Indebtedness, net

9 Months Ended

Sep. 30, 2020

Indebtedness, net

Indebtedness, net consisted of the following (in thousands):

Indebtedness

Collateral

Maturity

Interest Rate

September 30, 2020

December 31, 2019

Secured revolving credit facility ⁽³⁾

Equity

October 2022

Base Rate⁽²⁾+ 1.25% to 2.50% or LIBOR ⁽¹⁾ + 2.25% to 3.50%

—

Mortgage loan ⁽⁴⁾

Park Hyatt Beaver Creek

April 2021

LIBOR ⁽¹⁾+ 2.75%

67,500

Mortgage loan ⁽⁵⁾

The Notary Hotel

June 2021

LIBOR ⁽¹⁾ + 2.16%

435,000

The Clancy

Sofitel Chicago Magnificent Mile

Marriott Seattle Waterfront

Mortgage loan ⁽⁶⁾

Ritz-Carlton, St. Thomas

August 2021

LIBOR ⁽¹⁾ + 3.95%

42,500

Mortgage loan ⁽⁷⁾

Hotel Yountville

May 2022

LIBOR ⁽¹⁾ + 2.55%

51,000

Mortgage loan ⁽⁷⁾

Bardessono Hotel

August 2022

LIBOR ⁽¹⁾+ 2.55%

40,000

Term loan ⁽³⁾

Equity

October 2022

Base Rate⁽²⁾+ 1.25% to 2.50% or LIBOR ⁽¹⁾ + 2.25% to 3.50%

63,284

—

Mortgage loan ⁽⁷⁾

Ritz-Carlton, Sarasota

April 2023

LIBOR ⁽¹⁾+ 2.65%

100,000

Mortgage loan ⁽⁷⁾

Ritz-Carlton, Lake Tahoe

January 2024

LIBOR ⁽¹⁾+ 2.10%

54,000

Mortgage loan⁽⁸⁾

Capital Hilton

February 2024

LIBOR ⁽¹⁾+ 1.70%

197,229

195,000

Hilton La Jolla Torrey Pines

Mortgage loan ⁽⁷⁾

Pier House Resort

September 2024

LIBOR ⁽¹⁾ + 1.85%

80,000

1,130,513

1,065,000

Capitalized default interest and late charges

8,610

—

Deferred loan costs, net

(6,136

)

(6,514

)

Indebtedness, net

1,132,987

1,058,486

__________________


⁽¹⁾	LIBOR rates were 0.148% and 1.763% at September 30, 2020 and December 31, 2019, respectively.


⁽²⁾	Base Rate, as defined in the secured term loan agreement, is the greater of (i) the prime rate set by Bank of America, or (ii) federal funds rate + 0.5%, or (iii) LIBOR + 1.0%.

⁽³⁾

Effective June 8, 2020, we amended our secured revolving credit facility totaling $75 million, which was the total borrowing capacity. In conjunction with the amendment, we repaid $10 million of principal and converted the facility to a term loan with a principal balance of $65 million. The amended term loan is interest only until March 2021 and bears interest at a rate of Base Rate + 1.25% - 2.50% or LIBOR + 2.25% - 3.5%, with a LIBOR floor of 0.50%.


⁽⁴⁾	This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions, of which the second was exercised in April 2020.

⁽⁵⁾

Effective June 9, 2020, we executed a FF&E accommodation agreement for this mortgage loan. Terms of the agreement included lender-held reserves were made available to fund property-level operating expenses and monthly FF&E escrow deposits were waived through January 2021. This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions, of which the first was exercised in June 2020.


⁽⁶⁾	The interest rate spread on this mortgage loan changed from 4.95% as of December 31, 2019, to 3.95% as of March 31, 2020, based on an appraisal received in accordance with the August 5, 2019 loan amendment. This mortgage loan has a LIBOR floor of 1.00%. This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions.

