6. DEBT

2022 Term Loan Credit Facility

On March 4, 2022, ProFrac LLC, ProFrac Holdings II, LLC (“ProFrac II LLC”), as borrower, and certain of the Company’s wholly owned subsidiaries as obligors, entered into a senior secured term loan credit agreement that expires on March 4, 2025 (as amended, the “2022 Term Loan Credit Facility”), with Piper Sandler Finance LLC, as administrative agent and collateral agent, and the lenders party thereto, providing for a term loan facility in an aggregate amount of $450.0 million. We repaid $143.8 million of aggregate principal amount of the 2022 Term Loan Credit Facility with a portion of the proceeds from the IPO.

The 2022 Term Loan Credit Facility was amended multiple times during the year to, among other things, increase its size by $230.0 million and allow for us to make certain acquisitions. The Company used the proceeds from the increases to the 2022 Term Loan Credit Facility to help fund the acquisitions of Monahans and USWS and to pay outstanding debt under the 2022 ABL Credit Facility.

Borrowings under the 2022 Term Loan Credit Facility accrue interest at either a SOFR rate or a base rate, plus an applicable margin. The applicable margin for SOFR rate loans ranges from 7.25% to 8.00% and for base rate loans ranges from 6.25% to 7.00%. The effective interest rate was 11.1% as of December 31, 2022.

The 2022 Term Loan Credit Facility requires minimum quarterly payments including prepayments based on a percentage of 25% to 50% of excess cash flow (defined as “Excess Cash Flow” in the 2022 Term Loan Credit Facility) beginning in 2023. The applicable percentage of Excess Cash Flow depends on the Total Net Leverage Ratio (as defined below) as of the last day of the applicable fiscal quarter. Voluntary prepayments are permitted at any time subject to a premium of 3.0% through March 4, 2023. This premium then declines to 2.0% through March 4, 2024, and 1.0% thereafter. We repaid $17.0 million of aggregate principal amount of the 2022 Term Loan Credit Facility as minimum quarterly payments in 2022.

The 2022 Term Loan Credit Facility is guaranteed by ProFrac LLC and all of the Company’s material existing subsidiaries and certain direct and indirect future U.S. restricted subsidiaries of the Company. The 2022 Term Loan Credit Facility is secured by a lien on, and security interest in, substantially all of each such guarantor’s assets.

We are required by the 2022 Term Loan Credit Facility to maintain a quarterly debt to EBITDA ratio (defined as the “Total Net Leverage Ratio” in the 2022 Term Loan Credit Facility). We were in compliance with this ratio in 2022. The ratio for 2023 and future periods will be 1.25 to 1.00. We are required by the 2022 Term Loan Credit Facility to maintain minimum liquidity of $30.0 million at all times.

The 2022 Term Loan Credit Facility contains certain customary representations and warranties and affirmative and negative covenants. The negative covenants include, subject to customary exceptions, limitations on indebtedness, dividends, distributions and certain other payments, investments, capital expenditures, acquisitions, prepayments of specified junior indebtedness, amendments of specified junior indebtedness, transactions with affiliates, dispositions, mergers and consolidations, liens, restrictive agreements, changes in fiscal periods and changes in line of business.

The 2022 Term Loan Credit Facility contains customary events of default. If an event of default occurs and is continuing, the lenders may declare all loans to be immediately due and payable. Some events of default require an automatic termination of the loans and become immediately due and payable. The Company was in compliance with all covenants, and there were no defaults or events of default related to the 2022 Term Loan Credit Facility, as of December 31, 2022.

2022 ABL Credit Facility

On March 4, 2022, ProFrac LLC, ProFrac II, LLC, as borrower, and certain of the Company’s wholly owned subsidiaries as obligors, entered into a senior secured asset-based revolving credit agreement that expires on March 4, 2027 (as amended, the “2022 ABL Credit Facility”), with a group of lenders with JPMorgan Chase Bank N.A., as administrative agent and collateral agent.

The 2022 ABL Credit Facility initially provided for a maximum availability of $100.0 million. The 2022 ABL Credit Facility was amended multiple times during the year to, among other things, increase its maximum availability by $180.0 million and allow for us to make certain acquisitions. The maximum availability of credit under the 2022 ABL Credit Facility is limited at any time to the lesser of the lenders committed amounts or a borrowing base. The borrowing base is based on percentages of eligible accounts receivable and eligible inventory and is subject to certain reserves. If at any time borrowings and letters of credit issued under the credit facility exceed the borrowing base, we will be required to repay an amount equal to such excess.

