Business Context and Reporting Period
Company: Chatham Lodging Trust
Filing Type: Form 8-K (Current Report)
Reporting Date: November 30, 2015 (Event Date: November 25, 2015)
Context: The Company entered into a new unsecured revolving credit agreement and terminated its existing secured credit facility.
Key Financial Metrics and Debt Structure
- New Facility Capacity: $250 million (unsecured revolving credit facility).
- Previous Facility Capacity: $175 million (secured revolving credit facility).
- Interest Rate: Floating rate based on LIBOR plus an applicable margin ranging from 1.55% to 2.30%, dependent on the total leverage ratio.
- Unused Fee: 30 basis points if average usage is $\ge$ 50%; 20 basis points if average usage is < 50%.
- Maturity Date: November 25, 2019 (extendable for one additional year subject to fees and conditions).
- Use of Proceeds: Repayment of outstanding borrowings under the terminated Existing Credit Agreement.
Material Changes Versus Prior Period
The Company replaced its existing secured revolving credit facility with a new unsecured facility. Key changes include:
- Capacity Increase: Borrowing capacity increased from $175 million to $250 million.
- Security Status: The new facility is unsecured, whereas the previous facility was secured.
- Lenders: The new agreement involves Barclays Bank PLC, Citigroup Global Markets Inc., Regions Capital Markets, and U.S. Bank National Association as joint lead arrangers.
Covenants, Risks, and Management Commentary
The New Credit Agreement includes standard representations, warranties, and covenants. Key financial and operational constraints include:
- Maximum Leverage Ratio: 60%.
- Minimum Fixed Charge Coverage Ratio: 1.5x.
- Minimum Net Worth: Specific financial covenants apply.
- Restrictions: Limitations on liens, incurrence of debt, investments, distributions, mergers, and asset dispositions.
- Distribution Limitation: Distributions from the operating partnership to the Company are limited to the greater of 95% of adjusted funds from operations or the minimum amount required to maintain REIT status.
- Default Provisions: Include non-payment, breach of representations, insolvency, non-performance of covenants, cross-defaults, and guarantor defaults.
Investor Verification Checklist
- Verify the Company's current leverage ratio to ensure compliance with the 60% maximum covenant.
- Confirm the Company's fixed charge coverage ratio meets the 1.5x minimum requirement.
- Review the full text of the New Credit Agreement (Exhibit 10.1) for specific definitions of "Adjusted Funds From Operations" and other financial metrics.
- Monitor the Company's ability to maintain REIT status given the distribution limitations tied to the credit agreement.
- Assess the impact of the shift from a secured to an unsecured facility on the Company's overall cost of capital and risk profile.