Question

The following is an excerpt from the 2016 10-K: During 2016, we completed a series of privately negotiated debt exchanges and open market debt repurchases, contributing to a net reduction of our debt principal balance of $530.4 million between December 31, 2015 and 2016. In May 2016, we entered into privately negotiated agreements to exchange $175.1 million principal amount of our new 9% Senior Secured Second Lien Notes due 2021 (“2021 Notes”), $411.0 million principal amount of our 5½% Senior Subordinated Notes due 2022 (“2022 Notes”), and $471.7 million principal amount of our Senior Subordinated Notes due 2023 (“2023 Notes”) for $614.9 million principal amount of new 2021 Senior Secured Notes plus 40.7 million shares of Denbury common stock, resulting in a net reduction from these exchanges of $442.9 million in our debt principal.

a. Describe the transaction in accounting terms.

b. Reconstruct the journal entry as you can, assuming cash fees of $18,700.

c. How much interest expense will Denbury recognize on the 9% notes in future years?

Answer 1

A). As per the accounting terms , the company is repurchasing it's debts to reduce the interest amount , or we can say to reduce the debt burden . On the other hand , it is exchanging the repurchased debt for new debt and equity shares .

B) Journal

9% senior secured second lien notes. (2021) 175.1

5.5% senior subordinated notes. (2022) 411.0

Senior subordinated notes. (2023). 471.7

Senior secured notes (2021). 614.9

Equity stock of denbury. (40.7 mn shares). 442.9

( Being debts settled)

Debt issue expenses. 18700

Cash. 18700

( Being expenses paid)

C) amount of interest

= 614.9 × 9% = 55.341