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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

FROM: George Trujillo, Partner, Calderwood & Harkness LLP, 1601 K Street NW, Suite 900, Washington, DC 20006

TO: Patricia Dunmore, Chairperson, Dunmore Energy Holdings Ltd. James K. Winfield, CEO & President, Ridgeline Midstream Services LLC Angela Moretti, VP, Finance & Treasurer, Ridgeline Midstream Services LLC

DATE: January 8, 2025

RE: Analysis of Regulatory Covenants — Senior Secured Credit Facility Agreement dated September 15, 2021, among Ridgeline Midstream Services LLC, as Borrower, Pinnacle National Bank, N.A., as Administrative Agent, and the Lenders Party Thereto (the "Credit Agreement")

C&H Matter No.: 1016-00005

FERC Docket Nos.: RP22-847-000; RP22-847-001

This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the individuals to whom it is addressed. Any dissemination, distribution, or copying of this memorandum, in whole or in part, without the prior written consent of Calderwood & Harkness LLP, is strictly prohibited.

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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 Company ("Granite Trust") and Lakeshore Capital Bank ("Lakeshore"). The memorandum evaluates the impact of the currently dormant Federal Energy Regulatory Commission ("FERC") proceeding on Ridgeline's compliance obligations under the Credit Agreement and provides recommendations for proactive management of the resulting covenant compliance complexities.

The Credit Agreement governs a $400 million senior secured term loan facility and a $75 million revolving credit facility, both secured by a first-priority lien on substantially all assets of Ridgeline, including the Ridgeline Pipeline System. As of December 31, 2024, the outstanding balance on the term loan is $362.8 million following scheduled amortization payments. The facilities carry an interest rate of the Secured Overnight Financing Rate ("SOFR") plus 325 basis points and mature on October 1, 2028. The syndicate is composed of Pinnacle (40% commitment), Granite Trust (30% commitment), and Lakeshore (30% commitment).

The principal conclusion of this memorandum is as follows: FERC approval of Ridgeline's initial tariff rate under FERC Gas Tariff, Original Volume No. 1, functions as a condition precedent to certain critical covenant calculations under the Credit Agreement, and the continued dormancy of the FERC proceeding creates compliance complexities that require proactive management and immediate engagement with the syndicate lenders. Specifically, the Credit Agreement required Ridgeline to obtain "Final FERC Tariff Approval" (a defined term under the Credit Agreement) no later than September 15, 2024 — a milestone that has now passed without the required approval having been obtained. This missed milestone presents a potential covenant default with significant implications for Ridgeline's capital structure, including cross-default risk to the Second Lien Notes.

In addition to the Credit Agreement, Ridgeline has outstanding $150 million in aggregate principal amount of 7.875% Second Lien Senior Secured Notes due 2030 (the "Second Lien Notes"), held by Harborview Capital Management LLC ("Harborview") and Sentinel Ridge Fund LP ("Sentinel Ridge"). The Second Lien Note Purchase Agreement contains cross-default provisions that are triggered by an Event of Default under the Credit Agreement. A comprehensive analysis of the Second Lien obligations is beyond the primary scope of this memorandum; however, the cross-default provisions are addressed briefly in Section VIII below, given their significance to Ridgeline's overall debt management strategy.

The current FERC-imposed deadline for filing the redesigned tariff and supplemental testimony is February 21, 2025. This date represents a critical juncture in both the regulatory proceeding and the Credit Agreement compliance analysis, and this memorandum's recommendations are structured around this timeline.

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-pressure natural gas transmission pipeline that runs from the Wetzel County Interconnect in Wetzel County, West Virginia, to the Waynesburg Compressor Station in Greene County, Pennsylvania. The System is designed to transport Appalachian Basin production gas from interconnection points with upstream gathering systems to downstream markets via connections with major interstate pipeline systems at the Waynesburg delivery point.

The Pipeline System has a design capacity of 1.2 billion cubic feet per day ("Bcf/d"), equivalent to 1,200,000 dekatherms per day ("Dth/d") at a heating value of 1,000 British Thermal Units per cubic foot ("BTU/cf"). Current throughput on the System is approximately 680 million cubic feet per day ("MMcf/d"), representing a utilization rate of approximately 56.67% of design capacity. This throughput level reflects both the ramp-up trajectory of shippers on the System and broader market dynamics in the Appalachian production basin.

The System is supported by three compressor stations located along the pipeline route: the Wetzel Station (located near the receipt point in Wetzel County, WV), the Mannington Station (located near Mannington, Marion County, WV), and the Waynesburg Station (located at the delivery point in Greene County, PA). The aggregate installed compression capacity across the three stations is 45,000 horsepower ("HP"), utilizing natural gas-fired centrifugal compressor units. The System was placed into service on October 1, 2021, and the original construction cost was approximately $587.2 million, encompassing pipeline construction, compressor station installation, right-of-way acquisition, permitting, and related development costs.

Ridgeline is a Delaware limited liability company and a wholly-owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), which holds 100% of the membership interests in Ridgeline. DEH is a Cayman Islands exempted limited company (Cayman Islands Registry No. CR-381204), with its principal offices in George Town, Grand Cayman. Patricia Dunmore serves as the founder, chairperson of the board of directors, and 72% controlling shareholder of DEH. DEH's estimated enterprise value is approximately $2.8 billion, and its consolidated annual revenue for fiscal year 2023 was approximately $485 million. DEH's diversified midstream asset portfolio and its financial capacity to support Ridgeline are relevant considerations in evaluating the overall credit risk profile presented to the syndicate lenders.

B. The Credit Agreement Structure

The Credit Agreement was executed on September 15, 2021, approximately two weeks prior to the Pipeline System's in-service date of October 1, 2021. The timing of the Credit Agreement execution relative to the in-service date was coordinated to align the availability of term loan proceeds with the final construction draws and to ensure that the security interests over the substantially completed pipeline assets were perfected prior to the commencement of commercial operations.

Borrower. The Borrower under the Credit Agreement is Ridgeline Midstream Services LLC, a Delaware limited liability company (Employer Identification Number 87-4231956). Ridgeline's registered agent in Delaware is Capitol Filings Inc., located at 1209 Orange Street, Wilmington, DE 19801. Ridgeline's principal office is located at 700 Kanawha Boulevard East, Suite 1400, Charleston, WV 25301.

Administrative Agent. Pinnacle National Bank, N.A. serves as Administrative Agent for the syndicate. Pinnacle's principal office for purposes of the Credit Agreement is located at 600 Travis Street, Suite 4200, Houston, TX 77002. The primary relationship manager at Pinnacle for the Ridgeline credit is Richard Calvert, Managing Director in Pinnacle's Energy Lending Group.

Syndicate Lenders. The syndicate comprises three lenders with the following commitment percentages:

• Pinnacle National Bank, N.A. — 40% commitment ($160 million of the $400 million term loan; $30 million of the $75 million revolving credit facility);

• Granite Trust Company — 30% commitment ($120 million of the $400 million term loan; $22.5 million of the $75 million revolving credit facility). Granite Trust is located at 100 Constitution Plaza, Hartford, CT 06103;

• Lakeshore Capital Bank — 30% commitment ($120 million of the $400 million term loan; $22.5 million of the $75 million revolving credit facility). Lakeshore is located at 200 Public Square, Suite 3000, Cleveland, OH 44114.

Term Loan. The term loan facility is in the original principal amount of $400 million. Following scheduled amortization payments through December 31, 2024, the outstanding balance on the term loan is $362.8 million. Amortization is payable quarterly in accordance with the amortization schedule set forth in Schedule 2.01 to the Credit Agreement.

Revolving Credit Facility. The revolving credit facility provides for aggregate commitments of $75 million. The current outstanding drawn amount on the revolving credit facility is to be confirmed with Ridgeline's treasury department.

Interest Rate. Both the term loan and the revolving credit facility bear interest at a rate per annum equal to SOFR plus 325 basis points, subject to the SOFR floor and other customary pricing provisions set forth in Section 2.04 of the Credit Agreement.

Maturity. The stated maturity date for both the term loan and the revolving credit facility is October 1, 2028.

Security. The facilities are secured by a first-priority lien on substantially all assets of Ridgeline, including the Ridgeline Pipeline System, all compressor stations, associated real property interests, rights-of-way, easements, permits, material project contracts, revenue accounts, and general intangibles, as more fully described in the Collateral Agreement dated as of September 15, 2021, by and between Ridgeline and Pinnacle, as Administrative Agent and Collateral Agent.

Overall Financing Structure. The total construction cost of the Pipeline System was approximately $587.2 million. This cost was funded through the following sources:

The relatively high leverage employed in the financing of the Pipeline System — with debt comprising approximately 93.7% of the total capitalization at construction — underscores the importance of the FERC tariff approval to the long-term financial viability and covenant compliance of the Borrower. The equity contribution from DEH of $37.2 million represents approximately 6.3% of the total project cost.

C. The FERC Proceeding — Current Status

The FERC proceeding that is central to the covenant compliance analysis discussed in this memorandum has the following procedural history.

Initial Filing. On May 12, 2022, Ridgeline filed an application with FERC requesting approval of its initial tariff rate and interconnection authorization under FERC Gas Tariff, Original Volume No. 1. The filing was assigned Docket Nos. RP22-847-000 (tariff rate proceeding) and RP22-847-001 (interconnection authorization). Ridgeline's initial filing proposed a recourse rate of $0.2265 per Dth, based on a rate base of $612.40 million (which included the $587.2 million construction cost plus working capital and related adjustments), a cost of service of $97.36 million, and 100% load factor billing determinants of 438,000,000 Dth per year.

Deficiency Letter. On January 19, 2023, FERC's Office of Energy Market Regulation ("OEMR") issued a Deficiency Letter identifying 14 specific deficiency items in Ridgeline's filing. The deficiency items addressed, among other things, rate base calculations, depreciation methodology, cost allocation issues, return on equity support, and billing determinant assumptions. The Deficiency Letter required responses to all 14 items before the proceeding could advance.

Stay of Proceedings. On February 6, 2023, Administrative Law Judge Clara Whitfield, who had been assigned to the proceeding, issued an order staying the Track II procedural schedule pending Ridgeline's response to the Deficiency Letter.

Partial Response. On March 15, 2023, Ridgeline filed a partial response to the Deficiency Letter, addressing 8 of the 14 identified deficiency items. The remaining 6 items required more extensive analysis and the engagement of additional consulting resources.

Engagement of Braswell Energy Consulting Group. On April 15, 2023, Ridgeline engaged Braswell Energy Consulting Group LLC ("Braswell") under engagement number BEC-2023-0041 to perform a comprehensive tariff redesign. Dr. Raymond Braswell, the lead consultant at Braswell, is a recognized expert in FERC tariff design for interstate natural gas pipelines. The engagement of Braswell was prompted by the complexity of the remaining deficiency items and the recognition that a fundamental redesign of the tariff rate structure — rather than piecemeal responses to individual deficiency items — would be the most effective path to securing FERC approval.

