Xenia Hotels & Resorts, Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated June 30, 2020, details a material definitive agreement entered into by Xenia Hotels & Resorts, Inc. (the "Company") and its wholly owned subsidiary, XHR LP (the "Borrower"). The filing addresses amendments to the Company's existing credit facilities, including a revolving credit facility and multiple term loan agreements, necessitated by the need to waive certain financial covenant defaults and adjust terms during the ongoing economic disruption.
Key Financial Metrics and Debt Structure
- Debt Facilities: The amendments cover a $500 million revolving credit facility and four separate term loan facilities.
- Outstanding Borrowings: As of June 30, 2020, the full $500 million commitment under the Revolving Credit Agreement was outstanding.
- Interest Rates: The 2021 Term Loan interest rate is set to a base rate plus 1.25% or a Eurodollar rate plus 2.25% (with a 0.50% floor). Other credit agreements during the waiver period are set to the highest grid-based pricing level with a 0.25% Eurodollar floor.
- Liquidity: A new minimum liquidity covenant applies during the waiver period and for two fiscal quarters thereafter.
- Collateral: Obligations are now secured by a first priority security interest in the capital stock of a material portion of the Borrower's subsidiaries ("Pledged Entities").
Material Changes Versus Prior Period
The primary material change is the restructuring of debt covenants and terms to address non-compliance with the unsecured interest coverage ratio for the fiscal quarter ending March 31, 2020. Key changes include:
- Covenant Waivers: The Company received a waiver for the March 31, 2020, default. Testing of the leverage ratio, fixed charge coverage ratio, and unsecured interest coverage ratio is suspended through the fiscal quarter ending March 31, 2021.
- Maturity Extension: The maturity date of the 2021 Term Loan Agreement was extended by one year to February 15, 2022.
- Increased Costs: The Company expects its weighted average interest rate to increase in the third quarter of 2020 due to the amendments.
- New Restrictions: New negative covenants restrict acquisitions, investments, capital expenditures, and ground leases during the waiver period. Mandatory prepayment requirements have also been added.
Outlook, Risks, and Management Commentary
Management has structured a phased return to pre-amendment covenant levels by mid-2022. The amendments include a "Covenant Waiver Period" during which the Company must demonstrate compliance with financial covenants for two consecutive fiscal quarters at pre-amendment levels before the security interests in the Pledged Entities are released. The filing notes that the amendments were necessary to provide flexibility during the current economic environment but result in higher borrowing costs and stricter operational restrictions.
Key Facts for Investor Verification
- Verify the specific terms of the "Covenant Waiver Period" and the exact metrics required to exit the waiver status.
- Confirm the impact of the increased interest rates on the Company's projected interest expense for the remainder of 2020 and 2021.
- Review the scope of the "Pledged Entities" to understand which subsidiaries are now subject to the first priority security interest.
- Monitor the Company's ability to meet the new minimum liquidity covenant requirements.
- Assess the impact of the new negative covenants on the Company's ability to execute capital expenditures or strategic acquisitions.