Long-Term Debt

6 Months Ended

Jun. 30, 2019

Note 4. Long-Term Debt

The table below reflects long-term debt and capital lease obligations outstanding as of the dates indicated:



	June 30,			December 31,
In thousands	2019			2018
Senior Secured Bank Credit Agreement	$	80,000		$	—
9% Senior Secured Second Lien Notes due 2021	614,919			614,919
9¼% Senior Secured Second Lien Notes due 2022	455,668			455,668
7¾% Senior Secured Second Lien Notes due 2024	528,026			—
7½% Senior Secured Second Lien Notes due 2024	24,638			450,000
6⅜% Convertible Senior Notes due 2024	245,548			—
6⅜% Senior Subordinated Notes due 2021	51,304			203,545
5½% Senior Subordinated Notes due 2022	94,784			314,662
4⅝% Senior Subordinated Notes due 2023	211,695			307,978
Pipeline financings	174,018			180,073
Capital lease obligations	292			5,362
Total debt principal balance	2,480,892			2,532,207
Debt discount⁽¹⁾	(109,072		)	—
Future interest payable⁽²⁾	207,659			250,218
Debt issuance costs	(11,523		)	(13,089		)
Total debt, net of debt issuance costs and discount	2,567,956			2,769,336
Less: current maturities of long-term debt⁽³⁾	(101,829		)	(105,125		)
Long-term debt and capital lease obligations	$	2,466,127		$	2,664,211


(1)	Consists of discounts related to the issuance during June 2019 of our new 7¾% Senior Secured Second Lien Notes due 2024 (the “7¾% Senior Secured Notes”) and new 6⅜% Convertible Senior Notes due 2024 (the “2024 Convertible Senior Notes”) of $29.4 million and $79.6 million, respectively (see 2019 Note Exchanges below) as of June 30, 2019.


(2)	Future interest payable represents most of the interest due over the terms of our 9% Senior Secured Second Lien Notes due 2021 (the “2021 Senior Secured Notes”) and 9¼% Senior Secured Second Lien Notes due 2022 (the “2022 Senior Secured Notes”) and has been accounted for as debt in accordance with FASC 470-60, Troubled Debt Restructuring by Debtors.


(3)	Our current maturities of long-term debt as of June 30, 2019 include $85.7 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.

The ultimate parent company in our corporate structure, Denbury Resources Inc. (“DRI”), is the sole issuer of all of our outstanding senior secured, convertible senior, 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”), which has been amended periodically since that time. The Bank Credit Agreement is a senior secured revolving credit facility with a maturity date of 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, respectively, are not repaid or refinanced by each of their respective maturity dates. As part of our spring 2019 semiannual redetermination, the borrowing base and lender commitments for our Bank Credit Agreement were reaffirmed at $615 million, with the next such redetermination being scheduled for November 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. The weighted average interest rate on borrowings

under the Bank Credit Agreement was 5.1% as of June 30, 2019. We incur a commitment fee of 0.50% on the undrawn portion of the aggregate lender commitments under the Bank Credit Agreement.

The Bank Credit Agreement contains certain financial performance covenants through the maturity of the facility, including the following:


•	A Consolidated Total Debt to Consolidated EBITDAX covenant, with such ratio not to exceed 5.25 to 1.0 through December 31, 2020, and 4.50 to 1.0 thereafter;


•	A consolidated senior secured debt to consolidated EBITDAX covenant, with such ratio not to exceed 2.5 to 1.0. 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 June 30, 2019, we were in compliance with all debt covenants under the Bank Credit Agreement. The above description of our Bank Credit Agreement and defined terms are contained in the Bank Credit Agreement and the amendments thereto.

2019 Note Exchanges

During June 2019, we closed a series of debt exchanges to extend the maturities of our outstanding long-term debt and reduce our debt principal. As part of these transactions, we exchanged a total of $468.4 million aggregate principal amount of our then existing senior subordinated notes for $102.6 million aggregate principal amount of new 7¾% Senior Secured Notes, $245.5 million aggregate principal amount of new 2024 Convertible Senior Notes and $120.0 million of cash. The exchanged subordinated notes consisted of $152.2 million aggregate principal amount of our 6⅜% Senior Subordinated Notes due 2021, $219.9 million aggregate principal amount of our 5½% Senior Subordinated Notes due 2022 and $96.3 million aggregate principal amount of our 4⅝% Senior Subordinated Notes due 2023. In addition, we also exchanged $425.4 million of 7½% Senior Secured Second Lien Notes due 2024 (the “7½% Senior Secured Notes”) for $425.4 million aggregate principal amount of 7¾% Senior Secured Notes.

