Long Term Debt - Related Party |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lea & Eddy Holdings, LLC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Instrument [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long Term Debt - Related Party | 6. Long Term Debt - Related Party On April 4, 2024, Hydrosource and Desert Ram entered into a 5-year financing agreement that included a $72.0 million term loan and a revolving credit facility with a maximum borrowing base of $5.0 million, both of which mature on April 4, 2029 (as amended, the “Predecessor Credit Facility”). The Predecessor Credit Facility is fully and unconditionally guaranteed by the Company. Borrowings under the Predecessor Credit Facility bear interest at Secured Overnight Financing Rate (“SOFR”), plus the applicable margin or certain reference rate, plus the applicable margin, which is set at 8.0% - 8.5% depending on the applicable leverage ratio for the most recent four consecutive quarters. Additionally, a commitment fee of 0.5% applies to undrawn amounts on the revolving credit facility. Borrowings under the Predecessor Credit Facility are secured by a first priority lien and security interest in substantially all assets of the Company. Principal amounts borrowed under the Predecessor Credit Facility may be repaid early with prepayment penalties varying by year, beginning at 3% and stepping down annually to 1% in the fifth year of the Predecessor Credit Facility. Any principal amounts outstanding on the maturity date, April 4, 2029, become due and payable on such date. In connection with the Predecessor Credit Facility issuance, the Company additionally issued warrants exercisable for an aggregate of 1,001 Common Units (“April 2024 Warrants”), to designated holders. Each holder received the right to acquire Common Units as set forth in the Warrant Agreement. The April 2024 Warrants may be exercised upon (i) an event of default under the term loan agreement or (ii) an adjustment event, and expire ten years from the original issuance date. Because the warrants included a variable settlement feature, the Company concluded the April 2024 Warrants were not indexed to the Company’s own equity and classified them as liabilities. The Company determined the fair value of the April 2024 Warrants at grant date and as of December 31, 2024 to be de minimis. Fair value estimates involve significant assumptions and are classified as Level 3 in the fair value hierarchy. Interest is payable monthly, with principal payments on the term loan due quarterly, based on the following percentages of the original principal: 1.25% from September 30, 2024 through June 30, 2025; 2.50% from September 30, 2025 through June 30, 2027; and 3.75% from September 30, 2027 through maturity. All remaining principal and accrued interest are due at maturity. On February 28, 2025, the Company amended its Predecessor Credit Facility, resulting in an increased maximum borrowing base of $7.5 million on its revolving credit facility. Financing costs incurred related to the amendment of approximately $0.1 million were added to the principal balance as paid-in-kind interest. On April 14, 2025, the Company further amended the Predecessor Credit Facility (“April 2025 Amendment”), resulting in an additional $204 million Term Loan (the “Second Term Loan”). The April 2025 Amendment adjusted the amount and timing of the quarterly principal payments due for the First and Second Term loans as follows: 0.3125% from June 30, 2025 through March 31, 2026; 0.625% from June 30, 2026 through March 31, 2027; 0.9375% from June 30, 2027 through March 31, 2028; and 1.25% from June 30, 2028 through maturity. Additionally, the stepped down prepayment penalties were modified to start at 5.0% and stepping down annually to 4.0%, 2.0%, 1.0%, and zero after year 5. All remaining principal and accrued interest on both the First and Second Term Loan are due at maturity on April 4, 2029. In connection with the April 2025 Amendment, the Company (i) issued new warrants to a new creditor (the “April 2025 Warrants”) and (ii) modified the terms of the outstanding April 2024 warrants. The net effect of the issuance and modification reduced the total number of warrants outstanding from 1,001 to 900. The amendment additionally removed the variable settlement feature from the April 2024 Warrants. As a result, both the amended April 2024 Warrants and the April 2025 Warrants met the requirements for equity classification under ASC 815-40. Accordingly, on April 14, 2025, the Company reclassified the April 2024 Warrant liability to additional paid-in capital. The April 2025 Warrants were allocated a value of approximately $0.8 million, which was recorded within additional paid-in-capital, with a corresponding debt discount. The Company assessed the debt amendment and modified April 2024 Warrants under ASC 470‑50 and concluded that the terms of the new debt are substantially different from the old debt (including the present value of cash flows test exceeding 10%), resulting in extinguishment accounting. Accordingly, the Company derecognized the carrying amount of the old debt and recognized an estimated loss on extinguishment of approximately $70.0 million, which reflects the difference between the carrying amount of the exchanged debt (including unamortized discounts and deferred financing costs of approximately $2.8 million) and the fair value of the new debt, plus fees paid to lenders of approximately $5.6 million and incremental value transferred to the warrantholders of approximately $17.6 million. The $44.1 million premium associated with the debt is primarily attributable to the related party nature of the debt, resulting in a higher interest rate over current market rates. This premium will be amortized over the remaining term of the Predecessor Credit Facility utilizing an effective interest rate of approximately 8.2%. The Predecessor Credit Facility average interest rates were 12.4% and 13.1% for the three months ended March 31, 2026 and 2025, respectively. The outstanding balance on long-term debt is as follows:
The Level 3 fair value of long-term debt as of March 31, 2026 and December 31, 2025 was approximately $323.6 million and $330.0 million, respectively. The disclosed fair value of debt is determined primarily utilizing an income approach.
The principal amounts of long-term debt maturing in future periods related to term loans are as follows:
The Company is subject to financial and non-financial covenants under the Predecessor Credit Facility, including maintaining quarterly and annual audited financial statements, minimum asset coverage ratio of 1:1, and quarterly leverage ratio that steps down over time, ranging from 3:1 to 1:1 as specified in the Predecessor Credit Facility. The Company was in compliance with all covenants as of March 31, 2026. For the three months ended March 31, 2026, the total interest expense related to long-term debt was approximately $5.8 million, inclusive of $8.3 million of coupon interest expense, net of amortization of net debt premiums and issuance costs of approximately $2.5 million. For the three months ended March 31, 2025, interest expense related to long-term debt of approximately $2.7 million includes approximately $2.5 million of coupon interest and amortization of debt discounts and issuance costs of approximately $0.2 million. As of March 31, 2026 and December 31, 2025, there was approximately $0.5 million of available borrowing capacity related to our revolving credit facility.
The Company evaluated the prepayment features embedded in its debt agreement, which require the debt to be prepaid upon the occurrence of certain events, including specified asset sales and changes in control, under ASC 815, Derivatives and Hedging. These features represent embedded derivatives that are not clearly and closely related to the host debt. However, the Company has concluded that these embedded derivatives have no fair value at March 31, 2026 and December 31, 2025, and therefore no separate embedded derivative liability has been recorded in the accompanying condensed consolidated financial statements. Subsequent to March 31, 2026, the Predecessor Credit Facility was repaid in full and terminated. See Note 12 – Subsequent Events for additional information. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||