NOTE E—LONG-TERM LIABILITIES

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

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

Line of Credit	$	—		$	134,749
First Lien Credit Facility	219,665			—
Convertible Debentures	1,636			1,636
Senior Notes	230,410			300,000
Discount on Senior Notes	(2,727		)	(3,947		)
Contingent Earn-Out	6,931			6,531
Asset retirement obligations	30,954			29,771

	486,869			468,740
Less current portion	382			382

Long-term portion	$	486,487		$	468,358

First Lien Credit Facility and Senior Notes Exchange

On May 22, 2015, Warren Resources entered into a first lien credit agreement by and among the Company, Wilmington Trust, National Association, as Administrative Agent, and the lenders from time to time party thereto, that 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 first lien 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. Approximately $47 million in additional term loans were issued under the First Lien Credit Facility at closing in exchange for $69.59 in face value of the 9.000% Senior Notes due 2022, as described further under “9.000% Senior Notes due 2022” below. The conditions applicable to further draw downs under the First Lien Credit Facility were modified as part of the First Amendment to the First Lien Credit Facility that was entered into on October 22, 2015 and is further described under Note N to the Notes to the Consolidated Financial Statements. The First Lien Credit Facility is guaranteed by Warren Resources of California, Inc., Warren E&P, Inc. and Warren Marcellus LLC, which are three of the Company’s wholly-owned subsidiaries and is collateralized by substantially all of Warren’s assets, including the equity interests of the guarantors. Warren used the proceeds drawn at closing of the First Lien Credit Facility to repay the balance on its former credit facility, and has been released from all legal obligations on such former facility.

The First Lien Credit Facility is subject to prepayment in respect of asset sales, subject to limited reinvestment rights and certain excluded asset sales. The First Lien Credit Facility also includes certain covenants, including a maintance covenant requiring the Company to maintain a minimum consolidated first lien leverage ratio. The terms of the maintenance covenant were modified as part of the First Amendment to the First Lien Credit Facility that was entered into on October 22, 2015 and is further described under Note N to the Notes to the Consolidated Financial Statements.

The First Lien Credit Facility is subject to other usual and customary conditions, representations, and warranties, including restrictions on certain additional indebtedness, dividends to shareholders, liens, investments, mergers, acquisitions, asset dispositions, repurchase or redemption of our common stock, speculative commodity transactions, transactions with affiliates and other matters. The First Lien Credit Facility is subject to customary events of default. If an event of default occurs and is continuing, the Agent may, or at the request of certain required lenders shall, accelerate amounts due under the First Lien Credit Facility (except for a bankruptcy event of default, in which case such amounts will automatically, by their terms, become due and payable).

The annual interest rate on borrowings under the First Lien Credit Facility is 8.5% plus LIBOR for the applicable LIBOR period (with a minimum LIBOR rate of 1%) and is payable quarterly in arrears on the next to last business day of each March, June, September and December. At present, the interest rate is 9.5%.

As of September 30, 2015 the Company had $219.7 million outstanding on its borrowings under the First Lien Credit Facility, with zero interest accrued. As of November 9, 2015, $15 million of additional borrowings have been drawn and the total outstanding under the facility is therefore $234.7 million.

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 nine months ended September 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 9.000% senior notes in a private offering at a price equal to 98.617% due to mature on August 1, 2022 (the “Unregistered Senior Notes”). Interest is payable on the Unregistered Senior Notes semi-annually in arrears at a rate of 9.000% per annum on each February 1 and August 1.

In connection with the First Lien Credit Facility entered into on May 22, 2015, the Company exchanged $69.59 million in face value of the Unregistered Senior Notes previously held by the lenders under the First Lien Credit Facility for approximately $45.23 million of First Lien Term Loans 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.

On July 27, 2015, substantially all of the outstanding Unregistered Senior Notes were exchanged for an equal principal amount of registered 9.000% senior notes due 2022 pursuant to a 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 “Registered Senior Notes” and, together with the Unregistered Senior Notes, the “Senior Notes”). The Registered Senior Notes are identical to the Unregistered Senior Notes except that the Registered Senior Notes are registered under the Securities Act and do not have restrictions on transfer, registration rights or provisions for additional interest.

At September 30, 2015, the face amount of the Senior Notes was $230.41 million and the market value was approximately $50.7 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 are fully, unconditionally and jointly and severally guaranteed on a senior unsecured basis by substantially all of our existing subsidiaries and are fully, unconditionally and jointly and severally guaranteed on a senior unsecured basis by our future domestic subsidiaries, subject to certain exceptions.