Business Context and Reporting Period
This Form 8-K was filed by Wyndham Worldwide Corporation on April 13, 2018. The filing reports on a material definitive agreement entered into by its wholly-owned subsidiary, Wyndham Hotels & Resorts, Inc. The transaction occurs in the context of a planned spin-off of Wyndham Hotels & Resorts, Inc. into an independent, publicly traded company and a concurrent acquisition of La Quinta Holdings, Inc.'s franchising and management businesses.
Key Financial Metrics and Capital Structure
- Debt Issuance: Wyndham Hotels & Resorts, Inc. issued $500 million aggregate principal amount of 5.375% senior unsecured notes due 2026.
- Interest Terms: Notes bear interest at 5.375% per year, payable semi-annually in arrears starting October 15, 2018.
- Maturity: The notes mature on April 15, 2026.
- Bridge Financing: The issuance replaced a portion of a $2.0 billion 364-day senior unsecured bridge term loan facility, reducing outstanding bridge commitments to approximately $1.5 billion.
- Additional Credit Facilities: In connection with the La Quinta acquisition, the company arranged for a $1,600 million senior secured term loan B and a $750 million senior secured revolving credit facility.
- Use of Proceeds: Proceeds are intended to finance the cash consideration for the La Quinta acquisition, pay related fees, and fund general corporate purposes.
Material Changes and Transaction Details
The primary material change is the entry into a new long-term debt instrument to refinance short-term bridge financing and fund a major acquisition. The notes are initially guaranteed by Wyndham Worldwide Corporation on a senior unsecured basis. This guarantee will be released immediately prior to the consummation of the spin-off. Subsequently, the notes will be guaranteed jointly and severally by certain wholly-owned domestic subsidiaries of Wyndham Hotels & Resorts, Inc.
The notes rank equally with existing and future senior indebtedness but are effectively subordinated to secured indebtedness (including the new Credit Facilities) and structurally subordinated to the indebtedness of non-guarantor subsidiaries.
Guidance, Risks, and Unusual Items
- Redemption Provisions: The company may redeem notes prior to April 15, 2021, at a "make-whole" price or up to 40% at 105.375% using equity offering proceeds. Post-2021 redemption prices decline from 102.688% in 2021 to 100.000% in 2023 and thereafter.
- Mandatory Redemption Risk: If the La Quinta acquisition is not consummated by July 17, 2018 (subject to extension), the notes are subject to a special mandatory redemption at 100% of principal plus accrued interest.
- Change of Control: A Change of Control Triggering Event requires the company to offer to repurchase the notes at 101% of principal plus accrued interest.
- Covenants: The Indenture limits the ability to create liens, enter into sale-leaseback transactions, and merge or sell substantially all assets, subject to exceptions.
- Events of Default: Includes failure to pay principal/interest, covenant breaches, acceleration of other indebtedness of at least $75 million, or final judgments of $75 million or more.
Investor Verification Checklist
- Verify the closing date and final terms of the La Quinta Holdings acquisition to assess the mandatory redemption trigger date.
- Confirm the timeline for the spin-off of Wyndham Hotels & Resorts, Inc. to understand when the parent company guarantee is released.
- Review the final status of the $1.5 billion remaining bridge term loan facility and its replacement by the Credit Facilities.
- Examine the specific subsidiaries designated as "Subsidiary Guarantors" post-spin-off to assess the scope of the guarantee.
- Monitor the company's liquidity position given the significant new debt load and the timing of interest payments commencing October 2018.