Contract analysis

I. Executive Summary This memorandum analyzes the regulatory covenants contained in the Senior Secured Credit Facility Agreement (the "Credit Agreement"), dated as of September 15, 2021, by and among Ridgeline Midstream Services LLC ("Ridgeline" or the "Borrower"), Pinnacle National Bank, N.A. ("Pinnacle"), in its capacity as Administrative Agent, and the syndicate lenders party thereto, including Granite Trust Compa

II. Background — The Credit Facility and Ridgeline's Operations A. The Ridgeline Pipeline System Ridgeline Midstream Services LLC owns and operates the Ridgeline Pipeline System (the "Pipeline System" or the "System"), an interstate natural gas pipeline subject to the jurisdiction of FERC under the Natural Gas Act of 1938, as amended, 15 U.S.C. §§ 717 et seq. The Pipeline System is a 187-mile, 24-inch-diameter high-p

III. Identification of Regulatory Covenants in the Credit Agreement The Credit Agreement contains several provisions that impose regulatory compliance obligations on Ridgeline. These provisions are organized across the affirmative covenants (Article VI) and the negative covenants (Article VII) of the Credit Agreement. This section identifies each relevant provision and provides an analysis of Ridgeline's current comp

Section 6.01 of the Credit Agreement sets forth affirmative covenants requiring Ridgeline to take certain actions to maintain its regulatory standing and to keep the Administrative Agent informed of regulatory developments. Three subsections are directly relevant to the current analysis.

Section 6.01(a) — Maintenance of Permits. This provision requires Ridgeline to "maintain in full force and effect all governmental authorizations, permits, licenses, consents, and approvals necessary for the lawful operation of the Ridgeline Pipeline System," expressly including "any required authorizations of the Federal Energy Regulatory Commission under the Natural Gas Act, §§ 4, 5, and 7, and the regulations prom

Section 6.01(b) — Regulatory Filings. This provision requires Ridgeline to "timely make all regulatory filings required by the Federal Energy Regulatory Commission," including but not limited to "tariff filings, rate schedule amendments, compliance filings, and such other filings as may be required by applicable law or regulation." The covenant is designed to ensure that Ridgeline remains in good standing with FERC a

Section 6.01(c) — Notification of Regulatory Proceedings. This provision imposes an obligation on Ridgeline to notify the Administrative Agent within ten (10) business days of any "material adverse regulatory development," which is defined to include "the receipt of any deficiency letter, show-cause order, or adverse order or ruling from FERC or any other governmental authority having jurisdiction over the Borrower o

Section 6.02 of the Credit Agreement sets forth detailed reporting obligations, several of which have regulatory dimensions.

Section 6.02(a) — Annual and Quarterly Financial Statements. This provision requires Ridgeline to deliver to the Administrative Agent (i) annual audited financial statements within 120 days after the end of each fiscal year and (ii) quarterly unaudited financial statements within 45 days after the end of each fiscal quarter. These are standard financial reporting covenants and are not directly implicated by the FERC

Section 6.02(b) — Annual FERC Form 2 Filing. This provision specifically requires Ridgeline to file its annual FERC Form 2 (Annual Report of Major Natural Gas Companies and Supplemental Reports) and to provide a copy of the filed Form 2 to the Administrative Agent within 30 days of filing. FERC Form 2 is required to be filed annually by natural gas companies subject to the Commission's jurisdiction, and the form cont

Section 6.02(c) — Officer's Certificate — Regulatory Compliance. This provision requires the quarterly delivery of an officer's certificate to the Administrative Agent, executed by an authorized officer of Ridgeline, certifying: (i) the status of all pending regulatory proceedings involving Ridgeline or the Ridgeline Pipeline System; (ii) compliance by Ridgeline with all orders, rules, and regulations of FERC and any

Section 7.03 of the Credit Agreement contains two provisions that are directly implicated by the FERC proceeding and the delayed tariff approval.

Section 7.03(a) — Tariff Approval Milestone. This provision establishes a negative covenant that prohibits Ridgeline from failing to obtain "Final FERC Tariff Approval" (as defined in the Credit Agreement) by the date that is 36 months after the date of the Credit Agreement. Given that the Credit Agreement was executed on September 15, 2021, the milestone date was September 15, 2024. This milestone has now passed wit

Section 7.03(b) of the Credit Agreement establishes two key financial covenants, both of which are subject to a commencement condition tied to Final FERC Tariff Approval: Debt Service Coverage Ratio ("DSCR") Covenant. Ridgeline must maintain a minimum DSCR of not less than 1.25 to 1.00, tested on a quarterly basis. Testing of this covenant commences on the date that is six (6) months after the occurrence of Final FER

Section 7.04 of the Credit Agreement contains a rate design covenant that constrains Ridgeline's flexibility in proposing tariff rates to FERC.

Section 7.04(a) — Minimum Revenue Threshold. This provision prohibits Ridgeline from filing "any tariff rate or amend[ing] any rate schedule with the Federal Energy Regulatory Commission that would result in a recourse rate producing annual revenues below the Minimum Revenue Threshold." The Credit Agreement defines the "Minimum Revenue Threshold" as annual revenues equal to 1.30 times the annual debt service on the t

IV. Analysis of the FERC Tariff Approval Milestone Default A. The September 15, 2024 Deadline As described in Section III.C above, Section 7.03(a) of the Credit Agreement required Ridgeline to obtain Final FERC Tariff Approval by September 15, 2024, the date that is 36 months after the Credit Agreement date of September 15, 2021. This deadline was established at the time of the Credit Agreement's execution based on t

V. Impact of Dormant Proceeding Status on Ongoing Covenant Compliance A. Affirmative Covenant Compliance Apart from the Section 7.03(a) milestone default analyzed in Section IV, Ridgeline's ongoing compliance with the affirmative covenants set forth in Section 6.01 of the Credit Agreement must be assessed in light of the dormant status of the FERC proceeding. Operations Without an Approved FERC Tariff. Ridgeline cont

Section 6.02(c) of the Credit Agreement requires the quarterly delivery of an officer's certificate certifying, among other things, the status of pending regulatory proceedings and the absence of any material adverse regulatory event. As noted in Section III.B above, Calderwood & Harkness has prepared a draft officer's certificate for Angela Moretti's execution. The draft officer's certificate is designed to satisfy

VI. Financial Covenant Testing — Deferred Commencement Analysis A. Current Deferral of DSCR and Leverage Ratio Testing As described in Section III.D, both the DSCR covenant (minimum 1.25x) and the leverage ratio covenant (maximum 5.50x total debt to EBITDA) under Section 7.03(b) of the Credit Agreement have their testing commencement dates linked to Final FERC Tariff Approval as a condition precedent. Specifically, t