Note 5. Long-Term Debt

The following long-term debt and capital lease obligations were outstanding as of December 31, 2012 and 2011:



	December 31,
In thousands	2012			2011
Bank Credit Agreement	$	700,000		$	385,000
9½% Senior Subordinated Notes due 2016, including premium of $9,118 and $11,854, respectively	234,038			236,774
9¾% Senior Subordinated Notes due 2016, including discount of $13,569 and $17,854, respectively	412,781			408,496
8¼% Senior Subordinated Notes due 2020	996,273			996,273
6 3/8% Senior Subordinated Notes due 2021	400,000			400,000
Other Subordinated Notes, including premium of $25 and $33, respectively	3,832			3,840
Pipeline financings	236,244			243,274
Capital lease obligations	158,260			4,388
Total	3,141,428			2,678,045
Less: current obligations	(36,966		)	(8,316		)
Long-term debt and capital lease obligations	$	3,104,462		$	2,669,729

The parent company, Denbury Resources Inc. (“DRI”), is the sole issuer of all of our outstanding senior subordinated notes. DRI has no independent assets or operations. Each of the subsidiary guarantors of such notes is 100% owned, directly or indirectly, by DRI; any subsidiaries of DRI other than the subsidiary guarantors are minor subsidiaries, and the guarantees of the notes are full and unconditional and joint and several.

February 2013 Issuance of 4 5/8% Senior Subordinated Notes due 2023

On February 5, 2013, we issued $1.2 billion of 4 5/8% Senior Subordinated Notes due 2023 (the “2023 Notes”). The 2023 Notes, which carry a coupon rate of 4.625%, were sold at par. We intend to use the net proceeds of $1.18 billion from the issuance of the 2023 Notes to repurchase or redeem our 9½% Senior Subordinated Notes due 2016 (the “9½% Notes”) and our 9¾% Senior Subordinated Notes due 2016 (the “9¾% Notes”) and to pay down a portion of outstanding borrowings on our Bank Credit Agreement. See Note 13, Subsequent Events, for more information.

$1.6 Billion Revolving Credit Agreement

In March 2010, we entered into a $1.6 billion revolving credit agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, and other lenders party thereto (as amended, the “Bank Credit Agreement”). Availability under the Bank Credit Agreement is subject to a borrowing base, which is redetermined semi-annually on or prior to May 1 and November 1 and upon requested special redeterminations. The borrowing base is adjusted at the banks’ discretion and is based in part upon external factors over which we have no control. If the borrowing base were to be less than outstanding borrowings under the Bank Credit Agreement, we would be required to repay the deficit over a period not to exceed four months. As part of the semi-annual review completed in September 2012 pursuant to the terms of the Bank Credit Agreement, our borrowing base was reaffirmed at $1.6 billion. Loans under the Bank Credit Agreement mature in May 2016.

The Bank Credit Agreement is secured by substantially all of the proved oil and natural gas properties of our restricted subsidiaries and by the equity interests of our restricted subsidiaries. In addition, our obligations under the Bank Credit Agreement are guaranteed jointly and severally by all of our subsidiaries, other than minor subsidiaries.

The Bank Credit Agreement contains several restrictive covenants including, among others:


•	a limitation on the ability to repurchase Denbury common stock and to pay dividends on Denbury common stock, in an aggregate amount not to exceed $1.2 billion during the term of the Bank Credit Agreement, subject to certain restrictions;


•	a requirement to maintain a current ratio, as determined under the Bank Credit Agreement, of not less than 1.0 to 1.0;


•	a maximum permitted ratio of debt to adjusted EBITDA (as defined in the Bank Credit Agreement) of us and our restricted subsidiaries of not more than 4.25 to 1.0; and


•	a prohibition against incurring debt, subject to permitted exceptions.

The Bank Credit Agreement also includes a limitation on the aggregate amount of forecasted oil and natural gas production that can be economically hedged with oil or natural gas derivative contracts. During 2012, we received a limited waiver of any oil hedging noncompliance that may occur as a result of the Bakken Exchange Transaction during the period commencing on the closing date continuing through and including December 31, 2013 (see Note 2, Acquisitions and Divestitures).

Under the Bank Credit Agreement, we are permitted to incur capital lease obligations in an aggregate amount outstanding at any time not to exceed $300 million, and are also permitted to incur up to $40 million of other unsecured debt (which include capital leases). The Bank Credit Agreement was amended during 2012 concurrent with our change in classification of equipment leases from operating to capital (see Capital Leases below), and we received a waiver of any applicable violations of the provisions of the Bank Credit Agreement resulting from such correction and the recording of our equipment leases as debt.

