Business Context and Reporting Period
CareTrust REIT, Inc. filed this Form 8-K on February 8, 2019, to report the entry into a material definitive agreement. The filing details an amended and restated credit and guaranty agreement entered into by CTR Partnership, L.P. (the Operating Partnership) and CareTrust REIT, Inc. with KeyBank National Association and other lenders.
Key Financial Metrics and Debt Structure
The new Credit Facility consists of two primary components:
- Revolving Credit Facility: $600.0 million aggregate principal amount, including a letter of credit subfacility (10% of available commitments) and a swingline loan subfacility (10% of available commitments). As of February 8, 2019, there were no outstanding borrowings under this facility.
- Term Loan Facility: $200.0 million aggregate principal amount. Proceeds were used to repay all outstanding borrowings under the prior credit agreement.
Interest Rates and Fees:
- Revolving Facility: Base rate + 0.10% to 0.55% or LIBOR + 1.10% to 1.55%. Facility fee ranges from 0.15% to 0.35% (or 0.125% to 0.30% if investment grade ratings are obtained).
- Term Loan Facility: Base rate + 0.50% to 1.20% or LIBOR + 1.50% to 2.20%.
- Pricing Basis: Margins are based on the debt to asset value ratio, subject to reduction upon obtaining specified investment grade ratings.
Maturity Dates:
- Revolving Credit Facility: February 8, 2023 (includes two six-month extension options).
- Term Loan Facility: February 8, 2026.
Material Changes Versus Prior Period
The new agreement amends and restates the Prior Credit Agreement dated August 5, 2015. The primary material changes include:
- Increased Capacity: The new facility provides a total of $800.0 million in commitments ($600.0 million revolving + $200.0 million term), replacing the prior facility.
- Refinancing: The Term Loan proceeds fully repaid outstanding borrowings under the prior term loan and revolving credit facility.
- Extension Options: The Revolving Credit Facility now includes two six-month extension options, which were not explicitly detailed in the summary of the prior agreement.
- Prepayment Terms: The Term Loan Facility includes a 2% prepayment premium in the first year and a 1% premium in the second year after issuance.
Guidance, Outlook, and Covenants
Use of Proceeds: The Company expects to use borrowings for working capital, capital expenditures, acquisitions, and general corporate purposes.
Expansion Capacity: Subject to customary conditions and pro forma compliance with financial maintenance covenants, the Operating Partnership may increase revolving commitments and/or establish new term loan tranches up to an additional $500.0 million. No commitments for such increases currently exist.
Financial Maintenance Covenants: The agreement requires quarterly compliance with the following:
- Maximum debt to asset value ratio.
- Minimum fixed charge coverage ratio.
- Minimum tangible net worth.
- Maximum cash distributions to operating income ratio.
- Maximum secured debt to asset value ratio.
- Maximum secured recourse debt to asset value ratio.
- Maximum unsecured debt to unencumbered properties asset value ratio.
- Minimum unsecured interest coverage ratio.
- Minimum rent coverage ratio.
Risks and Contingencies: The agreement contains customary events of default, including failure to make timely payments, failure to satisfy covenants, change of control, and bankruptcy/insolvency events. The filing does not provide specific values for current covenant compliance ratios.
Investor Verification Checklist
- Verify the current debt to asset value ratio to determine the applicable interest rate margin and facility fee.
- Confirm the Company's current status regarding investment grade ratings to assess potential for reduced pricing.
- Review the specific definitions of "asset value" and "tangible net worth" in the full Credit Agreement (Exhibit 10.1) to understand covenant headroom.
- Monitor the utilization of the $600.0 million revolving facility, as it was at zero balance as of the filing date.
- Assess the impact of the 2% and 1% prepayment premiums on the Term Loan Facility if early refinancing is considered.