Item 1.01Entry Into a Material Definitive Agreement
On July 2, 2021, Sunstone Hotel Investors, Inc. (the “Company”), as parent guarantor, Sunstone Hotel Partnership, LLC, as borrower and issuer (the “Operating Partnership”) and certain subsidiaries of the Operating Partnership as guarantors, amended the Operating Partnership’s term and revolving credit agreement and note purchase and guarantee agreement. The amendments and their changes to material terms of the agreements are described below.
Third Amendment to the Credit Agreement
On July 2, 2021, the Company, as parent guarantor, the Operating Partnership, as borrower, and certain subsidiaries of the Operating Partnership as guarantors, entered into a Third Amendment to Amended and Restated Credit Agreement (the “Third Credit Agreement Amendment”) to the Amended and Restated Credit Agreement dated October 17, 2018 (the “Existing Credit Agreement” and as so amended by the Third Amendment, the “Amended Credit Agreement”), with Wells Fargo Bank, National Association, Bank of America, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, U.S. Bank National Association and certain other lenders named therein. Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, JPMorgan Chase Bank, N.A., PNC Capital Markets LLC and U.S. Bank National Association are joint lead arrangers, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated and JPMorgan Chase Bank, N.A. are joint bookrunners, Bank of America, N.A. and JPMorgan Chase Bank, N.A. are syndications agents and Citibank, N.A., PNC Bank, National Association and U.S. Bank National Association are documentation agents of the Amended Credit Agreement.
As previously disclosed, the Amended Credit Agreement provides for a $500 million unsecured revolving credit facility, which matures on April 14, 2023, an $85 million unsecured term loan, which matures on September 3, 2022 and a $100 million unsecured term loan that matures January 31, 2023 (collectively the “Amended Term Loans”). The Company may extend the maturity date of the unsecured revolving credit facility, exercisable two times, by six (6) months for each extension, to April 2024, upon the payment of applicable fees and satisfaction of certain customary conditions.
Also, as previously disclosed, the Existing Credit Agreement extended the suspension of all original financial covenants from June 30, 2021 through the required financial covenant test for the period ended March 31, 2022 (“Covenant Relief Period”). Following the Covenant Relief Period, original financial covenants will be phased-in over the following four quarters (“Ratio Adjustment Period”). The Covenant Relief Period may be terminated, at the option of the Operating Partnership, subject to meeting the original financial covenants at the end of any quarterly measurement period.
The Third Credit Agreement Amendment makes the following two modifications to the following covenants in the Existing Credit Agreement that exist during the Covenant Relief Period and, so long as the Notes (defined below) remain outstanding, the Ratio Adjustment Period: (a) prior to the Third Credit Agreement Amendment, the Existing Credit Agreement required that a certain amount of net cash proceeds from certain incurrences of indebtedness, equity issuances or asset dispositions be applied to pay down the Amended Term Loans; now, no such requirement exists unless an Event of Default (as defined in the Amended Credit Agreement) has occurred and is continuing; and (b) prior to the Third Credit Agreement Amendment, the Existing Credit Agreement limited investments in acquisitions up to $250 million; now, this limitation no longer applies so long as such acquisitions are in Eligible Properties that will become Unencumbered Pool Properties (both as defined in the Amended Credit Agreement).
As of July 2, 2021, there was $0 outstanding under the revolving credit facility and $185 million of term loans were outstanding under the Amended Credit Agreement.
The foregoing description of the Amended Credit Agreement and Amended Term Loans is qualified in its entirety by the full terms and conditions of the Third Credit Agreement Amendment which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.
Third Amendment to the Note and Guarantee Agreement
On July 2, 2021, the Company, as parent guarantor, the Operating Partnership, as issuer, and certain subsidiaries of the Operating Partnership as guarantors, entered into the Third Amendment of the Note and Guarantee Agreement (the “Third Note Agreement Amendment”) to the Note and Guarantee Agreement dated December 20, 2016 (the “Existing Note Agreement” and as so amended to date, the “Amended Note Agreement”) with the various purchasers named therein (the “Purchasers”) which provided for the private placement of $205 million of senior unsecured notes of the Operating Partnership, of which (i) $90 million are designated as 4.69% Series A Guaranteed Senior Notes due January 10, 2026 (the “Series A Notes”) and (ii) $115 million are designated as 4.79% Series B Guaranteed Senior Notes due January 10, 2028 (the “Series B Notes” and, together with the Series A Notes, the “Notes”).