7. Long-Term Debt

At December 31, 2012 and 2011, long-term debt consisted of the following:



	December 31,
	2012			2011
	(In thousands)
8.625% Senior Notes	$	600,000		$	600,000
Unamortized discount for 8.625% Senior Notes	(4,849		)	(5,465		)
7.50% Senior Notes	300,000			—
4.375% Convertible Senior Notes	73,750			73,750
Unamortized discount for 4.375% Convertible Senior Notes	(1,093		)	(3,799		)
Senior Secured Revolving Credit Facility	—			47,000
	$	967,808		$	711,486

8.625% Senior Notes and 7.50% Senior Notes

On November 2, 2010, the Company issued $400.0 million aggregate principal amount of 8.625% Senior Notes due 2018 in a private placement. On November 17, 2011, the Company issued an additional $200.0 million aggregate principal amount of 8.625% Senior Notes in a private placement. These notes were issued as “additional notes” under the indenture governing the 8.625% Senior Notes pursuant to which the Company had previously issued $400.0 million aggregate principal amount of 8.625% Senior Notes in November 2010, and under the indenture are treated as a single series with substantially identical terms as the 8.625% Senior Notes previously issued in November 2010. In June 2011 and February 2012, the Company completed the exchange of registered 8.625% Senior Notes for any and all of its then unregistered $400.0 million and $200.0 million aggregate principal amount of 8.625% Senior Notes, respectively.

Except in certain circumstances described below, the Company may not redeem the 8.625% Senior Notes prior to October 15, 2014. On and after October 15, 2014, the Company may redeem all or a part of the 8.625% Senior Notes, at redemption prices decreasing from 104.313% of the principal amount to 100% of the principal amount on October 15, 2017, plus accrued and unpaid interest. In connection with certain equity offerings by the Company, the Company may at any time prior to October 15, 2013, subject to certain conditions, on one or more occasions, redeem up to 35% of the aggregate principal amount of the 8.625% Senior Notes at a redemption price of 108.625% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date using the net cash proceeds of such equity offerings. Prior to October 15, 2014, the Company may redeem all or part of the 8.625% Senior Notes at 100% of the principal amount thereof, plus accrued and unpaid interest and a make whole premium (as defined in the indenture governing the 8.625% Senior Notes). If a Change of Control (as defined in the indenture governing the 8.625% Senior Notes) occurs, the Company may be required by holders to repurchase the 8.625% Senior Notes for cash at a price equal to 101% of the aggregate principal amount, plus any accrued but unpaid interest.

On September 10, 2012, the Company issued in a public offering $300.0 million aggregate principal amount of 7.50% Senior Notes due 2020. Except in certain circumstances described below, the Company may not redeem the 7.50% Senior Notes prior to September 15, 2016. On and after September 15, 2016, the Company may redeem all or a part of the 7.50% Senior Notes, at redemption prices decreasing from 103.750% of the principal amount to 100% of the principal amount on September 15, 2018, plus accrued and unpaid interest. In connection with certain equity offerings by the Company, the Company may at any time prior to September 15, 2015, subject to certain conditions, on one or more occasions, redeem up to 35% of the aggregate principal amount of the 7.50% Senior Notes at a redemption price of 107.500% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date using the net cash proceeds of such equity offerings. Prior to September 15, 2016, the Company may redeem all or part of the 7.50% Senior Notes at 100% of the principal amount thereof, plus accrued and unpaid interest and a make whole premium (as defined in the indenture governing the 7.50% Senior Notes). If a Change of Control (as defined in the indenture governing the 7.50% Senior Notes) occurs, the Company may be required by holders to repurchase the 7.50% Senior Notes for cash at a price equal to 101% of the aggregate principal amount, plus any accrued but unpaid interest.

The indentures governing the 8.625% Senior Notes and the 7.50% Senior Notes contain covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to: pay distributions on, purchase or redeem the Company’s common stock or other capital stock or redeem the Company’s subordinated debt; make investments; incur or guarantee additional indebtedness or issue certain types of equity securities; create certain liens; sell assets; consolidate, merge or transfer all or substantially all of the Company’s assets; enter into agreements that restrict distributions or other payments from the Company’s restricted subsidiaries to the Company; engage in transactions with affiliates; and create unrestricted subsidiaries. At December 31, 2012, the 8.625% Senior Notes and the 7.50% Senior Notes were guaranteed by all of the Company’s existing subsidiaries (other than Carrizo UK Huntington Ltd, Monument Exploration LLC, and Carrizo UK Bardolph Ltd).

