Note 6 — Long-Term Debt

The following is a summary of PostRock’s long-term debt at the dates indicated (in thousands):


	December 31,		June 30,
	2010		2011
Borrowing Base Facility	$	187,000	$	183,000
Secured Pipeline Loan		13,500		9,000
QER Loan		19,721		—

Total debt		220,221		192,000
Less current maturities included in current liabilities		10,500		9,000

Total long-term debt	$	209,721	$	183,000

The terms of the Company’s credit facilities are described within Note 10 of Item 8. Financial Statement and Supplementary Data in the 2010 10-K.

As discussed in Note 2, the Company sold certain Appalachia Basin oil and gas properties to MHR in three phases that closed in December 2010, January 2011 and June 2011. The $44.6 million aggregate purchase price for the three phases was received in cash and in shares of MHR stock. Included in the $44.6 million total was approximately $41.6 million representing the purchase price of assets owned by one of the Company’s subsidiaries, Quest Eastern Resource LLC (“QER”), pledged as collateral under the QER Loan. From the sale proceeds, QER made payments to the lender, Royal Bank of Canada (“RBC”), in the amount of $21.2 million in December 2010, $9.3 million in January 2011 and $4.3 million in June 2011. The $9.3 million payment in January 2011 consisted of $5.7 million in MHR common stock and $3.6 million in cash while the $4.3 million payment in June 2011 was entirely in cash. Concurrent with the June 2011 payment and pursuant to the terms of an asset sale agreement with RBC, the Company fully settled the outstanding balance of the QER Loan of approximately $843,000 by issuing 141,186 shares of its common stock with a fair value of $744,000 to RBC. The Company expects to recover the full amount of the $843,000 payment to RBC through the release of escrowed proceeds from the Appalachia Basin asset sale in June 2012.

The settlement of the QER Loan was facilitated by the restructuring of a prior loan (the “PESC Loan”) that met the criteria under accounting guidance to be classified as a troubled debt restructuring. The Company had previously recorded a gain on troubled debt restructuring related to the QER Loan of $2.9 million in 2010. Following a re-evaluation of the maximum sum of future cash flows that would be paid to RBC, the Company recorded an additional gain of $1.6 million during the second quarter of 2011. The gain includes $799,000 of accrued interest that was forgiven at the time the balance of the loan was settled. The gain is reflected as a “gain on forgiveness of debt” in the condensed consolidated statement of operations.

Of the $6.4 million in escrowed funds related to the asset sale, $5.9 million is recorded in other current assets and $564,000 is recorded in other noncurrent assets. If all the escrowed funds are released to the Company and after the payment to the Company of approximately $843,000 to cover the issuance of stock to RBC described above, $4.6 million will be paid to RBC and $400,000 will be paid to a third party, with the remaining $614,000 paid to the Company. Because the amount payable to RBC is scheduled to be released from escrow in 12 months, the Company has presented the liability in accrued expenses and other current liabilities on the condensed consolidated balance sheet.

In addition to the payments described above, the Company made periodic payments of $4.5 million on the Secured Pipeline Loan and net payments of $4.0 million on the Borrowing Base Facility during the six month period ended June 30, 2011. The Company was in compliance with all its financial covenants at June 30, 2011.