Loans under the Bank Credit Agreement are subject to varying rates of interest based on (1) the total outstanding borrowings in relation to the borrowing base and (2) whether the loan is a Eurodollar loan or a base rate loan. Eurodollar loans bear interest at the Adjusted Eurodollar Rate (as defined in the Bank Credit Agreement) plus the applicable margin in a range from 1.5% to 2.5% based on the ratio of outstanding borrowings to the borrowing base, and base rate loans bear interest at the Base Rate (as defined in the Bank Credit Agreement) plus the applicable margin in a range from 0.5% to 1.5% based on the ratio of outstanding borrowings to the borrowing base. The “Eurodollar rate” for any interest period (either one, two, three, six, nine or twelve months, as selected by us) is the rate per year equal to LIBOR, as published by Reuters or another source designated by JPMorgan, for deposits in dollars for a similar interest period. The “base rate” is calculated as the highest of (1) the annual rate of interest announced by JPMorgan as its “prime rate,” (2) the federal funds effective rate plus 0.5%, and (3) the Adjusted Eurodollar Rate (as defined in the Bank Credit Agreement) for a one-month interest period plus 1.0%. We incur a commitment fee of either 0.375% or 0.5%, based on the ratio of outstanding borrowings to the borrowing base, on the unused availability under the Bank Credit Agreement.

2011 Redemption of our 2013 and 2015 Notes

Pursuant to cash tender offers, during March 2011, we repurchased $169.6 million in principal of our 7½% Senior Subordinated Notes due 2013 (the “2013 Notes”) at 100.625% of par, and $220.9 million in principal of our 7½% Senior Subordinated Notes due 2015 (the “2015 Notes”) at 104.125% of par. We called the remaining 2013 and 2015 Notes, repurchasing all of the remaining outstanding 2015 Notes ($79.1 million) at 103.75% of par on March 21, 2011, and all of the remaining outstanding 2013 Notes ($55.4 million) at par on April 1, 2011. We recognized a $16.1 million loss during the year ended December 31, 2011 associated with the debt repurchases, which is included in our Consolidated Statements of Operations under the caption “Loss on early extinguishment of debt”.

9½% Senior Subordinated Notes due 2016

As a result of the Encore Merger, we became successor in interest to Encore under the Encore indenture with respect to the 9½% Notes in the original principal amount of $225 million. Interest on the 9½% Notes is due semi-annually, on May 1 and November 1, at a rate of 9½%. The 9½% Notes mature on May 1, 2016. We may redeem the 9½% Notes, in whole or in part at our option beginning May 1, 2013, at the following redemption prices: 104.75% after May 1, 2013; 102.375% after May 1, 2014; and 100% after May 1, 2015. At any time prior to May 1, 2013, we may redeem 100% of the principal amount of the 9½% Notes at a price equal to 100% of the principal amount plus a “make-whole” premium and accrued and unpaid interest. The indenture governing the 9½% Notes includes various covenants and restrictions, including providing a put right by holders upon a change of control. All of our subsidiaries, other than minor subsidiaries, guarantee this debt jointly and severally. Pursuant to a cash tender offer commenced during January 2013, during February 2013 we repurchased $186.7 million principal amount of our 9½% Notes at 106.87% of par, and the indenture governing the 9½% Notes was amended to eliminate most of its restrictive covenants and certain events of default. We intend to use a portion of the net proceeds from the recent issuance of our 2023 Notes to fund the redemption of the remaining outstanding principal amount of our 9½% Notes. See Note 13, Subsequent Events, for more information.

9¾% Senior Subordinated Notes due 2016

In February 2009, we issued $420.0 million of 9¾% Notes, which carry a coupon rate of 9.75%. The 9¾% Notes were sold at a discount (92.816% of par), which equates to an effective yield to maturity of approximately 11.25%. In June 2009, we issued an additional $6.4 million of 9¾% Notes.

The 9¾% Notes mature on March 1, 2016, and interest on the 9¾% Notes is payable March 1 and September 1 of each year. The indenture governing the 9¾% Notes contains certain restrictions on our ability to incur additional debt, pay dividends on our common stock, make investments, create liens on our assets, engage in transactions with our affiliates, transfer or sell assets, consolidate or merge, or sell substantially all of our assets. The 9¾% Notes are not subject to any sinking fund requirements. All of our subsidiaries, other than minor subsidiaries, guarantee this debt jointly and severally. Pursuant to a cash tender offer commenced during January 2013, during February 2013 we repurchased $191.7 million principal amount of our 9¾% Notes at 105.425% of par. On February 5, 2013, we called the remaining 9¾% Notes for redemption on March 7, 2013, at 104.875% of par. See Note 13, Subsequent Events, for more information.

8¼% Senior Subordinated Notes due 2020

In February 2010, we issued $1.0 billion of 8¼% Senior Subordinated Notes due 2020 (the “2020 Notes”), for net proceeds after underwriting discounts and commissions of $980 million. The 2020 Notes, which carry a coupon rate of 8.25%, were sold at par. We subsequently redeemed $3.7 million principal amount of the 2020 Notes, as required under the indenture governing the 2020 Notes.