Convertible Senior Notes

In May 2008, the Company issued $373.8 million aggregate principal amount of 4.375% Convertible Senior Notes due 2028. The notes are convertible, using a net share settlement process, into a combination of cash and Company common stock that entitles holders of the convertible senior notes to receive cash up to the principal amount ($1,000 per note) and common stock in respect of the remainder, if any, of the Company’s conversion obligation in excess of such principal amount.

In November 2010, the Company completed a tender offer for $300.0 million aggregate principal amount outstanding of its convertible senior notes. Each holder received $1,000 for each $1,000 principal amount of convertible senior notes purchased in the tender offer, plus accrued and unpaid interest. The Company recognized a $31.0 million pre-tax loss on extinguishment of debt as a result of the purchase of the convertible senior notes in the tender offer, substantially all of which was non-cash representing the associated unamortized discount and deferred financing costs. After the Company’s purchase of $300.0 million aggregate principal amount of convertible senior notes, $73.8 million aggregate principal amount of convertible senior notes was outstanding as of December 31, 2012 and 2011.

The convertible senior notes are subject to customary non-financial covenants and events of default, including certain cross defaults of other indebtedness and mortgages, the occurrence and continuation of which could result in the acceleration of amounts due under the convertible senior notes. The convertible senior notes are unsecured obligations of the Company and rank equal to the Company’s senior notes and all future senior unsecured debt of the Company but rank second in priority to the senior secured revolving credit facility.

The notes are convertible into the Company’s common stock at a ratio of 9.9936 shares per $1,000 principal amount of notes, equivalent to a conversion price of approximately $100.06. This conversion rate is subject to adjustment upon certain corporate events. In addition, if certain fundamental changes occur on or before June 1, 2013, the Company will in some cases increase the conversion rate for a holder electing to convert notes in connection with such fundamental change; provided, that in no event will the total number of shares issuable upon conversion of a note exceed 14.7406 per $1,000 principal amount of notes (subject to adjustment in the same manner as the conversion rate).

Holders may convert the notes only under the following conditions: (a) during any calendar quarter if the last reported sale price of the Company’s common stock exceeds 130% of the conversion price for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter, (b) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of the notes is equal to or less than 97% of the conversion value of such notes, (c) during specified periods if specified distributions to holders of the Company’s common stock are made or specified corporate transactions occur, (d) prior to the close of business on the business day preceding the redemption date if the notes are called for redemption or (e) on or after March 31, 2028 and prior to the close of business on the business day prior to the maturity date of June 1, 2028.

The holders of the convertible senior notes may require the Company to repurchase the notes on June 1, 2013, 2018 and 2023, or upon a fundamental corporate change at a repurchase price in cash equal to 100% of the principal amount of the notes to be repurchased plus accrued and unpaid interest, if any. The Company may redeem notes at any time on or after June 1, 2013 at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest, if any.

The Company valued the convertible senior notes at May 21, 2008, as $309.6 million of debt and $64.2 million of equity representing the fair value of the conversion premium. The resulting debt discount is being amortized to interest expense through June 1, 2013, the first date on which the holders may require the Company to repurchase the convertible senior notes, resulting in an effective interest rate of approximately 8% for the convertible senior notes. Approximately $27.1 million of the remaining debt discount associated with the convertible senior notes purchased in the tender offer discussed above was recognized as a component of the loss on the extinguishment of debt in 2010. Amortization of the debt discount amounted to $2.7 million, $2.6 million and $11.6 million for the years ended December 31, 2012, 2011 and 2010, respectively.

While the holders of the convertible senior notes may require the Company to repurchase the convertible senior notes in June 2013, the Company has the intent and ability to refinance the convertible senior notes on a long-term basis with the available capacity of its senior secured revolving credit facility, and accordingly, the convertible senior notes have been classified as long-term debt in the consolidated balance sheets as of December 31, 2012.

