Midstates lenders agree to $125 million bridge loan, backstop revolver

By Marisa Wong

Madison, Wis., March 11 - Midstates Petroleum Co., Inc. entered into commitment letters on March 9 with SunTrust Bank, SunTrust Robinson Humphrey, Inc., Morgan Stanley Senior Funding, Inc., Bank of America, NA, Goldman Sachs Bank USA, Merrill Lynch, Piece, Fenner & Smith Inc., Natixis New York Branch and Royal Bank of Canada for a $125 million senior secured bridge facility, according to an 8-K filing with the Securities and Exchange Commission.

Midstates also received commitments to provide a backstop revolver credit facility in the event that the company cannot obtain an amendment to its existing secured revolving credit facility. The amendment would allow the company to complete the bridge facility and provide a revised borrowing base of $475 million.

The commitment letters are in connection with the sale of the Pine Prairie portion of Midstates' Gulf Coast properties to Tana Exploration Co. LLC. The sale is expected to close on May 1.

The bridge facility would be secured by a first priority lien on Midstates' Gulf Coast assets and a second lien on Midstates' Midcontinent assets.

Advances under the bridge facility would be available through Sept. 30, 2014 in minimum amounts of $50 million. Borrowings would bear interest at Libor plus 450 basis points, subject to market flex provisions prior to a successful syndication and to a 50-bps step on each of Sept. 30, 2014, Dec. 31, 2014 and March 31, 2015.

Upon maturity, one year after the closing date, any amounts outstanding on the bridge facility would be converted into a senior secured term loan or at any time after that, at the option of the lenders, into senior secured exchange notes maturing on Sept. 30, 2019.

Additionally, lenders will have a securities demand if loans under the bridge facility remain outstanding on the earlier of Sept. 30, 2014 or the date on which Midstates' total liquidity falls below $50 million, provided that the securities demand for failure to maintain minimum liquidity will not apply until June 1, 2014 as long as the asset sale is still taking place.

The facility would be pre-payable in whole or in part without penalty or premium and would be subject to mandatory prepayment in the event of Louisiana asset sales, including the Pine Prairie transaction, the issuance of debt or equity or the occurrence of a change in control.

Midstates has agreed to pay a 1.75% commitment fee, a 1.25% funding fee and a 2.25% fee upon any rollover.

Backstop revolver

In the event that an amendment accommodating the bridge facility and a borrowing base of at least $475 million cannot be obtained under the existing credit facility, the backstop provides a commitment for a new credit facility on substantially the same terms as the existing facility.

The backstop revolver would have the same notional amount of $750 million and maturity date of May 2018. However, it will also include modifications to

• Release the Louisiana assets from liens securing the existing credit facility;

• Reduce the borrowing base under the existing facility to $475 million from $500 million;

• Amend the leverage ratio to be 4.75 to 1.00 for the quarter ending March 31, 2014, 4.50 to 1.00 for the quarter ending June 30, 2014, 4.25 to 1.00 for the quarters ending Sept. 30, 2014 and Dec. 31, 2014 and 4.00 to 1.00 for each quarter after that, provided that the leverage ratio shall be increased by 0.50 for the quarter of, and the two quarters following, closing of the asset sale for consideration of at least $100 million;

• Allow for the bridge loan to be secured by a second lien on the Midcontinent assets; and

• Increase the applicable margin for Libor loans under the existing facility to a range of 200 to 300 bps from a range of 175 to 275 bps, depending on borrowing base utilization.

As consideration for the participating lenders' commitment to the backstop, they will receive a 0.25% underwriting fee regardless of whether the backstop becomes effective. If the backstop does become effective, they will receive an additional 1% underwriting fee that may be increased.

Houston-based Midstates is an independent exploration and production company.

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