Business Context and Reporting Period
This Form 8-K Current Report, filed on March 23, 2020, covers material events occurring between March 17 and March 19, 2020. The registrants are Empire State Realty Trust, Inc. and its operating partnership subsidiary, Empire State Realty OP, L.P. The filing details the execution of significant debt financing agreements to secure capital for general corporate purposes and working capital needs.
Key Financial Metrics and Debt Structure
The filing outlines three major debt transactions executed in March 2020:
- Senior Unsecured Notes: Issued $175 million in aggregate principal amount consisting of $100 million in 3.61% Series G Notes due 2032 and $75 million in 3.73% Series H Notes due 2035. Proceeds were raised at 100% of par.
- Wells Fargo Term Loan Facility: Established a $175 million senior unsecured term loan facility, borrowed in full at closing. The facility matures on December 31, 2026, with an initial interest rate of LIBOR plus 1.5%.
- Amended Bank of America Facility: Amended an existing credit agreement to a total capacity of up to $1.315 billion, comprising a $1.1 billion revolving credit facility and a $215 million term loan facility (borrowed in full). The revolving facility matures August 29, 2021, and the term loan matures March 19, 2025.
Financial Covenants: All three facilities share identical financial covenants, including:
- Total indebtedness to total asset value ratio not to exceed 60%.
- Total secured indebtedness to total asset value ratio not to exceed 40%.
- Adjusted EBITDA to consolidated fixed charges ratio not less than 1.50x.
- Unencumbered net operating income to unsecured interest expense ratio not less than 1.75x.
- Total unsecured indebtedness to unencumbered asset value ratio not to exceed 60%.
Material Changes and Agreements
The primary material change is the expansion of the company's capital structure through the issuance of new long-term notes and the restructuring of existing credit facilities. The company amended its 2015 and 2017 Note Purchase Agreements to conform covenants with the new Note Purchase Agreement. Additionally, the Bank of America facility was amended to increase capacity and adjust terms, while a new Wells Fargo facility was established to provide additional term financing.
Outlook, Risks, and Contingencies
Use of Proceeds: The net proceeds from the Senior Unsecured Notes and the Wells Fargo Facility are designated for general corporate purposes and working capital needs. The Amended Bank of America Facility is similarly intended for working capital and general corporate purposes.
Risks and Contingencies: The agreements contain customary events of default, including non-payment, breach of covenants, cross-defaults, bankruptcy, loss of REIT qualification, and change of control. The Senior Unsecured Notes include a make-whole premium provision for prepayment. Interest rates on the term loans and revolving facilities are floating and tied to LIBOR/Eurodollar rates plus a spread based on leverage ratios or credit ratings.
Investor Verification Checklist
- Verify the total outstanding debt load post-closing to ensure compliance with the 60% total indebtedness to asset value covenant.
- Confirm the current leverage ratio to determine the applicable interest rate spread on the Wells Fargo and Bank of America facilities.
- Review the full text of the Note Purchase Agreement (Exhibit 10.1) for specific definitions of Adjusted EBITDA and asset value calculations.
- Monitor the maturity dates of the revolving credit facility (August 2021) versus the term loans (2025-2035) to assess near-term refinancing risks.
- Check for any subsequent amendments to the 2015 and 2017 Note Purchase Agreements referenced in the filing.