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Debt | 9 Months Ended
--- | ---
Sep. 30, 2021
Debt Disclosure [Abstract] |
Debt | Debt The Company's debt consisted of the following (in thousands):
| September 30, 2021 |  | December 31, 2020
2029 Senior Notes, net | $ | 494,421 |  |  | $ | — |
2026 Senior Notes, net | 492,476 |  |  | — |
2025 Senior Notes, net | — |  |  | 495,759 |
Revolver | 200,000 |  |  | 400,000 |
Term Loans, net | 814,659 |  |  | 1,168,304 |
Mortgage loans, net | 379,718 |  |  | 523,668 |
Debt, net | $ | 2,381,274 |  |  | $ | 2,587,731 |
2029 Senior Notes In September 2021, the Operating Partnership issued an aggregate principal amount of $500.0 million of its 4.00% senior secured notes due 2029 (the "2029 Senior Notes") under an indenture, dated as of September 13, 2021, among the Operating Partnership, the Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. The 2029 Senior Notes will mature on September 15, 2029 and bear interest at a rate of 4.00% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2022. The Company used the net proceeds of the offering of the 2029 Senior Notes to redeem all of the outstanding 2025 Senior Notes (as defined below), as well as for any redemption premium, unpaid interest, costs and expenses related thereto. During the nine months ended September 30, 2021, the Company capitalized $5.6 million of deferred financing costs related to the issuance of the 2029 Senior Notes. The 2029 Senior Notes are fully and unconditionally guaranteed, jointly and severally, by the Company and certain of the Operating Partnership’s subsidiaries that incur and guarantee any indebtedness under the Company’s credit facilities, any additional first lien obligations or certain other bank indebtedness (each, a “Subsidiary Guarantor”). The 2029 Senior Notes are secured, subject to certain permitted liens, by a first priority security interest in all of the equity interests owned by the Operating Partnership and certain of the Subsidiary Guarantors (each, a “Secured Guarantor”) in certain of the other Subsidiary Guarantors (the “Collateral”), which Collateral also secures the obligations under the 2026 Senior Notes and the Company’s credit facilities on a first priority basis. The Collateral may be released in full prior to the maturity of the 2029 Senior Notes if the Operating Partnership and the Company achieve compliance with certain financial covenant requirements, after which the 2029 Senior Notes will be unsecured. At any time prior to September 15, 2024, the Operating Partnership may redeem the 2029 Senior Notes, in whole or in part, at a redemption price equal to 100.0% of the accrued principal amount thereof plus any unpaid interest earned through the redemption date plus a make-whole premium. At any time on or after September 15, 2024, the Operating Partnership may redeem the 2029 Senior Notes, in whole or in part, at a redemption price of (i) 102.0% of the principal amount should such redemption occur before September 1, 2025, (ii) 101.0% of the principal amount should redemption occur before September 15, 2026, and (iii) 100.0% of the principal amount should such redemption occur on or after September 15, 2026, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time prior to September 15, 2024, the Operating Partnership may redeem the 2029 Senior Notes with the net cash proceeds from any equity offering at a redemption price equal to 104.0% of the accrued principal amount thereof plus any unpaid interest, subject to certain conditions. The indenture governing the 2029 Senior Notes contains customary covenants that will limit the Operating Partnership’s ability and, in certain instances, the ability of its subsidiaries, to incur additional debt, create liens on assets, make distributions and pay dividends, make certain types of investments, issue guarantees of indebtedness, and make certain restricted payments. These limitations are subject to a number of exceptions and qualifications set forth in the indenture. A summary of the various restrictive covenants for the 2029 Senior Notes are as follows:
|  | Covenant |  | Compliance
Maintenance Covenant |  |  |  |
Unencumbered Asset to Unencumbered Debt Ratio |  | > 150.0% |  | Yes
Incurrence Covenants |  |  |  |