The 2020 Notes mature on February 15, 2020, and interest is payable on February 15 and August 15 of each year. We may redeem the 2020 Notes in whole or in part at our option beginning February 15, 2015, at the following redemption prices: 104.125% after February 15, 2015; 102.75% after February 15, 2016; 101.375% after February 15, 2017; and 100% after February 15, 2018. Prior to February 15, 2013, we may, at our option, redeem up to an aggregate of 35% of the principal amount of the 2020 Notes at a price of 108.25% with the proceeds of certain equity offerings. At any time prior to February 15, 2015, we may redeem 100% of the principal amount of the 2020 Notes at a price equal to 100% of the principal amount plus a “make-whole” premium and accrued and unpaid interest. The indenture governing the 2020 Notes contains certain restrictions on our ability to incur additional debt, pay dividends on our common stock, make investments, create liens on our assets, engage in transactions with our affiliates, transfer or sell assets, consolidate or merge, or sell substantially all of our assets. The 2020 Notes are not subject to any sinking fund requirements. All of our subsidiaries, other than minor subsidiaries, guarantee this debt jointly and severally.

6 3/8% Senior Subordinated Notes due 2021

In February 2011, we issued $400 million of 6 3/8% Senior Subordinated Notes due 2021 (“2021 Notes”). The 2021 Notes, which carry a coupon rate of 6.375%, were sold at par. The net proceeds of $393 million were used to repurchase a portion of our 2013 Notes and 2015 Notes (see Redemption of our 2013 and 2015 Notes above). The 2021 Notes mature on August 15, 2021, and interest is payable on February 15 and August 15 of each year. We may redeem the 2021 Notes in whole or in part at our option beginning August 15, 2016 at the following redemption prices: 103.188% on or after August 15, 2016; 102.125% on or after August 15, 2017; 101.062% on or after August 15, 2018; and 100% on or after August 15, 2019. Prior to August 15, 2014, we may at our option redeem up to an aggregate of 35% of the principal amount of the 2021 Notes at a price of 106.375% with the proceeds of certain equity offerings. In addition, at any time prior to August 15, 2016, we may redeem 100% of the principal amount of the 2021 Notes at a price equal to 100% of the principal amount plus a “make-whole” premium and accrued and unpaid interest. The indenture governing the 2021 Notes contains certain restrictions on our ability to incur additional debt, pay dividends on our common stock, make investments, create liens on our assets, engage in transactions with our affiliates, transfer or sell assets, consolidate or merge, or sell substantially all of our assets. The 2021 Notes are not subject to any sinking fund requirements. All of our subsidiaries, other than minor subsidiaries, guarantee this debt jointly and severally.

Pipeline Financings

In May 2008, we closed two transactions with Genesis involving two of our pipelines. The NEJD Pipeline system included a 20-year financing lease, and the Free State Pipeline included a long-term transportation service agreement. We recorded both of these transactions as financing leases.

Debt Issuance Costs

In connection with the issuance of our outstanding long-term debt, we have incurred debt issuance costs, which are being amortized to interest expense using the effective interest method over the term of each related facility. Remaining unamortized debt issuance costs were $56.5 million and $69.6 million at December 31, 2012 and 2011, respectively. These balances are included in “Other assets” in our Consolidated Balance Sheets.

Indebtedness Repayment Schedule

At December 31, 2012, our indebtedness, including our capital and financing lease obligations but excluding the discount and premium on our senior subordinated debt, is payable over the next five years and thereafter as follows:



In thousands
2013	$	36,966
2014	38,481
2015	39,113
2016	1,388,592
2017	34,965
Thereafter	1,607,737
Total indebtedness	$	3,145,854

Capital Lease Obligations

During the second quarter of 2012, we corrected the accounting for our equipment leases from operating leases to capital leases to comply with the FASC Leases topic, as a result of the consideration of nonperformance-related default covenants included in our equipment lease agreements. We recorded a cumulative adjustment to establish the capital lease assets as “Other property and equipment” ($155.6 million) and the capital lease obligations as “Long-term debt” ($138.9 million) and “Current maturities of long-term debt” ($25.1 million) on the accompanying Consolidated Balance Sheets for the year ended December 31, 2012. We also recognized the cumulative pre-tax impact of $8.4 million ($5.2 million after tax) as “Other expenses” on the accompanying Consolidated Statements of Operations for the year ended December 31, 2012. Because the amounts involved were not material to our financial statements in any individual prior period and the cumulative impact is not material to the results of operations for the year ended December 31, 2012, we recorded the cumulative effect of correcting these items during 2012.