Indebtedness, net

12 Months Ended

Dec. 31, 2021

Indebtedness consisted of the following (in thousands):


					December 31, 2021				December 31, 2020
Indebtedness	Collateral	Maturity	Interest Rate (1)	Default Rate (2)	Debt Balance		Book Value of Collateral		Debt Balance		Book Value of Collateral
Mortgage loan (4)	1 hotel	November 2021	6.26%	n/a	$	—	$	—	$	84,544	$	101,521
Mortgage loan (5)	8 hotels	February 2022	LIBOR(3) + 3.07%	n/a	395,000		294,382		395,000		311,023
Mortgage loan (6)	2 hotels	March 2022	LIBOR(3) + 2.75%	n/a	240,000		212,889		240,000		224,022
Mortgage loan (7)	19 hotels	April 2022	LIBOR(3) + 3.20%	n/a	910,694		968,078		914,281		1,020,462
Mortgage loan (8)	7 hotels	June 2022	LIBOR(3) + 3.65%	n/a	180,720		122,346		180,720		125,266
Mortgage loan (8)	7 hotels	June 2022	LIBOR(3) + 3.39%	n/a	174,400		120,065		174,400		124,613
Mortgage loan (8)	5 hotels	June 2022	LIBOR(3) + 3.73%	n/a	221,040		152,371		221,040		163,550
Mortgage loan (8)	5 hotels	June 2022	LIBOR(3) + 4.02%	n/a	262,640		84,690		262,640		94,111
Mortgage loan (8)	5 hotels	June 2022	LIBOR(3) + 2.73%	n/a	160,000		171,440		160,000		178,377
Mortgage loan (8)	5 hotels	June 2022	LIBOR(3) + 3.68%	n/a	215,120		174,749		215,120		190,650
Mortgage loan (9)	1 hotel	July 2022	LIBOR(3) + 3.95%	n/a	33,200		36,116		34,200		38,549
Mortgage loan (10) (11)	1 hotel	November 2022	LIBOR(3) + 2.00%	n/a	—		—		98,259		180,312
Mortgage loan (12)	17 hotels	November 2022	LIBOR(3) + 3.00%	n/a	419,000		226,178		419,000		238,886
Mortgage loan (13)	1 hotel	November 2022	LIBOR(3) + 2.70%	n/a	25,000		46,833		25,000		48,231
Mortgage loan (14)	1 hotel	December 2022	LIBOR(3) + 2.25%	n/a	16,100		24,519		16,100		26,046
Mortgage loan (15)	1 hotel	January 2023	LIBOR(3) + 3.40%	n/a	37,000		54,837		37,000		56,784
Mortgage loan	1 hotel	June 2023	LIBOR(3)+ 2.45%	n/a	73,450		102,317		73,450		105,359
Mortgage loan	1 hotel	January 2024	5.49%	n/a	6,492		6,943		6,706		7,456
Mortgage loan	1 hotel	January 2024	5.49%	n/a	9,474		15,196		9,786		17,172
Term loan (16) (17) (18)	Equity	January 2024	16.00%	n/a	200,000		—		—		—
Mortgage loan (19)	1 hotel	May 2024	4.99%	n/a	6,150		6,156		6,260		6,494
Mortgage loan	1 hotel	June 2024	LIBOR(3) + 2.00%	n/a	8,881		6,968		8,881		6,980
Mortgage loan	2 hotels	August 2024	4.85%	n/a	11,427		9,326		11,774		10,466
Mortgage loan	3 hotels	August 2024	4.90%	n/a	22,853		14,347		23,542		15,805
Mortgage loan (4)	1 hotel	November 2024	LIBOR(3) + 4.65%	n/a	84,000		93,848		—		—
Mortgage loan (20)	3 hotels	February 2025	4.45%	4.00%	50,098		59,578		50,098		64,816
Mortgage loan (21)	2 hotels	February 2025	4.45%	n/a	—		—		19,369		9,859
Mortgage loan	1 hotel	March 2025	4.66%	n/a	23,883		42,915		24,415		42,778
Mortgage loan (11)	1 hotel	August 2025	LIBOR(3) + 3.80%	n/a	98,000		174,743		—		—
					3,884,622		$	3,221,830	3,711,585		$	3,409,588
Premiums (discounts), net					(32,777)				(288)
Capitalized default interest and late charges					23,511				27,444
Deferred loan costs, net					(15,440)				(9,830)
Embedded debt derivative					27,906				—
Indebtedness, net					$	3,887,822			$	3,728,911

_____________________________

(1) Interest rates do not include default or late payment rates in effect on some mortgage loans.

