Item 1.01 Entry into a Material Definitive Agreement.
On March 30, 2020, Pennsylvania Real Estate Investment Trust (“PREIT” or the “Company”), PREIT Associates, L.P. and PREIT-RUBIN, Inc. (collectively with PREIT and PREIT Associates, L.P., the “Borrower”) entered into (a) a Sixth Amendment to Seven-Year Term Loan (the “7-Year Term Loan Amendment”), which amends that certain Seven-Year Term Loan Agreement, dated January 8, 2014 (as amended, the “7-Year Term Loan”) with Wells Fargo Bank, National Association and the other financial institutions signatory thereto and (b) a First Amendment to Amended and Restated Credit Agreement (the “2018 Credit Agreement Amendment” and, together with the 7-Year Term Loan Amendment, the “Loan Amendments”), which amends that certain Amended and Restated Credit Agreement, dated May 24, 2018 (as amended, the “2018 Credit Agreement”) with Wells Fargo Bank, National Association and the other financial institutions signatory thereto.
The primary purpose of the Borrower in entering into the Loan Amendments is to provide certain debt covenant relief through September 30, 2020.
7-Year Term Loan Amendment
Among other things, the 7-Year Term Loan Amendment:
(i) modifies certain definitions, including Adjusted EBITDA, Adjusted NOI and Gross Asset Value;
(ii) adjusts the applicable margin pricing grid to add a new tier applicable when the ratio of total liabilities to gross asset value equals or exceeds 0.600 to 1.000, and that new tier of applicable margin took effect immediately upon the effectiveness of the 7-Year Term Loan Amendment and will remain in effect at least through the end of the fiscal quarter ending June 30, 2020;
(iii) adds a mandatory prepayment provision requiring that the Borrower prepay the Loans under the 7-Year Term Loan in an amount equal to 45.45% of any Net Cash Proceeds received from certain Capital Events (provided that any Net Cash Proceeds from Capital Events in excess of $150,000,000 must be applied 50% toward repayment of outstanding Revolving Loans under the 2018 Credit Agreement with 45.45% of the remaining 50% applied to prepay the Loans under the 7-Year Term Loan), subject to certain exceptions;
(iv) adds monthly principal amortization payments of $909,090.91 for the months of April, May, June, July, August and September of 2020;
(v) amends certain financial covenants as follows: (i) the Ratio of Total Liabilities to Gross Asset Value (such that the ratio must not exceed 0.65 to 1.00 at any time prior to and including September 30, 2020, or 0.60 to 1.00 at any time thereafter, subject to certain exceptions), (ii) the Ratio of Adjusted EBITDA to Fixed Charges (such that the ratio must not be less than 1.40 to 1.00 for any period ending on or before September 30, 2020, or 1.50 to 1.00 for any period ending thereafter), and (iii) Unencumbered Debt Yield (such that the Unencumbered Debt Yield must be at least (A) 10.0% at any time prior to September 30, 2020, (B) 11.25% any time after September 30, 2020 through and including June 30, 2021, and (C) 11.50% at any time thereafter);
(vi) adds a covenant restricting the Borrower and Guarantors (and any Subsidiary thereof) from incurring additional Indebtedness (subject to certain exceptions);
(vii) adds a covenant requiring the Borrower to maintain unrestricted cash liquidity of $25,000,000 at all times prior to September 30, 2020;
(viii) requires that the Borrower work diligently and in good faith with the Administrative Agent and the Lenders toward an additional modification of the 7-Year Term Loan and related indebtedness that refinances or restructures such indebtedness; and
(ix) prohibits the Borrower from entering into a sale-leaseback or any similar transaction with respect to Unencumbered Property without the Requisite Lenders’ consent, subject to certain exceptions.
The 7-Year Term Loan contains other affirmative and negative covenants customarily found in facilities of its type that remain unchanged under the 7-Year Term Loan Amendment and are described in PREIT’s Annual Report on Form 10-K for the year ended December 31, 2019. All capitalized terms used above in this Current Report on Form 8-K and not otherwise defined herein have the meanings ascribed to such terms in the 7-Year Term Loan. The description above is qualified in its entirety by reference to the 7-Year Term Loan Amendment, which is filed as Exhibit 10.1 to this Current Report on Form 8-K.