Consolidated Indebtedness less than Adjusted Total Assets |  | < .65x |  | Yes
Consolidated Secured Indebtedness less than Adjusted Total Assets |  | < .45x |  | Yes
Interest Coverage Ratio |  | > 1.5x |  | No
As of September 30, 2021, the Company was in compliance with all covenants associated with the 2029 Senior Notes except the interest coverage ratio. Failure to meet an incurrence covenant does not, in and of itself, constitute an event of default under the 2029 Senior Notes indenture. 2026 Senior Notes In June 2021, the Operating Partnership issued an aggregate principal amount of $500.0 million of its 3.75% senior secured notes due 2026 (the "2026 Senior Notes") under an indenture, dated as of June 17, 2021, among the Operating Partnership, the Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. The 2026 Senior Notes will mature on July 1, 2026 and bear interest at a rate of 3.75% per annum, payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2022. The Company used the net proceeds of the offering of the 2026 Senior Notes to partially repay indebtedness under the Company's Term Loans (as defined below) and secured mortgage indebtedness, as well as for any costs and expenses related thereto. During the nine months ended September 30, 2021, the Company capitalized $8.0 million of deferred financing costs related to the issuance of the 2026 Senior Notes. The 2026 Senior Notes are fully and unconditionally guaranteed, jointly and severally, by the Company and the Subsidiary Guarantors. The 2026 Senior Notes are secured, subject to certain permitted liens, by the Collateral, which Collateral also secures the obligations under the 2029 Senior Notes and the Company’s credit facilities on a first priority basis. The Collateral may be released in full prior to the maturity of the 2026 Senior Notes if the Operating Partnership and the Company achieve compliance with certain financial covenant requirements, after which the 2026 Senior Notes will be unsecured. At any time prior to July 1, 2023, the Operating Partnership may redeem the 2026 Senior Notes, in whole or in part, at a redemption price equal to 100.0% of the accrued principal amount thereof plus any unpaid interest earned through the redemption date plus a make-whole premium. At any time on or after July 1, 2023, the Operating Partnership may redeem the 2026 Senior Notes, in whole or in part, at a redemption price of (i) 101.875% of the principal amount should such redemption occur before July 1, 2024, (ii) 100.938% of the principal amount should redemption occur before July 1, 2025, and (iii) 100.0% of the principal amount should such redemption occur on or after July 1, 2025, in each case plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The indenture governing the 2026 Senior Notes contains customary covenants that will limit the Operating Partnership’s ability and, in certain instances, the ability of its subsidiaries, to incur additional debt, create liens on assets, make distributions and pay dividends, make certain types of investments, issue guarantees of indebtedness, and make certain restricted payments. These limitations are subject to a number of exceptions and qualifications set forth in the indenture. A summary of the various restrictive covenants for the 2026 Senior Notes are as follows:
|  | Covenant |  | Compliance
Maintenance Covenant |  |  |  |
Unencumbered Asset to Unencumbered Debt Ratio |  | > 150.0% |  | Yes
Incurrence Covenants |  |  |  |
Consolidated Indebtedness less than Adjusted Total Assets |  | < .65x |  | Yes
Consolidated Secured Indebtedness less than Adjusted Total Assets |  | < .45x |  | Yes
Interest Coverage Ratio |  | > 1.5x |  | No
As of September 30, 2021, the Company was in compliance with all covenants associated with the 2026 Senior Notes except the interest coverage ratio. Failure to meet an incurrence covenant does not, in and of itself, constitute an event of default under the 2026 Senior Notes indenture. 2025 Senior Notes The Company's $475.0 million senior notes due 2025 are referred to as the "2025 Senior Notes." The Company's 2025 Senior Notes consisted of the following (in thousands):
|  |  |  |  |  | Outstanding Borrowings at
|  | Interest Rate |  | Maturity Date |  | September 30, 2021 |  | December 31, 2020