Extensions of Time. Since the engagement of Braswell, ALJ Whitfield has granted three extensions of time for Ridgeline to complete the tariff redesign and file supplemental testimony:

First Extension: 120 days, granted on May 10, 2023, extending the filing deadline from the original response date to approximately September 2023.

Second Extension: 180 days, granted on September 8, 2023. In connection with the second extension, ALJ Whitfield designated the proceeding as "dormant" on the Commission's docket, reflecting the extended period during which no substantive filings or hearings were anticipated.

Third Extension: 12 months, granted on March 4, 2024, with conditions requiring Ridgeline to file quarterly status reports with the Commission on the progress of the tariff redesign. This extension established the current filing deadline of February 21, 2025.

Quarterly Status Reports. In compliance with the conditions attached to the third extension, Ridgeline has filed three quarterly status reports with FERC:

• June 15, 2024 (first quarterly report);

• September 14, 2024 (second quarterly report);

• December 13, 2024 (third quarterly report).

Each report has described the progress of the tariff redesign work being performed by Braswell, the anticipated timeline for completion, and the expected parameters of the redesigned tariff. All three reports were filed timely.

Redesigned Tariff Parameters. The tariff redesign being performed by Braswell has resulted in material changes to Ridgeline's rate structure and cost of service analysis. The redesigned tariff reflects a modified fixed-variable rate methodology, calculated at a 75% load factor (as opposed to the 100% load factor used in the original filing). The key parameters of the redesigned tariff, as described in the most recent quarterly status report filed on December 13, 2024, are as follows:

The increase in the proposed recourse rate from $0.2265/Dth to $0.3140/Dth is a direct consequence of the shift from 100% to 75% load factor billing determinants, which reduces the volume of service over which the pipeline's cost of service is recovered. The redesigned tariff is expected to be more defensible before FERC, as the 75% load factor assumption more accurately reflects the actual utilization of the Pipeline System and is consistent with recent FERC precedent for similarly situated pipelines.

Current Deadline. The deadline for filing the redesigned tariff and supplemental testimony is February 21, 2025. This is a firm deadline imposed by ALJ Whitfield's March 4, 2024 order, and failure to comply could result in adverse consequences in the FERC proceeding, including potential dismissal of the application.

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 compliance status.

A. Section 6.01 — Affirmative Covenants: Regulatory Compliance

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 promulgated thereunder at 18 C.F.R. Parts 154, 157, and 284." This covenant is broadly drafted and encompasses Ridgeline's FERC certificate authority, its gas tariff, any blanket transportation certificates, and any state-level permits or authorizations necessary for the operation of the Pipeline System.

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 and does not allow regulatory filings to become delinquent.

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 or the Ridgeline Pipeline System."

Analysis of Compliance Under Section 6.01. Based on our review, Ridgeline has substantially complied with its obligations under Section 6.01 of the Credit Agreement. With respect to the notification obligation under Section 6.01(c), Ridgeline provided a status update to Pinnacle in a letter dated June 2024, addressed to Richard Calvert, Managing Director. That letter described the status of the FERC proceeding, the engagement of Braswell, and the anticipated timeline for the tariff redesign filing. The question presented is whether the ongoing extensions and the dormant status of the FERC proceeding trigger additional notification obligations beyond those already discharged. While the deficiency letter issued on January 19, 2023, unquestionably constituted a "material adverse regulatory development" requiring notification, the subsequent procedural events — the grant of extensions of time and the designation of the proceeding as dormant — are arguably procedural in nature and do not constitute independent "material adverse regulatory developments." Nonetheless, we recommend that Ridgeline provide an updated notification to the Administrative Agent following the February 21, 2025 filing, as discussed further in Section VII below.

B. Section 6.02 — Reporting Covenants

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 proceeding analysis, although the financial statements necessarily reflect the revenue and expense profile of a pipeline operating without an approved FERC tariff.

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 contains detailed financial and operational data that provides the Administrative Agent with insight into Ridgeline's regulated operations.

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 other governmental authority having jurisdiction over Ridgeline; and

(iii) the absence of any "material adverse regulatory event" (a defined term under the Credit Agreement that is related to, but distinct from, the "Material Adverse Effect" definition).

The officer's certificate is typically executed by Angela Moretti, VP, Finance & Treasurer, in her capacity as an authorized officer of Ridgeline. Calderwood & Harkness has prepared a draft officer's certificate for Ms. Moretti's review and execution in connection with the upcoming quarterly certification. The draft certificate includes appropriate disclosures regarding the FERC proceeding, including the pendency of the Deficiency Letter, the dormant status of the proceeding, the tariff redesign process, and the missed September 15, 2024 milestone under Section 7.03(a).

Analysis of "Material Adverse Regulatory Event." The Credit Agreement defines "material adverse regulatory event" to include, among other things, the receipt of any FERC order that materially and adversely affects Ridgeline's ability to operate the Pipeline System, collect tariff revenues, or maintain its FERC authorizations. The critical analytical question is whether the Deficiency Letter issued on January 19, 2023, the subsequent dormant status of the proceeding, or the ongoing inability to obtain Final FERC Tariff Approval constitutes such an event. As discussed further in Section V.C below, we believe the stronger position is that these developments, while significant, are procedural in nature and do not rise to the level of a "material adverse regulatory event" as defined in the Credit Agreement, principally because Ridgeline continues to operate the Pipeline System and generate revenue. Nonetheless, the officer's certificate must be drafted with precision to avoid any inadvertent misrepresentation, and appropriate qualifications and carve-outs should be included to ensure full transparency with the Administrative Agent.

C. Section 7.03 — Negative Covenant: FERC Tariff Approval Condition

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 without Final FERC Tariff Approval having been obtained.

The Credit Agreement defines "Final FERC Tariff Approval" as follows:

"Final FERC Tariff Approval" means an order or orders of the Federal Energy Regulatory Commission accepting or approving the Borrower's initial tariff rate under FERC Gas Tariff, Original Volume No. 1, without conditions that are materially adverse to the Borrower, and such order or orders having become final and non-appealable (or, if appealed, having been affirmed in all material respects by the reviewing court).

This definition is stringent in several respects. First, it requires not merely FERC acceptance of a tariff filing, but an order that is either "final and non-appealable" or, if appealed, "affirmed in all material respects." This means that even after FERC issues an order approving Ridgeline's tariff, the definition would not be satisfied until the expiration of all applicable appeal periods (typically 30 days for rehearing requests and an additional period for judicial review) or until any appeals have been resolved favorably to Ridgeline. Second, the order must be "without conditions that are materially adverse to the Borrower," which means that a conditional acceptance order requiring material modifications to the proposed tariff rate may not satisfy the definition. Both of these features extend the effective timeline for achieving Final FERC Tariff Approval beyond the date on which FERC issues its initial order.

Current Status. The September 15, 2024 milestone has passed without Final FERC Tariff Approval. As described in Section II.C, the FERC proceeding has been dormant since September 8, 2023. The redesigned tariff filing deadline is February 21, 2025, and even if Ridgeline files the redesigned tariff and supplemental testimony on that date, the FERC adjudicatory process — including the resolution of any protests or interventions, the conduct of hearings if necessary, and the issuance of a final order — will require additional months, and more likely a year or more, to conclude. There is no realistic path to achieving Final FERC Tariff Approval within the original milestone date. This presents a potential covenant default that is analyzed in detail in Section IV below.

D. Section 7.03(b) — Revenue-Based Financial Covenants Conditioned on Tariff Approval

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 FERC Tariff Approval. The DSCR is calculated as the ratio of (a) Consolidated Net Income of the Borrower for the applicable test period, plus depreciation, amortization, interest expense, and income tax expense (i.e., EBITDA), to (b) total scheduled debt service for the same period, including principal amortization and interest payments on the term loan and any amounts drawn under the revolving credit facility.

Total Leverage Ratio Covenant. Ridgeline must maintain a maximum ratio of total funded debt to EBITDA of not more than 5.50 to 1.00, tested on a quarterly basis. Testing of this covenant also commences on the date that is six (6) months after the occurrence of Final FERC Tariff Approval. Total funded debt is defined to include the outstanding principal balance on the term loan, any amounts drawn under the revolving credit facility, the outstanding principal balance on the Second Lien Notes, and any other funded indebtedness of the Borrower.

Key Analytical Point. Both financial covenants have their testing commencement date linked to Final FERC Tariff Approval as a condition precedent. Because Final FERC Tariff Approval has not occurred, neither the DSCR covenant nor the leverage ratio covenant is currently being tested. From the Borrower's perspective, this effectively defers financial covenant discipline during the pendency of the FERC proceeding and the tariff redesign process. However, from the syndicate lenders' perspective, this deferral of covenant testing limits their ability to monitor the Borrower's financial health through formal covenant mechanisms and may be perceived as an unintended benefit to the Borrower that results from the prolonged FERC proceeding. This dynamic is an important consideration in the lender engagement strategy discussed in Section VII below, and we recommend that Ridgeline voluntarily provide pro forma financial covenant calculations to the syndicate lenders as a demonstration of transparency and creditworthiness.

E. Section 7.04 — Rate Base and Rate Design Covenant

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 term loan and the revolving credit facility (i.e., 1.30x coverage of the combined first-lien debt service).

Analysis of Minimum Revenue Threshold Under Original and Revised Rate Proposals.

To assess compliance with Section 7.04(a), it is necessary to compare the revenue potential of both the original and revised tariff rate proposals against the Minimum Revenue Threshold.

Original Proposed Rate ($0.2265/Dth): At the original filing's 100% load factor billing determinants of 438,000,000 Dth per year, the proposed recourse rate of $0.2265/Dth would produce annual revenues of approximately $99.2 million (438,000,000 Dth × $0.2265 = $99,207,000). This figure represents the theoretical revenue at full design capacity utilization.

Revised Proposed Rate ($0.3140/Dth): Under the redesigned tariff's 75% load factor billing determinants of 328,500,000 Dth per year, the revised proposed recourse rate of $0.3140/Dth would produce annual revenues of approximately $103.15 million (328,500,000 Dth × $0.3140 = $103,149,000). Although the billing determinants are lower under the revised methodology, the higher per-unit rate produces modestly higher annual revenue potential than the original filing at the respective assumed load factors.

Minimum Revenue Threshold Calculation: To determine the Minimum Revenue Threshold, we must estimate annual debt service on the term loan and revolving credit facility. Based on the current outstanding term loan balance of $362.8 million, an assumed SOFR rate of approximately 5.00%, and a spread of 325 basis points (yielding an all-in interest rate of approximately 8.25%), annual interest expense on the term loan is approximately $29.9 million. Adding scheduled annual amortization (estimated at approximately $7.2 million to $10.0 million based on the amortization schedule), total annual debt service on the term loan is in the range of $37 million to $40 million. The 1.30x coverage requirement would therefore yield a Minimum Revenue Threshold in the range of approximately $48.1 million to $52.0 million. For purposes of this analysis, we use an estimated Minimum Revenue Threshold of approximately $48.4 million.

