Long-Term Debt

9 Months Ended

Sep. 30, 2011

Note 7 — Long-Term Debt

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


	December 31,		September 30,
	2010		2011
Borrowing Base Facility	$	187,000	$	190,000
Secured Pipeline Loan		13,500		6,000
QER Loan		19,721		—

Total debt		220,221		196,000
Less current maturities included in current liabilities		10,500		6,000

Total long-term debt	$	209,721	$	190,000

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, PostRock Eastern Production, LLC, formerly named 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 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.

The borrowing base under the Borrowing Base Facility was redetermined effective July 31, 2011, based on the Company’s oil and gas reserves at March 31, 2011. The borrowing base is determined based on the value of reserves at the Company’s lenders’ forward price forecasts, which are generally derived from futures prices. As a result of the significant decline in lender forward price forecasts since the Company’s prior borrowing base determination and the roll off of hedges, the borrowing base was reduced from $225 million to $200 million.

The Company made periodic payments of $7.5 million on the Secured Pipeline Loan and net borrowings of $3.0 million on the Borrowing Base Facility during the nine month period ended September 30, 2011. The Company was in compliance with all its financial covenants at September 30, 2011.