2025 Senior Notes (1) (2) |  | 6.00% |  | June 2025 |  | $ | — |  |  | $ | 495,759 |
(1)In September 2021, the Company redeemed the 2025 Senior Notes and paid a redemption premium of $9.5 million using the net proceeds from the issuance of the 2029 Senior Notes. The redemption premium is included in the gain on extinguishment of indebtedness, net, in the accompany consolidated statements of operations and comprehensive loss. (2)The 2025 Senior Notes included $20.9 million at December 31, 2020 related to acquisition related fair value adjustments on the 2025 Senior Notes. As of the date of redemption of the 2025 Senior Notes, the carrying value of the acquisition related fair value adjustment was $17.7 million. As a result of the redemption, this amount was written off and is included in the gain on extinguishment of indebtedness, net, in the accompany consolidated statements of operations and comprehensive loss. Revolver and Term Loans The Company has the following credit agreements in place: •$600.0 million revolving credit facility with a scheduled maturity date of May 18, 2024 and a one year extension option if certain conditions are satisfied (the "Revolver"); •$400.0 million term loan with a scheduled maturity date of January 25, 2023 (the "$400 Million Term Loan Maturing 2023"); •$225.0 million term loan with a scheduled maturity date of January 25, 2023 (the "$225 Million Term Loan Maturing 2023"); and •$150.0 million term loan with a scheduled maturity date of June 10, 2023 (the "$150 Million Term Loan Maturing 2023"); and •$400.0 million term loan with a scheduled maturity date of May 18, 2025 (the "$400 Million Term Loan Maturing 2025"). The $400 Million Term Loan Maturing 2023, the $225 Million Term Loan Maturing 2023, $150 Million Term Loan Maturing 2023, and the $400 Million Term Loan Maturing 2025 are collectively the "Term Loans." The Company's credit agreements consisted of the following (in thousands):
|  |  |  |  |  | Outstanding Borrowings at
|  | Interest Rate at September 30, 2021 (1) |  | Maturity Date |  | September 30, 2021 |  | December 31, 2020
Revolver (2) |  | 3.53% |  | May 2024 |  | $ | 200,000 |  |  | $ | 400,000 |
$400 Million Term Loan Maturing 2023 (3) |  | 4.73% |  | January 2023 (7) |  | 203,944 |  |  | 400,000 |
$225 Million Term Loan Maturing 2023 (4) |  | 4.72% |  | January 2023 (8) |  | 114,718 |  |  | 225,000 |
$150 Million Term Loan Maturing 2023 (5) |  | 4.18% |  | June 2023 |  | 100,000 |  |  | 150,000 |
$400 Million Term Loan Maturing 2025 |  | 4.45% |  | May 2025 |  | 400,000 |  |  | 400,000 |
|  |  |  |  |  | 1,018,662 |  |  | 1,575,000 |
Deferred financing costs, net (6) |  |  |  |  |  | (4,003) |  |  | (6,696) |
Total Revolver and Term Loans, net |  |  |  |  |  | $ | 1,014,659 |  |  | $ | 1,568,304 |
(1)Interest rate at September 30, 2021 gives effect to interest rate hedges. (2)At September 30, 2021 and December 31, 2020, there was $400.0 million and $200.0 million of remaining capacity on the Revolver, respectively. The Company also has the ability to extend the maturity date for an additional one year period ending May 2025 if certain conditions are satisfied. (3)The Company utilized $196.1 million of the proceeds from the issuance of the 2026 Senior Notes to reduce the outstanding principal balance of this term loan. (4)The Company utilized $110.3 million of the proceeds from the issuance of the 2026 Senior Notes to reduce the outstanding principal balance of this term loan. (5)Pursuant to the terms under the Company's credit agreements, the Company utilized $20.8 million of the proceeds from hotel dispositions and $29.2 million of the proceeds from the issuance of the 2026 Senior Notes to reduce the outstanding principal balance of this term loan. In addition, the Company has the option to extend the maturity one additional year to June 2024. (6)Excludes $3.2 million and $4.1 million as of September 30, 2021 and December 31, 2020, respectively, related to deferred financing costs on the Revolver, which are included in prepaid expense and other assets in the accompanying consolidated balance sheets. (7)In September 2021, the Company amended this term loan to include a one-year extension option for approximately $151.7 million of the principal balance. The exercise of the one-year extension option will be at the Company's discretion, subject to certain conditions. (8)In September 2021, the Company amended this term loan to include a one-year extension option for approximately $73.0 million of the principal balance. The exercise of the one-year extension option will be at the Company's discretion, subject to certain conditions. The Revolver and Term Loans are subject to various financial covenants. A summary of the most restrictive covenants is as follows:
