Note 6. Long-Term Debt

The table below reflects long-term debt and capital lease obligations outstanding as of December 31, 2018 and 2017:



	December 31,
In thousands	2018			2017
Senior Secured Bank Credit Agreement	$	—		$	475,000
9% Senior Secured Second Lien Notes due 2021	614,919			614,919
9¼% Senior Secured Second Lien Notes due 2022	455,668			381,568
7½% Senior Secured Second Lien Notes due 2024	450,000			—
3½% Convertible Senior Notes due 2024	—			84,650
6⅜% Senior Subordinated Notes due 2021	203,545			215,144
5½% Senior Subordinated Notes due 2022	314,662			408,882
4⅝% Senior Subordinated Notes due 2023	307,978			376,501
Pipeline financings	180,073			192,429
Capital lease obligations	5,362			26,298
Total debt principal balance	2,532,207			2,775,391
Future interest payable⁽¹⁾	250,218			316,818
Debt issuance costs	(13,089		)	(7,935		)
Total debt, net of debt issuance costs	2,769,336			3,084,274
Less: current maturities of long-term debt⁽¹⁾	(105,125		)	(105,188		)
Long-term debt and capital lease obligations	$	2,664,211		$	2,979,086

(1)

Future interest payable represents most of the interest due over the term of our 9% Senior Secured Second Lien Notes due 2021 (the “2021 Senior Secured Notes”), 9¼% Senior Secured Second Lien Notes due 2022 (the “2022 Senior Secured Notes”) and to a small extent our previously outstanding 3½% Convertible Senior Notes due 2024 (the “2024 Convertible Senior Notes”) and 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, 2018 include $85.3 million of future interest payable related to the 2021 Senior Secured Notes and 2022 Senior Secured Notes that is due within the next twelve months. See January 2018 Senior Subordinated Note Exchanges and 2017 Senior Subordinated Note Exchanges 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 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 (as amended, the “Bank Credit Agreement”). The Bank Credit Agreement is a senior secured revolving credit facility with semiannual borrowing base redeterminations in May and November of each year, with the next such redetermination being scheduled for May 2019. 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. 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 and repay 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.

In August 2018, we entered into the Sixth Amendment to the Bank Credit Agreement (the “Sixth Amendment”), pursuant to which the following changes were made to the Bank Credit Agreement:


•	The maturity date was extended from December 9, 2019 to December 9, 2021, provided that the maturity date may occur earlier (between February 2021 and August 2021) if the 2021 Senior Secured Notes due in May 2021 or 6⅜% Senior Subordinated Notes due in August 2021 (the “2021 Notes”) are not repaid or refinanced by their respective maturity dates;


•	The borrowing base and total commitments were reduced from $1.05 billion to $615 million while streamlining our bank group from 24 to 14 banks;


•	The amount of junior lien debt we can incur was increased from $1.2 billion to $1.65 billion outstanding in the aggregate at any one time; and


•	A Consolidated Total Debt to Consolidated EBITDAX financial maintenance covenant was added with a ratio not to exceed 5.25 to 1.0 through December 31, 2020, and 4.50 to 1.0 thereafter through the maturity date.

At December 31, 2018, in addition to the Consolidated Total Debt to Consolidated EBITDAX covenant added by the Sixth Amendment, the Bank Credit Agreement contains certain financial performance covenants through the maturity of the facility, including the following:


•	A consolidated senior secured debt to consolidated EBITDAX covenant, with such ratio not to exceed 2.5 to 1.0. Currently, only debt under our Bank Credit Agreement is considered consolidated senior secured debt for purposes of this ratio;


•	A minimum permitted ratio of consolidated EBITDAX to consolidated interest charges of 1.25 to 1.0; and


•	A requirement to maintain a current ratio of 1.0 to 1.0.

As of December 31, 2018, (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 1.75% to 2.75% per annum, or (b) for LIBOR Loans, the LIBOR rate plus an applicable margin ranging from 2.75% to 3.75% 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, 2018, we had no outstanding borrowings and 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 4.5% as of December 31, 2017.

