Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.22.1
Debt
3 Months Ended
Mar. 31, 2022
Debt Disclosure [Abstract]  
Debt

NOTE 11 – DEBT

Long-term debt consisted of the following:

 

 

March 31, 2022

 

 

December 31, 2021

 

Senior Secured Term Loan

 

$

102,972

 

 

$

120,745

 

Term C Loan

 

 

21,755

 

 

 

-

 

ABL Credit Facility

 

 

-

 

 

 

14,170

 

USDA Loan

 

 

25,000

 

 

 

25,000

 

Equipment financing

 

 

7,677

 

 

 

8,540

 

Capital leases

 

 

-

 

 

 

3,204

 

Total debt principal balance

 

 

157,404

 

 

 

171,659

 

Senior Secured Term Loan future interest payable

 

 

25,185

 

 

 

24,384

 

Unamortized debt discount and issuance costs

 

 

(16,720

)

 

 

(11,792

)

Current maturities

 

 

(8,425

)

 

 

(9,504

)

Net long-term debt

 

$

157,444

 

 

$

174,747

 

Senior Secured Term Loan

On May 7, 2019, the Company, U.S. Well Services, LLC (“USWS LLC”), as the borrower, and all the other subsidiaries of the Company entered into a Senior Secured Term Loan Credit Agreement (as amended, the “Senior Secured Term Loan Agreement”) with CLMG Corp., as administrative and collateral agent, and the lenders party thereto. Upon entering the Senior Secured Term Loan Agreement, the Company borrowed $250.0 million in Term A and Term B Loans (collectively the “Senior Secured Term Loan”), which matures on December 5, 2025.

On February 28, 2022, the Company, USWS LLC and all the other subsidiaries of the Company entered into the sixth term loan amendment to the Senior Secured Term Loan Agreement with CLMG Corp., as administrative agent and term loan collateral agent, and the lenders party thereto, to make certain modifications to the Senior Secured Term Loan Agreement, including, but not limited to, the interest rates, principal payments, certain covenants relating to collateral, approved growth capital expenditures, and mandatory prepayments.

The Senior Secured Term Loan interest rate was 0.0% for the period beginning April 1, 2020 through March 31, 2022. As of April 1, 2022, the outstanding principal balance of the Senior Secured Term Loan was reduced to less than $103.0 million, resulting in an interest rate for the period beginning April 1, 2022 through December 31, 2022 of (i) 1.0% per annum in cash and (ii) 4.125% per annum paid-in-kind by increasing the outstanding principal amount of the Senior Secured Term Loan on each interest payment date. The Senior Secured Term Loan will resume incurring interest on January 1, 2023 at the applicable benchmark rate, subject to a 2.0% floor, plus the applicable margin of 8.25% per annum.

The Senior Secured Term Loan requires quarterly principal payments of $1.25 million until March 31, 2023 and $5.0 million from June 30, 2023 through September 30, 2025, with final payment due at maturity.

Since April 2020, the Company has accounted for the Senior Secured Term Loan as a troubled debt restructuring under ASC 470-60, Troubled Debt Restructurings by Debtors. The subsequent amendments, including the sixth term loan amendment, did not result in a significant modification or extinguishment resulting in no change in accounting for the Senior Secured Term Loan.

During the three months ended March 31, 2022, the Company made principal payments of $17.8 million, which included prepayments of $16.5 million driven primarily by asset sales. The early repayment of debt resulted in a write-off of $1.6 million of unamortized debt discount and issuance costs and prepayment fees of $0.1 million, all of which were presented as loss on extinguishment of debt in the condensed consolidated statements of operations.

As of March 31, 2022, the outstanding principal balance of the Senior Secured Term Loan was $103.0 million, of which $5.0 million was due within one year from the balance sheet date.

Term C Loan

The sixth term loan amendment to the Senior Secured Term Loan Agreement also provided for an additional tranche of last-out term loans (the “Term C Loan”) of up to $35.0 million principal amount, with a maturity date of December 5, 2025. During the three months ended March 31, 2022, the Company borrowed $21.5 million in Term C Loans.

