Business Context and Reporting Period
Company: Digital Realty Trust, Inc. (and Digital Realty Trust, L.P.)
Filing Type: Form 8-K (Current Report)
Date of Report: September 23, 2020
Event: Entry into a Material Definitive Agreement and creation of a direct financial obligation via the issuance of Euro-denominated notes.
Key Financial Metrics and Transaction Details
The company issued two series of senior unsecured guaranteed notes through its indirect wholly-owned finance subsidiary, Digital Dutch Finco B.V.:
- 2032 Notes:
- Aggregate Principal: €750,000,000
- Interest Rate: 1.000% per annum (fixed)
- Maturity: January 15, 2032
- Net Proceeds: Approximately €737.5 million
- Purchase Price: 98.567% of principal
- 2022 Notes:
- Aggregate Principal: €300,000,000
- Interest Rate: Floating (3-month EURIBOR + 0.48%, minimum 0.00%); Initial rate 0.00%
- Maturity: September 23, 2022
- Net Proceeds: Approximately €299.0 million
- Purchase Price: 99.900% of principal
Guarantees: The notes are fully and unconditionally guaranteed by Digital Realty Trust, Inc. and the operating partnership.
Material Changes and Use of Proceeds
This filing represents a significant increase in debt obligations. The intended use of proceeds is as follows:
- 2032 Notes Proceeds: Primarily allocated to finance or refinance "Eligible Green Projects" (green building, energy efficiency, renewable energy). Pending allocation, funds may be used to temporarily repay borrowings under global revolving credit facilities, acquire properties, fund development, or for general corporate purposes.
- 2022 Notes Proceeds: Intended to fund the full redemption of Digital Stout Holding, LLC's 4.750% Guaranteed Notes due 2023. Alternatively, funds may be used to temporarily repay revolving credit facilities, acquire properties, or for general corporate purposes.
Guidance, Risks, and Covenants
Covenants: The indentures contain restrictive covenants, including limitations on incurring additional indebtedness and requirements to maintain a pool of unencumbered assets.
Redemption Terms:
- 2032 Notes: Redeemable at the issuer's option at 100% of principal plus accrued interest and a make-whole premium. No make-whole premium applies if redeemed within 90 days of maturity.
- 2022 Notes: Floating rate notes with a floor of 0.00%.
Events of Default: Include failure to pay interest or principal, failure to comply with indenture agreements (with a 90-day cure period), failure to pay other indebtedness exceeding $125 million (with a 60-day cure period), and bankruptcy or insolvency events.
Tax Provisions: Payments are made free of U.S. withholding taxes. If withholding is required, the issuer must pay additional amounts to gross up the payment, unless the issuer elects to redeem the notes early due to changes in tax law.
Investor Verification Checklist
- Verify the exact exchange rate used to convert the €1.05 billion principal amount to USD for balance sheet impact.
- Confirm the status of the "Eligible Green Projects" to ensure the 2032 Notes proceeds are allocated as intended.
- Review the specific terms of the 4.750% Guaranteed Notes due 2023 to confirm the redemption timeline funded by the 2022 Notes.
- Assess the impact of the new debt covenants on the company's ability to incur future indebtedness.
- Monitor the 3-month EURIBOR rate to project interest expense on the 2022 Notes.