Long-term debt and obligations under capital lease

(a) Long-term debt and obligations under capital lease

Long-term debt and obligations under capital lease consists of the following:



	2012	2011
December 31,	$’000	$’000

Loans from banks and other parties collateralized by property, plant and equipment payable over periods of one to 20 years, with a weighted average interest rate of 4.14% and 4.32%, respectively	521,494	538,730
Obligations under capital lease (See Note 11 (b))	66	5,158

	521,560	543,888
Less: Current portion	90,115	77,058

Total long-term debt and obligations under capital lease	431,445	466,830

For the renovation of El Encanto hotel, OEH entered into a loan agreement in August 2011 for $45,000,000 to be drawn as construction progresses. During the year ended December 31, 2012, OEH borrowed $25,749,000 (2011 - $Nil) under this facility. The loan has a maturity of three years, with two one year extensions, at an annual interest rate based on monthly LIBOR plus 3.65%.

In June 2012, OEH renewed a loan secured by the Napasai property in Thailand. The loan consists of two tranches, a $9,000,000 facility and a THB135,000,000 ($4,251,000) facility. Annual interest on both tranches is 3.00% over LIBOR and BIBOR, the respective reference rates, and both mature in July 2017.

In September 2012, OEH drew a new loan facility of €35,000,000 ($44,400,000) to refinance €36,844,000 ($46,757,000) of long-term debt maturing in 2013 secured by the two Sicilian hotels. The loan matures in three years and bears interest at a rate of EURIBOR plus 5.00% per annum. OEH has entered into interest rate swaps to fix the variable interest rate of the full amount on the loan at 5.59%.

Also in September 2012, OEH obtained a new loan of $12,000,000 secured by the cash flows of its two hotels in Bali. The loan will be drawn in the third quarter of 2013 and will be used to refurbish Jimbaran Puri Bali hotel. The loan has an annual interest rate of LIBOR plus 3.75% and matures in September 2015.

In December 2012, OEH entered into a $50,000,000 loan secured by Grand Hotel Europe. The facility consists of two tranches, of which one tranche of $24,000,000 will be used for general corporate purposes and repaying $4,000,000 existing debt, and the second tranche of $26,000,000 will be used for the hotel's refurbishment project. Annual interest on both tranches is 7.00% over LIBOR and the facility matures in December 2017. A capital lease on the hotel was extinguished as part of the refinancing, resulting in a gain of $1,514,000 in the year ended December 31, 2012.

At December 31, 2012, one of OEH’s subsidiaries had not complied with certain financial covenants in a loan facility. The $1,666,000 outstanding on this loan has been classified as a current portion of debt and OEH expects to rectify this non-compliance in the first half of 2013.

During the year ended December 31, 2011, two loan facilities were refinanced and accounted for as an extinguishment of debt, resulting in the write-off of deferred financing costs of $693,000. One loan totaling $100,000,000 (of which $88,000,000 was drawn) was refinanced with a new loan of $115,000,000. The new loan has two tranches, one of $100,000,000 which was used to repay the previous debt, and a second tranche of $15,000,000 which was used to fund the renovations at Copacabana Palace. The loan matures in August 2014 and has an interest rate of LIBOR plus 3.15% per annum. OEH has entered into interest rate swaps to fix the interest rate of approximately 60% of the drawn loan at 0.81%.

The second 2011 loan of €18,000,000 ($26,100,000) refinanced a maturing loan of €30,000,000 ($43,500,000) secured by La Residencia. The new loan, which matures in June 2014, has an interest rate of EURIBOR plus 2.75% per annum. OEH has entered into interest rate swaps to fix the interest rate of approximately 50% of the drawn loan at 2.29%.

Most of OEH’s loan facilities relate to specific hotel or other properties and are secured by a mortgage on the particular property. In most cases, the Company is either the borrower or the subsidiary owning the property is the borrower, with the loan guaranteed by the Company.

The loan facilities generally place restrictions on the property-owning company’s ability to incur additional debt and limit liens, and restrict mergers and asset sales, and include financial covenants. Where the property-owning subsidiary is the borrower, the financial covenants relate to the financial performance of the property financed and generally include covenants relating to interest coverage, debt service, and loan-to-value and debt-to-EBITDA tests. Most of the facilities under which the Company is the borrower or the guarantor also contain financial covenants which are based on the performance of OEH on a consolidated basis. The covenants include a quarterly interest coverage test and a quarterly net worth test.

Many of OEH's bank loan facilities include cross-default provisions under which a failure to pay principal or interest by the borrower or guarantor under other indebtedness in excess of a specified threshold amount would cause a default under the facilities. Under OEH's largest loan facility, the specified cross-default threshold amount is $25,000,000. At December 31, 2012, no cross-default provision in a loan facility had been triggered.

The following is a summary of the aggregate maturities of consolidated long-term debt, excluding obligations under capital lease, at December 31, 2012:



Year ended December 31,		$’000

2013		90,064
2014		169,023
2015		221,113
2016		4,442
2017		14,017
2018 and thereafter		22,835

		521,494

The Company has guaranteed $341,078,000 of the long-term debt of its subsidiary companies as at December 31, 2012 (2011 -$347,850,000).

The fair value of the debt excluding obligations under capital leases at December 31, 2012 has been estimated in the amount of $533,783,000 (2011 - $509,866,000).

Deferred financing costs related to the above outstanding long-term debt are $13,694,000 at December 31, 2012 (2011 - $13,689,000) and are amortized to interest expense over the term of the corresponding long-term debt.

The debt of Charleston Center LLC, a consolidated VIE, of $97,945,000 at December 31, 2012 (2011 - $90,529,000) is non-recourse to OEH and separately disclosed on the consolidated balance sheet. The debt was entered into in October 2010 and has a maturity of three years, with two one year extensions and the interest rate is at LIBOR plus a margin of 3.50% per annum. See Note 3.

(b) Obligations under capital leases

The following is a summary of future minimum lease payments under capital leases together with the present value of the minimum lease payments at December 31, 2012:



Year ended December 31,	$’000

2013	57
2014	15
2015	—
2016	—
2017	—
2018 and thereafter	—
Minimum lease payments	72
Less: Amount of interest contained in above payments	(6	)
Present value of minimum lease payments	66
Less: Current portion	(51	)

	15

The amount of interest deducted from minimum lease payments to arrive at the present value is the interest contained in each of the leases.