Braemar Hotels & Resorts Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by Braemar Hotels & Resorts Inc. on October 25, 2019. The filing discloses the entry into a material definitive agreement and the creation of a direct financial obligation. The Company is an emerging growth company incorporated in Maryland, with its principal executive offices in Dallas, Texas.
Key Financial Metrics and Obligations
The filing details the establishment of a new credit facility rather than reporting period-end financial performance metrics such as revenue or profit.
- Credit Facility Amount: $75 million senior secured revolving credit facility.
- Components: Includes $15 million available for letters of credit and $15 million for swingline loans.
- Expansion Option: Subject to an accordion feature allowing aggregate commitments to expand to $250 million.
- Term: Three-year interest-only facility with all principal due at maturity.
- Extensions: Includes two one-year extension options.
- Interest Rates:
- Base Rate loans: Applicable margin of 1.25% to 2.50% per annum.
- Eurodollar Rate (LIBOR) loans: Applicable margin of 2.25% to 3.50% per annum.
- Rates are determined by the ratio of consolidated indebtedness to EBITDA (lowest rate applies if ratio is <4x; highest if >6.0x).
- Collateral: Secured by a pledge of equity interests of the Borrower and subsidiaries, mortgage receivables, investments, deposit accounts, and securities accounts.
Material Changes and Covenants
The Company entered into a Second Amended and Restated Credit Agreement with Bank of America, N.A., and other lenders, replacing the prior agreement dated November 19, 2013. The agreement imposes significant financial and operational covenants:
- Debt-to-Asset Ratio: Consolidated indebtedness (less unrestricted cash) to total asset value must not exceed 65%.
- Recourse Debt Limit: Consolidated recourse indebtedness (other than the Credit Facility) must not exceed $50 million.
- Fixed Charge Coverage: Ratio must not be less than 1.40x initially, increasing to 1.50x over time.
- Variable Rate Debt: Unhedged variable rate debt (excluding the Credit Facility) must not exceed 25% of consolidated indebtedness.
- Tangible Net Worth: Must not be less than 75% of the consolidated tangible net worth as of June 30, 2019, plus 75% of net proceeds from future equity issuances.
- Real Property Secured Debt: Must not exceed 70% of the value of such real property.
- Restrictions: Limitations on additional indebtedness, investments, mergers, asset dispositions, dividends, stock redemptions, and capital expenditures.
Guidance, Risks, and Unusual Items
The filing does not provide forward-looking financial guidance or management commentary regarding operational outlook. However, it outlines specific risks associated with the new credit facility:
- Default Consequences: An event of default permits lenders to terminate commitments and accelerate payment of all outstanding amounts.
- Dividend Restrictions: If a default occurs and continues, the Company is precluded from making distributions on common stock, except those required to maintain Real Estate Investment Trust (REIT) status (provided the default is not due to a payment default or insolvency).
- Default Rate: A default rate of 2.0% above the otherwise applicable rate will apply to all obligations in the event of default.
Key Facts for Investor Verification
- Verify the Company's current consolidated indebtedness to EBITDA ratio to determine the applicable interest margin on the new facility.
- Confirm compliance with the 65% debt-to-total asset value covenant and the $50 million limit on other recourse indebtedness.
- Review the Company's unrestricted cash position to assess the impact on the debt-to-asset calculation.
- Monitor the Company's ability to meet the fixed charge coverage ratio of 1.40x (increasing to 1.50x).
- Assess the impact of the new covenants on the Company's ability to pay dividends or pursue future acquisitions.