Business Context and Reporting Period
Sunstone Hotel Investors, Inc. filed this Form 8-K on April 2, 2015, to disclose the entry into a material definitive agreement. The Company is a Maryland corporation with principal executive offices in Aliso Viejo, California.
Key Financial Metrics and Facility Details
The Company entered into a Credit Agreement establishing a $400 million unsecured revolving credit facility. The operating partnership, Sunstone Hotel Partnership, LLC, is the borrower, with obligations guaranteed by certain subsidiaries.
- Facility Size: $400 million revolving credit facility.
- Maturity: April 2, 2019, with two optional six-month extensions available up to April 2, 2020.
- Expansion Option: The Company may increase the revolving portion or add term loans up to an additional $400 million, for an aggregate facility of $800 million.
- Interest Rates: LIBOR plus an applicable margin ranging from 1.55% to 2.30% (or Base Rate plus 0.55% to 1.30%), based on the net indebtedness to EBITDA ratio.
- Unused Fee: 0.30% if average usage exceeds 50%; 0.20% if average usage is 50% or less.
Material Changes and Covenants
This filing represents a new material financial obligation. The Credit Agreement imposes specific financial covenants and requirements:
- Maximum Leverage Ratio: 6.50:1.00.
- Minimum Fixed Charge Coverage Ratio: 1.50:1.00.
- Minimum Tangible Net Worth: $2.35 billion.
- Secured Indebtedness Limit: Less than 50% of Total Asset Value through March 30, 2016; less than 45% thereafter.
- Borrowing Base Requirement: Must maintain a pool of at least seven unencumbered properties with an asset value of not less than $500 million.
The filing text does not provide specific revenue, profit, cash flow, or current debt levels for the Company as of the reporting date, as this is a transactional report rather than a periodic financial statement.
Guidance, Outlook, and Risks
The Company issued a press release on April 2, 2015, announcing the closing of the Credit Agreement. The agreement contains standard representations, affirmative and negative covenants, and events of default. Failure to meet the financial covenants or maintain the required unencumbered borrowing base could result in default.
Investor Verification Checklist
- Verify the current net indebtedness to EBITDA ratio to determine the applicable interest margin.
- Confirm the Company's current tangible net worth against the $2.35 billion minimum covenant.
- Assess the composition of the unencumbered borrowing base to ensure it meets the seven-property and $500 million value threshold.
- Review the full Credit Agreement (Exhibit 10.1) for specific definitions of "Total Asset Value" and "Secured Indebtedness."