Business Context and Reporting Period
This Form 8-K filing by CubeSmart and CubeSmart, L.P. reports on events occurring on December 9, 2011, with the report filed on December 14, 2011. The filing details the entry into a new material definitive credit agreement and the termination of the prior credit facility.
Key Financial Metrics and Debt Structure
The company established a new Credit Facility with the following components:
- Total Facility Size: $600 million total capacity.
- Term Loan A: $100 million unsecured term loan maturing in December 2014.
- Term Loan B: $200 million unsecured term loan maturing in March 2017.
- Revolving Facility: $300 million unsecured revolving credit facility maturing in December 2015 (extendable by one year).
- Funding at Closing: $100 million funded under the 2014 term loan; $100 million funded under the 2017 term loan; $0 drawn on the revolver.
- Interest Rates: Revolver priced at 1.80% over LIBOR; Term loans priced at 1.75% over LIBOR. No LIBOR floor applies.
- Hedging: Interest rate swaps fix the rate on the $200 million 2017 term loan at an effective fixed rate of 3.09%.
- Credit Rating: Pricing based on a Baa3/BBB- unsecured debt rating.
Material Changes Versus Prior Period
The new Credit Facility replaces the Prior Facility (last amended September 29, 2010) in its entirety. The Prior Facility consisted of a $100 million unsecured term loan and a $250 million revolving credit facility. The new agreement increases the total available credit capacity and extends maturity dates for the term loans. Proceeds from the new facility were used to repay all amounts drawn under the Prior Facility.
Outlook, Management Commentary, and Risks
Future Drawdowns: Management anticipates drawing the remaining $100 million of availability under the 2017 term loan in conjunction with the second closing of the Storage Deluxe transaction during the first quarter of 2012.
Covenants and Risks: The facility includes customary affirmative and negative covenants, including financial tests for leverage, liquidity, and net worth. Lenders may accelerate amounts outstanding upon an event of default, such as failure to pay amounts due or the filing of bankruptcy proceedings. CubeSmart and CubeSmart, L.P. are jointly and severally obligated.
Key Facts for Investor Verification
- Verify the exact terms of the interest rate swaps and the effective fixed rate of 3.09% on the 2017 term loan.
- Confirm the status and timeline of the "Storage Deluxe transaction" referenced for the Q1 2012 drawdown.
- Review the specific leverage, liquidity, and net worth covenants in the attached Credit Agreement (Exhibit 10.1) to assess compliance risks.
- Monitor the company's credit rating, as pricing on the facility is directly tied to the Baa3/BBB- level.