Cobalt Annual Report 2015 - page 113

Cobalt International Energy, Inc.
Notes to Consolidated Financial Statements (Continued)
10. Long-term Debt (Continued)
base redeterminations can take place between scheduled redetermination dates in limited circumstances specified in the Facility
Agreement. Loans made under the Facility Agreement are scheduled to amortize in the manner set forth in the Facility Agreement
commencing in July 2018 and will mature on the earlier of (a) May 29, 2020 and (b) the last day of the quarter immediately preceding
the first quarter in which the aggregate remaining reserves for the Heidelberg field are projected to be less than 20% of the initial
approved reserves. In addition, on or before each redetermination, GOM#1 is required to repay such amount of the loans as is required
to reduce the aggregate amount of the loans to the borrowing base amount applicable on the day after such redetermination. After
Completion, loans are also subject to mandatory prepayment with 33% of GOM#1’s excess cash flow.
The Facility Agreement and certain related hedging obligations, if any, are secured by a first priority security interest in
substantially all of the assets of GOM#1 (which are comprised only of the oil and gas leases, wells, production facilities and other
assets associated with the Heidelberg development), including a mortgage on GOM#1’s ownership interest in the Heidelberg field, a
pledge of the equity interests of GOM#1 and a pledge of certain intercompany receivables held by the Company. All of GOM#1’s
revenues from the Heidelberg development will be deposited in collateral accounts established pursuant to the Facility Agreement and
applied in accordance with a cash waterfall in the manner specified in the Facility Agreement. GOM#1 is required to maintain a debt
service reserve account for the benefit of the lenders under the Facility Agreement, which must remain funded at all times to the level
specified in the Facility Agreement.
At GOM#1’s election, interest for borrowings under the Facility Agreement are determined by reference to (a) the London
interbank offered rate, or LIBOR, plus an applicable margin of (i) 6.00% per annum prior to Completion and (ii) 4.00% following
Completion or (b) a base rate plus an applicable margin of (i) 5.00% prior to Completion and (ii) 3.00% following Completion. Prior
to Completion, GOM#1 is also required to pay a commitment fee equal to 40% of the applicable margin payable on the unused
commitments under the Facility Agreement. Interest on base rate loans and the commitment fee are generally payable quarterly.
Interest on LIBOR loans are generally payable at the end of the applicable interest period but no less frequently than quarterly.
The Facility Agreement contains various covenants that limit, among other things, GOM#1’s ability to incur indebtedness, grant
liens on its assets, merge or consolidate with other entities, sell its assets, make loans, acquisitions, capital expenditures and other
investments, abandon or decommission the Heidelberg field, modify material agreements relating thereto, enter into commodity
hedges and pay dividends and distributions to its parent entities.
The Facility Agreement includes customary events of default for transactions of this type, including events of default relating to
non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of covenants, cross-defaults,
bankruptcy and insolvency events, certain unsatisfied judgments, loan documents not being valid, defaults under project documents
that are not replaced, change in control, expropriation, abandonment or decommissioning of the Heidelberg field, material title defects,
the failure to pay cost overruns when due and the failure to reach Completion on or before May 29, 2018.
In addition, the Facility Agreement provides that an event of default will occur if (a) the debt to equity ratio exceeds 70:30 or
(b) the then current projections show that (i) the project loan life coverage ratio in any calculation period will be 1.5:1.0 or less, (ii) the
loan life coverage ratio in any calculation period will be 1.3:1.0 or less or (iii) the debt service coverage ratio in any calculation period
will be 1.2:1.0 or less.
If an event of default occurs, the lenders will be able to accelerate the maturity of the Facility Agreement and exercise other
rights and remedies.
As of December 31, 2015, the Company has not borrowed any amounts under the Facility Agreement.
2.625% Convertible Senior Notes due 2019
On December 17, 2012, the Company issued $1.38 billion aggregate principal amount of the 2.625% Notes. The 2.625% Notes
are the Company’s senior unsecured obligations and interest is payable semi-annually in arrears on June 1 and December 1 of each
year. The 2.625% Notes will mature on December 1, 2019, unless earlier repurchased or converted in accordance with the terms of the
2.625% Notes. The 2.625% Notes may be converted at the option of the holder at any time prior to 5:00 p.m., New York City time, on
the second scheduled trading day immediately preceding the maturity date, in multiples of $1,000 principal amount. The 2.625%
Notes are convertible at an initial conversion rate of 28.023 shares of common stock per $1,000 principal amount, representing an
initial conversion price of approximately $35.68 per share for a total of approximately 38.7 million underlying shares. The conversion
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