Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. MILLER ENERGY RESOURCES, INC. (785968) 10-Q published on Mar 12, 2015 at 5:04 pm
Reporting Period: Jan 30, 2015
In November 2014, the FASB issued ASU 2014-16, "Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity." ASU 2014-16 clarifies how current U.S. GAAP should be interpreted in evaluating the economic characteristics and risk of a host contract in a hybrid financial instrument that is issued in the form of a share. In addition, ASU 2014-16 was issued to clarify that in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features, such as the relative strength of the debt-like or equity-like terms and features given the facts and circumstances, when considering how to weight those terms and features. The effects of initially adopting ASU 2014-16 should be applied on a modified retrospective basis to existing hybrid financial instruments issued in a form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. ASU 2014-16 is effective fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption in an interim period is permitted. The Company will continue to determine the effects, if any, of ASU 2014-16 on its consolidated financial statements.
The Second Lien Credit Agreement provides for a $175,000 term credit facility, all of which was made available to and drawn by the Company on the closing date. The amounts drawn were subject to a 2% original issue discount. Absent an event of default, amounts outstanding under the Second Lien Credit Facility bear interest at a rate of LIBOR plus 9.75%, subject to a 2% LIBOR floor. Under the terms of the Second Lien Credit Facility, Miller was permitted to enter into a reserve-based revolving credit facility on certain agreed terms which would be secured on a first-lien basis. Upon entering into such revolving credit facility and a related intercreditor agreement, the Second Lien Credit Facility would become a second-lien credit facility. The Company entered into a credit agreement for a revolving credit facility (the "First Lien Loan Agreement"), among the Company, as borrower, KeyBank National Association ("KeyBank"), as administrative agent (in that capacity the "RBL Administrative Agent"), and the lenders from time to time party thereto (the "RBL Lenders") on June 2, 2014. The First Lien Loan Agreement provides for a senior secured, reserve-based revolving credit facility of up to $250,000 (the "First Lien RBL"). In connection with the Company's entry into the First Lien Loan Agreement, we amended the Second Lien Credit Agreement. The Second Lien Credit Facility carries a four year maturity. The Second Lien Credit Facility contains covenants, including but not limited to, a leverage ratio, interest coverage ratio, current ratio, asset coverage ratio, minimum gross production and change of management control covenants, as well as other covenants customary for a transaction of this type. As of January 31, 2015, there was an event of default under the Second Lien Credit Facility arising from a delay in our issuing a mortgage in favor of the Second Lien Lenders covering a right-of-way lease underlying our North Fork Pipeline (the "Second Lien Technical Default"). Additionally, the Company was not in compliance with certain of the required financial covenants as of January 31, 2015 (the "Second Lien Covenant Default"), although the Company was in compliance with the production covenant and other covenants. The Second Lien Technical Default and Second Lien Covenant Default were waived or otherwise remedied by the March 2015 Second Lien Amendment (as defined below under Note 16, Subsequent Events). While we believe we will comply with the covenants in the Second Lien Credit Facility for the next twelve months, if we are unable to do so or are unable to obtain a waiver from our lender, our debt would become immediately due and payable and we would not be able to utilize our assets to satisfy our obligations.
Under ASC 740, companies are required to assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard. In making such judgments, significant weight is given to evidence that can be objectively verified. We are in a three year cumulative pre-tax loss position as of January 31, 2015. A cumulative loss position is considered significant negative evidence in assessing the realizability of a deferred tax asset and is difficult to overcome. We did not consider future taxable income, tax planning strategies, or income in carry back years in determining the realizability of our deferred tax assets. Our estimate of the realization of the deferred tax assets was solely based on future reversals of existing taxable temporary differences. This resulted in the imposition of an additional valuation allowance of approximately $64,273 during the nine months ended January 31, 2015. Our provision for income taxes is based on the actual year-to-date effective rate, which includes the adjustment for the increase in the valuation allowance, as this
On March 11, 2015, the Company entered into a Waiver and Fourth Amendment to Credit Agreement and Second Amendment to Guarantee and Collateral Agreement (the "March 2015 First Lien Amendment") to the First Lien RBL. The March 2015 First Lien Amendment, among other things, (i) allows us 60 days from the date of the March 2015 First Lien Amendment to provide a mortgage to the RBL Lenders covering the North Fork Pipeline and 30 days from that date to have Savant deliver a mortgage in favor of the RBL Lenders covering its oil and gas properties, (ii) adds a requirement that we engage a field auditor and complete a review of our accounts payable, (iii) requires that we deliver to the RBL Administrative Agent an engineering report on or before May 1, 2015 which will serve as the basis of an interim redetermination of the borrowing base under the First Lien Loan Agreement, which will be permitted in addition to the other redeterminations otherwise