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Indebtedness, net
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
Indebtedness, net Indebtedness, net
Indebtedness, net consisted of the following (dollars in thousands):
IndebtednessCollateralCurrent Maturity
Final
Maturity (11)
Interest RateSeptember 30, 2023December 31, 2022
Mortgage loan (4)
Bardessono Hotel and SpaAugust 2023August 2023
SOFR (2) + 2.65%
$— $40,000 
Mortgage loan (4)
The Ritz-Carlton Sarasota
October 2023
April 2024
LIBOR (1) + 2.65%
— 98,500 
Mortgage loan (4)
Hotel Yountville
November 2023
May 2024
LIBOR (1) + 2.55%
— 51,000 
Mortgage loan The Ritz-Carlton Lake TahoeJanuary 2024January 2024
SOFR (2) + 2.20%
54,000 54,000 
Mortgage loanCapital HiltonFebruary 2024February 2024
SOFR (2) + 1.70%
195,000 195,000 
Hilton La Jolla Torrey Pines
Mortgage loan (5)
Park Hyatt Beaver Creek Resort & SpaFebruary 2024February 2027
SOFR (2) + 2.86%
70,500 70,500 
Mortgage loan (6)
The Ritz-Carlton Reserve Dorado BeachMarch 2024March 2026
LIBOR (1) + 6.00%
— 54,000 
Mortgage loan (7)
The Notary HotelJune 2024June 2025
SOFR (2) + 2.66%
293,180 435,000 
The Clancy
Sofitel Chicago Magnificent Mile
Marriott Seattle Waterfront
Mortgage loan (8)
Cameo Beverly Hills
August 2024August 2024
SOFR (2) + 3.66%
30,000 30,000 
Mortgage loan (9)
The Ritz-Carlton St. Thomas
August 2024
August 2024
SOFR (2) + 4.04%
42,500 42,500 
Mortgage loanPier House Resort & SpaSeptember 2024September 2024
SOFR (2) + 1.95%
80,000 80,000 
Convertible Senior NotesEquityJune 2026June 20264.50%86,250 86,250 
BAML Credit Facility (4)
Bardessono Hotel and Spa
July 2026
July 2027
Base Rate (3) +1.25% to 2.00% or SOFR (2) + 2.35% to 3.10%
196,000 — 
Hotel Yountville
The Ritz-Carlton Sarasota
Mortgage loan (10)
Four Seasons Resort ScottsdaleDecember 2026December 2028
SOFR (2) + 3.75%
140,000 100,000 
1,187,430 1,336,750 
Capitalized default interest and late charges, net625 1,934 
Deferred loan costs, net(7,591)(5,054)
Premiums/(discounts), net(1,744)500 
Indebtedness, net$1,178,720 $1,334,130 
__________________
(1)LIBOR rate was 4.39% at December 31, 2022.
(2)SOFR rates were 5.32% and 4.30% at September 30, 2023 and December 31, 2022, respectively.
(3)Base Rate, as defined in the secured credit facility agreement, is the greater of (i) the prime rate set by Bank of America, (ii) federal funds rate + 0.50%, (iii) Term SOFR + 1.00%, or (iv) 1.00%.
(4)On July 31, 2023, we entered into a new $200.0 million secured credit facility comprised of a $150.0 million term loan and a $50.0 million secured revolving credit facility with a three-year initial term and one one-year extension option, subject to satisfaction of certain conditions. The new facility is interest only and bears interest at a rate of SOFR + 2.35% to 3.10%. Proceeds from the facility were used to repay the mortgage loans secured by Bardessono Hotel & Spa, Hotel Yountville, and The Ritz-Carlton Sarasota.
(5)This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions.
(6)On January 18, 2023, we repaid this mortgage loan.
(7)This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions, of which the fourth was exercised in June 2023. In accordance with exercising the fourth one-year extension option, we repaid $142.0 million of principal and the variable interest rate increased from LIBOR + 2.16% to LIBOR + 2.61%. This loan transitioned from LIBOR to SOFR in July and the variable interest rate increased from LIBOR + 2.61% to SOFR + 2.66%.
