LONG-TERM DEBT

9 Months Ended

Jun. 30, 2011

LONG-TERM DEBT

LONG-TERM DEBT

6. LONG-TERM DEBT

A summary of Barnwell’s long-term debt as of June 30, 2011 and September 30, 2010 is as follows:

	June 30,				September 30,
	2011				2010
Canadian revolving credit facility		$	12,000,000			$	13,000,000
Real estate loan		12,242,000				13,000,000
		24,242,000				26,000,000
Less: current portion		(12,242,000		)		(13,650,000		)
Total long-term debt		$	12,000,000			$	12,350,000

Canadian revolving credit facility

In April 2011, Barnwell’s credit facility at Royal Bank of Canada, a Canadian bank, was renewed through April 2012 for $20,000,000 Canadian dollars, unchanged from the prior year amount, or approximately US$20,740,000 at the June 30, 2011 exchange rate.  Borrowings under this facility were US$12,000,000 and unused credit available under this facility was approximately US$8,740,000 at June 30, 2011.  The interest rate on the facility at June 30, 2011 was 2.9%.

The renewed facility is available in U.S. dollars at the London Interbank Offer Rate plus 2.75%, at the Royal Bank U.S. base rate plus 1.75%, or in Canadian dollars at the Royal Bank prime rate plus 1.75%.  A standby fee of 0.6875% per annum is charged on the unused facility balance.  Additionally, Barnwell paid a fee of $31,000 in April 2011 to renew the facility.  Under the financing agreement with Royal Bank of Canada, the facility is reviewed annually, with the next review planned for April 2012.  Subject to that review, the facility may be extended one year with no required debt repayments for one year 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 2012, Barnwell would be obligated to make quarterly principal and interest repayments beginning in July 2012.  As no debt repayments will be required on or before June 30, 2012, the entire outstanding loan balance at June 30, 2011 is classified as long-term debt.

The Company conducts operations in Canada and is therefore subject to foreign currency transaction gains and losses due to fluctuations of the exchange rates between the Canadian dollar and the U.S. dollar.  During the three and nine months ended June 30, 2011, the Company realized a foreign currency transaction gain of $119,000 as a result of the repayment of debt on the credit facility.

Real estate loan

On March 28, 2011, Barnwell, through its 80%-owned real estate joint venture, Kaupulehu 2007, refinanced its real estate loan with a new lender.  The loan is a non-revolving seven year term loan with interest rates that adjust annually.  Principal and interest are paid monthly and are determined based on a loan amortization schedule.

Monthly payments of principal and interest are due on the first day of each month beginning from May 2011 and will change as a result of a change in the interest rate, the sale of a house or the sale of a residential parcel.  The monthly payment for the first year, based on a seven-year amortization schedule, is approximately $169,000 and the interest rate for the first year is 3.67%.  After the first year, the interest rate will adjust for each of the remaining six 1-year periods of the loan term.  The interest rate will be the lender’s then prevailing interest rate for similarly priced commercial mortgage loans or a floating rate equal to the lender’s base rate.  Kaupulehu 2007 paid a $32,000 fee to refinance the loan.  Any unpaid principal balance and accrued interest will be due and payable on April 1, 2018.

The loan is collateralized by, among other things, a first mortgage on the four lots together with all improvements thereon.  Kaupulehu 2007 will be required to make a principal payment upon the sale of a house or a 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.

The loan agreement contains provisions requiring us to maintain compliance with certain covenants including a debt service coverage ratio of not less than 1.20 to 1, a total liabilities to consolidated tangible net worth ratio not to exceed 1.85 to 1, and a maximum loan to value ratio.

Kaupulehu 2007 made scheduled monthly principal payments in May and June 2011, reducing the loan amount to $12,242,000 at June 30, 2011.  Both houses which are collateral for the loan are currently available for sale, therefore, the entire $12,242,000 outstanding at June 30, 2011 under the term loan has been classified as a current liability.