2018 Credit Agreement Amendment
Among other things, the 2018 Credit Agreement Amendment:
(i) modifies certain definitions, including Adjusted EBITDA, Adjusted NOI and Gross Asset Value in a manner consistent with the 7-Year Term Loan Amendment;
(ii) adjusts the applicable margin pricing grid to add a new tier applicable when the ratio of total liabilities to gross asset value equals or exceeds 0.600 to 1.000, and that new tier of applicable margin took effect immediately upon the effectiveness of the 2018 Credit Agreement Amendment and will remain in effect at least through the end of the fiscal quarter ending June 30, 2020;
(iii) adds a mandatory prepayment provision requiring that (i) the Borrower prepay the Term Loans under the 2018 Credit Agreement in an amount equal to 54.55% of any Net Cash Proceeds received from certain Capital Events (provided that any Net Cash Proceeds from Capital Events in excess of $150,000,000 must be applied 50% toward repayment of outstanding Revolving Loans under the 2018 Credit Agreement with 54.55% of the remaining 50% applied to prepay the Term Loans under the 2018 Credit Agreement), subject to certain exceptions and (ii) if the Borrower has greater than $50,000,000 of unrestricted cash on its balance sheet for five consecutive days any time prior to September 30, 2020, that the Borrower prepay the Revolving Loans with its excess cash above $50,000,000;
(iv) adds monthly principal amortization payments of $1,090,909.09 for the months of April, May, June, July, August and September of 2020;
(v) amends certain financial covenants as follows: (i) the Ratio of Total Liabilities to Gross Asset Value (such that the ratio must not exceed 0.65 to 1.00 at any time prior to and including September 30, 2020, or 0.60 to 1.00 at any time thereafter, subject to certain exceptions), (ii) the Ratio of Adjusted EBITDA to Fixed Charges (such that the ratio must not be less than 1.40 to 1.00 for any period ending on or before September 30, 2020, or 1.50 to 1.00 for any period ending thereafter), and (iii) Unencumbered Debt Yield (such that the Unencumbered Debt Yield must be at least (A) 10.0% at any time prior to
September 30, 2020, (B) 11.25% any time after September 30, 2020 through and including June 30, 2021, and (C) 11.50% at any time thereafter);
(vi) adds a requirement that Borrower provide calculations evidencing compliance with certain financial covenants at the time of certain credit events after September 30, 2020;
(vii) adds a covenant restricting the Borrower and Guarantors (and any Subsidiary thereof) from incurring additional Indebtedness (subject to certain exceptions);
(viii) adds a covenant requiring the Borrower to maintain unrestricted cash liquidity of $25,000,000 at all times prior to September 30, 2020;
(ix) requires that the Borrower work diligently and in good faith with the Administrative Agent and the Lenders toward an additional modification of the 2018 Credit Agreement and related indebtedness that refinances or restructures such indebtedness;
(x) permanently reduces the aggregate Revolving Commitment under the 2018 Credit Agreement by $25,000,000 to $375,000,000; and
(xi) prohibits the Borrower from entering into a sale-leaseback or any similar transaction with respect to Unencumbered Property without the Requisite Lenders’ consent, subject to certain exceptions.
The 2018 Credit Agreement contains other affirmative and negative covenants customarily found in facilities of its type that remain unchanged under the 2018 Credit Agreement Amendment and are described in PREIT’s Annual Report on Form 10-K for the year ended December 31, 2019. All capitalized terms used above to describe the 2018 Credit Agreement Amendment in this Current Report on Form 8-K and not otherwise defined herein have the meanings ascribed to such terms in the 2018 Credit Agreement. The description above is qualified in its entirety by reference to the 2018 Credit Agreement Amendment, which is filed as Exhibit 10.2 to this Current Report on Form 8-K.