The above description of our Bank Credit Agreement is qualified by the express language and defined terms contained in the Bank Credit Agreement and the amendments thereto, each of which are filed as exhibits to our periodic reports filed with the SEC.

January 2018 Senior Subordinated Note Exchanges

During January 2018, we closed transactions to exchange a total of $174.3 million aggregate principal amount of our then existing senior subordinated notes for $74.1 million aggregate principal amount of new 2022 Senior Secured Notes and $59.4 million aggregate principal amount of new 5% Convertible Senior Notes due 2023 (the “2023 Convertible Senior Notes”), resulting in a net reduction in our debt principal from these exchanges of $40.8 million. The exchanged notes consisted of $11.6 million aggregate principal amount of our 2021 Notes, $94.2 million aggregate principal amount of our 5½% Senior Subordinated Notes due 2022 (the “2022 Notes”) and $68.5 million aggregate 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 new 2022 Senior Secured Notes and 2023 Convertible Senior Notes was recorded as debt up to the point that the principal and future interest of the new notes was equal to the principal amount of the extinguished notes, rather than recognizing a gain on extinguishment for this amount. In May 2018, the debt principal balance and future interest applicable to the 2023 Convertible Senior Notes were reclassified to “Paid-in capital in excess of par” and “Common stock” in our Consolidated Balance Sheets following the conversion of the notes into shares of Denbury common stock (see Conversions of 2023 and 2024 Convertible Senior Notes into Common Stock in April and May 2018 below for further discussion). As of December 31, 2018, $113.8 million of future interest on the 2022 Senior Secured Notes was recorded as debt, which will be reduced as semiannual interest payments are made, with the remaining $23.2 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 2022 Senior Secured Notes will be significantly lower than the actual cash interest payments.

2017 Senior Subordinated Note Exchanges

During December 2017, we entered into privately negotiated agreements to exchange a total of $609.8 million aggregate principal amount of our existing senior subordinated notes for $381.6 million aggregate principal amount of new 2022 Senior Secured Notes and $84.7 million aggregate principal amount of new 2024 Convertible Senior Notes, resulting in a net reduction in our debt principal from these exchanges of $143.6 million. The exchanged notes consisted of $364.0 million aggregate principal amount of our 2022 Notes and $245.8 million aggregate principal amount of our 2023 Notes.

2016 Senior Subordinated Note Exchanges

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. As a result of this debt exchange, we recognized a gain of $12.0 million during the year ended December 31, 2016, which is included in “Gain on debt extinguishment” in the accompanying Consolidated Statements of Operations.

Conversions of 2023 and 2024 Convertible Senior Notes into Common Stock in April and May 2018

During the second quarter of 2018, holders of all $59.4 million aggregate principal amount outstanding of our 2023 Convertible Senior Notes and $84.7 million aggregate principal amount outstanding of our 2024 Convertible Senior Notes converted their notes into shares of Denbury common stock, at the rates specified in the indentures for these notes, resulting in the issuance of 55.2 million shares of our common stock upon conversion. The debt principal balances and future interest treated as debt applicable to the 2023 Convertible Senior Notes and 2024 Convertible Senior Notes, totaling $162.0 million, were reclassified to “Paid-in capital in excess of par” and “Common stock” in our Consolidated Balance Sheets upon the conversion of the notes into shares of Denbury common stock. As of April 18, 2018 and May 30, 2018, there were no remaining 2024 Convertible Senior Notes and 2023 Convertible Senior Notes outstanding, respectively.

Senior Secured Second Lien Notes

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 existing senior subordinated notes (see 2016 Senior Subordinated Note Exchanges 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. 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 2021 Senior Secured Notes are not subject to any sinking fund requirements.

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.