(2) Default rates are presented for mortgage loans which were in default, in accordance with the terms and conditions of the applicable mortgage agreement, as of December 31, 2021. The default rate is accrued in addition to the stated interest rate.

(3) LIBOR rates were 0.101% and 0.144% at December 31, 2021 and December 31, 2020, respectively.

(4) Effective November 1, 2021, we refinanced this mortgage loan totaling $78.4 million with a new $84.0 million loan with $2.0 million of future additional funding available. The new mortgage loan has a three-year initial term and has two one-year extension option, subject to the satisfaction of certain conditions. The new mortgage loan is interest only and bears interest at a rate of LIBOR + 4.65%. This mortgage loan has a LIBOR floor of 0.10%.

(5) Effective January 19, 2021, we executed a loan modification and reinstatement agreement for this mortgage loan. In connection with the agreement, monthly FF&E escrow deposits were waived from April 2020 through December 2020, and monthly tax escrow deposits were waived from April 2020 through June 2020. This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period began in February 2022.

(6) Effective April 1, 2021, we amended this mortgage loan. Terms of the agreement included monthly FF&E escrow deposits being waived through December 31, 2021. This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The second one-year extension period will begin in March 2022.

(7) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The second one-year extension period began in April 2021.

(8) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The second one-year extension period began in June 2021.

(9) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. This mortgage loan has a LIBOR floor of 0.25%.

(10) Effective March 5, 2021, we amended this mortgage loan. Terms of the agreement included monthly FF&E escrow deposits being waived through July 1, 2021.

(11) On August 25, 2021, we refinanced this mortgage loan totaling $97.4 million with a new $98.0 million mortgage loan with a four-year initial term and one, one-year extension option, subject to the satisfaction of certain conditions. The new mortgage loan is interest only and bears interest at a rate of LIBOR + 3.80%.

(12) Effective February 9, 2021, we executed an agreement regarding existing default and extension options for this mortgage loan. In connection with the agreement, monthly FF&E escrow deposits were waived through December 2021. This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period began in November 2021.

(13) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The second one-year extension option began in November 2021. This mortgage loan has a LIBOR floor of 1.25%.

(14) This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions. This mortgage loan has a LIBOR floor of 0.25%.

(15) This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions.

(16) Effective January 15, 2021, we entered into a term loan agreement with an initial draw of $200 million and a total commitment of $450 million. During the initial two year term, interest may be paid-in-kind by capitalizing the accrued amount. The initial draw of this term loan is interest only and bears interest at a fixed rate of 16.0% for the first two years and 14.0% thereafter. This term loan has a three-year initial term and two one-year extension options, subject to satisfaction of certain conditions.

(17) On October 12, 2021, we amended this term loan agreement. Terms of the amendment included (i) extending the maturity date of the $250 million of additional commitment by one year, (ii) suspending certain covenants during the additional commitment period, (iii) suspending the subordinate advisory fees as long as interest and preferred dividends are paid current, (iv) allowing the lender to elect and receive the exit fee warrants at any time, and (v) if the exit fee warrants are sold at a per share common stock price in excess of $40, then 25% of the excess shall reduce the principal owed.

(18) On November 23, 2021, we repaid $23.4 million of principal associated with paid-in-kind interest that had been capitalized into the principal balance of this term loan.