Both the original proposed rate and the revised proposed rate would produce revenues substantially above the Minimum Revenue Threshold at design capacity or design load factor utilization levels. However, the critical variable is actual throughput. At Ridgeline's current actual throughput of approximately 680,000 Dth/d (680 MMcf/d), actual revenues depend on the rates charged under existing bilateral transportation contracts, which may differ from the proposed FERC recourse rate. If we use the revised proposed rate of $0.3140/Dth as a proxy for the weighted average contract rate, annual revenue at current throughput would be approximately $77.9 million (680,000 Dth/d × 365 days × $0.3140 = $77,927,200), which is well above the estimated Minimum Revenue Threshold of $48.4 million. However, the unapproved status of the FERC tariff introduces uncertainty regarding the ultimate rates that Ridgeline will be authorized to charge, and a sensitivity analysis is warranted, as discussed in Section VI.C below.

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 the parties' expectation that the FERC tariff approval process would be completed within a reasonable timeframe following the Pipeline System's in-service date.

The 36-month timeline was, in retrospect, ambitious. Ridgeline did not file its initial tariff application with FERC until May 12, 2022 — approximately eight months after the Credit Agreement date — leaving only approximately 28 months for the FERC adjudicatory process. While 28 months might have been sufficient for a straightforward tariff proceeding, the issuance of the 14-item Deficiency Letter in January 2023, the subsequent need for a comprehensive tariff redesign, and the resulting dormancy of the proceeding since September 2023 have made it impossible to achieve Final FERC Tariff Approval within the original milestone timeframe.

As of the date of this memorandum, the FERC proceeding has been dormant for approximately 16 months. The redesigned tariff filing deadline is February 21, 2025, and even if the filing is made timely, the subsequent FERC adjudicatory process — which will likely involve interventions by interested parties, potentially contested issues requiring settlement negotiations or hearing proceedings, the issuance of an initial decision by the ALJ, and a final Commission order — will require additional months, and quite possibly one to two years, to conclude. Moreover, even after the Commission issues a final order, the definition of "Final FERC Tariff Approval" requires that the order become "final and non-appealable" or, if appealed, "affirmed in all material respects." The expiration of rehearing and judicial review periods adds additional time. In sum, there is no realistic path to achieving Final FERC Tariff Approval within the near term, and the September 15, 2024 milestone has been definitively missed.

B. Characterization of the Default

The classification of the breach of Section 7.03(a) — whether it constitutes an "Event of Default" or merely a "Default" — is of critical importance to Ridgeline's exposure.

Under the Credit Agreement, the term "Event of Default" is defined in Section 8.01 and includes a detailed catalogue of events, each subject to specific conditions and, in some cases, cure periods. The term "Default" is typically defined as any event or condition that, with the giving of notice or the lapse of time (or both), would constitute an Event of Default. The distinction is significant: an "Event of Default" under Section 8.01 triggers the Administrative Agent's remedies under Section 8.02, including the right to declare the outstanding principal of the term loan and all accrued interest immediately due and payable (i.e., acceleration), to terminate the revolving credit commitments, and to exercise remedies against the collateral. A "Default," by contrast, is a precursor event that does not automatically trigger acceleration but signals a breach that may ripen into an Event of Default.

Based on our review of the Credit Agreement, the failure to achieve the Final FERC Tariff Approval milestone under Section 7.03(a) is listed as a specific event within the catalogue of Events of Default in Section 8.01(d), subject to a 30-day cure period following written notice from the Administrative Agent (or the Required Lenders) to the Borrower. Specifically, Section 8.01(d) provides that it shall constitute an Event of Default if "the Borrower shall fail to perform or observe any covenant or agreement contained in Section 7.03 . . . and such failure shall continue unremedied for a period of thirty (30) days after the earlier of (i) written notice thereof from the Administrative Agent to the Borrower and (ii) a Responsible Officer of the Borrower becoming aware of such failure."

This 30-day cure period is critical. As of the date of this memorandum, we are not aware that Pinnacle (or any lender) has delivered written notice to Ridgeline asserting a failure to comply with Section 7.03(a). Nor are we aware that Pinnacle has taken the position that the missed milestone constitutes a Default or Event of Default. However, Ms. Moretti and other authorized officers of Ridgeline are undoubtedly "aware" that the September 15, 2024 milestone has passed, which triggers the second prong of the notice provision. Accordingly, the 30-day cure period under clause (ii) above may have commenced as of September 15, 2024 (or shortly thereafter), and may have expired as of approximately October 15, 2024.

If the 30-day cure period has expired without the breach having been remedied (which it has not been, and cannot be, given that Final FERC Tariff Approval has not been obtained), then the failure to achieve the milestone has ripened into a full Event of Default under Section 8.01(d) of the Credit Agreement. However, we note that the Credit Agreement also contains provisions permitting the Required Lenders (or the Administrative Agent acting at the direction of the Required Lenders) to waive Events of Default. The existence and exercise of waiver rights is distinct from the formal characterization of the default, and the strategy for obtaining a waiver is discussed in Section IV.C below.

Cross-Default Implications. If the missed milestone constitutes an Event of Default under the Credit Agreement, the cross-default provisions contained in the Second Lien Note Purchase Agreement would be triggered, potentially allowing Harborview Capital Management LLC and Sentinel Ridge Fund LP to accelerate the $150 million in outstanding Second Lien Notes. The combined potential exposure — $362.8 million on the term loan, any amounts drawn under the revolving credit facility, and $150 million in Second Lien Notes — would exceed $512 million in potentially accelerable debt. This cross-default risk underscores the urgency of obtaining a waiver from the syndicate lenders before any lender takes formal action to declare an Event of Default. The cross-default analysis is discussed further in Section VIII below.

C. Waiver/Amendment Strategy

In light of the foregoing analysis, Calderwood & Harkness recommends that Ridgeline immediately pursue a formal waiver and amendment from the syndicate lenders (Pinnacle, Granite Trust, and Lakeshore) extending the Final FERC Tariff Approval milestone in Section 7.03(a) of the Credit Agreement. The key elements of this strategy are as follows.

Proposed Extension of Milestone Date. We recommend proposing a new milestone date that provides Ridgeline with sufficient time to complete the FERC adjudicatory process following the February 21, 2025 filing of the redesigned tariff. Two alternative approaches should be considered:

Option 1 — Fixed Date Extension: Extend the Final FERC Tariff Approval milestone by 24 months from the date of the amendment. If the amendment is executed in late January or early February 2025, this would yield a new milestone date of approximately January or February 2027. This approach provides certainty and simplicity.

Option 2 — Floating Date Tied to Filing: Extend the Final FERC Tariff Approval milestone to the date that is 18 months after the filing of the redesigned tariff with FERC. If the redesigned tariff is filed on February 21, 2025, this would yield a milestone date of approximately August 21, 2026. This approach ties the milestone to the actual commencement of the FERC adjudicatory process and may be perceived by lenders as more disciplined than a fixed-date extension.

Both options have advantages and risks. Option 1 provides a somewhat longer runway and is less susceptible to complications arising from potential further delays in the FERC filing. Option 2 is more directly tied to the regulatory process but leaves less margin for FERC proceedings that exceed 18 months. Based on our experience with FERC tariff proceedings for pipelines of similar size and complexity, a timeline of 12 to 24 months from the filing date to a final FERC order is reasonable, but the "final and non-appealable" requirement adds additional time. We are inclined to recommend Option 1 but defer to the Ridgeline management team on the preferred approach, which should be informed by discussions with the Pinnacle relationship team.

Required Lender Consent. The Credit Agreement likely defines "Required Lenders" as lenders holding more than 50% of the aggregate outstanding commitments under the Credit Agreement. Under the current syndicate composition — Pinnacle (40%), Granite Trust (30%), and Lakeshore (30%) — the consent of Pinnacle plus either Granite Trust or Lakeshore would be sufficient to constitute Required Lender consent. However, certain amendments — particularly those affecting financial covenants, payment terms, or maturity dates — may require the consent of all lenders. We will review the amendment and waiver provisions of the Credit Agreement (typically found in Section 10.01) to confirm whether the proposed extension of the Section 7.03(a) milestone requires Required Lender consent or all-lender consent. If the milestone is characterized as a financial or material covenant rather than a merely administrative provision, all-lender consent may be necessary.

Fee and Pricing Considerations. It is customary for lenders to require consideration in exchange for waivers and amendments, particularly where the amendment addresses a covenant breach. The syndicate may request one or more of the following:

• Amendment Fee: A one-time fee, typically ranging from 10 to 25 basis points of the outstanding commitment amount, payable to each consenting lender upon execution of the amendment.

• Consent Fee: A separate fee payable to each lender that delivers its consent by a specified deadline, designed to incentivize prompt lender action.

• Pricing Step-Up: An increase in the applicable margin above SOFR (currently 325 basis points). The lenders may seek an increase of 25 to 50 basis points as compensation for the extended period of uncertainty regarding FERC tariff approval.

• Additional Reporting Requirements: The lenders may require enhanced reporting obligations during the extended milestone period, such as monthly (rather than quarterly) FERC proceeding status reports, or the provision of pro forma financial covenant calculations.

Ridgeline's management team should be prepared for these requests and should have a clear view of the maximum pricing and fee concessions that Ridgeline is prepared to accept. We recommend that preliminary discussions with Richard Calvert at Pinnacle be initiated promptly to gauge the syndicate's likely positions on these points.

Coordination and Timing. We recommend that the waiver/amendment process be completed before the February 21, 2025 tariff filing deadline if at all possible. Completing the waiver process before the filing demonstrates to the syndicate that Ridgeline is proactively managing both its regulatory and contractual obligations. Moreover, the filing of the redesigned tariff on February 21, 2025, provides a concrete demonstration of progress in the FERC proceeding that may facilitate lender approval.

Calderwood & Harkness is prepared to draft the waiver and amendment documentation, coordinate with Ridgeline's treasury team (Angela Moretti) and DEH management (Patricia Dunmore and James K. Winfield) on the lender engagement strategy, and participate in discussions with the syndicate lenders and their counsel as needed.

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 continues to operate the Pipeline System at approximately 680 MMcf/d, generating revenue under negotiated bilateral transportation agreements with its shipper customers. These bilateral agreements are presumably filed with FERC as non-conforming service agreements, as Ridgeline does not yet have an approved tariff rate against which conforming agreements could be measured. The absence of an approved FERC tariff raises conceptual questions about the nature of Ridgeline's operating authority, but it is important to emphasize that Ridgeline holds a valid FERC certificate of public convenience and necessity authorizing the construction and operation of the Pipeline System. The tariff proceeding relates to the establishment of rates, terms, and conditions of service — not to the underlying operating authority itself.

