20. Long-Term Debt

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Long-Term Debt

(20) Long-Term Debt

Our outstanding long-term debt obligations consist of notes payable, construction financing and capital leases and are as follows:

	December 31,		December 31,
	2012		2011
Refinery Loan	$	9,298,183	$	9,669,173
Notre Dame Debt		1,300,000		1,300,000
Construction and Funding Agreement		5,206,175		3,319,193
Captial Leases		2,119		6,237
		15,806,477		14,294,603
Less: Current portion of long-term debt		1,816,960		1,839,501
	$	13,989,517	$	12,455,102

The following is a schedule of future long-term debt payments:

Years Ending December 31,	Amount
2013	$	1,861,256
2014		1,972,878
2015		2,092,528
2016		718,292
2017		411,203
Subsequent to 2017		8,750,320
	$	15,806,477

Refinery Loan.  In September 2008, LE obtained a loan from First International Bank (“FIB”) in the amount of $10,000,000 (the “Refinery Loan”).  The Refinery Loan accrues interest at a rate of prime plus 2.25% (effective rate of 5.50% at December 31, 2012) and has a maturity date of October 2028.  The Refinery Loan is: (i) secured by a first lien on the Nixon Facility and general assets of LE and (ii) subject to certain restrictive financial covenants related to debt to net worth and current ratio.  Currently, we are not in compliance with certain financial covenants and, since August 2011, the Refinery Loan has been subject to a forbearance agreement (the “Forbearance Agreement”). Interest was accrued on the Refinery Loan in the amount of $250,070 and $967,567 at December 31, 2012 and 2011, respectively.

The Forbearance Agreement provides for a reduced minimum monthly payment on the Refinery Loan of $60,000.  The initial forbearance period under the Forbearance Agreement commenced in August 2011 and ended in August 2012 (the “Initial Forbearance Period”) with an additional one year extension period beyond the Initial Forbearance Period ending on August 12, 2013 (the “Extended Forbearance Period” and together with the Initial Forbearance Period, the “Forbearance Period”), if we satisfied certain conditions.  In October 2011, the Refinery Loan and its related security documents (the “Refinery Loan Documents”) were acquired by American First National Bank (“AFNB”).  In June 2012, AFNB sent a letter to LE outlining what AFNB believed to be contraventions to certain provisions of the Refinery Loan, the Refinery Loan Documents and the Forbearance Agreement, including an assertion that Blue Dolphin’s acquisition of LE represented a change of control of LE, resulting in a default under the Refinery Loan.  We responded to AFNB expressing a belief that LE was in compliance with provisions of the Refinery Loan Documents.  In December 2012, AFNB sent a letter to LE confirming that LE was in compliance with the provisions of the Refinery Loan Documents, and providing for an extension of the Forbearance Agreement through the Extended Forbearance Period.

During the Forbearance Period, we remain subject to the terms, conditions and covenants of the Refinery Loan, other than those that our compliance with is expressly waived by the Forbearance Agreement.  Further, AFNB may terminate the Forbearance Agreement and any extensions thereof at any time if any of the following events (the “Termination Events”) occur:

●   We do not, upon the Nixon Facility becoming operational, and the cessation of the payment of tank storage fees by Genesis to us, make the required minimum monthly payment to AFNB;

●   There is a default  under the Refinery Loan (other than the existing default) that is not cured within 30 days subject to certain extensions;

●   There is a default under the Forbearance Agreement, the Construction and Funding Agreement, the Joint Marketing Agreement or the Crude Oil Supply and Throughput Services Agreement between LE and GEL dated August 12, 2011 (the “Crude Supply Agreement”) and such default continues for 10 days after its occurrence; or

●   LE files for bankruptcy protection or takes part in any other insolvency proceeding, seeks relief under any debtor relief law or has a receiver or similar official appointed.

As of the date of filing of this report, no Termination Events have occurred.

After all past due principal and interest (as well as costs, fees and taxes) have been paid, AFNB will: (i) re-amortize the Refinery Loan to the original maturity date of October 1, 2028 and (ii) apply twelve consecutive additional monthly payments in the amount of $83,333.33 towards replenishing the $1,000,000 payment reserve required under the Refinery Loan in accordance with the Forbearance Agreement.

Notre Dame Debt.  LE obtained a loan in the original amount of $8,000,000 from Notre Dame Investors, Inc., which is currently held by John Kissick (the “Notre Dame Debt”). The Notre Dame Debt, which is currently in default, accrues interest at the default rate of 16% and is secured by a subordinated lien on the Nixon Facility and general assets of LE.  Interest was accrued on the note in the amount of $858,784 and $650,214 at December 31, 2012 and 2011, respectively.  There are no financial covenants associated with the Notre Dame Debt.

In August 2011, LE, Milam and John Kissick, entered into an intercreditor and subordination agreement under which Mr. Kissick, as a subordinated lien holder on the Nixon Facility, agreed to (i) subordinate his lien to the liens of Milam under the Construction and Funding Agreement and (ii) forebear his rights under the note evidencing the Notre Dame Debt for so long as amounts are outstanding on the Refinery Loan and any senior construction funding obligations.  Furthermore, in August 2011, Mr. Kissick confirmed, acknowledged and agreed not to institute a suit or other proceeding against LE to foreclose upon any liens that have been established pursuant to the Notre Dame Debt or exercise any other rights or remedies pursuant to the promissory note evidencing the Notre Dame Debt under applicable law or otherwise so long as the Joint Marketing Agreement, which expires in August 2014, is in effect and has not been terminated.

Construction and Funding Agreement. In August 2011, Milam committed funding for the completion of the Nixon Facility’s refurbishment and start-up operations.  We started making payments under the Construction and Funding Agreement in the first quarter of 2012.  All amounts advanced under the Construction and Funding Agreement bear interest at a rate of 6% annually.  Interest totaled $386,695 and $23,578 at December 31, 2012 and 2011, respectively.  There are no financial covenants associated with this obligation.

See “Note (22) Commitments and Contingencies” of this report for additional disclosures related to amendments to the Joint Marketing Agreement, which previously added to our obligation amount under the Construction and Funding Agreement.

Capital Leases.  LE was obligated under various capital lease agreements for equipment totaling $2,119 and $6,237 at December 31, 2012 and 2011, respectively.  The capital leases require monthly payments ranging from $164 to $2,559, including imputed interest at rates ranging from 8.50% to 13.39%, and maturing at various dates through February 2014.  The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets.  The assets are amortized over the lower of their related lease terms or their estimated productive lives.

The following is a summary of equipment held under capital leases:

	December 31,		December 31,
	2012		2011
Cost	$	9,396	$	9,396
Less: Accumulated amortization		4,541		3,602
	$	4,855	$	5,794