(19) On December 31, 2021, we executed a forbearance agreement for this mortgage loan. Terms of the agreement included a partial deferral of principal and interest payments from April 2020 through April 2021. Deferred principal and interest are to be repaid in monthly installments from January 2022 through June 2023. Monthly FF&E escrow deposits were waived from April 2020 through April 2021.

(20) As of December 31, 2021, this mortgage loan was in default under the terms and conditions of the mortgage loan agreement. Default interest has been accrued, in accordance with the terms of the mortgage loan agreement, and is reflected in the Company’s consolidated balance sheets and statements of operations.

(21) Effective April 29, 2021, we disposed of the properties securing this mortgage loan. The assets and liabilities associated with this mortgage loan were removed from the Company's consolidated balance sheet.

We recognized net premium (discount) amortization as presented in the table below (in thousands):


	Year Ended December 31,
Line Item		2021		2020		2019
Interest expense, net of discount amortization		$	(7,142)	$	154	$	232

The amortization of the net premium (discount) is computed using a method that approximates the effective interest method, which is included in “interest expense and amortization of discounts and loan costs” in the consolidated statements of operations.

Beginning on April 1, 2020, we did not make principal or interest payments under nearly all of our loans, which constituted an “Event of Default” as such term is defined under the applicable loan documents. Pursuant to the terms of the applicable loan documents, such an Event of Default caused an automatic increase in the interest rate on our outstanding loan balance for the period such Event of Default remains outstanding.

In the aggregate, we have entered into forbearance and other agreements with varying terms and conditions that conditionally waive or defer payment defaults for loans with a total outstanding principal balance of approximately $3.6 billion out of approximately $3.7 billion in property level debt outstanding as of December 31, 2021. See footnotes in the table above for general terms of the agreements. See note 16 for a discussion of the loan modification agreement with Lismore Capital LLC. The Company continues to have discussions with one of its lenders about a potential loan modification on its property level debt.

On May 12, 2020, the lender who held the mortgage note secured by the Embassy Suites New York Manhattan Times Square ($108.8 million mortgage loan and $36.2 million in mezzanine loans) sent the Company an acceleration notice which accelerated all payments due under the applicable loan documents. To remedy the acceleration notice, on August 19. 2020 the Company sold the Embassy Suites New York Manhattan Times Square for approximately $143.9 million of consideration, which consisted of $35.1 million in cash and $108.8 million in the form of the assumption of the mortgage loan. The sale resulted in a loss of approximately $40.4 million for the year ended December 31, 2020, which was included in “gain (loss) on disposition of assets and hotel properties” in the consolidated statements of operations. Upon the loan assumption by the buyer, accrued interest was forgiven by the lender and the $35.1 million of proceeds were used to extinguish the $36.2 million of mezzanine loans, which resulted in a gain of $4.3 million which was included in “gain (loss) on extinguishment of debt” in the consolidated statement of operations.

On June 22, 2020, the lender for the W Hotel in Minneapolis, Minnesota ($45.8 million mortgage loan and a $5.8 million mezzanine loan) sent the Company a notice of UCC sale, which provided that the respective lender would sell the subsidiaries of the Company that own the respective hotel in a public auction. On September 15, 2020, the Company completed a consensual assignment of 100% of the equity interests in the owner of the W Hotel, which resulted in a gain on extinguishment of debt of approximately $1.1 million for the year ended December 31, 2020, which was included in “gain (loss) on extinguishment of debt” in the consolidated statements of operations.

On July 9, 2020, the mortgage, senior mezzanine and junior mezzanine loans with an aggregate principal balance of $144.2 million, secured by the Rockbridge Portfolio, matured and the Company failed to repay the loans on such maturity date. On August 19, 2020, the Company completed a consensual assignment of the entities that own the Rockbridge Portfolio in lieu of a UCC sale, which resulted in a gain on extinguishment of debt of approximately $65.2 million for the year ended December 31, 202, which was included in “gain (loss) on extinguishment of debt” in the consolidated statement of operations.

