Magnum Hunter Resources has increased its revolver to $275 million from $255 million to obtain additional financial flexibility. Magnum chose to take up its lenders' offer to increase the company's financial liquidity, according to Chris Tong, cfo and senior v.p. of Magnum. The oil and gas exploration and development company also extended the maturity one year to May 2006.
"By taking into account Magnum's expected production, cash flows and expected prices of oil and gas, our lenders were able to offer us more credit," said Tong. The increase in the revolver occurred in conjunction with one of Magnum's semi-annual borrowing base resettings. Twice a year the company's lenders look at Magnum's borrowing base and suggest adjustments. The increase is reflective of the company's reserve additions and the expected commodity prices that the banks used to calculate future performance, he explained.
Magnum established a $350 million facility with Deutsche Bank in 2002 to back the acquisition of Prize Energy. By April 2003, Magnum's borrowing capacity under the revolver amounted to $255 million and was priced against a grid at LIBOR plus 1 3/4%. The new deal cuts pricing 25 basis points to LIBOR plus 1 1/2%. The lower pricing is reflective of the company's improved financial results over the past year, Tong said. The reduction will save the company almost $400,000 per year in interest expense and Magnum expects additional savings of $10 million per year from the retirement of $140 million of its 10% senior bonds last year.
All 18 commercial lenders that signed on in 2002 are participating in the new facility. The syndicate also includes Bank of America, Bank of Montreal, BNP Paribas, Fortis Capital, and Bank of Nova Scotia.