ITEM 1.01 Entry into a Material Definitive Agreement.
On September 27, 2022, DiamondRock Hospitality Company (the “Company”), as parent guarantor, DiamondRock Hospitality Limited Partnership, as borrower, and certain subsidiaries of the Company, as guarantors, entered into a Sixth Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, as administrative agent, and certain other lenders named therein (the “Amended Credit Agreement”). The Amended Credit Agreement provides for a $400 million senior unsecured revolving credit facility and two term loan facilities in the aggregate amount of $800 million. Wells Fargo Securities LLC, BofA Securities, Inc, U.S Bank National Association and TD Securities (USA) LLC are joint lead arrangers and bookrunners of the Credit Agreement. KeyBanc Capital Markets, Inc., Regions Capital Markets, PNC Capital Markets LLC and Capital One, National Association are joint lead arrangers of the Credit Agreement. Bank of America, N.A., U.S. Bank National Association and TD Bank, N.A. are syndication agents, KeyBank National Association, Regions Bank, PNC Bank, National Association, BMO Harris Bank, N.A. and Capital One, National Association are documentation agents and Wells Fargo Bank, National Association and PNC Bank, National Association are sustainability structuring agents.
The revolving credit facility under the Amended Credit Agreement matures on September 27, 2026. The Company may extend the maturity date of the revolving credit facility for an additional year upon the payment of applicable fees and satisfaction of certain standard conditions. The Company also has the right to increase the aggregate amount of the facilities to $1.4 billion upon the satisfaction of certain standard conditions.
The term loan facilities consist of a $500 million term loan that matures on January 3, 2028 (the “Term 1 Loan”) and a $300 million term loan that matures January 3, 2025 (the “Term 2 Loan”). The maturity date of the Term 2 Loan may be extended for an additional year upon the payment of applicable fees and satisfaction of certain standard conditions.
Interest is paid on the periodic advances on the revolving credit facility and amounts outstanding on the term loans at varying rates, based upon adjusted SOFR as defined in the Amended Credit Agreement plus an applicable margin. The applicable margin is based upon the Company’s ratio of net indebtedness to EBITDA, as follows:
| | | | | | | | | | | |
| Level | Ratio of Net Indebtedness to EBITDA | Applicable Margin for Revolving Loans | Applicable Margin for Term Loans |
| 1 | Less than 30% | 1.40% | 1.35% |
| 2 | Greater than or equal to 30% but less than 35% | 1.45% | 1.40% |
| 3 | Greater than or equal to 35% but less than 40% | 1.50% | 1.45% |
| 4 | Greater than or equal to 40% but less than 45% | 1.60% | 1.55% |
| 5 | Greater than or equal to 45% but less than 50% | 1.80% | 1.75% |
| 6 | Greater than or equal to 50% but less than 55% | 1.95% | 1.85% |
| 7 | Greater than or equal to 55% | 2.25% | 2.20% |
In addition, the Amended Credit Agreement also features a sustainability-linked pricing component whereby the Applicable Margin can be reduced by up to 0.04% if the Borrower meets certain sustainability performance targets.
In addition to the interest payable on borrowings under the Credit Agreement, the Company is required to pay an amount equal to 0.20% of the unused portion of the Revolving Credit Facility if the average usage of the Credit Agreement is greater than or equal to 50% and 0.30% if the average usage of the Revolving Credit Facility is less than 50%.
The Credit Agreement contains various corporate financial covenants. A summary of the most restrictive covenants is as follows:
| | | | | |
| Covenant |
| Maximum leverage ratio | 60% |
| Minimum fixed charge coverage ratio | 1.50x |
| Secured Indebtness | Less than 45% of Total Asset Value |
| Unencumbered Leverage Ratio | 60% |
| Unencumbered Implied Debt Service Coverage Ratio | 1.20x |
The Credit Agreement contains representations, financial and other affirmative and negative covenants, events of default and remedies typical for this type of facility. Any failure to comply with the financial and operating covenants of the Credit Agreement would constitute a default, which could result in, among other things, the amounts outstanding, including all accrued interest and unpaid fees, becoming immediately due and payable.
The Company utilized the proceeds from the term loans to repay the $350 million term loan in the prior facility, the $50 million term loan facility that was scheduled to mature in October 2023 and the $150 million that was outstanding on its revolving credit facility. The Company plans to utilize the remaining proceeds to repay its 2023 mortgage loan maturities over the next 90 days. Upon the repayment of the mortgage loans, the Company will have no debt maturities until August 2024.
The foregoing description of the Credit Agreement is qualified in its entirety by the full terms and conditions of the Credit Agreement which is filed as Exhibit 10.1 to this Current Report and incorporated herein by reference.