7. Long-Term Debt

The following table summarizes our long-term debt as of the periods presented:

	June 30,		December 31,
	2011		2010
Revolving credit facility	$	-	$	-
Senior notes due 2016, net of discount (principal amount of $300,000)		293,009		292,487
Senior notes due 2019		300,000		-
Convertible notes due 2012, net of discount (principal amount of $4,915 and $230,000)		4,659		214,049
	$	597,668	$	506,536

Revolving Credit Facility

We replaced our previous revolving credit facility with the Revolver in August 2011. The Revolver provides for a $300 million revolving credit facility and matures in August 2016. The Revolver is governed by a borrowing base calculation and the availability may not exceed the lesser of the aggregate commitments or the borrowing base. We have the option to increase the aggregate commitments under the Revolver by up to an additional $300 million, not to exceed the borrowing base, upon the receipt of additional commitments from one or more lenders. The initial borrowing base is set at $400 million, subject to redetermination on a semi-annual basis.

Borrowings under the Revolver bear interest, at our option, at either (i) a rate derived from LIBOR, as adjusted for statutory reserve requirements for Eurocurrency liabilities (the “Adjusted LIBOR”), plus an applicable margin ranging from 1.500% to 2.500% or (ii) the greater of (a) the prime rate, (b) the federal funds effective rate plus 0.5% or (c) the one-month Adjusted LIBOR plus 1.0%, and, in each case, plus an applicable margin (ranging from 0.500% to 1.500%). In each case, the applicable margin is determined based on the ratio of our outstanding borrowings to the available Revolver capacity. Commitment fees will be charged at 0.375% on the undrawn portion of the facility at current utilization levels and increasing to 0.500% based upon utilization levels in excess of 50% of the borrowing base.

The Revolver includes both current ratio and leverage ratio financial covenants. The current ratio, as defined in the Revolver to include among other things, adjustments for undrawn availability, may not be less than 1.0 to 1.0 and the ratio of total net debt to EBITDAX, a non-GAAP financial measure defined in the Revolver, may not exceed 4.5 to 1.0 reducing to 4.0 to 1.0 after June 30, 2013.

The Revolver is guaranteed by Penn Virginia and all of our material subsidiaries (“Guarantor Subsidiaries”). The obligations under the Revolver are secured by a first priority lien on substantially all of our proved oil and gas reserves and a pledge of the equity interests in the Guarantor Subsidiaries.

We had no amounts outstanding under the previous revolving credit facility at any time during the six months ended June 30, 2011 other than letters of credit of $1.4 million which are still outstanding. As of June 30, 2011, our available borrowing capacity under the previous revolving credit facility, as reduced by such letters of credit and limited by our financial covenants, was approximately $160 million. Our initial available borrowing capacity under the Revolver, as reduced by our letters of credit and limited by the financial covenants described above, is approximately $264 million.

2016 Senior Notes

The 2016 Senior Notes were originally sold at 97% of par equating to an effective yield to maturity of approximately 11%. The 2016 Senior Notes bear interest at an annual rate of 10.375% payable semi-annually in arrears on June 15 and December 15 of each year. Beginning in June 2013, we may redeem all or part of the 2016 Senior Notes at a redemption price beginning at 105.188% of the principal amount and reducing to 100.0% in June 2015 and thereafter. The 2016 Senior Notes are senior to our existing and future subordinated indebtedness and are effectively subordinated to all of our secured indebtedness, including the Revolver, to the extent of the collateral securing that indebtedness. The obligations under the 2016 Senior Notes are fully and unconditionally guaranteed by the Guarantor Subsidiaries.

2019 Senior Notes

The 7.25% Senior Notes due 2019 (“2019 Senior Notes”), which were issued at par in April 2011, bear interest at an annual rate of 7.25% payable semi-annually in arrears on April 15 and October 15 of each year. Beginning in April 2015, we may redeem all or part of the 2019 Senior Notes at a redemption price beginning at 103.625% of the principal amount and reducing to 100.0% in June 2017 and thereafter. The 2019 Senior Notes are senior to our existing and future subordinated indebtedness and are effectively subordinated to all of our secured indebtedness, including the Revolver, to the extent of the collateral securing that indebtedness. The obligations under the 2019 Senior Notes are fully and unconditionally guaranteed by the Guarantor Subsidiaries.