On July 23, 2020, the lender for MS C1 ($56.0 million mortgage loan and an $8.0 million mezzanine loan) sent the Company a notice of UCC sale, which provided that the respective lender would sell the subsidiaries of the Company that own the respective hotels in a public auction. On September 21, 2020, the mezzanine lender for MS C1 conducted a UCC-foreclosure of its collateral consisting of 100% of the equity interests of the Courtyard Louisville, Courtyard Ft. Lauderdale and Residence Inn Buena Vista hotels, which resulted in a gain on extinguishment of debt of approximately $19.7 million for the year ended December 31, 2020, which was included in “gain (loss) on extinguishment of debt” in the consolidated statements of operations.

On January 15, 2021, the Company entered into a credit agreement (as amended, the “Oaktree Credit Agreement”) with certain funds and accounts managed by Oaktree Capital Management, L.P. (the “Lenders” or “Oaktree”) and Oaktree Fund Administration, LLC, as administrative agent (the “Administrative Agent”). The Oaktree Credit Agreement provides that, subject to the conditions set forth therein, the Lenders will make available to the borrower a senior secured term loan facility comprised of (a) initial term loans (the “Initial Term Loan”) in an aggregate principal amount of $200 million, (b) initial delayed draw term loans in an aggregate principal amount of up to $150 million (the “Initial DDTL”) and (c) additional delayed draw term loans in an aggregate principal amount of up to $100 million (the “Additional DDTL,” and together with the Initial Term Loan and the Initial DDTL, collectively, the “Loans”), in each case to fund general corporate operations of the Company and its subsidiaries.

The Loans under the Oaktree Credit Agreement will bear interest (a) with respect to the Initial Term Loan and the Initial DDTL, at an annual rate equal to 16% for the first two years, reducing to 14% thereafter and (b) with respect to the Additional DDTL, at an annual rate equal to 18.5% for the first two years, reducing to 16.5% thereafter. Interest payments on the Loans will be due and payable in arrears on the last business day of March, June, September and December of each calendar year and the maturity date. For the first two years following the closing of the Oaktree Credit Agreement, the borrower will have the option to pay accrued interest “in kind” by adding such amount of accrued interest to the outstanding principal balance of the Loans (such interest, “PIK Interest”). The initial maturity date of the Oaktree Credit Agreement (the “Maturity Date”) is three years, with two optional one-year extensions subject to satisfaction of certain terms and conditions. The Lenders shall, subject to certain terms, have the ability to make protective advances to the borrower pursuant to the terms of the Oaktree Credit Agreement to cure defaults with respect to mortgage and mezzanine-level indebtedness of subsidiaries of the borrower having principal balances in excess of $400 million.

Prior to the amendment described above, based on the provisions in the Oaktree Credit Agreement, the Company was required to pay an exit fee as follows: upon the earliest of the repayment of the Loans in full (including as a result of a change

of control, as defined in the Oaktree Credit Agreement), the Maturity Date, or the acceleration of the Loans following an event of default, as defined in the Oaktree Credit Agreement, the borrower shall pay an exit fee at the Lender’s election of either:

a) A cash payment equal to 15% times the amount of Loans advanced under the Oaktree Credit Agreement (including PIK Interest). If the Loans were not accelerated, all or any portion of the cash payment may be paid, at the borrower’s discretion, in common stock; or

b) The issuance of warrants for the purchase of 19.9% of the Company’s outstanding common stock as of the closing date (calculated on a pro forma basis after giving effect to the warrants) for the Initial Term Loan (as such percentage may be increased by up to 15% dependent on the amount of delayed draw term loans drawn or decreased by up to 4% if the borrower delivers equity pledges from certain subsidiaries, in addition to ordinary course adjustments for recapitalization, stock splits and similar transactions), pursuant to a warrants certificate to be signed upon Lender’s election to take warrants.