9¼% Senior Secured Second Lien Notes due 2022. In December 2017 and January 2018, we issued $381.6 million and $74.1 million, respectively, of 2022 Senior Secured Notes. The 2022 Senior Secured Notes, which bear interest at a rate of 9.25% per annum, were issued at par in connection with exchanges with a limited number of holders of existing senior subordinated notes (see January 2018 Senior Subordinated Note Exchanges and 2017 Senior Subordinated Note Exchanges above). The 2022 Senior Secured Notes mature on March 31, 2022, and interest is payable semiannually in arrears on March 31 and September 30 of each year. We may redeem the 2022 Senior Secured Notes in whole or in part at our option beginning March 31, 2019, at a redemption price of 109.25% of the principal amount, and at declining redemption prices thereafter, as specified in the indenture governing the 2022 Senior Secured Notes. Prior to March 31, 2019, we may at our option redeem up to an aggregate of 35% of the principal amount of the 2022 Senior Secured Notes at a price of 109.25% of par with the proceeds of certain equity offerings. In addition, at any time prior to March 31, 2019, we may redeem the 2022 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 2022 Senior Secured Notes are not subject to any sinking fund requirements.

The 2022 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.

7½% Senior Secured Second Lien Notes due 2024. In August 2018, we issued $450.0 million of 7½% Senior Secured Second Lien Notes due 2024 (the “2024 Senior Secured Notes”). The 2024 Senior Secured Notes, which bear interest at a rate of 7.50% per annum, were issued at par to repay outstanding borrowings on our Bank Credit Agreement, with additional proceeds used for general corporate purposes. The 2024 Senior Secured Notes mature on February 15, 2024, and interest is payable semiannually in arrears on February 15 and August 15 of each year, beginning in February 2019. We may redeem the 2024 Senior Secured Notes in whole or in part at our option beginning August 15, 2020, at a redemption price of 103.75% of the principal amount, and at declining redemption prices thereafter, as specified in the indenture governing the 2024 Senior Secured Notes. Prior to August 15, 2020, we may at our option redeem up to an aggregate of 35% of the principal amount of the 2024 Senior Secured Notes at a price of 107.50% of par with the proceeds of certain equity offerings. In addition, at any time prior to August 15, 2020, we may redeem the 2024 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 2024 Senior Secured Notes are not subject to any sinking fund requirements.

The 2024 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.

Restrictive Covenants in Indentures for Senior Secured Second Lien Notes. Each of the indentures for the 2021 Senior Secured Notes, 2022 Senior Secured Notes and 2024 Senior Secured Notes contains customary covenants that are generally consistent and 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 indentures) not to exceed 2.5 to 1.0 (both before and after giving effect to any restricted payment). As of December 31, 2018, we were in compliance with all debt covenants under the indentures related to our senior secured second lien notes.

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. At any time prior to August 15, 2019, we may redeem the 2021 Notes in whole or in part at our option at a redemption price of 101.062% 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 2022 Notes mature on May 1, 2022, and interest is payable on May 1 and November 1 of each year. At any time prior to May 1, 2019, we may redeem the 2022 Notes in whole or in part at our option, at a redemption price of 102.750% of the principal amount, and at declining redemption prices thereafter, as specified in the indenture. 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. At any time prior to January 15, 2020, we may redeem the 2023 Notes in whole or in part at our option at a redemption price of 101.542% of the principal amount, and at declining redemption prices thereafter, as specified in the indenture. 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, 2018, 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.

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 $19.1 million and $13.8 million at December 31, 2018 and 2017, 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 notes and senior subordinated notes are included as a reduction of “Long-term debt, net of current portion” in our Consolidated Balance Sheets.

Indebtedness Repayment Schedule

At December 31, 2018, our indebtedness, including our capital and financing lease obligations but excluding future interest payable treated as debt in accordance with FASC 470-60, Troubled Debt Restructuring by Debtors, is payable over the next five years and thereafter as follows:



In thousands
2019	$	19,180
2020	16,638
2021	834,296
2022	788,752
2023	327,622
Thereafter	545,719
Total indebtedness	$	2,532,207