Maintenance of Permits (Section 6.01(a)). No FERC certificate or other governmental authorization held by Ridgeline has been revoked, suspended, or materially modified. The Deficiency Letter issued on January 19, 2023, relates to the tariff rate proceeding and does not constitute a revocation or suspension of Ridgeline's operating authority. Similarly, the dormant status of the proceeding — which was ordered by the ALJ for administrative convenience to accommodate the tariff redesign — does not constitute a loss or impairment of Ridgeline's governmental authorizations. Accordingly, we conclude that Ridgeline is in compliance with Section 6.01(a) as of the date of this memorandum.

Regulatory Filings (Section 6.01(b)). Ridgeline has timely filed all required regulatory submissions with FERC, including the three quarterly status reports mandated by ALJ Whitfield's March 4, 2024 order (filed on June 15, 2024; September 14, 2024; and December 13, 2024). No other FERC filings have become delinquent. We conclude that Ridgeline is in compliance with Section 6.01(b) as of the date of this memorandum.

Notification of Regulatory Proceedings (Section 6.01(c)). Ridgeline has provided periodic updates to the Administrative Agent regarding the FERC proceeding. The most recent communication from Calderwood & Harkness to Pinnacle (Richard Calvert) was a letter dated June 2024 providing a comprehensive status update. While no specific notification obligation was triggered by the dormant status designation or the individual extensions of time — as these are procedural events that do not independently constitute "material adverse regulatory developments" — prudent practice and the spirit of the covenant suggest that continued communication with the Administrative Agent is warranted. We recommend that an updated status letter be sent to Pinnacle and the syndicate lenders promptly following the February 21, 2025 filing of the redesigned tariff. This updated communication should describe the filing, the anticipated next steps in the FERC proceeding, and Ridgeline's continued compliance with its regulatory obligations.

B. Officer's Certificate Obligations

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 the requirements of Section 6.02(c) while providing accurate and transparent disclosure regarding the FERC proceeding. Specifically, the certificate will include the following disclosures:

(a) A description of the pending FERC proceeding in Docket Nos. RP22-847-000 and RP22-847-001, including the current dormant status and the February 21, 2025 filing deadline;

(b) A reference to the Deficiency Letter issued on January 19, 2023, and the status of Ridgeline's response, including the engagement of Braswell and the tariff redesign;

(c) A statement regarding the missed September 15, 2024 milestone under Section 7.03(a) of the Credit Agreement, and a reference to the ongoing waiver/amendment process with the syndicate lenders; and

(d) A certification that, notwithstanding the foregoing, no "material adverse regulatory event" (as defined in the Credit Agreement) has occurred during the applicable quarter.

The certification language in clause (d) must be drafted with care to avoid any inadvertent misrepresentation. We recommend including appropriate qualifications and carve-outs, such as a reference to the pending FERC proceeding and the tariff approval milestone, so that the certification is consistent with the disclosures in clauses (a) through (c). The objective is to provide the Administrative Agent with a clear and accurate picture of Ridgeline's regulatory compliance status while preserving the legal distinction between the procedural developments in the FERC proceeding and a "material adverse regulatory event" as defined in the Credit Agreement.

We further recommend that Ms. Moretti and Mr. Winfield review all officer's certificates delivered to date under Section 6.02(c) to confirm that they have properly disclosed all material regulatory developments, including the Deficiency Letter, the dormant status, the tariff redesign engagement, and the approaching milestone date. To the extent that any prior certificate contains language that is inconsistent with the current understanding of the FERC proceeding status, a supplemental disclosure should be considered.

C. Material Adverse Effect Considerations

The Credit Agreement contains a representation (typically in Section 4.01 or 5.01 of the Credit Agreement) that no "Material Adverse Effect" (as defined in the Credit Agreement) has occurred. This representation is repeated at each borrowing date and in each officer's certificate. The question is whether any development in the FERC proceeding — including the Deficiency Letter, the dormant status, the tariff redesign, or the missed September 15, 2024 milestone — constitutes a Material Adverse Effect ("MAE").

The MAE definition in the Credit Agreement typically encompasses any event, circumstance, or condition that has, or could reasonably be expected to have, a material adverse effect on (i) the business, operations, properties, or financial condition of the Borrower, (ii) the ability of the Borrower to perform its payment or other material obligations under the Credit Agreement, or (iii) the rights and remedies of the Administrative Agent or the Lenders under the Loan Documents.

Analysis. We believe that the FERC proceeding developments do not constitute an MAE for the following reasons:

First, the Deficiency Letter and the subsequent procedural events are correctable in nature. The Deficiency Letter identified 14 specific items requiring response, and Ridgeline has addressed 8 of those items and has engaged Braswell to perform a comprehensive tariff redesign to address the remaining items. The tariff redesign is on track for filing by the February 21, 2025 deadline. There is no indication that FERC will reject Ridgeline's tariff application outright or revoke Ridgeline's operating authority.

Second, Ridgeline continues to operate the Pipeline System and generate revenue. Current throughput of approximately 680 MMcf/d, while below design capacity, produces substantial cash flow under existing bilateral transportation agreements. The absence of an approved FERC tariff does not prevent Ridgeline from operating or collecting revenues; it affects only the determination of the recourse rate and the establishment of a final tariff structure.

Third, the tariff redesign is expected to result in a tariff that is more defensible before FERC than the original filing. The shift from 100% to 75% load factor billing determinants, the revised ROE of 12.50%, and the revised WACC of 9.2375% are consistent with recent FERC precedent and are expected to be viewed favorably by the Commission. The redesigned tariff, if approved, would provide Ridgeline with a sustainable rate structure that supports long-term covenant compliance.

Recommended Position. Based on the foregoing analysis, we recommend that Ridgeline take the position that the FERC proceeding status does not constitute an MAE. However, this position should be disclosed transparently to the Administrative Agent, and the officer's certificates should include appropriate qualifications acknowledging the pendency of the FERC proceeding and the tariff redesign. Transparency is essential both as a matter of good faith contractual compliance and as a strategic matter — lenders are more likely to grant waivers and amendments to borrowers that have been forthcoming about potential issues than to borrowers that have attempted to minimize or conceal them.

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, testing of each covenant begins on the date that is six months after the date on which Final FERC Tariff Approval occurs. Because Final FERC Tariff Approval has not occurred, no financial covenant testing under Section 7.03(b) is currently required.

This deferral of financial covenant testing has two practical implications. From Ridgeline's perspective, it provides a period of covenant relief during which the Borrower is not subject to the quantitative financial discipline imposed by the DSCR and leverage ratio tests. This relief is particularly significant given the uncertainties surrounding the ultimate FERC-approved tariff rate and the current utilization rate of the Pipeline System. From the syndicate lenders' perspective, however, the deferral limits their ability to monitor Ridgeline's financial performance through formal covenant mechanisms and creates a period of reduced visibility into the Borrower's financial health. The lenders may view this outcome as an unintended consequence of the prolonged FERC proceeding — one that benefits the Borrower at the lenders' expense.

In the waiver/amendment negotiations discussed in Section IV.C, the lenders may seek to address this concern by requesting the introduction of interim financial covenants or reporting requirements that apply during the period prior to Final FERC Tariff Approval. Such interim covenants might include a minimum cash balance or liquidity covenant, a maximum capital expenditure covenant, or a requirement to maintain a specified level of throughput or revenue. Ridgeline should be prepared to negotiate these provisions and should have a clear understanding of its financial position and projections to support those negotiations.

B. Pro Forma Covenant Compliance Analysis (Illustrative)

Even though the DSCR and leverage ratio covenants are not currently being tested, Calderwood & Harkness recommends that Ridgeline prepare and maintain pro forma financial covenant compliance calculations on a quarterly basis. This practice serves multiple purposes: it allows Ridgeline to monitor its own financial health relative to the covenant levels that will eventually apply; it provides a basis for demonstrating creditworthiness to the syndicate lenders during the waiver/amendment negotiations; and it positions Ridgeline to comply promptly with the financial covenants once testing commences following Final FERC Tariff Approval.

Illustrative DSCR Calculation. The following illustrative calculation is based on publicly available and estimated data and is intended for analytical purposes only. Actual calculations should be prepared using Ridgeline's internal financial records.

Revenue: Current throughput of approximately 680,000 Dth/d, multiplied by 365 days per year, multiplied by an assumed weighted average transportation rate approximating the revised proposed rate of $0.3140/Dth, yields estimated annual revenue of approximately $77.9 million ($680,000 × 365 × $0.3140 = $77,927,200). Actual revenues may differ based on the specific rates in Ridgeline's bilateral transportation agreements.

EBITDA: Estimated EBITDA would require adjustments for operating expenses, including compressor fuel, maintenance, labor, and administrative costs. For illustrative purposes, assuming operating expenses of approximately $15 million to $20 million per year, EBITDA would be in the range of approximately $58 million to $63 million.

Total Annual Debt Service: Interest expense on the $362.8 million term loan at an assumed all-in rate of 8.25% (SOFR at approximately 5.00% plus 325 bps) is approximately $29.9 million per year. Adding scheduled principal amortization (estimated at $7.2 million to $10.0 million), total annual debt service on the term loan is approximately $37 million to $40 million. If there are draws on the revolving credit facility, debt service would increase accordingly.

Pro Forma DSCR: Using the midpoint estimates, DSCR would be approximately $60 million ÷ $38.5 million ≈ 1.56x, which would exceed the required minimum of 1.25x. However, this calculation is highly sensitive to the actual transportation rates charged, actual throughput volumes, and actual operating expenses, and should be validated with actual financial data from Ridgeline's treasury department.

Illustrative Leverage Ratio Calculation. Total funded debt as of December 31, 2024, includes the $362.8 million term loan balance, any amounts drawn on the $75 million revolving credit facility (to be confirmed), and $150 million in Second Lien Notes, for a potential total of $512.8 million to $587.8 million. Using the EBITDA range estimated above ($58 million to $63 million), the leverage ratio would be in the range of approximately 8.1x to 10.1x, which would exceed the maximum covenant level of 5.50x.