Borrowings under the 2022 ABL Credit Facility accrue interest at either a SOFR rate or a base rate, plus an applicable margin. The applicable margin for SOFR rate loans ranges from 1.5% to 2.0% and for base rate loans ranges from 0.5% to 1.0%. The effective interest rate was 6.75% as of December 31, 2022. The 2022 ABL Credit Facility bears an unused line fee ranging from 0.250% to 0.375%.

We are required by the 2022 ABL Credit Facility to maintain minimum liquidity of $15.0 million at all times. If the amount available under the 2022 ABL Credit Facility is less than either 12.5% of our maximum availability or $30.0 million, we will be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 and we will be subject to the cash dominion provisions under the agreement.

The 2022 ABL Credit Facility contains certain customary representations and warranties and affirmative and negative covenants. The negative covenants include, subject to customary exceptions, limitations on indebtedness, dividends, distributions and certain other payments, investments, acquisitions, prepayments of specified junior indebtedness, amendments of specified junior indebtedness, transactions with affiliates, dispositions, mergers and consolidations, liens, restrictive agreements, sale and leaseback transactions, changes in fiscal periods and changes in line of business. The Company was in compliance with all covenants, and there were no existing defaults or events of default related to the 2022 ABL Credit Facility as of December 31, 2022.

As of December 31, 2022, the maximum availability under the 2022 ABL Credit Facility was the aggregate lender commitments of $280.0 million with $234.3 million borrowings outstanding and $10.5 million of letters of credit outstanding, resulting in approximately $35.2 million of remaining availability.

Monarch Note

In connection with our acquisition of Monarch on December 23, 2022, $87.5 million of the purchase price was financed through a seller-financed note (the “Monarch Note”, see “Note 4 - Business Combinations and Asset Acquisition” for additional information). The Monarch Note matures on December 23, 2024 and bears interest at an annual rate of 2.5%.

The Monarch Note requires minimum quarterly payments of $10.9 million. We have an option to prepay the loan in whole or in part without penalty or premium. The Monarch Note is secured by our equity interest in Monarch, substantially all of the assets of Monarch, and real property acquired in connection with the Monarch Acquisition.

The Monarch Note was initially measured at fair value in connection with the Monarch Acquisition, resulting in recording a debt discount of $10.4 million. We amortize such discount as an adjustment to interest expense using the effective interest method over the term of the Monarch Note. As of December 31, 2022, our effective interest rate on the Monarch Note was 12.1%.

REV Note

In connection with our acquisition of REV on December 30, 2022, $39.0 million of the purchase price was financed through a seller-financed note (the “REV Note”, see “Note 4 - Business Combinations and Asset Acquisition” for additional information). The REV Note matures on June 30, 2025 and bears interest at an annual rate of 2.3%.

The REV Note requires a $20.0 million principal payment on April 3, 2023, and minimum quarterly payments of $2.1 million thereafter. We have an option to prepay the loan in whole or in part without penalty or premium. The REV Note is secured by our equity interest in REV and substantially all of the assets of REV and its wholly-owned subsidiary.

The REV note was initially measured at fair value in connection with the REV Acquisition, resulting in recording a debt discount of $3.6 million. We amortize such discount as an adjustment to interest expense using the effective interest method over the term of the REV note. As of December 31, 2022, our effective interest rate on the REV Note was 11.8%.

One of the REV Sellers joined the Company in a management capacity upon the acquisition of REV.

First Financial Loan

On July 22, 2020, ProFrac LLC entered into a $35.0 million loan agreement with First Financial Bank, N.A. which had a maturity of July 22, 2025 (“Main Street Loan”). In August 2021, the loan agreement was amended to remove the covenants in place prior to the amendment. As amended in August 2021, the Main Street Loan contained certain restrictive covenants which required ProFrac LLC to maintain a Fixed Charge Coverage Ratio of at least 1.00:1.00, and a Maximum Leverage Ratio of 3.50:1.00. Additionally, the Main Street Loan restricted the payment of distributions or dividends, other than for the payment of taxes.

On December 22, 2021, the Main Street Loan had a balance of $32.2 million. The Main Street Loan was extinguished with a cash payment of $2.2 million and the remainder refinanced with a $30.0 million loan with First Financial Bank, N.A. (“First Financial Loan”).

The First Financial Loan has a maturity date of January 1, 2024 with an interest rate of LIBOR plus 3.5%, and the loan is to be repaid by equal payments of principal and interest beginning in February 2022. The First Financial Loan contains certain restricted covenants which require the Company to maintain a fixed charge ratio of at least 1.00:1.00 and a maximum net leverage ratio of 3.00:1.00. The Company was in compliance with all covenants as of December 31, 2022.