permitted under the First Lien Loan Agreement, (iv) sets new minimum liquidity requirements, (v) amends APOD A and certain defined terms, (vi) requires that we apply certain expected tax credit receipts to pay down the outstanding balance of the loans outstanding under the First Lien Loan Agreement, (vii) amends restrictions on minimum availability that must be maintained under the First Lien Loan Agreement, includes additional restrictions on capital expenditures, (viii) permits us to issue an additional $50,000 in preferred stock, measured in terms of the stated liquidation preference of that stock (to a total of $100,000 and requires that we raise at least $10,000 of net cash proceeds from the issuance of preferred equity interests on or before April 30, 2015, (ix) amends the borrowing base to $45,000 for the period beginning on the date of the March 2015 First Lien Amendment until the next redetermination date, (x) amends and updates a list of pledged equity interests attached as Schedule 2 to the associated Guarantee and Collateral Agreement in favor of the RBL Lenders, (xi) by an amendment to the definition of "Applicable Margin," increases the interest rates payable on the loans outstanding under the First Lien RBL by 1.0%, as compared to the interest rates payable prior to the date of the March 2015 First Lien Amendment, and (xii) provides waivers related to certain events of default resulting from (A) the impairment of our proved reserves, (B) our issuance of preferred equity interests with a stated liquidation preference in excess of $50,000, (C) the existence of debt in the form of accounts payable that were greater than 90 days past due, (D) our failure to provide an executed mortgage and related legal opinions on the North Fork Pipeline when due pursuant to a prior amendment, (E) our payment of dividends on our preferred stock while an event of default existed under the First Lien Loan Agreement, and (F) related cross defaults arising under the Second Lien Credit Facility.
On March 11, 2015, the Company entered into a Waiver and Fourth Amendment to Credit Agreement and Second Amendment to Guarantee and Collateral Agreement (the "March 2015 First Lien Amendment") to the First Lien RBL. The March 2015 First Lien Amendment, among other things, (i) allows us 60 days from the date of the March 2015 First Lien Amendment to provide a mortgage to the RBL Lenders covering the North Fork Pipeline and 30 days from that date to have Savant deliver a mortgage in favor of the RBL Lenders covering its oil and gas properties, (ii) adds a requirement that we engage a field auditor and complete a review of our accounts payable, (iii) requires that we deliver to the RBL Administrative Agent an engineering report on or before May 1, 2015 which will serve as the basis of an interim redetermination of the borrowing base under the First Lien Loan Agreement, which will be permitted in addition to the other redeterminations otherwise permitted under the First Lien Loan Agreement, (iv) sets new minimum liquidity requirements, (v) amends APOD A and certain defined terms, (vi) requires that we apply certain expected tax credit receipts to pay down the outstanding balance of the loans outstanding under the First Lien Loan Agreement, (vii) amends restrictions on minimum availability that must be maintained under the First Lien Loan Agreement, includes additional restrictions on capital expenditures, (viii) permits us to issue an additional $50,000 in preferred stock, measured in terms of the stated liquidation preference of that stock (to a total of $100,000 and requires that we raise at least $10,000 of net cash proceeds from the issuance of preferred equity interests on or before April 30, 2015, (ix) amends the borrowing base to $45,000 for the period beginning on the date of the March 2015 First Lien Amendment until the next redetermination date, (x) amends and updates a list of pledged equity interests attached as Schedule 2 to the associated Guarantee and Collateral Agreement in favor of the RBL Lenders, (xi) by an amendment to the definition of "Applicable Margin," increases the interest rates payable on the loans outstanding under the First Lien RBL by 1.0%, as compared to the interest rates payable prior to the date of the March 2015 First Lien Amendment, and (xii) provides waivers related to certain events of default resulting from (A) the impairment of our proved reserves, (B) our issuance of preferred equity interests with a stated liquidation preference in excess of $50,000, (C) the existence of debt in the form of accounts payable that were greater than 90 days past due, (D) our failure to provide an executed mortgage and related legal opinions on the North Fork Pipeline when due pursuant to a prior amendment, (E) our payment of dividends on our preferred stock while an event of default existed under the First Lien Loan Agreement, and (F) related cross defaults arising under the Second Lien Credit Facility.
On March 11, 2015, the Company entered into a Waiver and Amendment No. 5 to Credit Agreement and Amendment No. 3 to Guarantee and Collateral Agreement (the "March 2015 Second Lien Amendment") to the Second Lien Credit Agreement. The March 2015 Second Lien Amendment, among other things, (i) allows us 60 days from the date of the 2015 Second Lien Amendment to provide a mortgage to the Second Lien Lenders covering the North Fork Pipeline and 30 days from that date to have Savant deliver a mortgage in favor of the Second Lien Lenders covering its oil and gas properties, (ii) adds a requirement that we engage a field auditor and complete a review of our accounts payable, (iii) requires that we deliver to the Second Lien Agent an engineering report on or before May 1, 2015, (iv) amends the provision on “additional interest” to require that we pay an additional 1.0% interest in cash plus 2.0% interest in kind on the loans outstanding under the Second Lien Credit Agreement