Note 2. Long-Term Debt

The following long-term debt and capital lease obligations were outstanding as of the dates indicated:



	June 30,			December 31,
In thousands	2016			2015
Senior Secured Bank Credit Agreement	$	320,000		$	175,000
9% Senior Secured Second Lien Notes due 2021	614,919			—
6⅜% Senior Subordinated Notes due 2021	220,939			400,000
5½% Senior Subordinated Notes due 2022	796,712			1,250,000
4⅝% Senior Subordinated Notes due 2023	622,297			1,200,000
Other Subordinated Notes, including premium of $5 and $7, respectively	2,255			2,257
Pipeline financings	207,448			211,766
Capital lease obligations	60,124			71,324
Total principal balance	2,844,694			3,310,347
Future interest payable on 9% Senior Secured Second Lien Notes due 2021 ⁽¹⁾	254,660			—
Issuance costs on senior subordinated notes	(17,324		)	(32,752		)
Total debt, net of debt issuance costs on senior subordinated notes	3,082,030			3,277,595
Less: current maturities of long-term debt ⁽¹⁾	(83,762		)	(32,481		)
Long-term debt and capital lease obligations	$	2,998,268		$	3,245,114

(1)

Future interest payable on our 9% Senior Secured Second Lien Notes due 2021 represents most of the interest due over the term of this obligation, which has been accounted for as debt in accordance with Financial Accounting Standards Board Codification (“FASC”) 470-60, Troubled Debt Restructuring by Debtors. Our current maturities of long-term debt as of June 30, 2016 include $51.0 million of future interest payable related to this balance that is due within the next twelve months. See 2016 Senior Subordinated Notes Exchange below for further discussion.

The ultimate parent company in our corporate structure, Denbury Resources Inc. (“DRI”), is the sole issuer of all of our outstanding senior secured second lien notes and 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, and the guarantees of the notes are full and unconditional and joint and several; any subsidiaries of DRI that are not subsidiary guarantors of such notes are minor subsidiaries.

Senior Secured Bank Credit Facility

In December 2014, we entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders party thereto (the “Bank Credit Agreement”). The Bank Credit Agreement is a senior secured revolving credit facility with a maturity date of December 9, 2019. In connection with our May 2016 borrowing base redetermination, our borrowing base and lender commitments were reduced to $1.05 billion, with the next such redetermination scheduled for November 2016.

In order to provide more flexibility in managing our balance sheet, the credit extended by our lenders, and continuing compliance with maintenance financial covenants in this low oil price environment, we entered into three amendments to the Bank Credit Agreement between May 2015 and April 2016 that modified the Bank Credit Agreement as follows:


•	for 2016 and 2017, the maximum permitted ratio of consolidated total net debt to consolidated EBITDAX covenant has been suspended and replaced by a maximum permitted ratio of consolidated senior secured debt to consolidated EBITDAX covenant of 3.0 to 1.0 (currently, only debt under our Bank Credit Agreement is considered consolidated senior secured debt for purposes of this ratio);


•	for 2016 and 2017, a new covenant has been added to require a minimum permitted ratio of consolidated EBITDAX to consolidated interest charges of 1.25 to 1.0;

•

beginning in the first quarter of 2018, the ratio of consolidated total net debt to consolidated EBITDAX covenant will be reinstated, utilizing an annualized EBITDAX amount for the first, second, and third quarters of 2018 and building to a trailing four quarters by the end of 2018, with the maximum permitted ratios being 6.0 to 1.0 for the first quarter ending March 31, 2018, 5.5 to 1.0 for the second quarter ending June 30, 2018, and 5.0 to 1.0 for the third and fourth quarters ending September 30 and December 31, 2018, and returning to 4.25 to 1.0 for the first quarter ending March 31, 2019;


•	allows for the incurrence of up to $1.0 billion of junior lien debt (subject to customary requirements), with $385.1 million of future incurrence available as of June 30, 2016;


•	limits unrestricted cash and cash equivalents to $225 million if more than $250 million of borrowings are outstanding under the Bank Credit Agreement; and


•	limits the amount spent on repurchases or other redemptions of our senior subordinated notes to $225 million, with $169.5 million available as of June 30, 2016.

Additionally, such amendments made the following changes to the Bank Credit Agreement: (1) increased the applicable margin for ABR Loans and LIBOR Loans by 75 basis points such that the margin for ABR Loans now ranges from 1% to 2% per annum and the margin for LIBOR Loans now ranges from 2% to 3% per annum, (2) increased the commitment fee rate to 0.50%, and (3) provided for semi-annual scheduled redeterminations of the borrowing base in May and November of each year. As of June 30, 2016, we were in compliance with all debt covenants under the Bank Credit Agreement. The weighted average interest rate on borrowings outstanding as of June 30, 2016, under the Bank Credit Agreement was 2.8%.

The above description of our Bank Credit Agreement financial covenants and the changes provided for within the three amendments are qualified by the express language and defined terms contained in the Bank Credit Agreement, the First Amendment to the Bank Credit Agreement dated May 4, 2015, the Second Amendment to the Bank Credit Agreement dated February 17, 2016, and the Third Amendment to the Bank Credit Agreement dated April 18, 2016, each of which are filed as exhibits to our periodic reports filed with the SEC.

2016 Senior Subordinated Notes Exchange

During May 2016, we entered into privately negotiated exchange agreements to exchange a total of $1,057.8 million of our existing senior subordinated notes for $614.9 million principal amount of our 9% Senior Secured Second Lien Notes due 2021(the “2021 Senior Secured Notes”) plus 40.7 million shares of Denbury common stock, resulting in a net reduction from these exchanges of $442.9 million in our debt principal. The exchanged notes consisted of $175.1 million principal amount of our 6⅜% Senior Subordinated Notes due 2021 (“2021 Notes”), $411.0 million principal amount of our 5½% Senior Subordinated Notes due 2022 (“2022 Notes”), and $471.7 million principal amount of our 4⅝% Senior Subordinated Notes due 2023 (“2023 Notes”).

In accordance with FASB ASC 470-60, the exchanges were accounted for as a troubled debt restructuring due to the level of concession provided by our lenders. Under this guidance, future interest applicable to the 2021 Senior Secured Notes is recorded as debt up to the point that the principal and future interest of the new notes is equal to the principal amount of the extinguished notes, rather than recognizing a gain on extinguishment for this amount. As a result, $254.7 million of future interest on the 2021 Senior Secured Notes has been recorded as debt, which will be reduced as semi-annual interest payments are made, with the remaining $22.8 million of future interest to be recognized as interest expense over the term of these notes. Therefore, future interest expense on the 2021 Senior Secured Notes will be significantly lower than the actual cash interest payments. In addition, we recognized a gain of $12.3 million as a result of this debt exchange, which is included in “Gain on debt extinguishment” in the accompanying Unaudited Condensed Consolidated Statements of Operations.

9% Senior Secured Second Lien Notes due 2021

In May 2016, we issued $614.9 million of 2021 Senior Secured Notes. The 2021 Senior Secured Notes, which bear interest at a rate of 9% per annum, were issued at par in connection with privately negotiated exchanges with a limited number of holders of $1,057.8 million of existing senior subordinated notes (see 2016 Senior Subordinated Notes Exchange above). The 2021 Senior Secured Notes mature on May 15, 2021, and interest is payable semi-annually in arrears on May 15 and November 15 of each year, beginning November 15, 2016. We may redeem the 2021 Senior Secured Notes in whole or in part at our option beginning December 15, 2018, at a redemption price of 109% of the principal amount, and at declining redemption prices thereafter, as specified in the indenture governing the 2021 Senior Secured Notes (the “Indenture”). Prior to December 15, 2018, we may at our option redeem up to an aggregate of 35% of the principal amount of the 2021 Senior Secured Notes at a price of 109% of par with the proceeds of certain equity offerings. In addition, at any time prior to December 15, 2018, we may redeem the 2021 Senior Secured Notes in whole or in part at a price equal to 100% of the principal amount plus a “make-whole” premium and accrued and unpaid interest. The 2021 Senior Secured Notes are not subject to any sinking fund requirements.

The Indenture contains customary covenants that restrict our ability and the ability of our restricted subsidiaries’ to (1) incur additional debt; (2) make investments; (3) create liens on our assets or the assets of our restricted subsidiaries; (4) create limitations on the ability of our restricted subsidiaries to pay dividends or make other payments to DRI or other restricted subsidiaries; (5) engage in transactions with our affiliates; (6) transfer or sell assets or subsidiary stock; (7) consolidate, merge or transfer all or substantially all of our assets and the assets of our restricted subsidiaries; and (8) make restricted payments (which includes paying dividends on our common stock or redeeming, repurchasing or retiring such stock or subordinated debt (including existing senior subordinated notes)), provided that in certain circumstances we may make unlimited restricted payments so long as we maintain a ratio of total debt to EBITDA (as defined in the Indenture) not to exceed 2.5 to 1.0 (both before and after giving effect to any restricted payment).

The 2021 Senior Secured Notes are guaranteed jointly and severally by our subsidiaries representing substantially all of our assets, operations and income and are secured by second-priority liens on substantially all of the assets that secure the Bank Credit Agreement, which second-priority liens are contractually subordinated to liens that secure our Bank Credit Agreement and any future additional priority lien debt.

2016 Repurchases of Senior Subordinated Notes

During February and March 2016, we repurchased a total of $152.3 million of our outstanding long-term indebtedness, consisting of $4.0 million principal amount of our 2021 Notes, $42.3 million principal amount of our 2022 Notes, and $106.0 million principal amount of our 2023 Notes in open-market transactions for a total purchase price of $55.5 million, excluding accrued interest. In connection with these transactions, we recognized a $95.0 million gain on extinguishment, net of unamortized debt issuance costs written off. During July 2016, we repurchased an additional $19.6 million of senior subordinated notes in open-market transactions, consisting of $3.3 million principal amount of our 2021 Notes and $16.3 million principal amount of our 2022 Notes, for a total purchase price of $14.2 million, excluding accrued interest. As of August 3, 2016, under the Bank Credit Agreement, an additional $155.3 million may be spent on senior subordinated notes repurchases or other redemptions.