During the year ended December 31, 2022, the Company made principal payments of $13.4 million on the First Financial Loan. As of December 31, 2022, the outstanding principal balance of the First Financial Loan was $16.6 million.

Flotek Convertible Notes

On February 2, 2022, Flotek entered into a private investment in public equity transaction (the “PIPE Transaction”) with a consortium of investors to secure growth capital. Pursuant to the PIPE Transaction, Flotek issued $11.2 million in aggregate initial principal amount of Flotek Convertible Notes to parties other than ProFrac. The Flotek Convertible Notes accrue paid-in-kind interest at a rate of 10% per annum, have a maturity of one year, and are convertible into common stock of Flotek (a) at Flotek’s option if Flotek’s common stock equals or exceeds $2.50 for 20 trading days during a 30 consecutive trading day period, (b) at the holder’s option at any time prior to maturity, at a price of $1.088125 per share or (c) at maturity, at a price of $1.088125 per share. On March 21, 2022, $3.0 million of Flotek Convertible Notes were converted at a holder’s option into approximately 2.8 million shares of Flotek common stock. The Flotek Convertible Notes are obligations of Flotek and have no recourse or claim against the assets of ProFrac Corp. or its other consolidated subsidiaries.

As of December 31, 2022, there was $8.2 million principal amount of Flotek Convertible Notes outstanding, which were included in the Company’s consolidated financial statements at a carrying value of $12.7 million.

Backstop Note

On March 4, 2022, ProFrac LLC borrowed $22.0 million pursuant to a subordinated promissory note with THRC Holdings with a stated maturity date of March 4, 2027 (the “Backstop Note”). The Backstop Note bore interest at an annual percentage of 1.74%. The Backstop Note was unsecured and subordinated to the indebtedness owing under the 2022 ABL Credit Facility and the 2022 Term Loan Credit Facility. In June 2022, the Backstop Note was fully paid with net proceeds from the IPO.

Closing Date Note

On March 4, 2022, ProFrac LLC borrowed $22.0 million pursuant to a subordinated promissory note with THRC Holdings with a stated maturity date of March 4, 2027 (the “Closing Date Note”). The Closing Date Note bore interest at an annual percentage of 1.74%. The Closing Date Note was unsecured and subordinated to the indebtedness owing under the 2022 ABL

Credit Facility and the 2022 Term Loan Credit Facility. In June 2022, the Closing Date Note was fully paid with net proceeds from the IPO.

Equify Bridge Note

On March 4, 2022, ProFrac II LLC entered into a $45.8 million subordinated promissory note with Equify Financial with a stated maturity date of March 4, 2027 (the “Equify Bridge Note”). The Equify Bridge Note bore interest at an annual percentage of 1.0%. The Equify Bridge Note was unsecured and subordinated to the indebtedness owing under the 2022 ABL Credit Facility and the 2022 Term Loan Credit Facility. In April 2022, the Company repaid $25.0 million in principal under the Equify Bridge Note. In June 2022, the Equify Bridge Note was fully paid with net proceeds from the IPO.

2018 Term Loan

On September 7, 2018, ProFrac LLC entered into a $180.0 million term loan agreement (“2018 Term Loan”), which matured on September 15, 2023, with a group of lenders with Barclays Bank, PLC as administrative agent. Principal payments were due in quarterly installments. On June 24, 2021, ProFrac LLC and its 2018 Term Loan lenders reached an agreement to expand the facility by $40.0 million. In February 2022, ProFrac and its 2018 Term Loan lenders entered into an agreement to amend the 2018 Term Loan and expanded the facility by $48.0 million.

The 2018 Term Loan, as amended, required minimum excess cash flow prepayments as follows, each due approximately 55 days after period-end: $0.0 million for the fiscal quarters ended March 31, 2021 through and including December 31, 2021, and $5.0 million for the fiscal quarters ended March 31, 2022 through and including June 30, 2023.

LIBOR borrowings under the 2018 Term Loan bore interest at the greater of LIBOR or 1.25%, plus a margin of 6.25% to 8.50%, depending on the total net leverage ratio as defined under the 2018 Term Loan. The interest rate was 9.75% as of December 31, 2021.