(8)This loan transitioned from LIBOR to SOFR in July and the variable interest rate increased from LIBOR + 3.60% to SOFR + 3.66%. This mortgage loan has a SOFR floor of 1.50%.
(9)This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions, of which the third was exercised in August 2023. This loan transitioned from LIBOR to SOFR in July and the variable interest rate increased from LIBOR + 3.95% to SOFR + 4.04%. This mortgage loan has a SOFR floor of 1.00%.
(10)On September 29, 2023, we amended this mortgage loan. Terms of the amendment included increasing the outstanding principal from $100.0 million to $140.0 million, and extending the current maturity date by one year to December 2026. This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions. This mortgage loan has a SOFR floor of 1.00%.
(11)The final maturity date assumes all available extensions options will be exercised.
During the second and third quarters of 2020, we reached forbearance and other agreements with our lenders relating to loans secured by certain of our hotels. 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.
As a result of the troubled debt restructurings, all accrued default interest and late charges were capitalized into the applicable loan balances and are being amortized over the remaining term of the loans using the effective interest method. The amount of principal that was amortized was approximately $421,000 and $1.3 million, respectively, for the three and nine months ended September 30, 2023. For the three and nine months ended September 30, 2022, the amount of principal amortization was $481,000 and $1.5 million, respectively.
On January 18, 2023, the Company repaid its $54.0 million mortgage loan secured by The Ritz-Carlton Reserve Dorado Beach, which resulted in a gain on extinguishment of debt of $2.3 million for the nine months ended September 30, 2023. The gain was primarily attributable to the premium that was recorded upon the assumption of the mortgage loan when the hotel was acquired.
Convertible Senior Notes
In May 2021, the Company issued $86.25 million aggregate principal amount of 4.50% Convertible Senior Notes due June 2026 (the “Convertible Senior Notes”). The net proceeds from this offering of the Convertible Senior Notes were approximately $82.8 million after deducting the underwriting fees and other expenses paid by the Company.
The Convertible Senior Notes are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The Convertible Senior Notes bear interest at a rate of 4.50% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The Convertible Senior Notes will mature on June 1, 2026. For the three and nine months ended September 30, 2023, the Company recorded coupon interest expense of $970,000 and $2.9 million, respectively. For the three and nine months ended September 30, 2022, the Company recorded coupon interest expense of $970,000 and $2.9 million, respectively.
For the three and nine months ended September 30, 2023, the Company recorded discount amortization of $148,000 and $438,000, respectively, related to the initial purchase discount, with the remaining discount balance to be amortized through June 2026. For the three and nine months ended September 30, 2022, the discount amortization was $140,000 and $411,000, respectively.
The Convertible Senior Notes are convertible at any time prior to the close of business on the business day immediately preceding the maturity date for cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the election of the Company, based on an initial conversion rate of 157.7909 shares of the Company’s common stock per $1,000 principal amount of notes (equivalent to a conversion price of approximately $6.34 per share of common stock), subject to adjustment of the conversion rate under certain circumstances. In addition, following the occurrence of certain corporate events, if the Company provides notice of redemption or if it exercises its option to convert the Convertible Senior Notes, the Company will, in certain circumstances, increase the conversion rate for a holder that converts its Convertible Senior Notes in connection with such corporate event, such notice of redemption, or such issuer conversion option, as the case may be.
The Company may redeem the Convertible Senior Notes at the Company’s option, in whole or in part, on any business day on or after the date of issuance if the last reported sale price per share of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a notice
of redemption at a redemption price equal to 100% of the principal amount of the Convertible Senior Notes to be redeemed subject to certain adjustments, plus accrued and unpaid interest to, but excluding, the redemption date.
Credit Facility
On July 31, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with Braemar OP (the “Borrower”), the lenders party thereto (the “Lenders”) and Bank of America, N.A., as administrative agent and L/C Issuer (as defined in the Credit Agreement). Bank of America, N.A. acted as administrative agent and lead arranger on the transaction. Syndicate bank participants include TBK Bank and MidFirst Bank.