Convertible Notes

The 4.50% Convertible Senior Subordinated Notes due 2012 (“Convertible Notes”) bear interest at an annual rate of 4.50% which is payable semi-annually in arrears on May 15 and November 15 of each year. The Convertible Notes are convertible into cash up to the principal amount thereof and shares of our common stock, if any, in respect of the excess conversion value, based on an initial conversion rate of 17.3160 shares of common stock per $1,000 principal amount of the Convertible Notes (which is equal to an initial conversion price of approximately $57.75 per share of common stock), subject to adjustment. The Convertible Notes are unsecured senior subordinated obligations, ranking junior in right of payment to any of our senior indebtedness and to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness and equal in right of payment to any of our future unsecured senior subordinated indebtedness. The Convertible Notes rank senior in right of payment to any of our future junior subordinated indebtedness and structurally rank junior to all existing and future indebtedness of our Guarantor Subsidiaries.

The Convertible Notes are represented by a liability component which is included in long-term debt, net of discount, and an equity component representing the convertible feature which is included in additional paid-in capital in shareholders’ equity. The effective interest rate on the liability component of the Convertible Notes for all periods presented was 8.5%.

In connection with a tender offer completed in April 2011, the Company repurchased $225.1 million aggregate principal amount of the Convertible Notes for $233.0 million, representing a premium of $35 per $1,000 principal amount. The tender offer resulted in the extinguishment of approximately 98% of the outstanding Convertible Notes. The tender offer was funded from the net proceeds of the 2019 Senior Notes offering.

As a result of the tender offer, we recognized a pre-tax loss on extinguishment of debt of $25.9 million during the three months ended June 30, 2011, of which $24.2 million was charged to earnings and the remaining $1.7 million was charged directly to shareholders’ equity. The loss charged to earnings was determined as follows:

Cash paid to repurchase principal:
Allocated to liability component	$	231,331
Allocated to equity component		1,632
	$	232,963

Carrying value of liability component tendered:
Principal amount of Convertible Notes tendered	$	225,085
Pro rata share of original issue discount		(13,429	)
	$	211,656

Loss on extinguishment of debt:
Excess of liability component over carrying value	$	19,675
Write-off of pro rata share of debt issuance costs		2,147
Non-cash portion of loss on extinguishment		21,822
Transaction costs and fees paid		2,416
Pre-tax loss on extinguishment	$	24,238

The following table summarizes the carrying amount of the components of the Convertible Notes as of the periods presented:

	June 30,			December 31,
	2011			2010
Principal	$	4,915		$	230,000
Unamortized discount		(256	)		(15,951	)
Net carrying amount of liability component	$	4,659		$	214,049
Carrying amount of equity component	$	35,201		$	36,850

The following table summarizes the amounts recognized as components of interest expense attributable to the Convertible Notes for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Contractual interest expense	$	421	$	2,587	$	3,009	$	5,175
Accretion of original issue discount		318		1,817		2,265		3,609
Amortization of debt issuance costs		55		310		389		641
	$	794	$	4,714	$	5,663	$	9,425

In connection with the original sale of the Convertible Notes, we entered into convertible note hedge transactions (“Note Hedges”) with respect to shares of our common stock with affiliates of certain of the underwriters of the Convertible Notes (collectively, the “Option Counterparties”). The Note Hedges cover, subject to anti-dilution adjustments, the net shares of our common stock that would be deliverable to converting noteholders in the event of a conversion of the Convertible Notes.

We also entered into separate warrant transactions (“Warrants”), whereby we sold to the Option Counterparties warrants to acquire, subject to anti-dilution adjustments, approximately 3,982,680 shares of our common stock at an exercise price of $74.25 per share. Upon exercise of the Warrants, we will deliver shares of our common stock equal in value to the excess of the then market price over the strike price of the Warrants.

If the market value per share of our common stock at the time of conversion of the Convertible Notes exceeds the strike price of the Note Hedges, the Note Hedges entitle us to receive from the Option Counterparties net shares of our common stock (and cash for any fractional share cash amount) based on the excess of the then current market price of our common stock over the strike price of the Note Hedges. Additionally, if the market price of our common stock at the time of exercise of the Warrants exceeds the strike price of the Warrants, we will owe the Option Counterparties net shares of our common stock (and cash for any fractional share cash amount), not offset by the Note Hedges, in an amount based on the excess of the then current market price of our common stock over the strike price of the Warrants.