This illustrative analysis highlights a potential concern: while the DSCR covenant would likely be satisfied based on current operations, the leverage ratio covenant may not be satisfied given the high level of total funded debt relative to current EBITDA. This concern underscores the importance of the tariff approval and throughput ramp-up to Ridgeline's long-term financial profile. The lenders should be made aware of this dynamic during the waiver/amendment negotiations, and Ridgeline should be prepared to present a credible path to leverage ratio compliance, which may include projected throughput growth, the impact of a favorable FERC tariff rate, and potential deleveraging through cash flow generation or asset dispositions. We note, however, that t

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
FROM: George Trujillo, Partner, Calderwood & Harkness LLP, 1601 K Street NW, Suite 900, Washington, DC 20006
TO: Patricia Dunmore, Chairperson, Dunmore Energy Holdings Ltd. James K. Winfield, CEO & President, Ridgeline Midstream Services LLC Angela Moretti, VP, Finance & Treasurer, Ridgeline Midstream Services LLC
DATE: January 8, 2025
RE: Analysis of Regulatory Covenants — Senior Secured Credit Facility Agreement dated September 15, 2021, among Ridgeline Midstream Services LLC, as Borrower, Pinnacle National Bank, N.A., as Administrative Agent, and the Lenders Party Thereto (the "Credit Agreement")
C&H Matter No.: 1016-00005
FERC Docket Nos.: RP22-847-000; RP22-847-001
This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the individuals to whom it is addressed. Any dissemination, distribution, or copying of this memorandum, in whole or in part, without the prior written consent of Calderwood & Harkness LLP, is strictly prohibited.
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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 Company ("Granite Trust") and Lakeshore Capital Bank ("Lakeshore"). The memorandum evaluates the impact of the currently dormant Federal Energy Regulatory Commission ("FERC") proceeding on Ridgeline's compliance obligations under the Credit Agreement and provides recommendations for proactive management of the resulting covenant compliance complexities.
The Credit Agreement governs a $400 million senior secured term loan facility and a $75 million revolving credit facility, both secured by a first-priority lien on substantially all assets of Ridgeline, including the Ridgeline Pipeline System. As of December 31, 2024, the outstanding balance on the term loan is $362.8 million following scheduled amortization payments. The facilities carry an interest rate of the Secured Overnight Financing Rate ("SOFR") plus 325 basis points and mature on October 1, 2028. The syndicate is composed of Pinnacle (40% commitment), Granite Trust (30% commitment), and Lakeshore (30% commitment).
The principal conclusion of this memorandum is as follows: FERC approval of Ridgeline's initial tariff rate under FERC Gas Tariff, Original Volume No. 1, functions as a condition precedent to certain critical covenant calculations under the Credit Agreement, and the continued dormancy of the FERC proceeding creates compliance complexities that require proactive management and immediate engagement with the syndicate lenders. Specifically, the Credit Agreement required Ridgeline to obtain "Final FERC Tariff Approval" (a defined term under the Credit Agreement) no later than September 15, 2024 — a milestone that has now passed without the required approval having been obtained. This missed milestone presents a potential covenant default with significant implications for Ridgeline's capital structure, including cross-default risk to the Second Lien Notes.
In addition to the Credit Agreement, Ridgeline has outstanding $150 million in aggregate principal amount of 7.875% Second Lien Senior Secured Notes due 2030 (the "Second Lien Notes"), held by Harborview Capital Management LLC ("Harborview") and Sentinel Ridge Fund LP ("Sentinel Ridge"). The Second Lien Note Purchase Agreement contains cross-default provisions that are triggered by an Event of Default under the Credit Agreement. A comprehensive analysis of the Second Lien obligations is beyond the primary scope of this memorandum; however, the cross-default provisions are addressed briefly in Section VIII below, given their significance to Ridgeline's overall debt management strategy.
The current FERC-imposed deadline for filing the redesigned tariff and supplemental testimony is February 21, 2025. This date represents a critical juncture in both the regulatory proceeding and the Credit Agreement compliance analysis, and this memorandum's recommendations are structured around this timeline.
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-pressure natural gas transmission pipeline that runs from the Wetzel County Interconnect in Wetzel County, West Virginia, to the Waynesburg Compressor Station in Greene County, Pennsylvania. The System is designed to transport Appalachian Basin production gas from interconnection points with upstream gathering systems to downstream markets via connections with major interstate pipeline systems at the Waynesburg delivery point.
The Pipeline System has a design capacity of 1.2 billion cubic feet per day ("Bcf/d"), equivalent to 1,200,000 dekatherms per day ("Dth/d") at a heating value of 1,000 British Thermal Units per cubic foot ("BTU/cf"). Current throughput on the System is approximately 680 million cubic feet per day ("MMcf/d"), representing a utilization rate of approximately 56.67% of design capacity. This throughput level reflects both the ramp-up trajectory of shippers on the System and broader market dynamics in the Appalachian production basin.
The System is supported by three compressor stations located along the pipeline route: the Wetzel Station (located near the receipt point in Wetzel County, WV), the Mannington Station (located near Mannington, Marion County, WV), and the Waynesburg Station (located at the delivery point in Greene County, PA). The aggregate installed compression capacity across the three stations is 45,000 horsepower ("HP"), utilizing natural gas-fired centrifugal compressor units. The System was placed into service on October 1, 2021, and the original construction cost was approximately $587.2 million, encompassing pipeline construction, compressor station installation, right-of-way acquisition, permitting, and related development costs.
Ridgeline is a Delaware limited liability company and a wholly-owned subsidiary of Dunmore Energy Holdings Ltd. ("DEH"), which holds 100% of the membership interests in Ridgeline. DEH is a Cayman Islands exempted limited company (Cayman Islands Registry No. CR-381204), with its principal offices in George Town, Grand Cayman. Patricia Dunmore serves as the founder, chairperson of the board of directors, and 72% controlling shareholder of DEH. DEH's estimated enterprise value is approximately $2.8 billion, and its consolidated annual revenue for fiscal year 2023 was approximately $485 million. DEH's diversified midstream asset portfolio and its financial capacity to support Ridgeline are relevant considerations in evaluating the overall credit risk profile presented to the syndicate lenders.
B. The Credit Agreement Structure
The Credit Agreement was executed on September 15, 2021, approximately two weeks prior to the Pipeline System's in-service date of October 1, 2021. The timing of the Credit Agreement execution relative to the in-service date was coordinated to align the availability of term loan proceeds with the final construction draws and to ensure that the security interests over the substantially completed pipeline assets were perfected prior to the commencement of commercial operations.
Borrower. The Borrower under the Credit Agreement is Ridgeline Midstream Services LLC, a Delaware limited liability company (Employer Identification Number 87-4231956). Ridgeline's registered agent in Delaware is Capitol Filings Inc., located at 1209 Orange Street, Wilmington, DE 19801. Ridgeline's principal office is located at 700 Kanawha Boulevard East, Suite 1400, Charleston, WV 25301.
Administrative Agent. Pinnacle National Bank, N.A. serves as Administrative Agent for the syndicate. Pinnacle's principal office for purposes of the Credit Agreement is located at 600 Travis Street, Suite 4200, Houston, TX 77002. The primary relationship manager at Pinnacle for the Ridgeline credit is Richard Calvert, Managing Director in Pinnacle's Energy Lending Group.
Syndicate Lenders. The syndicate comprises three lenders with the following commitment percentages:
• Pinnacle National Bank, N.A. — 40% commitment ($160 million of the $400 million term loan; $30 million of the $75 million revolving credit facility);
• Granite Trust Company — 30% commitment ($120 million of the $400 million term loan; $22.5 million of the $75 million revolving credit facility). Granite Trust is located at 100 Constitution Plaza, Hartford, CT 06103;
• Lakeshore Capital Bank — 30% commitment ($120 million of the $400 million term loan; $22.5 million of the $75 million revolving credit facility). Lakeshore is located at 200 Public Square, Suite 3000, Cleveland, OH 44114.
Term Loan. The term loan facility is in the original principal amount of $400 million. Following scheduled amortization payments through December 31, 2024, the outstanding balance on the term loan is $362.8 million. Amortization is payable quarterly in accordance with the amortization schedule set forth in Schedule 2.01 to the Credit Agreement.
Revolving Credit Facility. The revolving credit facility provides for aggregate commitments of $75 million. The current outstanding drawn amount on the revolving credit facility is to be confirmed with Ridgeline's treasury department.
Interest Rate. Both the term loan and the revolving credit facility bear interest at a rate per annum equal to SOFR plus 325 basis points, subject to the SOFR floor and other customary pricing provisions set forth in Section 2.04 of the Credit Agreement.
Maturity. The stated maturity date for both the term loan and the revolving credit facility is October 1, 2028.
Security. The facilities are secured by a first-priority lien on substantially all assets of Ridgeline, including the Ridgeline Pipeline System, all compressor stations, associated real property interests, rights-of-way, easements, permits, material project contracts, revenue accounts, and general intangibles, as more fully described in the Collateral Agreement dated as of September 15, 2021, by and between Ridgeline and Pinnacle, as Administrative Agent and Collateral Agent.
Overall Financing Structure. The total construction cost of the Pipeline System was approximately $587.2 million. This cost was funded through the following sources:
The relatively high leverage employed in the financing of the Pipeline System — with debt comprising approximately 93.7% of the total capitalization at construction — underscores the importance of the FERC tariff approval to the long-term financial viability and covenant compliance of the Borrower. The equity contribution from DEH of $37.2 million represents approximately 6.3% of the total project cost.
C. The FERC Proceeding — Current Status
The FERC proceeding that is central to the covenant compliance analysis discussed in this memorandum has the following procedural history.
Initial Filing. On May 12, 2022, Ridgeline filed an application with FERC requesting approval of its initial tariff rate and interconnection authorization under FERC Gas Tariff, Original Volume No. 1. The filing was assigned Docket Nos. RP22-847-000 (tariff rate proceeding) and RP22-847-001 (interconnection authorization). Ridgeline's initial filing proposed a recourse rate of $0.2265 per Dth, based on a rate base of $612.40 million (which included the $587.2 million construction cost plus working capital and related adjustments), a cost of service of $97.36 million, and 100% load factor billing determinants of 438,000,000 Dth per year.
Deficiency Letter. On January 19, 2023, FERC's Office of Energy Market Regulation ("OEMR") issued a Deficiency Letter identifying 14 specific deficiency items in Ridgeline's filing. The deficiency items addressed, among other things, rate base calculations, depreciation methodology, cost allocation issues, return on equity support, and billing determinant assumptions. The Deficiency Letter required responses to all 14 items before the proceeding could advance.
Stay of Proceedings. On February 6, 2023, Administrative Law Judge Clara Whitfield, who had been assigned to the proceeding, issued an order staying the Track II procedural schedule pending Ridgeline's response to the Deficiency Letter.
Partial Response. On March 15, 2023, Ridgeline filed a partial response to the Deficiency Letter, addressing 8 of the 14 identified deficiency items. The remaining 6 items required more extensive analysis and the engagement of additional consulting resources.
Engagement of Braswell Energy Consulting Group. On April 15, 2023, Ridgeline engaged Braswell Energy Consulting Group LLC ("Braswell") under engagement number BEC-2023-0041 to perform a comprehensive tariff redesign. Dr. Raymond Braswell, the lead consultant at Braswell, is a recognized expert in FERC tariff design for interstate natural gas pipelines. The engagement of Braswell was prompted by the complexity of the remaining deficiency items and the recognition that a fundamental redesign of the tariff rate structure — rather than piecemeal responses to individual deficiency items — would be the most effective path to securing FERC approval.
