Vanguard lenders waive liquidity covenant to allow interest payments

By Marisa Wong

Morgantown, W.Va., Oct. 26 – Vanguard Natural Resources, LLC entered into a limited waiver and amendment to its third amended and restated credit agreement with Citibank NA as administrative agent on Wednesday, according to an 8-K filing with the Securities and Exchange Commission.

Under a previous waiver entered into on Sept. 30, the first-lien lenders had agreed to waive any event of default resulting from the company’s election to use the 30-day grace period under its 7 7/8% senior notes due 2020. On Wednesday, the company announced it paid the overdue coupon on those notes.

Under the latest waiver and amendment, the first-lien lenders have agreed, among other things, to waive any events of default resulting from the company’s inability to maintain liquidity in excess of $50 million, giving pro forma effect to some interest payments. These interest payments include the $15 million semiannual interest payment due on Oct. 1 on about $381.8 million of the 7 7/8% notes due 2020 and a $2.1 million semiannual interest payment due on Dec. 1 on about $51.2 million of 8 3/8% senior notes due 2019.

Decrease recommended

The administrative agent has indicated to the company that it has recommended an additional decrease in the borrowing base to $1.1 billion from $1,325,000,000, the filing noted.

The proposed reduction in the borrowing base will be effective upon approval by two-thirds of the first-lien lenders voting by commitments, and the company expects that the administrative agent will obtain those approvals effective Nov. 3.

The company has monetized some of its outstanding commodity hedge agreements and used the proceeds first to pre-pay the first-lien lenders $29.3 million, representing the remaining outstanding borrowing base deficiency resulting from the borrowing base redetermination in May, and $37.5 million, which will be applied as the first required monthly payment to its new borrowing base deficiency resulting from the anticipated November borrowing base redetermination.

The company intends to repay the remaining borrowing base deficiency of $187.5 million in five equal monthly installments of $37.5 million beginning in January.

Also, under the current waiver and amendment, the company plans to pledge to the first-lien lenders some unencumbered midstream assets as collateral.

In addition, the company agreed to pay 100% of the net cash proceeds from any asset sale, swap or hedge monetization or other disposition to the first-lien lenders. The borrowing base may be further reduced as a result of such a disposition to the extent of the attributed value of those assets.

Furthermore, any incurrence of second-lien debt will require the company to prepay the first-lien lenders equal to the net cash proceeds received from any second-lien financing.

Richard A. Robert, executive vice president and chief financial officer, commented in a press release, “While these events don’t represent a solution to our bank debt or liquidity issues, they do provide the company additional time to continue our efforts to obtain alternative financing and/or monetize certain assets.”

Vanguard is a Houston-based oil and gas exploration and development company.

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