Debt

Debt consisted of the following balances as of the dates indicated (in thousands):



	March 31, 2018				December 31, 2017
	Principal		Carrying Amount		Principal		Carrying Amount
2017 Senior Credit Facility	$	—	$	—	$	16,723	$	16,723
Convertible Second Lien Notes (1)	48,602		41,464		47,015		39,002
Total debt	$	48,602	$	41,464	$	63,738	$	55,725

(1) The debt discount is being amortized using the effective interest rate method based upon a maturity date of August 30, 2019. The principal includes $8.6 million and $7.0 million of paid in-kind interest at March 31, 2018 and December 31, 2017, respectively. The carrying value includes $7.1 million and $8.0 million of unamortized debt discount at March 31, 2018 and December 31, 2017, respectively.

The following table summarizes the total interest expense for the periods shown including contractual interest expense, amortization of debt discount, accretion and financing costs and the effective interest rate on the liability component of the debt (amounts in thousands, except effective interest rates):



	Three Months Ended March 31, 2018				Three Months Ended March 31, 2017
	Interest Expense		Effective Interest Rate		Interest Expense		Effective Interest Rate
2017 Senior Credit Facility	$	173	6.3	%	$	—	—%
Exit Credit Facility	—		—	%	252		6.1%
Convertible Second Lien Notes (1)	2,500		24.6	%	1,927		24.2%
Total interest expense	$	2,673			$	2,179

(1) Interest expense for the three months ended March 31, 2018 included $0.9 million of debt discount amortization and $1.6 million of paid in-kind interest, and interest expense for the three months ended March 31, 2017 included $0.5 million of debt discount amortization and $1.4 million of paid in-kind interest.

Exit Credit Facility

On October 12, 2016, upon consummation of the plan of reorganization and emergence from bankruptcy, the Company entered into an Exit Credit Agreement (the “Exit Credit Agreement”) with the Subsidiary, as borrower (the “Borrower”), and Wells Fargo Bank, National Association, as administrative agent, and certain other lenders party thereto. Pursuant to the Exit Credit Agreement, the lenders party thereto agreed to provide the Borrower with a $20.0 million senior secured term loan credit facility (the “Exit Credit Facility”). On October 17, 2017, the Exit Credit Facility was paid off in full and replaced with the 2017 Senior Credit Facility described below.

2017 Senior Credit Facility

On October 17, 2017, the Company entered into the Amended and Restated Senior Secured Revolving Credit Agreement (the “Credit Agreement”) with the Subsidiary, as borrower, JP Morgan Chase Bank, N.A. as administrative agent, and certain lenders that are party thereto, which provides for revolving loans of up to the borrowing base then in effect (the “2017 Senior Credit Facility”). The 2017 Senior Credit Facility amends, restates and refinances the obligations under the Exit Credit Facility. The 2017 Senior Credit Facility matures (a) October 17, 2021 or (b) if the Convertible Second Lien Notes (as defined below) have not been voluntarily redeemed, repurchased, refinanced or otherwise retired by September 30, 2019, September 30, 2019. The maximum credit amount under the 2017 Senior Credit Facility is currently $250.0 million with a borrowing base of $40.0 million. The borrowing base is scheduled to be redetermined in March and September of each calendar year, and is subject to additional adjustments from time to time, including for asset sales, elimination or reduction of hedge positions and incurrence of other debt. Additionally, each of the Borrower and the administrative agent may request one unscheduled redetermination of the borrowing base between scheduled redeterminations. The amount of the borrowing base is determined by the lenders in their sole discretion and consistent with their oil and gas lending criteria at the time of the relevant redetermination. The Company may also request the issuance of letters of credit under the Credit Agreement in an aggregate amount up to $10.0 million, which reduce the amount of available borrowings under the borrowing base in the amount of such issued and outstanding letters of credit. The Company paid off the outstanding balance of $16.7 million under the 2017 Senior Credit Facility on March 2, 2018.

All amounts outstanding under the 2017 Senior Credit Facility bear interest at a rate per annum equal to, at the Company's option, either (i) the alternative base rate plus an applicable margin ranging from 1.75% to 2.75%, depending on the percentage of the borrowing base that is utilized, or (ii) adjusted LIBOR plus an applicable margin from 2.75% to 3.75%, depending on the percentage of the borrowing base that is utilized. Undrawn amounts under the 2017 Senior Credit Facility are subject to a 0.50% commitment fee. To the extent that a payment default exists and is continuing, all amounts outstanding under the 2017 Senior Credit Facility will bear interest at 2.00% per annum above the rate and margin otherwise applicable thereto. As of the payoff date of the 2017 Senior Credit Facility balance on March 2, 2018 (the most recent date we had borrowings outstanding), the interest rate on the 2017 Senior Credit Facility was 4.70%.