Extensions of Time. Since the engagement of Braswell, ALJ Whitfield has granted three extensions of time for Ridgeline to complete the tariff redesign and file supplemental testimony:
First Extension: 120 days, granted on May 10, 2023, extending the filing deadline from the original response date to approximately September 2023.
Second Extension: 180 days, granted on September 8, 2023. In connection with the second extension, ALJ Whitfield designated the proceeding as "dormant" on the Commission's docket, reflecting the extended period during which no substantive filings or hearings were anticipated.
Third Extension: 12 months, granted on March 4, 2024, with conditions requiring Ridgeline to file quarterly status reports with the Commission on the progress of the tariff redesign. This extension established the current filing deadline of February 21, 2025.
Quarterly Status Reports. In compliance with the conditions attached to the third extension, Ridgeline has filed three quarterly status reports with FERC:
• June 15, 2024 (first quarterly report);
• September 14, 2024 (second quarterly report);
• December 13, 2024 (third quarterly report).
Each report has described the progress of the tariff redesign work being performed by Braswell, the anticipated timeline for completion, and the expected parameters of the redesigned tariff. All three reports were filed timely.
Redesigned Tariff Parameters. The tariff redesign being performed by Braswell has resulted in material changes to Ridgeline's rate structure and cost of service analysis. The redesigned tariff reflects a modified fixed-variable rate methodology, calculated at a 75% load factor (as opposed to the 100% load factor used in the original filing). The key parameters of the redesigned tariff, as described in the most recent quarterly status report filed on December 13, 2024, are as follows:
The increase in the proposed recourse rate from $0.2265/Dth to $0.3140/Dth is a direct consequence of the shift from 100% to 75% load factor billing determinants, which reduces the volume of service over which the pipeline's cost of service is recovered. The redesigned tariff is expected to be more defensible before FERC, as the 75% load factor assumption more accurately reflects the actual utilization of the Pipeline System and is consistent with recent FERC precedent for similarly situated pipelines.
Current Deadline. The deadline for filing the redesigned tariff and supplemental testimony is February 21, 2025. This is a firm deadline imposed by ALJ Whitfield's March 4, 2024 order, and failure to comply could result in adverse consequences in the FERC proceeding, including potential dismissal of the application.
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 compliance status.
A. Section 6.01 — Affirmative Covenants: Regulatory Compliance
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 promulgated thereunder at 18 C.F.R. Parts 154, 157, and 284." This covenant is broadly drafted and encompasses Ridgeline's FERC certificate authority, its gas tariff, any blanket transportation certificates, and any state-level permits or authorizations necessary for the operation of the Pipeline System.
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 and does not allow regulatory filings to become delinquent.
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 or the Ridgeline Pipeline System."
Analysis of Compliance Under Section 6.01. Based on our review, Ridgeline has substantially complied with its obligations under Section 6.01 of the Credit Agreement. With respect to the notification obligation under Section 6.01(c), Ridgeline provided a status update to Pinnacle in a letter dated June 2024, addressed to Richard Calvert, Managing Director. That letter described the status of the FERC proceeding, the engagement of Braswell, and the anticipated timeline for the tariff redesign filing. The question presented is whether the ongoing extensions and the dormant status of the FERC proceeding trigger additional notification obligations beyond those already discharged. While the deficiency letter issued on January 19, 2023, unquestionably constituted a "material adverse regulatory development" requiring notification, the subsequent procedural events — the grant of extensions of time and the designation of the proceeding as dormant — are arguably procedural in nature and do not constitute independent "material adverse regulatory developments." Nonetheless, we recommend that Ridgeline provide an updated notification to the Administrative Agent following the February 21, 2025 filing, as discussed further in Section VII below.
B. Section 6.02 — Reporting Covenants
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 proceeding analysis, although the financial statements necessarily reflect the revenue and expense profile of a pipeline operating without an approved FERC tariff.
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 contains detailed financial and operational data that provides the Administrative Agent with insight into Ridgeline's regulated operations.
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 other governmental authority having jurisdiction over Ridgeline; and
(iii) the absence of any "material adverse regulatory event" (a defined term under the Credit Agreement that is related to, but distinct from, the "Material Adverse Effect" definition).
The officer's certificate is typically executed by Angela Moretti, VP, Finance & Treasurer, in her capacity as an authorized officer of Ridgeline. Calderwood & Harkness has prepared a draft officer's certificate for Ms. Moretti's review and execution in connection with the upcoming quarterly certification. The draft certificate includes appropriate disclosures regarding the FERC proceeding, including the pendency of the Deficiency Letter, the dormant status of the proceeding, the tariff redesign process, and the missed September 15, 2024 milestone under Section 7.03(a).
Analysis of "Material Adverse Regulatory Event." The Credit Agreement defines "material adverse regulatory event" to include, among other things, the receipt of any FERC order that materially and adversely affects Ridgeline's ability to operate the Pipeline System, collect tariff revenues, or maintain its FERC authorizations. The critical analytical question is whether the Deficiency Letter issued on January 19, 2023, the subsequent dormant status of the proceeding, or the ongoing inability to obtain Final FERC Tariff Approval constitutes such an event. As discussed further in Section V.C below, we believe the stronger position is that these developments, while significant, are procedural in nature and do not rise to the level of a "material adverse regulatory event" as defined in the Credit Agreement, principally because Ridgeline continues to operate the Pipeline System and generate revenue. Nonetheless, the officer's certificate must be drafted with precision to avoid any inadvertent misrepresentation, and appropriate qualifications and carve-outs should be included to ensure full transparency with the Administrative Agent.
C. Section 7.03 — Negative Covenant: FERC Tariff Approval Condition
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 without Final FERC Tariff Approval having been obtained.
The Credit Agreement defines "Final FERC Tariff Approval" as follows:
"Final FERC Tariff Approval" means an order or orders of the Federal Energy Regulatory Commission accepting or approving the Borrower's initial tariff rate under FERC Gas Tariff, Original Volume No. 1, without conditions that are materially adverse to the Borrower, and such order or orders having become final and non-appealable (or, if appealed, having been affirmed in all material respects by the reviewing court).
This definition is stringent in several respects. First, it requires not merely FERC acceptance of a tariff filing, but an order that is either "final and non-appealable" or, if appealed, "affirmed in all material respects." This means that even after FERC issues an order approving Ridgeline's tariff, the definition would not be satisfied until the expiration of all applicable appeal periods (typically 30 days for rehearing requests and an additional period for judicial review) or until any appeals have been resolved favorably to Ridgeline. Second, the order must be "without conditions that are materially adverse to the Borrower," which means that a conditional acceptance order requiring material modifications to the proposed tariff rate may not satisfy the definition. Both of these features extend the effective timeline for achieving Final FERC Tariff Approval beyond the date on which FERC issues its initial order.
Current Status. The September 15, 2024 milestone has passed without Final FERC Tariff Approval. As described in Section II.C, the FERC proceeding has been dormant since September 8, 2023. The redesigned tariff filing deadline is February 21, 2025, and even if Ridgeline files the redesigned tariff and supplemental testimony on that date, the FERC adjudicatory process — including the resolution of any protests or interventions, the conduct of hearings if necessary, and the issuance of a final order — will require additional months, and more likely a year or more, to conclude. There is no realistic path to achieving Final FERC Tariff Approval within the original milestone date. This presents a potential covenant default that is analyzed in detail in Section IV below.
D. Section 7.03(b) — Revenue-Based Financial Covenants Conditioned on Tariff Approval
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 FERC Tariff Approval. The DSCR is calculated as the ratio of (a) Consolidated Net Income of the Borrower for the applicable test period, plus depreciation, amortization, interest expense, and income tax expense (i.e., EBITDA), to (b) total scheduled debt service for the same period, including principal amortization and interest payments on the term loan and any amounts drawn under the revolving credit facility.
Total Leverage Ratio Covenant. Ridgeline must maintain a maximum ratio of total funded debt to EBITDA of not more than 5.50 to 1.00, tested on a quarterly basis. Testing of this covenant also commences on the date that is six (6) months after the occurrence of Final FERC Tariff Approval. Total funded debt is defined to include the outstanding principal balance on the term loan, any amounts drawn under the revolving credit facility, the outstanding principal balance on the Second Lien Notes, and any other funded indebtedness of the Borrower.
Key Analytical Point. Both financial covenants have their testing commencement date linked to Final FERC Tariff Approval as a condition precedent. Because Final FERC Tariff Approval has not occurred, neither the DSCR covenant nor the leverage ratio covenant is currently being tested. From the Borrower's perspective, this effectively defers financial covenant discipline during the pendency of the FERC proceeding and the tariff redesign process. However, from the syndicate lenders' perspective, this deferral of covenant testing limits their ability to monitor the Borrower's financial health through formal covenant mechanisms and may be perceived as an unintended benefit to the Borrower that results from the prolonged FERC proceeding. This dynamic is an important consideration in the lender engagement strategy discussed in Section VII below, and we recommend that Ridgeline voluntarily provide pro forma financial covenant calculations to the syndicate lenders as a demonstration of transparency and creditworthiness.
E. Section 7.04 — Rate Base and Rate Design Covenant
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 term loan and the revolving credit facility (i.e., 1.30x coverage of the combined first-lien debt service).
Analysis of Minimum Revenue Threshold Under Original and Revised Rate Proposals.
To assess compliance with Section 7.04(a), it is necessary to compare the revenue potential of both the original and revised tariff rate proposals against the Minimum Revenue Threshold.
Original Proposed Rate ($0.2265/Dth): At the original filing's 100% load factor billing determinants of 438,000,000 Dth per year, the proposed recourse rate of $0.2265/Dth would produce annual revenues of approximately $99.2 million (438,000,000 Dth × $0.2265 = $99,207,000). This figure represents the theoretical revenue at full design capacity utilization.
Revised Proposed Rate ($0.3140/Dth): Under the redesigned tariff's 75% load factor billing determinants of 328,500,000 Dth per year, the revised proposed recourse rate of $0.3140/Dth would produce annual revenues of approximately $103.15 million (328,500,000 Dth × $0.3140 = $103,149,000). Although the billing determinants are lower under the revised methodology, the higher per-unit rate produces modestly higher annual revenue potential than the original filing at the respective assumed load factors.
