Item 1.01. Entry into a Material Definitive Agreement.
On February 20, 2019, Franklin Street Properties Corp. (the “Company”)
executed forward interest rate swap transactions in an initial aggregate notional amount of $220,000,000 with various financial institutions (the “Swap Counterparties”), pursuant to ISDA Master Agreements and Schedules thereto with each of the Swap Counterparties (the “Swap Transactions”). The Swap Transactions are not effective until August 26, 2020, when the existing interest rate swap agreement expires, and were entered into in order to hedge the future interest rate risk under the Second Amended and Restated Credit Agreement among the Company, the lending institutions party thereto and Bank of Montreal, as administrative agent (the “BMO Credit Agreement”). The BMO Credit Agreement entered into on September 27, 2018 provides for a single, unsecured term loan borrowing in the amount of $220,000,000 (the “BMO Term Loan”), consisting of a $55,000,000 tranche A term loan that matures on November 30, 2021 and a $165,000,000 tranche B term loan that matures on January 31, 2024. The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating (125 basis points over LIBOR at December 31, 2018) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (25 basis points over the base rate at December 31, 2018).
Although the interest rate on the BMO Term Loan is variable under the BMO Credit Agreement, the Company fixed the base LIBOR interest rate at 2.32% per annum until August 26, 2020 pursuant to the existing interest rate swap agreement. On August 26, 2020, when the existing interest rate swap agreement expires, the Swap Transactions will fix the base LIBOR interest rate at 2.385% per annum until the BMO Term Loan matures on January 31, 2024. Based upon the Company’s credit rating as of December 31, 2018, on August 26, 2020, the effective interest rate on the BMO Term Loan will change from 3.57% per annum to 3.635% per annum and, subject to any changes in the Company’s credit rating, will remain fixed at that rate until maturity on January 31, 2024.
In addition, under the Swap Transactions, the initial aggregate notional amount of $220,000,000 will be reduced to $165,000,000 on November 30, 2021, which is the maturity date of the tranche A term loan under the BMO Credit Agreement.
Certain of the Swap Counterparties, and their respective affiliates, have performed, and may in the future perform for the Company and its subsidiaries, various commercial banking, investment banking, underwriting and other financial advisory services, for which they have received, and will receive, customary fees and expenses.