assignment of leases and rents and certain personal property
SBA EIDLs
LE Term Loan Due 2050	---	· Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) as more fully described in the security agreement
NPS Term Loan Due 2050	---	· Business assets (e.g., machinery and equipment, furniture, fixtures, etc.) as more fully described in the security agreement
Equipment Loan Due 2025	---	· First priority security interest in the equipment (backhoe).

	⁽¹⁾	Jonathan Carroll was required to personally guarantee repayment of borrowed funds and accrued interest.
	⁽²⁾	Pursuant to a 2015 subordination agreement, the holder of the Kissick Debt agreed to subordinate their right to payments, as well as any security interest and liens on the Nixon facility’s business assets, in favor of Veritex as holder of the LE Term Loan Due 2034.

The USDA, acting through its agencies, administers a federal rural credit program that makes direct loans and guarantees portions of loans made and serviced by USDA-qualified lenders for various purposes. Each USDA guarantee is a full faith and credit obligation of the U.S. with the USDA guaranteeing up to 100% of the principal amount. Lenders of USDA-guaranteed loans are required by regulations to retain both the guaranteed and unguaranteed portions of the loan, to service the entire underlying loan, and to remain mortgage and/or secured party of record. Both the guaranteed and unguaranteed portions of the loan are to be secured by the same collateral with equal lien priority. The USDA-guaranteed portion of a loan cannot be paid later than, or in any way be subordinated to, the related unguaranteed portion. See “Notes (3) and (16)” to our consolidated financial statements for additional disclosures related to Affiliate agreements and transactions, including long-term debt guarantees.

Covenants

The Veritex loans, GNCU loan, and SBA EIDLs contain representations and warranties, affirmative and negative covenants, and events of default that we consider usual and customary for credit facilities of this type. There are no covenants associated with the Kissick Debt and the Equipment Loan Due 2025.

Defaults

Loan Description	Event(s) of Default	Covenant Violations
Veritex Loans
LE Term Loan Due 2034 (in default)	Failing to make principal and interest payments; failing to replenish $1.0 million payment reserve account; events of default under other secured loan agreements with Veritex	Financial covenants: · debt service coverage ratio, current ratio, and debt to net worth ratio
LRM Term Loan Due 2034 (in default)	Failing to make principal and interest payments; events of default under other secured loan agreements with Veritex	Financial covenants: · debt service coverage ratio, current ratio, and debt to net worth ratio
GNCU Loan
NPS Term Loan Due 2031 (in default)	---	Financial covenants: · debt service coverage ratio, current ratio, and debt to net worth ratio
Kissick Debt (in default)	Failure to pay past due obligations at maturity (loan matured January 2019)	---

As reflected in the table above and elsewhere in this report, we are in default under the LE Term Loan Due 2034, LRM Term Loan Due 2034, NPS Term Loan Due 2031, and the Kissick Debt. Defaults under the LE Term Loan Due 2034 and LRM Term Loan Due 2034 permit Veritex to declare the amounts owed under these loan agreements immediately due and payable, exercise its rights with respect to collateral securing obligors’ obligations under these loan agreements, and/or exercise any other rights and remedies available. The debt associated with the LE Term Loan Due 2034, LRM Term Loan Due 2034, and the Kissick Debt was classified within the current portion of long-term debt on our consolidated balance sheets at December 31, 2021 and 2020.

Any exercise by third parties of their rights and remedies under our secured loan agreements will have a material adverse effect on our business operations, including crude oil and condensate procurement and our customer relationships; financial condition; and results of operations. In such a case, the trading price of our Common Stock and the value of an investment in our Common Stock could significantly decrease, which could lead to holders of our Common Stock losing their investment in our Common Stock in its entirety.

We can provide no assurance that: (i) our assets or cash flow will be sufficient to fully repay borrowings under our secured loan agreements, either upon maturity or if accelerated, (ii) LE, LRM, and NPS will be able to refinance or restructure the debt, and/or (iii) third parties will provide future default waivers. Defaults under our secured loan agreements and any exercise by third parties of their rights and remedies related to such defaults may have a material adverse effect on the trading prices of our Common Stock and on the value of an investment in our Common Stock, and holders of our Common Stock could lose their investment in our Common Stock in its entirety. See “Notes (1) and (11)” to our consolidated financial statements for additional information regarding defaults under our secured loan agreements and their potential effects on our business, financial condition, and results of operations.

Future annual third-party long-term debt payments, which are reflected as current due to defaults under our secured loan agreements:

Years Ending December 31,	Principal		Debt Issue Costs			Total
			(in thousands)
2022	$	45,304	$	(2,351	)	$	42,953
2023		16		-			16
2024		16		-			16
2025		12		-			12
2026		18
Subsequent to 2026		776		-			776
	$	46,142	$	(2,351	)	$	43,791