The Term C Loan was funded by a syndicate of institutions and individuals (collectively, the “Term C Loan Lenders”), including related parties, Crestview Partners and its affiliates and David Matlin, and was extended on a last-out basis in the payment waterfall relative to the existing Senior Secured Term Loan, and was otherwise made on the general terms and conditions consistent with the Senior Secured Term Loan.

The Term C Loan shall bear interest at a benchmark rate, subject to a 2.0% floor, plus 12.0% per annum, accrued on a daily basis, to be paid-in-kind by increasing the principal amount of the outstanding Term C Loan on each interest payment date. The default rate for the Term C Loan shall be 2.0% over and above the non-default rate, subject to the same terms and conditions for the Senior Secured Term Loan.

After repayment of the Senior Secured Term Loan in full, the Company will pay to the Term C Loan Lenders the following premium upon any repayment, prepayment or acceleration of the Term C Loan:

30% of the repaid, prepaid, or accelerated amount, if such repayment, prepayment or acceleration occurs on or prior to May 31, 2022;
65% of the repaid, prepaid, or accelerated amount, if such repayment, prepayment or acceleration occurs between June 1, 2022 and August 31, 2022; and
100% of the repaid, prepaid, or accelerated amount, if such repayment, prepayment or acceleration occurs on or after to September 1, 2022.

In connection with the entry into the Term C Loan, the Company issued an aggregate total of 14,999,999 Term C Loan Warrants to the Term C Loan Lenders, including related parties, Crestview Partners and David Matlin. Using the accounting guidance in ASC 470, Debt and ASC 815, Derivatives and Hedging, the Term C Loan Warrants were recognized as equity in the condensed consolidated balance sheet. Accordingly, the proceeds received were allocated as $14.7 million and $6.8 million to the Term C Loan and Term C Loan Warrants, respectively, based on the relative fair value at issuance.

The fair value of the Term C Loan was $22.6 million, calculated using a discounted cash flow model. The difference between the Term C Loan principal balance at issuance and the value allocated to it was $6.8 million, which was accounted for as a debt discount. Additionally, the Company incurred $0.7 million of transaction costs related to the Term C Loan, which were recorded as debt issuance costs. The debt discount and issuance costs are presented as a direct deduction from the carrying amount of the Term C Loan and are being amortized under the effective interest method over the term of the Term C Loan.

The fair value of the Term C Loan Warrants was $10.5 million, calculated using the Black-Scholes option pricing model. The following assumptions were used to calculate the fair value for the Term C Loan Warrants, at issuance:

 

 

February 2022 Warrants

 

 

March 2022 Warrants

 

Exercise price

 

$

1.10

 

 

$

1.29

 

Contractual term

 

6.0 years

 

 

6.0 years

 

Volatility rate

 

55.0%

 

 

55.0%

 

Risk-free interest rate

 

1.8%

 

 

1.6%

 

Expected dividend rate

 

0%

 

 

0%

 

See “Note 9 - Warrants” for additional disclosure regarding the Term C Loan Warrants.

As of March 31, 2022, the outstanding principal balance of the Term C Loan was $21.8 million, including $0.3 million of PIK interest, classified as long-term debt on the condensed consolidated balance sheet.

ABL Credit Facility

On May 7, 2019, the Company, USWS LLC, and all the other subsidiaries of the Company entered into an ABL Credit Agreement (as amended, the “ABL Credit Facility”) with the lenders party thereto and Bank of America, N.A., as the administrative agent, swing line lender and letter of credit issuer. As of March 31, 2022, the aggregate revolving commitment under the ABL Credit Facility is $50.0 million and the facility matures on April 1, 2025.

The ABL Credit Facility is subject to a borrowing base which is calculated based on a formula referencing the Company’s eligible accounts receivables. On March 31, 2022, the borrowing base was $8.5 million and there was no outstanding revolver loan balance.

Payments of Debt Obligations due by Period

As of March 31, 2022, the schedule of the repayment requirements of long-term debt is as follows:

 

 

Principal Amount

 

Fiscal Year

 

of Long-term Debt

 

Remainder of 2022

 

$

6,299

 

2023

 

 

20,070

 

2024

 

 

24,550

 

2025

 

 

87,907

 

2026

 

 

3,367

 

Thereafter

 

 

15,211

 

Total

 

$

157,404