⁽⁷⁾

Effective May 1, 2020, we executed a forbearance agreement for this mortgage loan. Terms of the agreement included adding a LIBOR floor of 0.25%; deferral of interest payments for three months with the option to extend the interest payment deferral an additional three months, which was exercised in August 2020, with all deferred payments due at maturity; lender-held reserves were made available to fund property-level operating expenses; and monthly FF&E escrow deposits were waived through December 2020.

⁽⁸⁾

Effective September 24, 2020, we executed a forbearance agreement for this mortgage loan. Terms of the agreement included deferral of interest payments for six months, lender-held reserves were made available to fund property-level operating expenses, and monthly FF&E escrow deposits were waived through December 2020. In conjunction with the forbearance agreement, deferred interest payments of $2.2 million were capitalized into the principal balance and are to be repaid in 12 monthly installments beginning January 2021.

In April 2020, certain subsidiaries of the Company applied for and received loans from Key Bank, N.A. under the Payroll Protection Program (“PPP”), which was established under the CARES Act. All funds borrowed under the PPP totaling $34.3 million were returned on or before May 7, 2020.

On June 8, 2020, the Company entered into the First Amendment to the Second Amended and Restated Credit Agreement (the “Amendment”). The Amendment converted the $75 million Second Amended and Restated Credit Agreement, dated October 25, 2019 (the “Credit Facility”), which was a secured revolving credit facility, into a $65 million secured term loan. The Company had borrowed the full borrowing capacity of $75 million under the Credit Facility and repaid $10 million on June 8, 2020, in connection with the signing of the Amendment. Pursuant to the terms of the Amendment, borrowings will bear interest at a rate of LIBOR plus 3.50% or Base Rate plus 2.50% until June 30, 2021. After such date, the pricing will revert to the original terms of the Credit Facility. The Amendment also adds principal amortization of $5 million per quarter commencing on March 31, 2021. The Amendment changes the terms of certain financial covenants that the Company was subject to under the Credit Facility. The Amendment has the same maturity date of October 25, 2022 but removes the two one-year extension options and also removes the Company’s ability to reborrow amounts that have been repaid.

We are required to maintain certain financial ratios under our secured term loan. If we violate covenants in any debt 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. 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 the consolidated group. Beginning on April 1, 2020, we did not make at least one interest payment under nearly all of our loan agreements, which constituted an “Event of Default” as such term is defined under the applicable loan documents. Further, the Company triggered an “Event of Default,” as defined under the secured revolving credit facility agreement as a result of the Company being in default on mortgage and mezzanine loans with an aggregate principal amount in excess of $200 million. 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. Following an Event of Default, our lenders can generally elect to accelerate all principal and accrued interest payments that remain outstanding under the applicable loan agreement and foreclose on the applicable hotel properties that are security for such loans. Such Event of Default under the senior revolving credit facility agreement was eliminated by the First Amendment to Second Amended and Restated Credit Agreement, dated June 8, 2020, which provides that defaults under mortgage and mezzanine loans with an aggregate principal amount in excess of $200 million do not trigger a default under the senior revolving credit agreement unless such mortgage or mezzanine loans are also accelerated, and excluding from the $200 million threshold, any default and acceleration under those certain mortgage and mezzanine loans having an aggregate principal amount of $435 million and secured by the Marriott Seattle Waterfront, Sofitel Chicago Magnificent Mile, The Notary Hotel and The Clancy.

During the second and third quarter of 2020, we reached forbearance and other agreements with our lenders relating to loans secured by the Pier House Resort, Ritz-Carlton Sarasota, Ritz-Carlton Lake Tahoe, Hotel Yountville, Bardessono Hotel, Sofitel Chicago Magnificent Mile, The Notary Hotel, The Clancy, Marriott Seattle Waterfront, the Capital Hilton and Hilton La Jolla Torrey Pines. As of September 30, 2020, no loans are in default. See note 14 for discussion of the loan modification agreement with Lismore Capital LLC (“Lismore”).

As of September 30, 2020, the Company determined that all of the forbearance and other agreements evaluated were 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 three and nine months ended September 30, 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 indebtedness as of September 30, 2020, was $9.9 million. The amount of principal amortization during the three and nine months ended September 30, 2020 was $937,000 and $1.2 million, respectively.