|  | Covenant |  | Compliance
Leverage ratio (1) |  | <= 7.00x |  | N/A (3)
Fixed charge coverage ratio (2) |  | >= 1.50x |  | N/A (3)
Secured indebtedness ratio |  | <= 45.0% |  | N/A (3)
Unencumbered indebtedness ratio |  | <= 60.0% |  | N/A (3)
Unencumbered debt service coverage ratio |  | >= 2.00x |  | N/A (3)
Maintain minimum liquidity level |  | >= $150.0 million |  | Yes
(1)Leverage ratio is net indebtedness, as defined in the Revolver and Term Loan agreements, to corporate earnings before interest, taxes, depreciation, and amortization ("EBITDA"), as defined in the Revolver and Term Loan agreements. (2)Fixed charge coverage ratio is Adjusted EBITDA, generally defined in the Revolver and Term Loan agreements as EBITDA less furniture, fixtures and equipment ("FF&E") reserves, to fixed charges, which is generally defined in the Revolver and Term Loan agreements as interest expense, all regularly scheduled principal payments, preferred dividends paid, and cash taxes paid. (3)The Company is not currently required to comply with these covenants, see details below. In June and September 2021, the Company amended its Revolver and Term Loans. The June 2021 amendments extend by one fiscal quarter the suspension of testing of all existing financial maintenance covenants under the Revolver and the Term Loan agreements for all periods through and including the fiscal quarter ending March 31, 2022 (the “Covenant Relief Period”). In addition, for periods following the Covenant Relief Period, the amendments modify certain covenant thresholds. In addition, as part of the Revolver and Term Loans amendment in June 2021, the Company amended the $150 Million Term Loan Maturing 2023 to extend the maturity for $100.0 million of the original principal balance from January 2022 to June 2023 with an option to extend the maturity by one year to June 2024. The applicable margin on the interest rate will be 3.0% for LIBOR loans and 2.0% for base rate loans until the end of the Leverage Relief Period, as defined in the existing credit agreement. After the end of the leverage relief period, the applicable margin will revert to the original leverage- or ratings-based pricing. As part of the Revolver and Term Loans amendment in September 2021, the Company amended the $400 Million Term Loan Maturing 2023 and $225 Million Term Loan Maturing 2023 to include a one-year extension option for approximately $151.7 million and $73.0 million, respectively, of the principal balance. The exercise of the one-year extension option will be at the Company's discretion, subject to certain conditions. In addition, this amendment increased the limits for acquisitions, with the current limits further discussed below. Through the date that the financial statements are delivered for the quarter ending June 30, 2022 (the "Restriction Period"), the Company is subject to various restrictions including, but not limited to, the requirement to pledge the equity interests in certain subsidiaries that own unencumbered properties to secure the Revolver and Term Loans, asset sales, equity issuances and incurrences of indebtedness will, subject to various exceptions, continue to be required to be applied as a mandatory prepayment of certain amounts outstanding under the Revolver and the Term Loans. In addition, the restrictions limit the ability of the Company and its subsidiaries to incur additional indebtedness and make prepayments of indebtedness, increase dividends and distributions, make capital expenditures over $150.0 million in each of the 2021 and 2022 calendar years through the last day of the Restriction Period, and make investments, including certain acquisitions over $450.0 million or $300.0 million, dependent upon the outstanding balance of the Company's Revolver. All of these limitations are subject to various exceptions. The Company is also required to maintain minimum liquidity, as defined in the amendments, of $150.0 million until certain leverage thresholds are met. At the Company's election, the Restriction Period and the Covenant Relief Period may be terminated early if the Company is at such time able to comply with the applicable financial covenants. If the Company assesses that it is unlikely to meet the financial covenant thresholds for periods following the Covenant Relief Period, then the Company will seek an extension of the Covenant Relief Period. Mortgage Loans The Company's mortgage loans consisted of the following (in thousands):
|  |  |  |  |  |  |  |  | Outstanding Borrowings at
|  | Number of Assets Encumbered |  | Interest Rate at September 30, 2021 (1) |  | Maturity Date |  | September 30, 2021 |  | December 31, 2020
Mortgage loan (2) |  | 7 |  | 3.30 | % |  |  | April 2022 | (6) | $ | 200,000 |  |  | $ | 200,000 |
Mortgage loan (2) |  | 3 |  | 2.53 | % |  |  | April 2024 | (6) | 96,000 |  |  | 96,000 |
Mortgage loan (2) |  | 4 |  | 2.84 | % |  |  | April 2024 | (6) | 85,000 |  |  | 85,000 |
Mortgage loan (3) |  | 1 |  | — |  |  |  | June 2022 | (7) | — |  |  | 30,332 |
Mortgage loan (4) |  | 3 |  | — |  |  |  | October 2022 | (7) | — |  |  | 86,775 |
Mortgage loan (5) |  | 1 |  | — |  |  |  | October 2022 | (8) | — |  |  | 27,972 |
|  | 19 |  |  |  |  |  |  | 381,000 |  |  | 526,079 |
Deferred financing costs, net |  |  |  |  |  |  |  |  | (1,282) |  |  | (2,411) |
Total mortgage loans, net |  |  |  |  |  |  |  |  | $ | 379,718 |  |  | $ | 523,668 |
(1)Interest rate at September 30, 2021 gives effect to interest rate hedges. (2)The hotels encumbered by the mortgage loan are cross-collateralized. Requires payments of interest only through maturity. (3)Includes $0.3 million at December 31, 2020 related to a fair value adjustment on a mortgage loan. (4)Includes $0.9 million at December 31, 2020 related to fair value adjustments on the mortgage loans. (5)Includes $0.3 million at December 31, 2020 related to a fair value adjustment on the mortgage loan. (6)The mortgage loan provides two one year extension options. (7)In June 2021, the Company paid off the mortgage loan(s) in full and paid approximately $5.7 million in prepayment premiums using the proceeds from the issuance of the 2026 Senior Notes. (8)In July 2021, the Company paid off the mortgage loan in full and paid approximately a $1.3 million prepayment premium using the proceeds from the issuance of the 2026 Senior Notes. Certain mortgage agreements are subject to various maintenance covenants requiring the Company to maintain a minimum debt yield or debt service coverage ratio ("DSCR"). Failure to meet the debt yield or DSCR thresholds is not an event of default, but instead triggers a cash trap event. During the cash trap event, the lender or servicer of the mortgage loan controls cash outflows until the loan is covenant compliant. In addition certain mortgage loans have other requirements including continued operation and maintenance of the hotel property. At September 30, 2021, all three mortgage loans were below the DSCR threshold and were in cash trap events. At September 30, 2021, there was approximately $12.4 million of restricted cash held by lenders due to cash trap events. Interest Expense The components of the Company's interest expense consisted of the following (in thousands):
| For the three months ended September 30, |  | For the nine months ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Senior Notes | $ | 11,747 |  |  | $ | 5,942 |  |  | $ | 24,374 |  |  | $ | 17,825 |
Revolver and Term Loans | 11,079 |  |  | 15,730 |  |  | 42,281 |  |  | 39,087 |
Mortgage loans | 2,580 |  |  | 4,368 |  |  | 10,328 |  |  | 13,483 |
Amortization of deferred financing costs | 1,527 |  |  | 1,147 |  |  | 4,211 |  |  | 3,214 |
Undesignated interest rate swaps | — |  |  | (1,203) |  |  | — |  |  | (18) |
Total interest expense | $ | 26,933 |  |  | $ | 25,984 |  |  | $ | 81,194 |  |  | $ | 73,591 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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