Business Context and Reporting Period
This Form 8-K Current Report was filed by Digital Realty Trust, Inc. and Digital Realty Trust, L.P. on June 26, 2020. The filing discloses the entry into a material definitive agreement and the creation of a direct financial obligation through the issuance of senior unsecured notes by an indirect wholly-owned finance subsidiary, Digital Dutch Finco B.V.
Key Financial Metrics and Transaction Details
- Debt Issuance: Issued and sold €500.0 million aggregate principal amount of 1.250% Guaranteed Notes due 2031 (the "Euro Notes").
- Interest Rate: 1.250% per annum.
- Maturity Date: February 1, 2031.
- Interest Payment Schedule: Payable annually on February 1, beginning February 1, 2021.
- Net Proceeds: Approximately €493.1 million after deducting managers' discounts and estimated offering expenses.
- Guarantees: The notes are fully and unconditionally guaranteed by Digital Realty Trust, Inc. and the operating partnership.
- Use of Proceeds: Intended to temporarily repay borrowings under global revolving credit facilities, acquire properties or businesses, fund development, invest in interest-bearing accounts, and provide working capital.
Material Changes and Obligations
The filing represents a material change in the company's capital structure through the addition of €500.0 million in long-term debt. The Indenture governing the Euro Notes includes restrictive covenants, specifically limitations on the ability to incur additional indebtedness and requirements to maintain a pool of unencumbered assets. The notes are senior unsecured obligations ranking equally with other existing and future senior unsecured indebtedness.
Redemption, Default, and Risks
- Redemption Terms: The company may redeem the notes in whole or in part at any time at a price equal to 100% of the principal plus accrued interest and a make-whole premium. No make-whole premium applies if redeemed within 90 days of maturity.
- Tax Withholding: Payments are made free of U.S. withholding taxes. If withholding is required by law, the issuer must pay additional amounts to gross up the payment. The company may redeem the notes if changes in tax law create an obligation to pay such additional amounts.
- Events of Default: Include failure to pay interest or principal, failure to comply with indenture covenants (with a 90-day cure period), failure to pay other significant indebtedness exceeding $125 million (with a 60-day cure period), and bankruptcy or insolvency events.
Investor Verification Checklist
- Verify the exact net proceeds received (€493.1 million) against the gross principal (€500.0 million) to confirm offering costs.
- Review the full Indenture (Exhibit 4.1) for specific details on the "unencumbered assets" covenant and limitations on additional indebtedness.
- Confirm the impact of the new debt on the company's leverage ratios and liquidity position relative to the global revolving credit facilities.
- Assess the currency risk exposure given the issuance is in Euros while the company reports in U.S. Dollars.
- Monitor the company's ability to service the new debt alongside existing obligations, particularly given the low interest rate environment (1.250%).