The Credit Agreement evidences a $200 million secured credit facility (the “Facility”) comprised of a secured term loan facility of $150 million (the “Term Loan Facility”) and a secured revolving credit facility of $50 million (the “Revolving Credit Facility”). Upon satisfaction of certain conditions, including the addition of new Borrowing Base Properties (as defined in the Credit Agreement), the Facility may be increased to a size of not more than $400 million in the aggregate. The maximum availability under the Facility is determined on a quarterly basis and limited to the lesser of (i) $200 million (subject to increase of up to $400 million in the aggregate); (ii) 55% of the appraised value of all Borrowing Base Properties; and (iii) the DSC Amount (as defined below). The initial Borrowing Base Properties include the Company’s Ritz-Carlton Sarasota, Bardessono Hotel and Spa and Hotel Yountville hotel properties (the “Initial Borrowing Base Properties”). The “DSC Amount” means the maximum principal amount that can be supported from the Adjusted NOI (as defined in the Credit Agreement) from the Borrowing Base Properties assuming: (i) a 30-year amortization and an interest rate which is the greater of (a) the ten (10) year U.S. Treasury Rate plus 2.50% and (b) 7.50%; and (ii) a minimum debt service coverage of 1.75 to 1.00.
The proceeds of the Term Loan Facility were used to repay the mortgage debt associated with The Ritz-Carlton Sarasota, Bardessono Hotel and Spa and Hotel Yountville, which serve as the Initial Borrowing Base Properties for the financing. In addition, at closing, the Company drew down approximately $46 million under the Revolving Credit Facility.
The Facility is a three-year, interest-only facility with all outstanding principal due at maturity, with a one-year extension option, subject to the satisfaction of certain conditions, including the payment of an Extension Fee (as defined in the Credit Agreement) equal to 20 basis points (0.20%) of the outstanding Facility amount.
The Credit Agreement is guaranteed by the Company, the Borrower and certain other eligible subsidiaries of the Company and secured by: (i) perfected lien mortgages or deeds of trust and security interests in the Borrowing Base Properties (as defined in the Credit Agreement); (ii) assignments of leases and rents with respect to the Borrowing Base Properties; (iii) assignments of all management agreements, franchise agreements, licenses and other material agreements relating to the Borrowing Base Properties; (iv) perfected first priority liens on all reserve accounts and all operating accounts related to each Borrowing Base Property; and (v) perfected first priority liens on and security interests in each subsidiary guarantor owning a Borrowing Base Property.
Borrowings under the Credit Agreement will bear interest at Daily SOFR or Term SOFR plus 10 basis points (with a 0% floor) plus the applicable margin. Depending on the Company’s Net Debt to EBITDA ratio, the applicable margin for SOFR ranges from 2.25% to 3.00%. Default interest would accrue at the applicable rate plus 2.0%.
The Facility contains customary terms, covenants, negative covenants, events of default, limitations and other conditions for credit facilities of this type. Subject to certain exceptions, the Company and the Borrower are subject to restrictions on incurring additional indebtedness and liens, investments, mergers and fundamental changes, sales or other dispositions of property, dividends and stock redemptions, changes in the nature of the Borrower’s business, transactions with affiliates and burdensome agreements.
Financial covenants are generally based on the financial condition and results of operations of the Company and its consolidated subsidiaries and include, among others, the following:
(i) a Consolidated Leverage Ratio (i.e., Consolidated Net Debt to the Consolidated Total Asset Value) of not more than 55%; and
(ii) a Consolidated Fixed Charge Coverage Ratio (FCCR) (i.e., the ratio of Consolidated Adjusted EBITDA to Consolidated Fixed Charges) of not less than (i) prior to December 31, 2024, 1.1 to 1.0 and (ii) thereafter, 1.25 to 1.0.
The Credit Agreement includes customary events of default, and the occurrence of an event of default will permit the Lenders to terminate commitments to lend under the Credit Agreement and accelerate payments of all amounts outstanding thereunder.
Effective June 30, 2023, LIBOR is no longer published. Accordingly, all variable interest rate mortgage loans held by the Company that used the LIBOR index transitioned to SOFR beginning on July 1, 2023. Not all lenders will execute loan amendment documents and instead will defer to original loan documents that dictate changes in index rates.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. As of September 30, 2023, we were in compliance with all covenants.