NOTE E—LONG-TERM LIABILITIES

Long-term liabilities consisted of the following for the balance sheets dated:

	June 30,			December 31,
	2015			2014
	(in thousands)

Line of Credit	$	—		$	134,749
First Lien Credit Facility	219,665			—
Derivative Financial Instruments	469			—
Convertible Debentures	1,636			1,636
Senior Notes	230,410			300,000
Discount on Senior Notes	(2,824		)	(3,947		)
Contingent Earn-Out	6,800			6,530
Asset retirement obligations	30,751			29,771

	486,907			468,739
Less current portion	789			381

Long-term portion	$	486,118		$	468,358

On May 22, 2015, Warren Resources entered into a credit agreement with Franklin Square Capital Partners, LP which provides for a five-year, $250 million term loan facility (the “First Lien Credit Facility”) which matures on May 22, 2020. At the closing of the First Lien Credit Facility, certain of the lenders extended credit in the form of new term loans in the amount of $172.5 million and in the form of commitments for delayed draw term loans for up to an additional $30 million, subject to certain incurrence tests. The new credit facility encompasses new terms and is collateralized by substantially all of Warren’s assets. Warren has used the proceeds from the new credit facility to repay the balance on its former credit facility, and has been released from all legal obligations on the former line of credit.

Convertible Debentures

The convertible debentures may be converted from the date of issuance until maturity at 100% of principal amount into common stock of the Company at a conversion price of $50. Each year the holders of the convertible debentures may tender to the Company up to 10% of the aggregate debentures issued and outstanding. During the three and six months ended June 30, 2015, there were no debenture redemptions.

9.000% Senior Notes due 2022

To finance the Marcellus Asset Acquisition (See Note L) in 2014, the Company issued the 9.000% senior notes in a private offering at a price equal to 98.617% due to mature on August 1, 2022 (the “Senior Notes”). Interest is payable on the Senior Notes semi-annually in arrears at a rate of 9.000% per annum on each February 1 and August 1. On May 22, 2015 as part of the closing of the First Lien Credit Facility, certain of the lenders exchanged at face value $69.59 million of the Company’s previously issued 9.000% Senior Notes due 2022 at a discount for approximately $45.23 million of First Lien Term Loans due 2020 plus accrued unpaid interest of $1.93 million rolled into the First Lien Term Loans as additional borrowing. The company accounted for this transaction in accordance with ASC 470 and ASC 405 and as a result recognized a gain on the retirement of debt in the amount of $14.4 million during the period. At June 30, 2015, the face amount of the Senior Notes was $230.41 million and the market value was approximately $110.6 million.

We may redeem, at specified redemption prices, some or all of the Senior Notes at any time on or after August 1, 2017. We may also redeem up to 35% of the Senior Notes using the proceeds of certain equity offerings completed before August 1, 2017. If we sell certain of our assets or experience certain kinds of changes in control, we may be required to offer to purchase the Senior Notes from the holders. The Senior Notes will be fully, unconditionally and jointly and severally guaranteed on a senior unsecured basis by certain of our existing subsidiaries and will be fully, unconditionally and jointly and severally guaranteed on a senior unsecured basis by our future domestic subsidiaries, subject to certain exceptions.

On July 27, 2015, substantially all of the outstanding Senior Notes were exchanged for an equal principal amount of registered 9.000% senior notes due 2022 pursuant to an effective registration statement on Form S-4 that was declared effective by the Securities and Exchange Commission on June 19, 2015 under the Securities Act (the “Exchange Notes”). The Exchange Notes are identical to the Senior Notes except that the Exchange Notes are registered under the Securities Act and do not have restrictions on transfer, registration rights or provisions for additional interest.