8-KOther Events

CONOCOPHILLIPS 8-K Report, Corporate Update (Apr 10, 2006)

Filed April 10, 2006For Securities:COP

Summary

This 8-K filing from ConocoPhillips, dated April 4, 2006, announces the entry into and immediate utilization of a substantial five-year, $5 billion Term Loan Agreement. This new facility was specifically put in place to refinance outstanding debt incurred from the acquisition of Burlington Resources Inc., effectively replacing a prior 364-day credit facility. The company's subsidiary, ConocoPhillips Company, provides a full guarantee for this new loan, which includes standard covenants and events of default. Investors should note that this move signifies ConocoPhillips' commitment to managing its capital structure following a major acquisition. The substantial new term loan provides a longer-term financing solution, replacing a shorter-term bridge facility. The interest rate structure is tied to LIBOR or prime rate, with an applicable margin based on the company's senior credit rating, indicating a connection between financial health and borrowing costs. The loan also contains provisions for increased interest rates and acceleration of payments in the event of default or certain change of control scenarios, which are important considerations for risk assessment.

Key Highlights

  • 1ConocoPhillips entered into a $5 billion, five-year Term Loan Agreement on April 4, 2006.
  • 2The new Term Loan was used to immediately repay all outstanding indebtedness under a $7.5 billion 364-day credit facility.
  • 3The repaid credit facility was originally used to finance a portion of the cash consideration for the Burlington Resources Inc. acquisition.
  • 4ConocoPhillips Company, a subsidiary, fully and unconditionally guaranteed the Term Loan.
  • 5The loan features customary covenants restricting liens, mergers, and asset transfers.
  • 6Interest rates are based on either the London Interbank Offered Rate (LIBOR) or a reference rate (prime rate), plus an applicable margin determined by ConocoPhillips' senior credit rating.
  • 7Events of default or change of control could lead to increased interest rates or immediate repayment demands.

Frequently Asked Questions

The primary purpose of the $5 billion Term Loan was to refinance and repay all outstanding debt that ConocoPhillips had incurred under a previous $7.5 billion 364-day credit facility. This shorter-term facility had been used to help finance the acquisition of Burlington Resources Inc. The new loan provides a longer-term financing solution.

ConocoPhillips is the borrower under the Term Loan. Additionally, its subsidiary, ConocoPhillips Company, has provided a full and unconditional guarantee for all payment obligations related to this loan.

The Term Loan includes standard covenants that restrict the creation or maintenance of certain liens on the company's property or assets. It also places limitations on mergers or consolidations involving ConocoPhillips and on transfers of all or substantially all of its assets. These are typical provisions designed to protect the lenders' interests.

Interest rates can be structured in two ways at ConocoPhillips' election: as Eurodollar loans, which are based on the London Interbank Offered Rate (LIBOR) plus an applicable margin, or as reference rate loans. Reference rate loans are based on the higher of the Federal Funds Rate plus 0.5% or the lenders' prime rate, also plus an applicable margin. In both cases, the applicable margin is determined by ConocoPhillips' senior credit rating.