LONG-TERM DEBT

A summary of Barnwell’s long-term debt is as follows:



	June 30, 2015			September 30, 2014
Canadian revolving credit facility	$	4,800,000		$	7,000,000
Real estate loan	3,654,000			4,099,000
	8,454,000			11,099,000
Less: current portion	(3,654,000		)	(4,449,000		)
Total long-term debt	$	4,800,000		$	6,650,000

Canadian revolving credit facility

On April 10, 2015, Barnwell’s credit facility at Royal Bank of Canada was amended and renewed. The amendment, among other things, provides for a decrease in the aggregate principal amount of the revolving credit facility to $6,500,000 Canadian dollars, or US$5,211,000 at the June 30, 2015 exchange rate, from $11,800,000 Canadian dollars. This reduction in the borrowing capacity is largely due to a tightening credit market for oil and natural gas companies due to the uncertainty of future oil and natural gas prices and significant declines in Royal Bank of Canada’s forecast of oil and natural gas prices and leaves Barnwell with minimal available credit under the facility. The other material terms of the credit facility remain unchanged. Borrowings under this facility were US$4,800,000 and issued letters of credit were $36,000 at June 30, 2015. The interest rate on the facility at June 30, 2015 was 2.69%.

The obligations under the credit facility are secured by substantially all of the assets of Barnwell of Canada, Limited. The credit facility subjects Barnwell to certain customary affirmative covenants, including the delivery of financial statements and annual appraisals of certain oil and gas properties. In addition, the credit facility contains customary negative covenants, including, but not limited to, restrictions on the ability of Barnwell to, among other things, merge with or acquire other entities, incur new liens, incur additional indebtedness, or sell certain oil and gas properties or petroleum and natural gas reserves (other than the sale of production from such oil and gas properties in the ordinary course of business). The credit facility also contains provisions concerning customary events of default, including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, and certain events of bankruptcy and insolvency. If an event of default occurs and is continuing, amounts due under the credit facility may be accelerated, and the rights and remedies of Royal Bank of Canada under the credit facility may be exercised, including rights with respect to the collateral securing Barnwell’s obligations thereunder.

Barnwell repaid $200,000 and $2,200,000 of the credit facility during the three and nine months ended June 30, 2015, respectively. During the three and nine months ended June 30, 2015, Barnwell realized foreign currency transaction losses of $11,000 and $157,000, respectively, as a result of the repayment of U.S. dollar denominated debt using Canadian dollars.

The renewed facility is available in U.S. dollars at the London Interbank Offer Rate plus 2.50%, at Royal Bank of Canada’s U.S. base rate plus 1.50%, or in Canadian dollars at Royal Bank of Canada’s prime rate plus 1.50%. A standby fee of 0.625% per annum is charged on the unused facility balance. Under the financing agreement with Royal Bank of Canada, the facility is reviewed annually, with the next review planned for April 2016. Subject to that review, the facility may be renewed for one year with no required debt repayments or converted to a two-year term loan by the bank. If the facility is converted to a two-year term loan, Barnwell has agreed to the following repayment schedule of the then outstanding loan balance: first year of the term period - 20% (5% per quarter), and in the second year of the term period - 80% (5% per quarter for the first three quarters and 65% in the final quarter). Based on the terms of this agreement, if Royal Bank of Canada were to convert the facility to a two-year term loan upon its next review in April 2016, Barnwell would be obligated to make quarterly principal and interest repayments beginning in July 2016. As no debt repayments will be required on or before June 30, 2016, the entire outstanding loan balance at June 30, 2015 is classified as long-term debt.

Real estate loan

Barnwell, together with its real estate joint venture, Kaupulehu 2007, has a non-revolving real estate loan with a Hawaii bank. In January 2015, the loan was amended from monthly principal and interest payments to monthly interest-only payments effective February 1, 2015. All other terms of the loan remained unchanged. The principal balance and any accrued interest will be due and payable on April 1, 2018. The interest rate adjusts each April for the remaining term of the loan to the lender’s then prevailing interest rate for similarly priced commercial mortgage loans or a floating rate equal to the lender’s base rate. The interest rate at June 30, 2015 was 3.59%.

The loan is collateralized by, among other things, a first mortgage on Kaupulehu 2007’s lots together with all improvements thereon. Kaupulehu 2007 will be required to make a principal payment upon the sale of the house or the residential parcel in the amount of the net sales proceeds of the house or residential parcel; the loan agreement defines net sales proceeds as the gross sales proceeds for the house or residential parcel, less reasonable commissions and normal closing costs.

As a result of the sale of one of the residential parcels in October 2014, Kaupulehu 2007 repaid $266,000 of the real estate loan, as required from the net proceeds of the sale. The remaining $907,000 due from the buyer was recorded as a purchase money mortgage, which was collected by Barnwell in July 2015. This amount is currently being held in an agency account by the real estate loan lender until negotiations regarding the required repayment amount are complete.

The loan agreement contains provisions requiring us to maintain compliance with certain covenants including a consolidated debt service coverage ratio and a consolidated total liabilities to tangible net worth ratio. However, in June 2015, the bank suspended these financial covenants in exchange for an interest reserve account of $275,000, which is included in restricted cash on the Condensed Consolidated Balance Sheets at June 30, 2015. These financial covenants will remain suspended as long as there are sufficient funds in the interest reserve account.

The home collateralizing the loan is currently available for sale; therefore, the entire balance outstanding at June 30, 2015 under the term loan has been classified as a current liability.