Kinetik Holdings Inc

7. DEBT AND FINANCING COSTS

Accounts Receivable Securitization Facility

On April 2, 2024, Kinetik Receivables LLC (“Kinetik Receivables”), a bankruptcy remote special purpose entity formed as a direct subsidiary ofthe Partnership, which is a subsidiary of the Company, entered into an accounts receivable securitization facility with an initial facility limit of $150.0 million (“A/R Facility”) with PNC Bank, as the administrative agent, and certain purchasers party thereto from time to time, which has a scheduled termination date of April 1, 2025. The aggregate fees and expenses paid directly to third parties in obtaining the A/R Facility totaled $1.1 million and were capitalized as debt issuance costs and included in the Condensed Consolidated Balance Sheets as a current asset within “Prepaid and other current assets”, amortized over the term of the A/R Facility to interest expense using the effective-interest method. There were unamortized debt issuance costs related to the A/R Facility of $0.6 million as of September 30, 2024.

Pursuant to the A/R Facility, the Company and certain of its subsidiaries continuously transfer receivables to Kinetik Receivables and Kinetik Receivables transfers receivables that meet certain qualifying conditions to third-party purchasers in exchange for cash. These receivables are held by Kinetik Receivables and are pledged to secure the collectability of the sold receivables and are accounted for as secured borrowings. The amount available for borrowing at any one time under the A/R Facility is limited to an amount calculated based on the outstanding balance of eligible receivables sold to the purchasers, subject to certain reserves, concentration limits, and other limitations. Under the A/R Facility, the Company is subject to pay a yield to the purchasers equal to SOFR plus a spread adjustment of 0.10% and a drawn fee of 0.90%. The Company also pays a fee of 0.40% on the undrawn committed amount of the A/R Facility. Yield and fees payable by the Company under the AR Facility are due monthly. As of September 30, 2024, eligible accounts receivable of $150.0 million were pledged to the A/R Facility as collateral.

The Partnership has continuing involvement with the receivables transferred by Kinetik Receivables to the third-party purchasers by providing collection services.

The A/R Facility is linked to sustainability performance targets (“SPTs”) with respect to (a) female representation in corporate officer positions and (b) reduction in methane emissions intensity. A positive 0.02% and 0.05% fee and yield rate adjustments will be applied, respectively, if neither of the SPTs have been satisfied and a negative 0.02% and 0.05% fee and interest rate adjustments will be applied, respectively, if both of the SPTs have been satisfied.

The net proceeds of the A/R Facility were used, together with cash on hand, to repay a portion of the outstanding borrowings under the existing term loan credit facility (“Term Loan Credit Facility”), lowering the remaining balance to $1.0 billion. As a result, the maturity of the Term Loan Credit Facility extended to December 8, 2026. The Company recognized a loss on debt extinguishment of $0.5 million for the partial payment made on the Term Loan Credit Facility.

The following table summarizes the Company’s debt obligations as of September 30, 2024 and December 31, 2023:

(1)Excludes unamortized debt issuance costs related to the revolving line of credit. Unamortized debt issuance costs associated with the revolving line of credit were $4.2 million and $5.4 million as of September 30, 2024 and December 31, 2023, respectively. The unamortized debt issuance costs related to the revolving credit facilities were included in the “Deferred charges and other assets” of the Condensed Consolidated Balance Sheets.

The table below presents the components of the Company’s financing costs, net of capitalized interest:

As of September 30, 2024 and December 31, 2023, unamortized debt issuance costs associated with the 2030 Notes, the 2028 Notes and the Term Loan Credit Facility were $27.4 million and $31.5 million, respectively, and unamortized debt premiums and discount, net, associated with the 2028 Notes and the unsecured term loan were $0.1 million and $0.3 million, respectively.

Compliance with our Covenants

Each of the revolving credit agreements with Bank of America, N.A. as administrative agent and the Term Loan Credit Facility, contain customary covenants and restrictive provisions which may, among other things, limit the Partnership’s ability to create liens, incur additional indebtedness and make restricted payments and the Partnership’s ability to liquidate, dissolve, consolidate with or merge into or with any other person. The 2030 Notes and the 2028 Notes also contain covenants and restrictive provisions, which may, among other things, limit the Partnership’s and its subsidiaries’ ability to create liens to secure indebtedness.

The A/R Facility contains covenants and restrictive provisions with respect to the Partnership and Kinetik Receivables that are customary for accounts receivable securitization facilities. As of September 30, 2024, the Partnership was in compliance with all customary and financial covenants.

Letters of Credit

Our $1.25 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) scheduled to mature on or before June 8, 2027 can be used for letters of credit. Our obligations with respect to related letters of credit totaled $12.6 million as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, the Revolving Credit Facility has a borrowing base of $730.4 million available.

Fair Value of Financial Instruments

The fair value of the Company and its subsidiaries’ consolidated debt as of September 30, 2024 and December 31, 2023 was $3.48 billion and $3.57 billion, respectively. On September 30, 2024, the senior unsecured notes’ fair value was based on Level 1 inputs, the Term Loan Credit Facility and Revolving Credit Facility’s fair value was based on Level 3 inputs and the A/R Facility’s fair value approximates its carrying value due to its short term nature.