The 2018 Term Loan contained certain restrictive covenants, including a financial covenant which required ProFrac LLC to maintain a total net leverage ratio, as defined in the credit agreement, of no greater than 2.25:1.00 for the fiscal quarters ended September 30, 2019 through and including March 31, 2020, 3.50:1.00 for the fiscal quarters ended June 30, 2020 through and including March 31, 2021, 3.00:1.00 for the fiscal quarter ended June 31, 2021, 2.75:1.00 for the fiscal quarter ended September 30, 2021, 2.50:1.00 for the fiscal quarter ended December 31, 2021, and 2.00:1.00 for the fiscal quarter ended March 31, 2022 and thereafter. ProFrac LLC was in compliance with all required covenants as of December 31, 2021.

On March 4, 2022, amounts outstanding under the 2018 Term Loan were refinanced with the 2022 Term Loan Credit Facility, resulting in loss on extinguishment of debt of $3.9 million.

2018 ABL Credit Facility

On March 14, 2018, ProFrac LLC entered into a senior secured asset-based revolving credit agreement (the “2018 ABL Credit Facility”), with Barclays Bank PLC, as administrative agent and collateral agent, and the lenders party thereto. The 2018 ABL Credit Facility had a maturity date of March 14, 2023.

LIBOR borrowings under the 2018 ABL Credit Facility bore interest at the greater of LIBOR or 0.00%, plus a margin of 1.50% to 2.00%, depending on facility utilization. The interest rate was 2.75% as of December 31, 2021.

As of December 31, 2021, there were $69.0 million of borrowings outstanding and $3.1 million of letters of credit outstanding. On March 4, 2022, the 2018 ABL Credit Facility was replaced by the 2022 ABL Credit Facility.

Best Flow Credit Facility

On February 4, 2019, Best Flow entered into a revolving loan credit agreement (the “Best Flow Credit Facility”), with Equify Financial, LLC (“Equify Financial”) as lender. Equify Financial is a related party. The Best Flow Credit Facility provided for a revolving credit facility in an aggregate principal amount at any time outstanding up to $9.0 million, subject to borrowing base availability. The Best Flow Credit Facility had a maturity date of February 4, 2026.

The interest rate under the Best Flow Credit Facility was the lesser of (i) the Prime Rate (as defined in the Best Flow Credit Facility) plus the applicable margin (3.50%) and (ii) the Maximum Rate (as defined in the Best Flow Credit Facility). All accrued but unpaid interest on the outstanding principal balance was due and payable monthly on the first day of each calendar month. The Best Flow Credit Facility was secured by a first lien on substantially all of the assets of Best Flow.

On March 4, 2022, the Best Flow Credit Facility was extinguished resulting in loss on extinguishment of debt of $0.3 million.

Best Flow Note

On January 28, 2021, Best Flow issued a promissory note (the “Best Flow Note”), with Equify Financial, as holder. Equify Financial is a related party. The Best Flow Note provided for a term loan in an initial aggregate principal amount equal to $13.0 million. Proceeds from the Best Flow Note were utilized to pay down $7.6 million of outstanding balances on the Best Flow Credit Facility and to pay down other equipment financing agreements for $5.4 million. The Best Flow Note matured on February 1, 2026, with a fixed interest rate of 8.0%. The principal and interest were paid in equal monthly amortizing amounts through maturity. Prepaid amounts were subject to a 0.19% prepayment premium. On March 4, 2022, the Best Flow Note was extinguished resulting in loss on extinguishment of debt of $1.4 million.

Alpine Promissory Note

In January 2021, Alpine entered into a $21.4 million promissory note with Equify Financial (“Alpine Note”). Equify Financial is a related party. The Alpine Note amortized monthly, had an interest rate of 8.0% and had a stated maturity date in February 2027. On March 4, 2022, the Alpine Note was extinguished resulting in loss on extinguishment of debt of $1.8 million.

Equipment Financings

The Company has equipment financing notes for the purchase of certain hydraulic fracturing equipment. The equipment financing notes have interest rate of 5.75% and mature in May 2024. During the year ended December 31, 2022, the Company made principal payments of $0.6 million on the equipment financing notes. As of December 31, 2022, the aggregate outstanding balance under our equipment financing notes was $5.1 million, of which $3.6 million is due within one year.

Other Indebtedness

As of December 31, 2022 and 2021, the Company had other debt agreements outstanding with unpaid principal balances of $11.9 million and $1.7 million, respectively.

As of December 31, 2022, other consolidated indebtedness also included a $4.8 million loan under the Paycheck Protection Program established under the Coronavirus Aid, Relief, and Economic Securities Act held by Flotek.

Maturities of Debt

As of December 31, 2022, the principal maturity schedule for our debt outstanding is as follows: