Note 4. Long-Term Debt

The following long-term debt and capital lease obligations were outstanding as of December 31, 2016 and 2015:



	December 31,
In thousands	2016			2015
Senior Secured Bank Credit Agreement	$	301,000		$	175,000
9% Senior Secured Second Lien Notes due 2021	614,919			—
6⅜% Senior Subordinated Notes due 2021	215,144			400,000
5½% Senior Subordinated Notes due 2022	772,912			1,250,000
4⅝% Senior Subordinated Notes due 2023	622,297			1,200,000
Other Senior Subordinated Notes, including premium of $3 and $7, respectively	2,253			2,257
Pipeline financings	202,671			211,766
Capital lease obligations	48,718			71,324
Total debt principal balance	2,779,914			3,310,347
Future interest payable on 9% Senior Secured Second Lien Notes due 2021 ⁽¹⁾	228,825			—
Issuance costs on senior secured second lien and senior subordinated notes	(15,641		)	(32,752		)
Total debt, net of debt issuance costs	2,993,098			3,277,595
Less: current maturities of long-term debt ⁽¹⁾	(83,366		)	(32,481		)
Long-term debt and capital lease obligations	$	2,909,732		$	3,245,114

(1)

Future interest payable on our 9% Senior Secured Second Lien Notes due 2021 (the “2021 Senior Secured Notes”) represents most of the interest due over the term of this obligation, which has been accounted for as debt in accordance with FASC 470-60, Troubled Debt Restructuring by Debtors. Our current maturities of long-term debt as of December 31, 2016 include $50.3 million of future interest payable related to the 2021 Senior Secured Notes 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 2021 Senior Secured 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. Under the Bank Credit Agreement, letters of credit are available in an aggregate amount not to exceed $100 million, which may be increased at the sole discretion of the administrative agent, and short-term swingline loans are available in an aggregate amount not to exceed $25 million, each subject to the available commitments under the Bank Credit Agreement. The Bank Credit Agreement is guaranteed jointly and severally by each subsidiary of DRI that is 100% owned, directly or indirectly, by DRI and is secured by (1) a significant portion of our proved oil and natural gas properties held through DRI’s restricted subsidiaries; (2) the pledge of equity interests of such subsidiaries; (3) a pledge of commodity derivative agreements of DRI and such subsidiaries (as applicable); and (4) a pledge of deposit accounts, securities accounts and commodity accounts of DRI and such subsidiaries (as applicable). The Bank Credit Agreement limits our ability to, among other things, incur indebtedness; grant liens; engage in certain mergers, consolidations, liquidations and dissolutions; engage in sales of assets; make acquisitions and investments; make distributions and dividends; and enter into commodity derivative agreements, in each case subject to customary exceptions.

As of December 31, 2016, the borrowing base and lender commitments for the revolving credit facility were $1.05 billion, and scheduled redeterminations of the borrowing base are to occur semiannually, with the next such redetermination being scheduled for May 2017. If our outstanding debt under the Bank Credit Agreement were to ever exceed the borrowing base, we would be required to repay the excess amount over a period not to exceed six months.

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


•	for 2016 and 2017, the maximum permitted ratio of consolidated total net debt to consolidated EBITDAX covenant was suspended and replaced by a maximum permitted ratio of consolidated senior secured debt to consolidated EBITDAX covenant of 3.0 to 1.0 (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 was added to require a minimum permitted ratio of consolidated EBITDAX to consolidated interest charges of 1.25 to 1.0;


•	allowing 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 December 31, 2016;


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


•	limiting the amount spent on repurchases or other redemptions of our senior subordinated notes to $225 million, with up to $148.3 million of this capacity remaining available as of December 31, 2016.

Additionally, we are required to maintain a current ratio, as determined under the Bank Credit Agreement, of not less than 1.0 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. As of December 31, 2016, (1) loans under the Bank Credit Agreement were subject to varying rates of interest based on either (a) for ABR Loans, a base rate determined under the Bank Credit Agreement (the “ABR”) plus an applicable margin ranging from 1% to 2% per annum, or (b) for LIBOR Loans, the LIBOR rate plus an applicable margin ranging from 2% to 3% per annum (capitalized terms as defined in the Bank Credit Agreement) and (2) the undrawn portion of the aggregate lender commitments under the Bank Credit Agreement was subject to a commitment fee of 0.50%. As of December 31, 2016, we were in compliance with all debt covenants under the Bank Credit Agreement. The weighted average interest rate on borrowings outstanding under the Bank Credit Agreement was 3.0% and 2.3% as of December 31, 2016 and 2015, respectively.

The above description of our Bank Credit Agreement financial performance 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 agreements to exchange a total of $1,057.8 million of our existing senior subordinated notes for $614.9 million principal amount of our 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 (the “2021 Notes”), $411.0 million principal amount of our 5½% Senior Subordinated Notes due 2022 (the “2022 Notes”), and $471.7 million principal amount of our 4⅝% Senior Subordinated Notes due 2023 (the “2023 Notes”).

In accordance with FASC 470-60, the exchanges were accounted for as a troubled debt restructuring due to the level of concession provided by our senior subordinated note holders. 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 was recorded as debt, which will be reduced as semiannual 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 reflected in our Consolidated Statements of Operations on the 2021 Senior Secured Notes will be significantly lower than the actual cash interest payments. In addition, we recognized a gain of $12.0 million as a result of this debt exchange during the year ended December 31, 2016, which is included in “Loss (gain) on debt extinguishment” in the accompanying 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 semiannually in arrears on May 15 and November 15 of each year, beginning in November 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.

Senior Subordinated Notes

6⅜% Senior Subordinated Notes due 2021. In February 2011, we issued $400 million of 2021 Notes. The 2021 Notes, which bear interest at a rate of 6.375% per annum, were sold at par. 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 a redemption price of 103.188% of the principal amount, and at declining redemption prices thereafter, as specified in the indenture.

5½% Senior Subordinated Notes due 2022. In April 2014, we issued $1.25 billion of 2022 Notes. The 2022 Notes, which bear interest at a rate of 5.5% per annum, were sold at par. The net proceeds, after issuance costs, of $1.23 billion were used to repurchase or redeem our outstanding 8¼% Senior Subordinated Notes due 2020 (the “2020 Notes”), which were issued in 2010 (see 2014 Repurchase and Redemption of 8¼% Senior Subordinated Notes due 2020 below), and to pay down a portion of outstanding borrowings under our previous Bank Credit Agreement.

The 2022 Notes mature on May 1, 2022, and interest is payable on May 1 and November 1 of each year. We may redeem the 2022 Notes in whole or in part at our option beginning May 1, 2017, at a redemption price of 104.125% of the principal amount, and at declining redemption prices thereafter, as specified in the indenture. Prior to May 1, 2017, we may at our option redeem up to an aggregate of 35% of the principal amount of the 2022 Notes at a price of 105.5% of par with the proceeds of certain equity offerings. In addition, at any time prior to May 1, 2017, we may redeem 100% of the principal amount of the 2022 Notes at a price equal to 100% of the principal amounts plus a “make-whole” premium and accrued and unpaid interest. The 2022 Notes are not subject to any sinking fund requirements.

4⅝% Senior Subordinated Notes due 2023. In February 2013, we issued $1.2 billion of 2023 Notes. The 2023 Notes, which bear interest at a rate of 4.625% per annum, were sold at par. The 2023 Notes mature on July 15, 2023, and interest is payable on January 15 and July 15 of each year. We may redeem the 2023 Notes in whole or in part at our option beginning January 15, 2018, at a redemption price of 102.313% of the principal amount, and at declining redemption prices thereafter, as specified in the indenture. In addition, at any time prior to January 15, 2018, we may redeem 100% of the principal amount of the 2023 Notes at a redemption price equal to 100% of the principal amount plus a “make-whole” premium and accrued and unpaid interest. The 2023 Notes are not subject to any sinking fund requirements.

Restrictive Covenants in Indentures for Senior Subordinated Notes. Each of the indentures for the 2021 Notes, 2022 Notes and 2023 Notes contains certain covenants that are generally consistent and that restrict our ability and the ability of our restricted subsidiaries to take or permit certain actions, including restrictions on 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 restrictions 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), provided that the restricted payments covenant in the indentures for the 2022 and 2023 Notes (the “2022 and 2023 Indentures”) permits us in certain circumstances to make unlimited restricted payments so long as we maintain a ratio of total debt to EBITDA (both as defined in the 2022 and 2023 Indentures) not to exceed 2.5 to 1.0 (both before and after giving effect to any restricted payment), although we will not be able to realize the practical benefit of the restricted payment covenant flexibility in the 2022 and 2023 Indentures until the 2021 Notes have been redeemed or retired. As of December 31, 2016, we were in compliance with all debt covenants under the indentures related to our senior subordinated notes.

2016 Repurchases of Senior Subordinated Notes. During 2016, we repurchased a total of $181.9 million of our outstanding long-term indebtedness, consisting of $9.8 million principal amount of our 2021 Notes, $66.1 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 $76.7 million, excluding accrued interest. In connection with these series of transactions, we recognized a $103.1 million gain on extinguishment, net of unamortized debt issuance costs written off, during the year ended December 31, 2016. As of February 22, 2017, under the Bank Credit Agreement, up to an additional $148.3 million may be spent on repurchases or other redemptions of our senior subordinated notes.

2014 Repurchase and Redemption of 8¼% Senior Subordinated Notes due 2020. Pursuant to a cash tender, during 2014, we repurchased $996.3 million in principal of our 2020 Notes. We recognized a $113.9 million loss associated with the debt repurchases during the second quarter of 2014, which loss consists of both premium payments made to repurchase or redeem the 2020 Notes and the elimination of unamortized debt issuance costs related to these notes. The loss is included in our Consolidated Statements of Operations under the caption “Loss (gain) on debt extinguishment,” and premium payments made to repurchase the notes are classified as a financing cash outflow on our Consolidated Statements of Cash Flows under the caption “Premium paid on repayment of senior subordinated notes.”

Pipeline Financings

In May 2008, we closed two transactions with Genesis Energy, L.P. (“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. These transactions are both accounted for 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 straight line or effective interest method over the term of each related facility or borrowing. Remaining unamortized debt issuance costs were $24.7 million and $49.8 million at December 31, 2016 and 2015, respectively. Issuance costs associated with our Bank Credit Agreement are included in “Other assets” in our Consolidated Balance Sheets, and issuance costs associated with our senior secured second lien and senior subordinated notes are included as a reduction of “Long-term debt, net of current portion” in our Consolidated Balance Sheets in accordance with the adoption of ASU 2015-03 (see Note 1, Significant Accounting Policies – Recent Accounting Pronouncements – Recently Adopted – Debt Issuance Costs above).

Indebtedness Repayment Schedule

At December 31, 2016, 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
2017	$	33,014
2018	33,966
2019	328,407
2020	16,145
2021	845,422
Thereafter	1,522,957
Total indebtedness	$	2,779,911