Item 2.03.
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
On April 21, 2017, Chesapeake Lodging, L.P., a wholly owned subsidiary of Chesapeake Lodging Trust (the “Trust”), obtained a $225.0 million five-year term loan from a lending syndicate led by Wells Fargo Bank, N.A., as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and PNC Bank, N.A., as documentation agent (the “Term Loan”). The Trust and certain of its indirect subsidiaries serve as guarantors of borrowings under the Term Loan. The Term Loan provides for the possibility of future increases, up to a maximum amount borrowed of $375.0 million, in accordance with the terms of the term loan agreement. Amounts borrowed under the Term Loan may be prepaid at any time without premium or penalty; amounts so prepaid may not be reborrowed. Proceeds from the Term Loan were used to repay outstanding borrowings under the Trust’s $300.0 million unsecured revolving credit facility (the “Revolving Credit Facility”). After giving effect to the repayment, there were no outstanding borrowings under the Revolving Credit Facility as of April 21, 2017. In connection with obtaining the Term Loan, the Trust also amended certain provisions of the agreement governing its Revolving Credit Facility to make conforming changes to the term loan agreement. A copy of the Trust’s press release announcing this transaction on April 25, 2017 is filed as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.
The Term Loan will mature on April 21, 2022. The Term Loan bears interest equal to LIBOR, plus 1.45% - 2.20% (the spread over LIBOR based on the Trust’s consolidated leverage ratio as of the end of its most recent fiscal quarter), as shown below:
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Leverage Ratio
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Applicable Margin for
LIBOR Loans
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Applicable Margin for
Base Rate Loans
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<35%
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1.45%
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0.45%
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≥35%<40%
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1.55%
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0.55%
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≥40%<45%
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1.60%
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0.60%
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≥45%<50%
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1.75%
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0.75%
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≥50%<55%
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2.00%
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1.00%
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≥55%
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2.20%
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1.20%
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The applicable margin will reset 10 business days after each delivery of a compliance certificate relating to the Trust’s quarterly or year-end financial results, as applicable. As of the date of this filing, the applicable margin on the Term Loan was 1.45%. Contemporaneous with the closing of the Term Loan, the Trust entered into an interest rate swap to fix LIBOR at 1.86% for the five-year term.
The agreement governing the Term Loan contains covenants, including a maximum leverage ratio, minimum tangible net worth requirement, consolidated secured debt ratio, unsecured leverage ratio and unsecured debt service coverage ratio, representations and warranties and events of default that match in all material respects the comparable terms of the agreement governing the Trust’s Revolving Credit Facility. In addition, the Term Loan and the amendment to the Trust’s Revolving Credit Facility link borrowing availability to the value of the 13 hotels comprising the borrowing base for these unsecured borrowings, requiring such borrowing base to comprise a minimum of seven hotels with a value, determined pursuant to the terms of the agreements, of not less than $500.0 million.
The foregoing description of the term loan agreement and the amendment to the agreement governing the Trust’s Revolving Credit Facility is qualified in its entirety by the full terms and conditions of the term loan agreement and such amendment, each of which will be filed with the Securities and Exchange Commission as an exhibit to a subsequent report of the Trust.