Business Context and Reporting Period
Park Hotels & Resorts Inc. filed this Form 8-K on December 28, 2016, to report the entry into a Material Definitive Agreement. The filing details a new Credit Agreement entered into by the Company and its wholly owned subsidiary, Park Intermediate Holdings LLC, with a syndicate of lenders led by Wells Fargo Bank, National Association.
Key Financial Metrics and Debt Structure
The Credit Agreement establishes senior unsecured credit facilities with the following terms:
- Revolving Facility: Up to $1.0 billion, maturing December 24, 2020, with two six-month extension options. This includes a $750 million USD tranche and a $250 million multicurrency tranche (including a $50 million letter of credit subfacility).
- Term Loan Facility: $750 million, maturing December 24, 2021. This facility was advanced in full on the Closing Date.
- Incremental Capacity: Option to increase the Revolving Facility and add incremental term loans up to an aggregate of $500 million.
- Use of Proceeds: Repayment of existing indebtedness, payment of transaction fees and expenses, and general corporate purposes.
- Collateral: The facilities are currently unsecured with no guarantors, subject to potential future guarantees if the Leverage Ratio exceeds 6.50 to 1.00.
Interest rates are variable, based on a margin over the Base Rate or LIBOR, determined by the Company's Leverage Ratio or, upon achieving investment grade, its credit rating.
Material Changes and Covenants
This agreement replaces or supplements existing indebtedness structures. Key financial maintenance covenants include:
- Leverage Ratio: Total indebtedness to EBITDA not to exceed 7.25 to 1.00.
- Fixed Charge Coverage: Reserve adjusted EBITDA to fixed charges not less than 1.50 to 1.00.
- Asset Coverage Ratios: Secured indebtedness to total asset value not to exceed 0.45 to 1.00; unsecured indebtedness to unencumbered asset value not to exceed 0.60 to 1.00.
- Interest Coverage: Adjusted net operating income from unencumbered properties to interest expense on unsecured indebtedness not less than 2.00 to 1.00.
- Minimum EBITDA: Prior to the Revolving Facility Effective Date, minimum EBITDA from unencumbered properties must be at least $250.0 million.
Outlook, Risks, and Contingencies
Spin-off Contingency: Borrowings under the Revolving Facility are prohibited until the consummation of the Company's spin-off from Hilton Worldwide Holdings Inc. If this event does not occur within 135 days of the Closing Date, the Term Loan Facility becomes immediately due and payable, and Revolving Facility commitments terminate.
Duration Fees: If the spin-off is delayed beyond 45 or 90 days, the Borrower must pay duration fees of 0.05% or 0.10% respectively on the Term Loan principal.
Guarantee Triggers: If the Leverage Ratio exceeds 6.50 to 1.00 for two consecutive fiscal quarters, subsidiaries owning unencumbered assets over $5.0 million must become guarantors, and their equity interests must be pledged.
Restrictions: The agreement restricts the ability to incur liens, pay dividends, consummate mergers, or engage in affiliate transactions and asset sales.
Investor Verification Checklist
- Verify the timeline for the spin-off from Hilton Worldwide Holdings Inc. to ensure the 135-day deadline for Revolving Facility availability is met.
- Confirm the Company's current Leverage Ratio to assess the risk of triggering mandatory subsidiary guarantees and equity pledges.
- Review the specific definition of "unencumbered properties" used in the asset coverage and EBITDA covenants.
- Monitor the Company's credit rating status, as achieving investment grade would alter the pricing grid and fee structure.
- Assess the impact of the new debt service obligations on the Company's liquidity and ability to pay dividends under the new covenants.