Long-Term Debt

6 Months Ended

Jun. 30, 2012

Long-Term Debt [Abstract]

Long-Term Debt

Note 8 — Long-Term Debt

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

	December 31, 2011		June 30, 2012
Borrowing Base Facility	$	190,000	$	167,355
Secured Pipeline Loan		3,000		—
Total debt		193,000		167,355
Less current maturities included in current liabilities		3,000		167,355
Total long-term debt	$	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 2011 10-K. During the six months ended June 30, 2012, the Company made $22.6 million in net payments on its Borrowing Base Facility. In addition, the Company made $3.0 million in payments on the Secured Pipeline Loan, which was fully retired in February 2012. At June 30, 2012, the Company classified the outstanding balance on the Borrowing Base Facility as a current liability to reflect the facility’s maturity date on June 30, 2013.

Effective June 1, 2012, PostRock Energy Services Corporation (“PESC”) and PostRock MidContinent Production, LLC (collectively with PESC, the “Borrowers”), subsidiaries of the Company, entered into an amendment of the Second Amended and Restated Credit Agreement, dated September 21, 2010 (as amended, the “Borrowing Base Facility”), among the Borrowers and RBC, as administrative agent and collateral agent (“Agent”), and the lenders party thereto (the “Lenders”). Effective as of June 1, 2012, the borrowing base under the Borrowing Base Facility was $176 million, a decrease of $24 million from the prior borrowing base. In addition, the amendment provided the following, among other things:

• as long as the total outstanding borrowings exceed the target amount which, at the time of the amendment effective date, is $120 million (the “Target Amount”), (1) the Borrowers will be required to pay additional interest at a rate of 1.5% per year on the excess and (2) the $176 million borrowing base will be reduced on a monthly basis by $1 million until the earlier of September 30, 2012 and the date that the borrowing base has been reduced to an amount equal to or less than the Target Amount;

• PESC has pledged its 100% equity interest in PostRock KPC Pipeline, LLC (“KPC”) to the Agent for the benefit of the Lenders; KPC has guaranteed the indebtedness under the Borrowing Base Facility and has granted a mortgage lien on its interstate pipeline and related assets (the “KPC Pipeline”) to secure such indebtedness contemporaneously with the effective date of the amendment, with the lien on the equity of KPC and the KPC Pipeline being released upon any sale of KPC or the KPC Pipeline and the application of the net available cash proceeds from the sale to reduce outstanding borrowings under the Borrowing Base Facility (which will reduce the borrowing base on a dollar-for-dollar basis unless the total outstandings and the borrowing base are equal to or less than the Target Amount); and KPC will not be permitted to incur any debt (other than normal trade debt) or to grant other liens on its assets;

• the Company’s subsidiary Constellation Energy Partners Management, LLC has pledged 100% of its equity ownership interest in CEP (the “Constellation Equity”) to secure indebtedness under the Borrowing Base Facility, and may dispose of such interest upon a mandatory prepayment of net available cash proceeds from the disposition to reduce outstanding borrowings under the Borrowing Base Facility (which will not reduce the borrowing base or the Target Amount);

• if the Company did not have a signed purchase agreement for the sale of KPC or the KPC Pipeline by July 15, 2012, the Borrowers would be required to obtain additional equity funding from White Deer Energy L.P. and its affiliates (“White Deer”) of $7.5 million, the proceeds of which will be used to repay outstanding borrowings under the Borrowing Base Facility (which will reduce the borrowing base on a dollar-for-dollar basis); pursuant to the second amendment to the Borrowing Base Facility dated as of July 20, 2012, the equity funding was required to be obtained the earlier of two business days after the filing of this quarterly report or August 17, 2012 (see Note 13);

• upon a disposition of the producing Appalachia shale gas properties, the Borrowers will be required to make a prepayment of net available cash proceeds from the disposition to reduce outstanding borrowings under the Borrowing Base Facility, and the borrowing base and the Target Amount will be reduced by the borrowing base value of the Appalachia assets based upon the most recently delivered reserve report (which borrowing base value, on the amendment effective date, is $10 million);

• upon a material disposition (defined in the amendment to mean a disposition that yields gross proceeds of $1 million or more) of other collateral, an amount equal to the borrowing base value of such collateral will be prepaid on the outstanding borrowings, and if the material disposition involves borrowing base oil and gas properties (other than the Appalachia assets), the borrowing base and the Target Amount will be reduced by the borrowing base value of the collateral so disposed; and

• if at the time of the borrowing base redetermination scheduled for October 31, 2012, there is no borrowing base deficiency, the Borrowers will be entitled to a release of the Agent’s liens on the KPC equity, the KPC Pipeline and the Constellation Equity for no consideration and any such release will not reduce the borrowing base.

The Company was in compliance with all of its financial covenants under the Borrowing Base Facility at June 30, 2012.

As discussed within Note 10 of Item 8. Financial Statement and Supplementary Data in the 2011 10-K, the Company settled its QER Loan in 2011 under terms that met accounting criteria to be classified as a troubled debt restructuring. The settlement in 2011 included an equity payment of $843,000 by issuing 141,186 shares of the Company’s common stock to RBC. By evaluating the maximum sum of future cash flows that could be paid to the lender, RBC, the Company previously recorded gains on debt restructuring of $2.9 million and $1.6 million during the year ended December 31, 2010, and during the second quarter of 2011, respectively. Upon the release of $5.7 million in escrowed proceeds from the Appalachian Basin sale in June 2012 (see Note 2), the Company retained $1.3 million and remitted $4.4 million of these funds to RBC, representing the final payment in connection with the QER Loan. The $1.3 million of escrowed funds retained by the Company included recovery of the $843,000 payment to RBC made in 2011. As a result of the Company’s final evaluation of all payments made to RBC in connection with the QER Loan, an additional gain on debt restructuring of $255,000 was recorded in June 2012.