On October 12, 2021, the Company entered into Amendment No. 1 to the Oaktree Credit Agreement with the Lenders and the Administrative Agent. Amendment No. 1, subject to the conditions set forth therein, among other items: (i) extends the commitment period of the Initial DDTL and Additional DDTL from 30 months to 42 months after the initial closing date of the Credit Agreement, if the Initial Term Loans are repaid in full prior to the expiration of such commitment period (the “DDTL Commitment Period”); (ii) suspends the Company’s obligations to comply with certain covenants during the DDTL Commitment Period if no Loans or accrued interest thereon are outstanding; (iii) suspends the Company’s obligation to subordinate fees due under the advisory agreement if at any point there is no accrued paid-in-kind interest outstanding or any accrued dividends on any of the Company’s preferred stock and the Company has sufficient unrestricted cash to repay in full all outstanding Loans; (iv) permits the Lenders to, at any time, elect to receive the exit fee in warrants for the purchase of common stock of the Company equal to 19.9% of all common stock outstanding on the closing date of the Oaktree Credit Agreement subject to certain upward or downward adjustments; and (v) provides that in the event prior to the termination of the facility, the Lenders elect to receive the exit fee in warrants and any of such warrants are sold at a price per share of common stock in excess of $40, all obligations owing to the Lenders shall be reduced by an amount equal to 25% of the amount of such excess consideration, subject to certain adjustments.

The exit fee is considered a derivative, under the applicable accounting guidance, which results in bifurcation from the loan resulting in a discount on the loan, but the related derivative liability is reflected in “indebtedness, net” on our consolidated balance sheet. The Company recorded a debt discount equal to the fair value of the embedded debt derivative of $43.7 million on the issuance date. The debt discount attributed to the embedded debt derivative is being amortized using the effective interest method over the remaining term of the Term Loans and is included in “interest expense and amortization of discounts and loan costs” in the consolidated statement of operations. See notes 9 and 10 for further discussion.

In February 2021, the Company was informed by its lender that it had initiated foreclosure proceedings for the foreclosure of the SpringHill Suites Durham and SpringHill Suites Charlotte, which secured the Company’s $19.4 million mortgage loan. The foreclosure proceedings were completed on April 29, 2021 and resulted in a gain on extinguishment of debt of approximately $10.6 million for the year ended December 31, 2021, which was included in “gain (loss) on extinguishment of debt” in the consolidated statements of operations.

For the years ended December 31, 2021 and 2020 the Company entered into forbearance and other agreements which were evaluated to be considered troubled debt restructurings due to terms that allowed for deferred interest and the forgiveness of default interest and late charges. No gain or loss was recognized during the years ended December 31, 2021 and 2020 as the carrying amount of the original loans was not greater than the undiscounted cash flows of the modified loans.

Additionally, as a result of the troubled debt restructurings all accrued default interest and late charges were capitalized into the applicable loan balances and will be amortized over the remaining term of the loan using the effective interest method. The amount of default interest and late charges capitalized into the loan balance was $33.2 million and $47.5 million during the years ended December 31, 2021 and 2020, respectively. The amount of the capitalized principal that was amortized during the years ended December 31, 2021 and 2020, was $35.7 million and $20.0 million, respectively. Additionally, we wrote off $1.4 million of default interest and late charges related to the refinance of Hilton Boston Back Bay mortgage. These amounts are included in “interest expense and amortization of discounts and loan costs” in the consolidated statement of operations.

We have extension options relating to certain property level loans that will permit us to extend the maturity date of our loans if certain conditions are satisfied at the respective extension dates, including the achievement of debt yield targets required in order to extend such loans. To the extent we decide to extend the maturity date of the debt outstanding under the loans, we may be required to prepay a significant amount of the loans in order to meet the required debt yield targets. We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. As of December 31, 2021, we were in compliance with all covenants related to mortgage loans for which we entered into forbearance and other agreements. We were also in compliance with all covenants under the Oaktree Credit Agreement. The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of Ashford Trust or Ashford Trust OP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations of Ashford Trust or Ashford Trust OP.

Maturities and scheduled amortizations of indebtedness as of December 31, 2021 for each of the five following years and thereafter are as follows (in thousands):


2022	$	3,255,980
2023	113,577
2024	348,513
2025	166,552
2026	—
Thereafter	—
Total	$	3,884,622