Senior Secured Revolving Credit Facility

The Company is party to a senior secured revolving credit facility with Wells Fargo Bank, National Association as the administrative agent. The revolving credit facility provides for a borrowing capacity up to the lesser of (i) the borrowing base (as defined in the senior credit agreement governing the revolving credit facility) and (ii) $750.0 million. The revolving credit facility matures on January 27, 2016. The revolving credit facility is secured by substantially all of the Company’s U.S. assets and is guaranteed by the same subsidiaries that guarantee the Company’s 8.625% Senior Notes, 7.50% Senior Notes and convertible senior notes.

The current borrowing base is $365.0 million. The borrowing base will be redetermined by the lenders at least semi-annually on each May 1 and November 1, with the next redetermination expected on or about May 1, 2013. The amount the Company is able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the credit agreement governing the revolving credit facility.

The annual interest rate on each base rate borrowing is (a) the greatest of the Agent’s Prime Rate, the Federal Funds Effective Rate plus 0.5% and the adjusted LIBO rate for a three-month interest period on such day plus 1.00%, plus (b) a margin between 1.00% and 2.00% (depending on the then-current level of borrowing base usage). The interest rate on each Eurodollar loan will be the adjusted LIBO rate for the applicable interest period plus a margin between 2.00% to 3.00% (depending on the then-current level of borrowing base usage).

On March 26, 2012, the revolving credit facility was amended to, among other things, (1) extend by two quarters the dates on which the maximum ratio of Total Debt to EBITDA (each as defined in the credit agreement governing the revolving credit facility) steps down and (2) increase the basket available for redemptions of the Company’s convertible senior notes. On September 4, 2012 the revolving credit facility was further amended to increase the basket available for issuances of additional senior notes, including those issued in the September 2012 notes offering. On September 27, 2012, the revolving credit facility was again amended to, among other things, extend the maximum permitted duration of hedge agreements entered into by the Company and its restricted subsidiaries and to reflect the Fall 2012 borrowing base redetermination.

The Company is subject to certain covenants under the terms of the revolving credit facility which include the maintenance of the following financial covenants: (1) a ratio of Total Debt to EBITDA of not more than (a) 4.25 to 1.00 for the fiscal quarter ending December 31, 2012 and (b) 4.00 to 1.00 for fiscal quarters ending March 31, 2013 and thereafter; (2) a Current Ratio of not less than 1.00 to 1.00; (3) a ratio of Senior Debt to EBITDA of not more than 2.50 to 1.00; and (4) a ratio of EBITDA to Interest Expense of not less than 2.50 to 1.00 (each of the capitalized terms used in the foregoing clauses (1) through (4) being as defined in the credit agreement governing the revolving credit facility). At December 31, 2012, the ratio of Total Debt to EBITDA was 2.97 to 1.00, the Current Ratio was 2.23 to 1.00, the ratio of Senior Debt to EBITDA was 0.00 to 1.00 and the ratio of EBITDA to Interest Expense was 5.19 to 1.00. Total Debt and Senior Debt, as defined in the credit agreement governing the revolving credit facility, are net of cash and cash equivalents of the Company. Because the calculation of the financial ratios are made as of a certain date, the financial ratios can fluctuate significantly period to period as the amounts outstanding under the revolving credit facility are dependent on the timing of cash flows related to operations, capital expenditures, sales of oil and gas properties and securities offerings.

The revolving credit facility also places restrictions on the Company and certain of its subsidiaries with respect to additional indebtedness, liens, dividends and other payments to shareholders, repurchases or redemptions of the Company’s common stock, redemptions of senior notes, investments, acquisitions, mergers, asset dispositions, transactions with affiliates, hedging transactions and other matters.

The revolving credit facility is subject to customary events of default, including a change in control (as defined in the credit agreement governing the revolving credit facility). If an event of default occurs and is continuing, the Majority Lenders (as defined in the credit agreement governing the revolving credit facility) may accelerate amounts due under the revolving credit facility (except for a bankruptcy event of default, in which case such amounts will automatically become due and payable).

At December 31, 2012, the Company had no borrowings outstanding under the revolving credit facility. At December 31, 2012, the Company also had $0.9 million in letters of credit outstanding which reduced the amounts available under the revolving credit facility. The revolving credit facility is generally used to fund ongoing working capital needs and the remainder of the Company’s capital expenditure plan to the extent such amounts exceed the cash flow from operations, proceeds from the sale of oil and gas properties and securities offerings. The revolving credit facility may also be used to repurchase the convertible senior notes.