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Indebtedness | 6 Months Ended
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Jun. 30, 2018
Debt Disclosure [Abstract] |
Indebtedness |
6. | Indebtedness
New Secured Financing On February 14, 2018, certain wholly-owned subsidiaries of RVI (collectively, the “Borrowers”), entered into a Loan Agreement (the “Loan Agreement”) which provides for a secured loan facility with an initial aggregate principal amount of $1.35 billion (the “Loan Facility”) in connection with the spin-off of RVI. The Borrowers’ obligations to pay principal, interest and other amounts under the Loan Facility are evidenced by certain promissory notes executed by the Borrowers (collectively, the “Notes”) which are secured by, among other things: (i) certain mortgages encumbering the Borrowers’ respective continental U.S. properties (a total of 36 properties); (ii) a pledge of the direct equity interest in the RVI subsidiaries that own the 12 Puerto Rico properties and a pledge of rents and other cash flows, insurance proceeds and condemnation awards in connection with the 12 Puerto Rico properties and (iii) a pledge of certain reserves and accounts of the Borrowers. Subsequent to closing, the originating lenders placed the Notes into a securitization trust which issued and sold mortgage-backed securities to investors. The Loan Facility will mature on February 9, 2021, subject to two successive one-year extensions at Borrowers’ option conditioned upon, among other items, (i) an event of default shall not be continuing, (ii) in the case of the first one-year extension option, evidence that the debt yield (as defined and calculated in accordance with the Loan Agreement, but which is the ratio of net operating income of the continental U.S. properties to the outstanding principal amount of the Loan Facility) (the “Debt Yield”) equals or exceeds 11% and the ratio of the outstanding principal amount of the Notes to the value of the continental U.S. properties (based on appraisal values determined at the time of the initial closing) (the “Loan-to-Value Ratio”) is less than or equal to 50%, and (iii) in the case of the second one-year extension option, evidence that the Debt Yield equals or exceeds 12% and the Loan-to-Value Ratio is less than or equal to 45%. The initial weighted-average interest rate applicable to the Notes is equal to one-month LIBOR plus a spread of 3.15% per annum, provided that such spread is subject to an increase of 0.25% per annum in connection with any exercise of the first extension option and an additional increase of 0.25% per annum in connection with any exercise of the second extension option. Borrowers are required to maintain an interest rate cap with respect to the principal amount of the Notes having (i) during the initial term of the Loan Facility, a LIBOR strike rate equal to 3.0% and (ii) with respect to any extension period, a LIBOR strike rate that would result in a debt service coverage ratio of 1.20x based on the continental U.S. properties. Mortgage-backed securities securitized by the Notes were sold by the lenders to investors at a blended rate (prior to exercise of any extension option) of one-month LIBOR plus a spread of 2.91% per annum; the spread paid increased to 3.15% per annum based on terms included in the originating lenders’ initial financing commitment to Borrowers. Application of voluntary prepayments as described below may cause the weighted-average interest rate to increase over time. The Loan Facility is structured as an interest only loan throughout the initial three-year term and any exercised extension options. As a result, so long as no Amortization Period (as described below) or event of default exists, any property cash flows available following payment of debt service and funding of certain required reserve accounts (including reserves for payment of real estate taxes, insurance premiums, ground rents, tenant improvements and capital expenditures), will be available to the Borrowers for general corporate purposes. An Amortization Period will be deemed to commence in the event the Borrowers fail to achieve a Debt Yield of 10.8%, 11.9%, 14.1% and 19.2% as of March 31, 2019, September 30, 2019, March 31, 2020 and September 30, 2020, respectively. In the event an Amortization Period occurs, any property cash flows available following payment of debt service and the funding of certain reserve accounts (including the reserve accounts referenced above and additional reserves established for payment of approved operating expenses, DDR management fees, certain public company costs, certain taxes and the minimum cash portion of required REIT distributions) shall be applied to the repayment of the Notes. During an Amortization Period, cash flow from the Borrowers’ operations will only be made available to RVI to pay required REIT distributions in an amount equal to the minimum portion of required REIT distributions allowed by law to be paid in cash (currently 20%), with the remainder of required REIT distributions during an Amortization Period likely to be paid by RVI in shares of its common stock. Subject to certain conditions described in the Loan Agreement, the Borrowers may prepay principal amounts outstanding under the Loan Facility in whole or in part by providing (i) advance notice of prepayment to the lenders and (ii) remitting the prepayment premium described in the Loan Agreement. No prepayment premium is required with respect to any prepayments made after March 9, 2019. Additionally, no prepayment premium will apply to prepayments made in connection with permitted property sales. Each continental U.S. property has a portion of the original principal amount of the Loan Facility allocated to it (the “Allocated Loan Amount”). The amount of proceeds from the sale of an individual continental U.S. property required to be applied towards prepayment of the Notes (i.e., the property’s “release price”) will depend upon the Debt Yield at the time of the sale as follows:
| • | if the Debt Yield is less than or equal to 12.0%, the release price is the greater of (i) 100% of the property’s net sale proceeds and (ii) 110% of its Allocated Loan Amount;
| • | if the Debt Yield is greater than 12.0% but less than or equal to 15.0%, the release price is the greater of (i) 90% of the property’s net sale proceeds and (ii) 105% of its Allocated Loan Amount and
| • | if the Debt Yield is greater than 15.0%, the release price is the greater of (i) 80% of the property’s net sale proceeds and (ii) 100% of its Allocated Loan Amount.