Minimum Revenue Threshold Calculation: To determine the Minimum Revenue Threshold, we must estimate annual debt service on the term loan and revolving credit facility. Based on the current outstanding term loan balance of $362.8 million, an assumed SOFR rate of approximately 5.00%, and a spread of 325 basis points (yielding an all-in interest rate of approximately 8.25%), annual interest expense on the term loan is approximately $29.9 million. Adding scheduled annual amortization (estimated at approximately $7.2 million to $10.0 million based on the amortization schedule), total annual debt service on the term loan is in the range of $37 million to $40 million. The 1.30x coverage requirement would therefore yield a Minimum Revenue Threshold in the range of approximately $48.1 million to $52.0 million. For purposes of this analysis, we use an estimated Minimum Revenue Threshold of approximately $48.4 million.
Both the original proposed rate and the revised proposed rate would produce revenues substantially above the Minimum Revenue Threshold at design capacity or design load factor utilization levels. However, the critical variable is actual throughput. At Ridgeline's current actual throughput of approximately 680,000 Dth/d (680 MMcf/d), actual revenues depend on the rates charged under existing bilateral transportation contracts, which may differ from the proposed FERC recourse rate. If we use the revised proposed rate of $0.3140/Dth as a proxy for the weighted average contract rate, annual revenue at current throughput would be approximately $77.9 million (680,000 Dth/d × 365 days × $0.3140 = $77,927,200), which is well above the estimated Minimum Revenue Threshold of $48.4 million. However, the unapproved status of the FERC tariff introduces uncertainty regarding the ultimate rates that Ridgeline will be authorized to charge, and a sensitivity analysis is warranted, as discussed in Section VI.C below.
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 the parties' expectation that the FERC tariff approval process would be completed within a reasonable timeframe following the Pipeline System's in-service date.
The 36-month timeline was, in retrospect, ambitious. Ridgeline did not file its initial tariff application with FERC until May 12, 2022 — approximately eight months after the Credit Agreement date — leaving only approximately 28 months for the FERC adjudicatory process. While 28 months might have been sufficient for a straightforward tariff proceeding, the issuance of the 14-item Deficiency Letter in January 2023, the subsequent need for a comprehensive tariff redesign, and the resulting dormancy of the proceeding since September 2023 have made it impossible to achieve Final FERC Tariff Approval within the original milestone timeframe.
As of the date of this memorandum, the FERC proceeding has been dormant for approximately 16 months. The redesigned tariff filing deadline is February 21, 2025, and even if the filing is made timely, the subsequent FERC adjudicatory process — which will likely involve interventions by interested parties, potentially contested issues requiring settlement negotiations or hearing proceedings, the issuance of an initial decision by the ALJ, and a final Commission order — will require additional months, and quite possibly one to two years, to conclude. Moreover, even after the Commission issues a final order, the definition of "Final FERC Tariff Approval" requires that the order become "final and non-appealable" or, if appealed, "affirmed in all material respects." The expiration of rehearing and judicial review periods adds additional time. In sum, there is no realistic path to achieving Final FERC Tariff Approval within the near term, and the September 15, 2024 milestone has been definitively missed.
B. Characterization of the Default
The classification of the breach of Section 7.03(a) — whether it constitutes an "Event of Default" or merely a "Default" — is of critical importance to Ridgeline's exposure.
Under the Credit Agreement, the term "Event of Default" is defined in Section 8.01 and includes a detailed catalogue of events, each subject to specific conditions and, in some cases, cure periods. The term "Default" is typically defined as any event or condition that, with the giving of notice or the lapse of time (or both), would constitute an Event of Default. The distinction is significant: an "Event of Default" under Section 8.01 triggers the Administrative Agent's remedies under Section 8.02, including the right to declare the outstanding principal of the term loan and all accrued interest immediately due and payable (i.e., acceleration), to terminate the revolving credit commitments, and to exercise remedies against the collateral. A "Default," by contrast, is a precursor event that does not automatically trigger acceleration but signals a breach that may ripen into an Event of Default.
Based on our review of the Credit Agreement, the failure to achieve the Final FERC Tariff Approval milestone under Section 7.03(a) is listed as a specific event within the catalogue of Events of Default in Section 8.01(d), subject to a 30-day cure period following written notice from the Administrative Agent (or the Required Lenders) to the Borrower. Specifically, Section 8.01(d) provides that it shall constitute an Event of Default if "the Borrower shall fail to perform or observe any covenant or agreement contained in Section 7.03 . . . and such failure shall continue unremedied for a period of thirty (30) days after the earlier of (i) written notice thereof from the Administrative Agent to the Borrower and (ii) a Responsible Officer of the Borrower becoming aware of such failure."
This 30-day cure period is critical. As of the date of this memorandum, we are not aware that Pinnacle (or any lender) has delivered written notice to Ridgeline asserting a failure to comply with Section 7.03(a). Nor are we aware that Pinnacle has taken the position that the missed milestone constitutes a Default or Event of Default. However, Ms. Moretti and other authorized officers of Ridgeline are undoubtedly "aware" that the September 15, 2024 milestone has passed, which triggers the second prong of the notice provision. Accordingly, the 30-day cure period under clause (ii) above may have commenced as of September 15, 2024 (or shortly thereafter), and may have expired as of approximately October 15, 2024.
If the 30-day cure period has expired without the breach having been remedied (which it has not been, and cannot be, given that Final FERC Tariff Approval has not been obtained), then the failure to achieve the milestone has ripened into a full Event of Default under Section 8.01(d) of the Credit Agreement. However, we note that the Credit Agreement also contains provisions permitting the Required Lenders (or the Administrative Agent acting at the direction of the Required Lenders) to waive Events of Default. The existence and exercise of waiver rights is distinct from the formal characterization of the default, and the strategy for obtaining a waiver is discussed in Section IV.C below.
Cross-Default Implications. If the missed milestone constitutes an Event of Default under the Credit Agreement, the cross-default provisions contained in the Second Lien Note Purchase Agreement would be triggered, potentially allowing Harborview Capital Management LLC and Sentinel Ridge Fund LP to accelerate the $150 million in outstanding Second Lien Notes. The combined potential exposure — $362.8 million on the term loan, any amounts drawn under the revolving credit facility, and $150 million in Second Lien Notes — would exceed $512 million in potentially accelerable debt. This cross-default risk underscores the urgency of obtaining a waiver from the syndicate lenders before any lender takes formal action to declare an Event of Default. The cross-default analysis is discussed further in Section VIII below.
C. Waiver/Amendment Strategy
In light of the foregoing analysis, Calderwood & Harkness recommends that Ridgeline immediately pursue a formal waiver and amendment from the syndicate lenders (Pinnacle, Granite Trust, and Lakeshore) extending the Final FERC Tariff Approval milestone in Section 7.03(a) of the Credit Agreement. The key elements of this strategy are as follows.
Proposed Extension of Milestone Date. We recommend proposing a new milestone date that provides Ridgeline with sufficient time to complete the FERC adjudicatory process following the February 21, 2025 filing of the redesigned tariff. Two alternative approaches should be considered:
Option 1 — Fixed Date Extension: Extend the Final FERC Tariff Approval milestone by 24 months from the date of the amendment. If the amendment is executed in late January or early February 2025, this would yield a new milestone date of approximately January or February 2027. This approach provides certainty and simplicity.
Option 2 — Floating Date Tied to Filing: Extend the Final FERC Tariff Approval milestone to the date that is 18 months after the filing of the redesigned tariff with FERC. If the redesigned tariff is filed on February 21, 2025, this would yield a milestone date of approximately August 21, 2026. This approach ties the milestone to the actual commencement of the FERC adjudicatory process and may be perceived by lenders as more disciplined than a fixed-date extension.
Both options have advantages and risks. Option 1 provides a somewhat longer runway and is less susceptible to complications arising from potential further delays in the FERC filing. Option 2 is more directly tied to the regulatory process but leaves less margin for FERC proceedings that exceed 18 months. Based on our experience with FERC tariff proceedings for pipelines of similar size and complexity, a timeline of 12 to 24 months from the filing date to a final FERC order is reasonable, but the "final and non-appealable" requirement adds additional time. We are inclined to recommend Option 1 but defer to the Ridgeline management team on the preferred approach, which should be informed by discussions with the Pinnacle relationship team.
Required Lender Consent. The Credit Agreement likely defines "Required Lenders" as lenders holding more than 50% of the aggregate outstanding commitments under the Credit Agreement. Under the current syndicate composition — Pinnacle (40%), Granite Trust (30%), and Lakeshore (30%) — the consent of Pinnacle plus either Granite Trust or Lakeshore would be sufficient to constitute Required Lender consent. However, certain amendments — particularly those affecting financial covenants, payment terms, or maturity dates — may require the consent of all lenders. We will review the amendment and waiver provisions of the Credit Agreement (typically found in Section 10.01) to confirm whether the proposed extension of the Section 7.03(a) milestone requires Required Lender consent or all-lender consent. If the milestone is characterized as a financial or material covenant rather than a merely administrative provision, all-lender consent may be necessary.
Fee and Pricing Considerations. It is customary for lenders to require consideration in exchange for waivers and amendments, particularly where the amendment addresses a covenant breach. The syndicate may request one or more of the following:
• Amendment Fee: A one-time fee, typically ranging from 10 to 25 basis points of the outstanding commitment amount, payable to each consenting lender upon execution of the amendment.
• Consent Fee: A separate fee payable to each lender that delivers its consent by a specified deadline, designed to incentivize prompt lender action.
• Pricing Step-Up: An increase in the applicable margin above SOFR (currently 325 basis points). The lenders may seek an increase of 25 to 50 basis points as compensation for the extended period of uncertainty regarding FERC tariff approval.
• Additional Reporting Requirements: The lenders may require enhanced reporting obligations during the extended milestone period, such as monthly (rather than quarterly) FERC proceeding status reports, or the provision of pro forma financial covenant calculations.
Ridgeline's management team should be prepared for these requests and should have a clear view of the maximum pricing and fee concessions that Ridgeline is prepared to accept. We recommend that preliminary discussions with Richard Calvert at Pinnacle be initiated promptly to gauge the syndicate's likely positions on these points.
Coordination and Timing. We recommend that the waiver/amendment process be completed before the February 21, 2025 tariff filing deadline if at all possible. Completing the waiver process before the filing demonstrates to the syndicate that Ridgeline is proactively managing both its regulatory and contractual obligations. Moreover, the filing of the redesigned tariff on February 21, 2025, provides a concrete demonstration of progress in the FERC proceeding that may facilitate lender approval.
Calderwood & Harkness is prepared to draft the waiver and amendment documentation, coordinate with Ridgeline's treasury team (Angela Moretti) and DEH management (Patricia Dunmore and James K. Winfield) on the lender engagement strategy, and participate in discussions with the syndicate lenders and their counsel as needed.
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 continues to operate the Pipeline System at approximately 680 MMcf/d, generating revenue under negotiated bilateral transportation agreements with its shipper customers. These bilateral agreements are presumably filed with FERC as non-conforming service agreements, as Ridgeline does not yet have an approved tariff rate against which conforming agreements could be measured. The absence of an approved FERC tariff raises conceptual questions about the nature of Ridgeline's operating authority, but it is important to emphasize that Ridgeline holds a valid FERC certificate of public convenience and necessity authorizing the construction and operation of the Pipeline System. The tariff proceeding relates to the establishment of rates, terms, and conditions of service — not to the underlying operating authority itself.
