LONG-TERM DEBT

12 Months Ended

Sep. 30, 2011

LONG-TERM DEBT

LONG-TERM DEBT

8.         LONG-TERM DEBT

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

	September 30,
	2011			2010
Canadian revolving credit facility	$	12,000,000		$	13,000,000
Real estate loan	11,714,000			13,000,000
	23,714,000			26,000,000
Less current portion	(12,314,000		)	(13,650,000		)
Total long-term debt	$	11,400,000		$	12,350,000

Canadian revolving credit facility

Barnwell has a credit facility at Royal Bank of Canada, a Canadian bank, for $20,000,000 Canadian dollars, or US$19,252,000 at the September 30, 2011 exchange rate.  Borrowings under this facility were US$12,000,000 and unused credit available under this facility was US$7,252,000 at September 30, 2011.  The interest rate on the facility at September 30, 2011 was 3.0%.

The facility is available in U.S. dollars at LIBOR 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, in fiscal 2011, Barnwell paid a fee of $31,000 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 such, one quarterly repayment of 5% would be due within one year of September 30, 2011 and accordingly, we have included $600,000, representing 5% of the outstanding loan balance at September 30, 2011, in the current portion of long-term debt.

Barnwell has the option to change the currency denomination and interest rate applicable to the loan at periodic intervals during the term of the loan.  The facility is guaranteed by Barnwell and is collateralized by a general security agreement on all of the assets of Barnwell’s oil and natural gas segment.  No compensating bank balances are required for this facility.

Real estate loan

In March 2011, Barnwell, together with 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 an interest rate that adjusts annually.  Principal and interest are paid monthly and are determined annually based on a loan amortization schedule.

Monthly payments of principal and interest are due on the first day of each month 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 Kaupulehu 2007’s 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 consolidated debt service coverage ratio of not less than 1.20 to 1, a consolidated total liabilities to tangible net worth ratio not to exceed 1.85 to 1, and a maximum loan to value (“LTV”) ratio.  The lender may request updated appraisals no more frequently than annually.  If the appraised value results in an LTV of greater than 70% of the appraised value of the homes and 65% of the appraised value of the residential parcels, a further principal payment would be required.  As of September 30, 2011, we were in compliance with the loan covenants.

Kaupulehu 2007 made scheduled monthly principal payments in May through September 2011, reducing the loan amount to $11,714,000 at September 30, 2011.  Both houses collateralizing the loan are currently available for sale, therefore, the entire $11,714,000 outstanding at September 30, 2011 under the term loan has been classified as a current liability.

Combined maturities

Combined maturities of borrowings under the Company’s two credit facilities are as follows based on the assumption that Kaupulehu 2007’s two homes are sold during fiscal 2012 and that Royal Bank of Canada does not renew our facility upon the next review in April 2012 and the facility is therefore converted to a term loan:

Fiscal year ending
2012	$	12,314,000
2013	2,400,000
2014	9,000,000
2015	-
2016	-
Thereafter	-
Total	$	23,714,000