Once the aggregate principal amount of the Notes is less than $270.0 million, 100% of net proceeds from the sales of continental U.S. properties must be applied towards prepayment of the Notes. Properties in Puerto Rico do not have Allocated Loan Amounts or minimum release prices; all proceeds from sales of Puerto Rico properties are required to be used to prepay the Notes, except that the Borrowers can obtain a release of all of the Puerto Rico properties for a minimum release price of $350.0 million. Voluntary prepayments made by the Borrowers (including prepayments made with proceeds from asset sales) up to $337.5 million in the aggregate will be applied ratably to the senior and junior tranches of the Notes. All other prepayments (including prepayments made with property cash flows following commencement of any Amortization Period) will be applied to tranches of Notes (i) absent an event of default, in descending order of seniority (i.e., such prepayments will first be applied to the most senior tranches of Notes) and (ii) following any event of default, in such order as the loan servicer determines in its sole discretion. As a result, it is expected that the weighted average interest rate of the Notes will increase during the term of the Loan Facility. In the event of a default, the contract rate of interest on the Notes will increase to the lesser of (i) the maximum rate allowed by law, or (ii) the greater of (A) 4% above the interest rate otherwise applicable and (B) the Prime Rate (as defined in the Loan Agreement) plus 1.0%. The Notes contain other terms and provisions that are customary for instruments of this nature. In addition, a certain Environmental Indemnity Agreement and a certain Guaranty Agreement was executed in favor of the lenders under which RVI, a wholly-owned subsidiary of DDR at June 30, 2018, agreed to indemnify the lenders for certain environmental risks and guaranty the Borrowers’ obligations under the exceptions to the non-recourse provisions in the Loan Agreement. The Loan Agreement includes representations, warranties, affirmative and restrictive covenants and other provisions customary for agreements of this nature. The Loan Agreement also includes customary events of default, including, among others, principal and interest payment defaults, and breaches of affirmative or negative covenants; the Loan Agreement does not contain any financial maintenance covenants. Upon the occurrence of an event of default, the lenders may avail themselves of various customary remedies under the Loan Agreement and other agreements executed in connection therewith or applicable law, including accelerating the Loan Facility and realizing on the real property collateral or pledged collateral. At June 30, 2018, the mortgage balance outstanding was $1.27 billion. This mortgage was assumed by RVI in connection with the spin-off of RVI on July 1, 2018 (Note 13). Debt Repayments In the first quarter of 2018, in connection with the $1.35 billion mortgage loan and asset sales, the Company repaid $900.0 million aggregate principal amount of senior unsecured notes with maturity dates ranging from July 2018 to February 2025 through a tender offer, $452.5 million of mortgage debt and $200.0 million of an unsecured term loan. In connection with the redemption of the senior unsecured notes, the Company paid make-whole amounts totaling $28.4 million. These make whole amounts are included in Other Income (Expense), net in the Company’s consolidated statements of operations. Scheduled Principal Repayments The scheduled principal payments of the Revolving Credit Facilities (Note 5) and unsecured and secured indebtedness, excluding extension options, as of June 30, 2018, are as follows (in thousands):
Year |  | Amount |
2018 |  | $ | 24,487 |
2019 |  |  | 97,241 |
2020 |  |  | 41,684 |
2021(A) |  |  | 1,332,140 |
2022 |  |  | 481,068 |
Thereafter |  |  | 1,653,894 |
|  |  | 3,630,514 |
Unamortized fair market value of assumed debt |  |  | 2,042 |
Net unamortized debt issuance costs |  |  | (42,807 | )
Total indebtedness |  | $ | 3,589,749 |
| (A) | Includes $1.27 billion RVI mortgage, which was assumed by RVI in connection with the spin-off of RVI on July 1, 2018 (Note 13).

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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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