The 2017 Senior Credit Facility also contains certain financial covenants, including the maintenance of (i) a ratio of Total Debt (as defined in the Credit Agreement) to EBITDAX not to exceed 4.00 to 1.00 as of the last day of any fiscal quarter, (ii) a current ratio (based on the ratio of current assets to current liabilities) not to be less than 1.00 to 1.00 and (iii) until no Convertible Second Lien Notes remain outstanding, (A) the maintenance of a ratio of Total Proved PV10% attributable to the Company’s and Borrower’s Proved Reserves (as defined in the Credit Agreement) to Total Secured Debt (net of any Unrestricted Cash not to exceed $10.0 million) not to be less than 1.50 to 1.00 and (B) minimum liquidity requirements.

The obligations under the Credit Agreement are guaranteed by the Company and are secured by a first lien security interest in substantially all of the assets of the Company and the Subsidiary.

As of March 31, 2018, the Company had no outstanding borrowings. The Company also had $0.6 million of unamortized debt issuance costs recorded as of March 31, 2018 related to the 2017 Senior Credit Facility.

As of March 31, 2018, the Company was in compliance with all covenants within the 2017 Senior Credit Facility.

13.50% Convertible Second Lien Senior Secured Notes Due 2019

On October 12, 2016, upon emergence from bankruptcy, the Company and the Subsidiary, entered into a purchase agreement (the “Purchase Agreement”) with each entity identified as a Shenkman Purchaser on Appendix A to the Purchase Agreement (collectively, the “Shenkman Purchasers”), CVC Capital Partners (acting through such of its affiliates to managed funds as it deems appropriate), J.P. Morgan Securities LLC (acting through such of its affiliates or managed funds as it deems appropriate), Franklin Advisers, Inc. (as investment manager on behalf of certain funds and accounts), O’Connor Global Multi-Strategy Alpha Master Limited and Nineteen 77 Global Multi-Strategy Alpha (Levered) Master Limited (collectively, and together with each of their successors and assigns, the “Purchasers”), in connection with the issuance of $40.0 million aggregate principal amount of the Company’s 13.50% Convertible Second Lien Senior Secured Notes due 2019 (the “Convertible Second Lien Notes”).

The aggregate principal amount of the Convertible Second Lien Notes is convertible at the option of the Purchasers at any time prior to the scheduled maturity date at $21.33 per share, subject to adjustments. At closing, the Purchasers were issued 10-year costless warrants to acquire 2.5 million shares of common stock. Holders of the Convertible Second Lien Notes have a second priority lien on all assets of the Company, and have a continuing right to appoint two members to our Board of Directors (the “Board”) as long as the Convertible Second Lien Notes are outstanding.

The Convertible Second Lien Notes will mature on August 30, 2019, or such later date as set forth in the Convertible Second Lien Notes, but in no event later than March 30, 2020. The Convertible Second Lien Notes bear interest at the rate of 13.50% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year. The Company may elect to pay all or any portion of interest in-kind on the then outstanding principal amount of the Convertible Second Lien Notes by increasing the principal amount of the outstanding Convertible Second Lien Notes or by issuing additional Second Lien Notes (“PIK Interest Notes”). The PIK Interest Notes are not convertible. During such time as the Exit Credit Agreement (but not any refinancing or replacement thereof) was in effect, interest on the Convertible Second Lien Notes had to be paid in-kind. As to the new 2017 Senior Credit Facility, interest on the Convertible Second Lien Notes must be paid in-kind; provided however, that after the quarter ending March 31, 2018, if (i) there is no default, event of default or borrowing base deficiency that has occurred and is continuing, (ii) the ratio of total debt to EBITDAX as defined under the 2017 Senior Credit Facility is less than 1.75 to 1.0 and (iii) the unused borrowing base is at least 25%, then the Company can pay the interest on the Convertible Second Lien Notes in cash, at its election.

The indenture governing the Convertible Second Lien Notes (the “Indenture”) contains certain covenants pertaining to us and our subsidiary, including delivery of financial reports; environmental matters; conduct of business; use of proceeds; operation and maintenance of properties; collateral and guarantee requirements; indebtedness; liens; dividends and distributions; limits on sale of assets and stock; business activities; transactions with affiliates; and changes of control.

The Indenture also contains certain financial covenants, including the maintenance of (i) a Total Proved Asset Coverage Ratio (as defined in the Exit Credit Agreement) not to be less than 1.50 to 1.00 after September 30, 2017, to be determined as of January 1 and July 1 of each year and (ii) minimum liquidity requirements.

Upon issuance of the Convertible Second Lien Notes in October 2016, in accordance with accounting standards related to convertible debt instruments that may be settled in cash upon conversion as well as warrants on the debt instrument, we recorded a debt discount of $11.0 million, thereby reducing the $40.0 million carrying value upon issuance to $29.0 million and recorded an equity component of $11.0 million. The debt discount is amortized using the effective interest rate method based upon an original term through August 30, 2019. $7.1 million of debt discount remains to be amortized on the Convertible Second Lien Notes as of March 31, 2018.

As of March 31, 2018, the Company was in compliance with all covenants within the Indenture governing the Convertible Second Lien Notes.