In July 2019, we closed transactions to exchange an additional$4.0 million aggregate principal amount of 7½% Senior Secured Notes for $3.8 million aggregate principal amount of 7¾% Senior Secured Notes.

In accordance with FASC 470-50, Modifications and Extinguishments, the June 2019 exchange of our existing senior subordinated notes was accounted for as a debt extinguishment. Therefore, our new 7¾% Senior Secured Notes and new 2024 Convertible Senior Notes were recorded on our balance sheet at fair market value based upon initial trading prices following their issuance, resulting in a discount to their principal amount of $22.6 million and $79.9 million, respectively. These debt discounts will be amortized as interest expense over the terms of these notes. As a result, we recognized a noncash gain on debt extinguishment, net of transaction costs, totaling $100.3 million for the three and six months ended June 30, 2019, in our Unaudited Condensed Consolidated Statements of Operations.

Separately, the exchange of our existing senior secured second lien notes was accounted for as a modification of those notes. Therefore, no gain or loss was recognized, and previously deferred debt issuance costs of $6.9 million were treated as a discount to the principal amount of the new 7¾% Senior Secured Notes, which discount will be amortized as interest expense over the term of these notes.

7¾% Senior Secured Second Lien Notes due 2024

As part of the notes exchanges discussed above, in June 2019 we issued $528.0 million of 7¾% Senior Secured Notes in connection with exchanges with certain holders of the Company’s outstanding senior subordinated notes and existing 7½% Senior Secured Notes (see 2019 Note Exchanges above). The 7¾% Senior Secured Notes, which carry a stated interest rate of 7.75% per annum, were recorded at approximately 94% of their principal amount in accordance with FASC 470-50, Modifications and Extinguishments, which equates to an effective yield to maturity of approximately 9.39%. Interest on the 7¾% Senior Secured Notes is payable semiannually in arrears on February 15 and August 15 of each year, and mature on February 15, 2024. We may redeem the 7¾% Senior Secured Notes in whole or in part at our option beginning August 15, 2020, at a redemption price of 103.875% of the principal amount, and at declining redemption prices thereafter, as specified in the indenture governing the 7¾% 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 7¾% Senior Secured Notes at a price of 107.75% of par with the proceeds of certain equity offerings. In addition, at any

time prior to August 15, 2020, we may redeem the 7¾% 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 7¾% Senior Secured Notes are not subject to any sinking fund requirements.

The 7¾% 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.

6⅜% Convertible Senior Notes due 2024

As part of the notes exchanges discussed above, in June 2019 we issued $245.5 million of 2024 Convertible Senior Notes in connection with exchanges with certain holders of the Company’s existing senior subordinated notes (see 2019 Note Exchanges above). The 2024 Convertible Senior Notes, which carry a stated interest rate of 6.375% per annum, were recorded at approximately 67% of their principal amount in accordance with FASC 470-50, Modifications and Extinguishments, which equates to an effective yield to maturity of approximately 15.31%. Interest on the 2024 Convertible Senior Notes is payable semiannually in arrears on June 30 and December 30 of each year, beginning in December 2019, and mature on December 31, 2024. We do not have the right to redeem the 2024 Convertible Senior Notes prior to their maturity. The 2024 Convertible Senior Notes are convertible into shares of our common stock at any time, at the option of the holders, at a rate of 370 shares of common stock per $1,000 principal amount of 2024 Convertible Senior Notes, which is equivalent to up to approximately 90.9 million shares of the Company’s common stock, subject to customary adjustments to the conversion rate and threshold price with respect to, among other things, stock dividends and distributions, mergers and reclassifications. The 2024 Convertible Senior Notes will be automatically converted into shares of common stock at this rate if the volume weighted average trading price of the Company’s common stock equals or exceeds the threshold price, which initially is $2.43 per share, for 10 trading days in any period of 15 consecutive trading days, subject to satisfaction of certain other conditions. Additionally, the Company may, based on a determination of its Board of Directors that such changes are in the best interests of the Company, and subject to certain limitations, increase the conversion rate. Any such conversion rate increase would cause a proportional decrease in the threshold price for mandatory conversions, and thereby would enable the Company to require a mandatory conversion into common stock at a lower price than the initial or then-prevailing threshold price.