RLJ amends covenant testing periods under revolver, term loans

By Marisa Wong

Los Angeles, Dec. 14 – RLJ Lodging Trust, as parent guarantor, and operating partnership RLJ Lodging Trust, LP, as borrower, entered into on Dec. 10 a second amendment to their third amended and restated credit agreement dated Dec. 18, 2019 with Wells Fargo Bank, NA as the administrative agent, according to an 8-K filing with the Securities and Exchange Commission.

The credit agreement provides for a $600 million unsecured revolver due May 18, 2024, a $400 million tranche A-1 unsecured term loan due Jan. 25, 2023 and a $400 million tranche A-2 unsecured term loan due May 18, 2025.

RLJ also entered into on Dec. 10 a ninth amendment to the term loan agreement dated Nov. 20, 2012 with Wells Fargo as administrative agent that provides for a $225 million unsecured term loan due Jan. 25, 2023.

The amendments extend by three fiscal quarters the suspension period for the testing of all financial maintenance covenants under the 2019 credit agreement and the 2012 term loan agreement so that no testing will be required through and including the fiscal quarter ending Dec. 31, 2021.

For periods following this covenant relief period, the amendments extend the period of less restrictive thresholds for the maximum ratio of net debt to EBITDA and minimum ratio of unencumbered adjusted NOI to unsecured interest expense as follows:

• Maximum leverage ratio of 8.50 to 1.00 for the first two fiscal quarters following the covenant relief period, 8.00 to 1.00 for the third and fourth fiscal quarters following the covenant relief period, 7.50 to 1.00 for the fifth fiscal quarter after the covenant relief period (this period, the “leverage relief period”); and

• Minimum unencumbered debt service coverage ratio of 1.65 to 1.00 for the first three fiscal quarters following the covenant relief period.

During the restriction period that runs until the date that financial statements are delivered for the fiscal quarter ending March 31, 2022, the amendments also provide for the following:

• A continuation of the requirement that the net cash proceeds from asset sales, equity issuances and incurrences of indebtedness, subject to various exceptions, be applied as a mandatory prepayment of some amounts outstanding under the 2019 credit agreement, the 2012 term loan agreement and some other pari passu debt, but with modifications that, among other things, allow equity and debt issuance proceeds to instead be applied to certain secured debt;

• A continuation of negative covenants limiting the ability of the company and its subsidiaries to incur additional indebtedness, make prepayments of other indebtedness, make dividends and distributions and stock repurchases, make capital expenditures, make investments, including acquisitions or mergers, in each case, subject to various exceptions; and

• A continuation of the requirement to pledge a minimum level of the equity interests in subsidiaries of the company that are subsidiary guarantors or otherwise directly or indirectly own unencumbered properties to secure on a pari passu basis the obligations owing in respect of the pari passu debt. The equity pledge requirement will continue following the restriction period until the leverage ratio is no greater than 6.50 to 1.00 for two consecutive fiscal quarters (the “covenant relief pledged collateral period”).

The amendments also extend the mandatory prepayment requirement applicable to dispositions of unencumbered properties through the end of the covenant relief pledged collateral period (in lieu of the end of the restriction period) and extend the requirement to maintain a minimum liquidity level of $125 million through the end of the leverage relief period (in lieu of the restriction period).

The restriction period, the covenant relief period and the leverage relief period may, at the operating partnership’s election, be terminated early if, among other things, RLJ is at that time able to comply with the financial covenants that apply immediately after the covenant relief period, the filing noted.

In addition, the amendments provide that, until the leverage ratio becomes less than or equal to 7.00 to 1.00, borrowings under the 2019 credit agreement and the term loan agreement will bear interest at Libor plus 250 basis points for the revolver and Libor plus 240 bps for the term loans. The existing 0.25% Libor floor remains in place.

As of the Dec. 10, the company had $400 million outstanding under the revolver, $400 million outstanding under the tranche A-1 term loan, $400 million outstanding under the tranche A-2 term loan and $225 million outstanding under the term loan due 2023.

Capital One loan amendment

On Dec. 10, RLJ also entered into an eighth amendment to the term loan agreement dated Dec. 22, 2014 with Capital One, NA as administrative agent, which provides for a $150 million term loan maturing Jan. 22, 2022.

This amendment, among other things, conforms affirmative, negative and financial covenants and other provisions contained in the 2014 term loan agreement with the terms and provisions of the amendments to the Wells Fargo 2019 credit agreement and 2012 term loan agreement.

Amounts under the 2014 term loan are guaranteed by RLJ Lodging and the subsidiary guarantors. Consistent with the terms of the Wells Fargo amendments, the 2014 term loan is secured by equity pledges on a pari passu basis with the Wells Fargo revolver and term loans during the covenant relief pledged collateral period.

RLJ Lodging is a Bethesda, Md.-based real estate investment trust focused on acquiring hotels.

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