RLJ Lodging Trust 8-K Summary: November 20, 2012
Business Context and Reporting Period
This Form 8-K, dated November 20, 2012, reports that RLJ Lodging Trust and its operating partnership, RLJ Lodging Trust, L.P., entered into significant new financing arrangements. The filing details the execution of an Amended and Restated Credit Agreement and a separate Term Loan Agreement with Wells Fargo Bank, National Association, as administrative agent.
Key Financial Metrics and Debt Structure
The company secured a total of $400 million in new debt financing on the reporting date:
- Amended Credit Agreement:
- Revolver: $300 million unsecured revolving credit facility maturing November 20, 2016 (with a one-year extension option). As of November 20, 2012, $16 million was outstanding, leaving approximately $284 million available.
- Five-Year Term Loan: $275 million unsecured term loan maturing November 20, 2017. The full amount was drawn on November 20, 2012.
- Seven-Year Term Loan: $125 million unsecured term loan maturing November 20, 2019. The full amount was drawn on November 20, 2012.
Interest Rates: Borrowings bear interest at LIBOR plus a spread based on the company's total leverage ratio (Revolver: 175-250 bps; Five-Year Term: 170-245 bps; Seven-Year Term: 205-300 bps). Unused commitment fees on the Revolver range from 25 to 35 basis points.
Material Changes and Use of Proceeds
The primary material change is the restructuring of the company's credit facilities and the incurrence of new debt obligations.
- Use of Proceeds (Five-Year Term Loan): Used to pay down approximately $70 million of amounts outstanding under the previous Revolver and to repay certain existing debt.
- Use of Proceeds (Seven-Year Term Loan): Used to finance the repayment of certain existing debt.
- Permitted Uses (Revolver): Redevelopment and development costs, hotel acquisitions, capital expenditures, dividends, debt repayment, and general working capital.
Covenants, Risks, and Contingencies
The new agreements impose strict financial covenants that the company must maintain to avoid default:
- Debt to EBITDA: Maximum ratio of 6.0 to 1.0.
- Fixed Charge Coverage: Adjusted EBITDA to fixed charges ratio of not less than 1.5 to 1.0.
- Secured Indebtedness: Maximum 50% of total asset value (through Sept 30, 2013), reducing to 45% thereafter.
- Unsecured Indebtedness: Maximum 60% of Unencumbered Asset Value.
- Tangible Net Worth: Minimum of approximately $1.78 billion (plus 75% of net proceeds from equity issuances after Sept 30, 2012).
Guarantees: The Company and specific subsidiaries guarantee the obligations. The agreements require that guarantors own at least 90% of the total asset value of the company and its subsidiaries.
Investor Verification Checklist
- Verify the company's current leverage ratio to ensure compliance with the 6.0x Debt/EBITDA covenant.
- Confirm the composition of the "Unencumbered Pool" of assets to validate the borrowing base for the Revolver.
- Review the specific existing debt instruments repaid with the new proceeds to assess the net impact on the debt maturity profile.
- Monitor the tangible net worth calculation to ensure it remains above the $1.78 billion threshold.
- Check for any prepayment penalties associated with the Seven-Year Term Loan if early repayment is considered.