Maintenance of Permits (Section 6.01(a)). No FERC certificate or other governmental authorization held by Ridgeline has been revoked, suspended, or materially modified. The Deficiency Letter issued on January 19, 2023, relates to the tariff rate proceeding and does not constitute a revocation or suspension of Ridgeline's operating authority. Similarly, the dormant status of the proceeding — which was ordered by the ALJ for administrative convenience to accommodate the tariff redesign — does not constitute a loss or impairment of Ridgeline's governmental authorizations. Accordingly, we conclude that Ridgeline is in compliance with Section 6.01(a) as of the date of this memorandum.
Regulatory Filings (Section 6.01(b)). Ridgeline has timely filed all required regulatory submissions with FERC, including the three quarterly status reports mandated by ALJ Whitfield's March 4, 2024 order (filed on June 15, 2024; September 14, 2024; and December 13, 2024). No other FERC filings have become delinquent. We conclude that Ridgeline is in compliance with Section 6.01(b) as of the date of this memorandum.
Notification of Regulatory Proceedings (Section 6.01(c)). Ridgeline has provided periodic updates to the Administrative Agent regarding the FERC proceeding. The most recent communication from Calderwood & Harkness to Pinnacle (Richard Calvert) was a letter dated June 2024 providing a comprehensive status update. While no specific notification obligation was triggered by the dormant status designation or the individual extensions of time — as these are procedural events that do not independently constitute "material adverse regulatory developments" — prudent practice and the spirit of the covenant suggest that continued communication with the Administrative Agent is warranted. We recommend that an updated status letter be sent to Pinnacle and the syndicate lenders promptly following the February 21, 2025 filing of the redesigned tariff. This updated communication should describe the filing, the anticipated next steps in the FERC proceeding, and Ridgeline's continued compliance with its regulatory obligations.
B. Officer's Certificate Obligations
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 the requirements of Section 6.02(c) while providing accurate and transparent disclosure regarding the FERC proceeding. Specifically, the certificate will include the following disclosures:
(a) A description of the pending FERC proceeding in Docket Nos. RP22-847-000 and RP22-847-001, including the current dormant status and the February 21, 2025 filing deadline;
(b) A reference to the Deficiency Letter issued on January 19, 2023, and the status of Ridgeline's response, including the engagement of Braswell and the tariff redesign;
(c) A statement regarding the missed September 15, 2024 milestone under Section 7.03(a) of the Credit Agreement, and a reference to the ongoing waiver/amendment process with the syndicate lenders; and
(d) A certification that, notwithstanding the foregoing, no "material adverse regulatory event" (as defined in the Credit Agreement) has occurred during the applicable quarter.
The certification language in clause (d) must be drafted with care to avoid any inadvertent misrepresentation. We recommend including appropriate qualifications and carve-outs, such as a reference to the pending FERC proceeding and the tariff approval milestone, so that the certification is consistent with the disclosures in clauses (a) through (c). The objective is to provide the Administrative Agent with a clear and accurate picture of Ridgeline's regulatory compliance status while preserving the legal distinction between the procedural developments in the FERC proceeding and a "material adverse regulatory event" as defined in the Credit Agreement.
We further recommend that Ms. Moretti and Mr. Winfield review all officer's certificates delivered to date under Section 6.02(c) to confirm that they have properly disclosed all material regulatory developments, including the Deficiency Letter, the dormant status, the tariff redesign engagement, and the approaching milestone date. To the extent that any prior certificate contains language that is inconsistent with the current understanding of the FERC proceeding status, a supplemental disclosure should be considered.
C. Material Adverse Effect Considerations
The Credit Agreement contains a representation (typically in Section 4.01 or 5.01 of the Credit Agreement) that no "Material Adverse Effect" (as defined in the Credit Agreement) has occurred. This representation is repeated at each borrowing date and in each officer's certificate. The question is whether any development in the FERC proceeding — including the Deficiency Letter, the dormant status, the tariff redesign, or the missed September 15, 2024 milestone — constitutes a Material Adverse Effect ("MAE").
The MAE definition in the Credit Agreement typically encompasses any event, circumstance, or condition that has, or could reasonably be expected to have, a material adverse effect on (i) the business, operations, properties, or financial condition of the Borrower, (ii) the ability of the Borrower to perform its payment or other material obligations under the Credit Agreement, or (iii) the rights and remedies of the Administrative Agent or the Lenders under the Loan Documents.
Analysis. We believe that the FERC proceeding developments do not constitute an MAE for the following reasons:
First, the Deficiency Letter and the subsequent procedural events are correctable in nature. The Deficiency Letter identified 14 specific items requiring response, and Ridgeline has addressed 8 of those items and has engaged Braswell to perform a comprehensive tariff redesign to address the remaining items. The tariff redesign is on track for filing by the February 21, 2025 deadline. There is no indication that FERC will reject Ridgeline's tariff application outright or revoke Ridgeline's operating authority.
Second, Ridgeline continues to operate the Pipeline System and generate revenue. Current throughput of approximately 680 MMcf/d, while below design capacity, produces substantial cash flow under existing bilateral transportation agreements. The absence of an approved FERC tariff does not prevent Ridgeline from operating or collecting revenues; it affects only the determination of the recourse rate and the establishment of a final tariff structure.
Third, the tariff redesign is expected to result in a tariff that is more defensible before FERC than the original filing. The shift from 100% to 75% load factor billing determinants, the revised ROE of 12.50%, and the revised WACC of 9.2375% are consistent with recent FERC precedent and are expected to be viewed favorably by the Commission. The redesigned tariff, if approved, would provide Ridgeline with a sustainable rate structure that supports long-term covenant compliance.
Recommended Position. Based on the foregoing analysis, we recommend that Ridgeline take the position that the FERC proceeding status does not constitute an MAE. However, this position should be disclosed transparently to the Administrative Agent, and the officer's certificates should include appropriate qualifications acknowledging the pendency of the FERC proceeding and the tariff redesign. Transparency is essential both as a matter of good faith contractual compliance and as a strategic matter — lenders are more likely to grant waivers and amendments to borrowers that have been forthcoming about potential issues than to borrowers that have attempted to minimize or conceal them.
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, testing of each covenant begins on the date that is six months after the date on which Final FERC Tariff Approval occurs. Because Final FERC Tariff Approval has not occurred, no financial covenant testing under Section 7.03(b) is currently required.
This deferral of financial covenant testing has two practical implications. From Ridgeline's perspective, it provides a period of covenant relief during which the Borrower is not subject to the quantitative financial discipline imposed by the DSCR and leverage ratio tests. This relief is particularly significant given the uncertainties surrounding the ultimate FERC-approved tariff rate and the current utilization rate of the Pipeline System. From the syndicate lenders' perspective, however, the deferral limits their ability to monitor Ridgeline's financial performance through formal covenant mechanisms and creates a period of reduced visibility into the Borrower's financial health. The lenders may view this outcome as an unintended consequence of the prolonged FERC proceeding — one that benefits the Borrower at the lenders' expense.
In the waiver/amendment negotiations discussed in Section IV.C, the lenders may seek to address this concern by requesting the introduction of interim financial covenants or reporting requirements that apply during the period prior to Final FERC Tariff Approval. Such interim covenants might include a minimum cash balance or liquidity covenant, a maximum capital expenditure covenant, or a requirement to maintain a specified level of throughput or revenue. Ridgeline should be prepared to negotiate these provisions and should have a clear understanding of its financial position and projections to support those negotiations.
B. Pro Forma Covenant Compliance Analysis (Illustrative)
Even though the DSCR and leverage ratio covenants are not currently being tested, Calderwood & Harkness recommends that Ridgeline prepare and maintain pro forma financial covenant compliance calculations on a quarterly basis. This practice serves multiple purposes: it allows Ridgeline to monitor its own financial health relative to the covenant levels that will eventually apply; it provides a basis for demonstrating creditworthiness to the syndicate lenders during the waiver/amendment negotiations; and it positions Ridgeline to comply promptly with the financial covenants once testing commences following Final FERC Tariff Approval.
Illustrative DSCR Calculation. The following illustrative calculation is based on publicly available and estimated data and is intended for analytical purposes only. Actual calculations should be prepared using Ridgeline's internal financial records.
Revenue: Current throughput of approximately 680,000 Dth/d, multiplied by 365 days per year, multiplied by an assumed weighted average transportation rate approximating the revised proposed rate of $0.3140/Dth, yields estimated annual revenue of approximately $77.9 million ($680,000 × 365 × $0.3140 = $77,927,200). Actual revenues may differ based on the specific rates in Ridgeline's bilateral transportation agreements.
EBITDA: Estimated EBITDA would require adjustments for operating expenses, including compressor fuel, maintenance, labor, and administrative costs. For illustrative purposes, assuming operating expenses of approximately $15 million to $20 million per year, EBITDA would be in the range of approximately $58 million to $63 million.
Total Annual Debt Service: Interest expense on the $362.8 million term loan at an assumed all-in rate of 8.25% (SOFR at approximately 5.00% plus 325 bps) is approximately $29.9 million per year. Adding scheduled principal amortization (estimated at $7.2 million to $10.0 million), total annual debt service on the term loan is approximately $37 million to $40 million. If there are draws on the revolving credit facility, debt service would increase accordingly.
Pro Forma DSCR: Using the midpoint estimates, DSCR would be approximately $60 million ÷ $38.5 million ≈ 1.56x, which would exceed the required minimum of 1.25x. However, this calculation is highly sensitive to the actual transportation rates charged, actual throughput volumes, and actual operating expenses, and should be validated with actual financial data from Ridgeline's treasury department.
Illustrative Leverage Ratio Calculation. Total funded debt as of December 31, 2024, includes the $362.8 million term loan balance, any amounts drawn on the $75 million revolving credit facility (to be confirmed), and $150 million in Second Lien Notes, for a potential total of $512.8 million to $587.8 million. Using the EBITDA range estimated above ($58 million to $63 million), the leverage ratio would be in the range of approximately 8.1x to 10.1x, which would exceed the maximum covenant level of 5.50x.
This illustrative analysis highlights a potential concern: while the DSCR covenant would likely be satisfied based on current operations, the leverage ratio covenant may not be satisfied given the high level of total funded debt relative to current EBITDA. This concern underscores the importance of the tariff approval and throughput ramp-up to Ridgeline's long-term financial profile. The lenders should be made aware of this dynamic during the waiver/amendment negotiations, and Ridgeline should be prepared to present a credible path to leverage ratio compliance, which may include projected throughput growth, the impact of a favorable FERC tariff rate, and potential deleveraging through cash flow generation or asset dispositions. We note, however, that t

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