Source Energy Services Ltd. has closed a new revolving asset-backed senior credit facility with a syndicate comprising FGI Worldwide LLC and CIT Northbridge Credit, as advised by CIT Asset Management LLC, providing access to financing of approximately C$75 million (US$55 million, and has made the Aug. 15, 2022, cash interest payment on its 10.5% senior secured first-lien notes due March 15, 2025.
This new ABL facility provides Source with a lower cost of borrowing, less restrictive covenants and an improved liquidity profile. This will allow Source to capitalize on anticipated increasing activity levels in 2023 (and beyond) and focus on generation of free cash flow and reduction of the outstanding principal amount of its Senior Notes. The company has also entered into a supplemental indenture to the indenture that governs its Senior Notes (the Supplemental Indenture) which permits Source to execute the new ABL credit facility.
The ABL facility includes financial covenants which are less restrictive than Source’s prior credit facility and align with Source’s longer-term goals. The covenants take into account Source’s current operating environment, utilizing inputs which reflect only current year operating results and beyond.
Key financial covenants of the facility include:
- A fixed charge coverage ratio of 1:15:1 tested monthly and prior to a distribution based on trailing 12-month inputs starting Jan. 1, 2022.
- Maximum capital expenditures in a fiscal year equal to the lesser of $13.5 million or 35% of trailing 12-month EBITDA, commencing Jan. 1, 2022.
- A minimum level of the average of the prior three months trailing 12 months of earnings before interest, tax, depreciation and amortization calculated at each fiscal calendar month equal to C$25.0 million for Oct. 31, 2022 to Dec. 31, 2022.
- A minimum level of excess availability that begins at C$3.0 million and rises to C$5.0 million by March 31, 2023.
- The new ABL facility bears interest at the Secured Overnight Financing Rate (SOFR), plus applicable margin, and is secured by a first lien charge on cash, the accounts receivable and inventory of the company and a second lien charge on all other assets of the business. The ABL facility matures on the earlier of Oct. 14, 2025, or six months prior to the maturity of the Senior Notes, with amounts available under the ABL subject to a borrowing base formula applied to accounts receivable and inventory. Additional terms of the Supplemental Indenture include a limit on capital expenditures incurred beyond overburden removal, mine development and maintenance activities, and limits on incurrences of additional debt and liens by Source.