Business Context and Reporting Period
Company: RLJ Lodging Trust
Filing Type: Form 8-K (Current Report)
Date of Report: April 22, 2016
Event: Entry into Material Definitive Agreements regarding debt facilities.
Key Financial Metrics and Debt Structure
As of April 22, 2016, the Company amended its credit facilities with Wells Fargo Bank, National Association. The outstanding debt positions are as follows:
- Revolver: Capacity increased from $300 million to $400 million. Outstanding borrowings: $11 million. Maturity extended to April 22, 2020 (with one-year extension option).
- Tranche A-1 Term Loan: $400 million outstanding. Maturity: March 20, 2019.
- Tranche A-2 Term Loan: $400 million outstanding. Maturity extended to April 22, 2021.
- Seven Year Term Loan: $225 million outstanding. Maturity: November 20, 2019.
- Total Unsecured Debt Outstanding: $1,011 million ($11m Revolver + $400m Tranche A-1 + $400m Tranche A-2 + $225m Seven Year Term).
Interest Rates (Pre-Investment Grade):
- Revolver: LIBOR + 150 to 225 bps.
- Tranche A-1: LIBOR + 155 to 230 bps.
- Tranche A-2: LIBOR + 145 to 220 bps.
- Seven Year Term Loan: LIBOR + 205 to 300 bps.
Material Changes Versus Prior Period
- Revolver Capacity: Increased by $100 million (from $300 million to $400 million).
- Maturity Extensions: Revolver maturity extended to 2020; Tranche A-2 Term Loan maturity extended to 2021.
- Expansion Options: Added option to increase Revolver and Term Loan commitments to $600 million each, subject to lender commitments.
- Covenant Adjustments: Financial covenants were updated to align with the new credit structure.
Guidance, Risks, and Covenants
Financial Covenants: The Amended Credit Agreement requires compliance with the following ratios:
- Maximum Leverage Ratio: Total debt (net of unrestricted cash over $25 million) to EBITDA not to exceed 6.5 to 1.0.
- Fixed Charge Coverage: Adjusted EBITDA to fixed charges not less than 1.5 to 1.0.
- Secured Indebtedness: Ratio to total asset value not to exceed 45%.
- Unsecured Indebtedness: Ratio to Unencumbered Asset Value not to exceed 60%.
- Tangible Net Worth: Not less than approximately $2.03 billion (plus 75% of net equity proceeds after Jan 1, 2016).
Investment Grade Pricing: If the Company achieves an investment-grade credit rating, interest margins will decrease significantly (e.g., Revolver LIBOR margin drops to 87.5–155 bps), and subsidiary guarantors may be released.
Risks: Failure to meet covenants or events of default could allow lenders to accelerate all amounts outstanding. Interest rates are variable and tied to leverage ratios.
Investor Verification Checklist
- Verify the current "Unencumbered Asset Value" to ensure the 60% unsecured indebtedness covenant is met.
- Confirm the Company's current leverage ratio to ensure it remains below the 6.5x threshold.
- Review the specific conditions required to exercise the $600 million expansion option.
- Monitor credit rating agency actions to determine eligibility for Investment Grade Pricing Election.
- Check the status of the $25 million unrestricted cash threshold used in leverage calculations.