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Indebtedness, net
 3 Months Ended
Mar. 31, 2021
Debt Disclosure [Abstract]  
Indebtedness, net Indebtedness, net
Indebtedness consisted of the following (in thousands):
March 31, 2021December 31, 2020
IndebtednessCollateralMaturity
Interest Rate (1)
Default Rate (2)
Debt BalanceDebt Balance
Mortgage loan(4)
7 hotelsJune 2021
LIBOR(3) + 3.65%
n/a$180,720 $180,720 
Mortgage loan(4)
7 hotelsJune 2021
LIBOR(3) + 3.39%
n/a174,400 174,400 
Mortgage loan(4)
5 hotelsJune 2021
LIBOR(3) + 3.73%
n/a221,040 221,040 
Mortgage loan(4)
5 hotelsJune 2021
LIBOR(3) + 4.02%
n/a262,640 262,640 
Mortgage loan(4)
5 hotelsJune 2021
LIBOR(3) + 3.68%
n/a215,120 215,120 
Mortgage loan(4)
5 hotelsJune 2021
LIBOR(3) + 2.73%
n/a160,000 160,000 
Mortgage loan1 hotelNovember 20216.26%n/a81,896 84,544 
Mortgage loan(5)
17 hotelsNovember 2021
LIBOR(3) + 3.00%
n/a419,000 419,000 
Mortgage loan(6)
1 hotelNovember 2021
LIBOR(3) + 2.55%
n/a25,000 25,000 
Mortgage loan(7)
8 hotelsFebruary 2022
LIBOR(3) + 3.07%
n/a395,000 395,000 
Mortgage loan(8)
2 hotelsMarch 2022
LIBOR(3) + 2.75%
n/a240,000 240,000 
Mortgage loan(9)
19 hotelsApril 2022
LIBOR(3) + 3.20%
n/a914,281 914,281 
Mortgage loan(10)
1 hotelJuly 2022
LIBOR(3) + 3.95%
n/a33,200 34,200 
Mortgage loan(11)
1 hotelNovember 2022
LIBOR(3) + 2.00%
n/a97,944 98,259 
Mortgage loan(12)
1 hotelDecember 2022
LIBOR(3) + 2.25%
n/a16,100 16,100 
Mortgage loan(13)
1 hotelJanuary 2023
LIBOR(3) + 3.40%
n/a37,000 37,000 
Mortgage loan1 hotelJune 2023
LIBOR(3)+ 2.45%
n/a73,450 73,450 
Mortgage loan1 hotelJanuary 20245.49%n/a6,674 6,706 
Mortgage loan1 hotelJanuary 20245.49%n/a9,740 9,786 
Term loan(14)
EquityJanuary 202416.00%n/a206,663 — 
Mortgage loan(15)
1 hotelMay 20244.99%5.00%6,260 6,260 
Mortgage loan1 hotelJune 2024
LIBOR(3) + 2.00%
n/a8,881 8,881 
Mortgage loan2 hotelsAugust 20244.85%n/a11,721 11,774 
Mortgage loan3 hotelsAugust 20244.90%n/a23,438 23,542 
Mortgage loan(15)
2 hotelsFebruary 20254.45%4.00%19,369 19,369 
Mortgage loan(15)
3 hotelsFebruary 20254.45%4.00%50,098 50,098 
Mortgage loan1 hotelMarch 20254.66%n/a24,281 24,415 
3,913,916 3,711,585 
Premiums (discounts), net(41,503)(288)
Capitalized default interest and late charges43,266 27,444 
Deferred loan costs, net(16,588)(9,830)
Embedded debt derivative42,402 — 
Indebtedness, net$3,941,493 $3,728,911 
_____________________________
(1)    Interest rates do not include default or late payment rates in effect on some mortgage loans.
(2)    Default rates are presented for mortgage loans which were in default, in accordance with the terms and conditions of the applicable mortgage agreement, as of March 31, 2021. The default rate is accrued in addition to the stated interest rate.
(3)     LIBOR rates were 0.111% and 0.144% at March 31, 2021 and December 31, 2020, respectively.
(4)    This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began in June 2020.
(5)     Effective February 9, 2021, we executed an agreement regarding existing default and extension options for this mortgage loan. In connection with the agreement, monthly FF&E escrow deposits were waived through December 2021. This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The second one-year extension period began in November 2020.
(6)    This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The first one-year extension option began in November 2020. This mortgage loan has a LIBOR floor of 1.25%.
(7)    Effective January 9, 2021, we executed a loan modification and reinstatement agreement for this mortgage loan. In connection with the agreement, monthly FF&E escrow deposits were waived from April 2020 through December 2020, and monthly tax escrow deposits were waived from April 2020 through June
2020. This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The second one-year extension period began in February 2021.
(8)    This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began in March 2021.
(9)    This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The second one-year extension period began in April 2021.
(10)    This mortgage loan has one one-year extension option, subject to satisfaction of certain conditions. This mortgage loan has a LIBOR floor of 0.25%.
(11)     Effective March 5, 2021, we amended this mortgage loan. Terms of the agreement included monthly FF&E escrow deposits being waived through July 1, 2021.
(12)     This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions. This mortgage loan has a LIBOR floor of 0.25%.
(13)    This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions.
(14)     Effective January 15, 2021, we entered into a term loan agreement with an initial draw of $200 million and a total commitment of $450 million. During the initial two year term, interest shall be paid-in-kind by capitalizing the accrued amount. The initial draw of this term loan is interest only and bears interest at a fixed rate of 16.0% for the first two years and 14.0% thereafter. This term loan has a three-year initial term and two one-year extension options, subject to satisfaction of certain conditions.
(15)    As of March 31, 2021, this mortgage loan was in default under the terms and conditions of the mortgage loan agreement. Default interest has been accrued, in accordance with the terms of the mortgage loan agreement, and is reflected in the Company’s consolidated balance sheet and statement of operations.
On January 15, 2021, the Company entered into a credit agreement (the “Credit Agreement”) with certain funds and accounts managed by Oaktree Capital Management, L.P. (the “Lenders” or “Oaktree”) and Oaktree Fund Administration, LLC, as administrative agent (the “Administrative Agent”). The Credit Agreement provides that, subject to the conditions set forth therein, the Lenders will make available to the borrower a senior secured term loan facility comprising of (a) initial term loans (the “Initial Term Loan”) in an aggregate principal amount of $200 million, (b) initial delayed draw term loans in an aggregate principal amount of up to $150 million (the “Initial DDTL”) and (c) additional delayed draw term loans in an aggregate principal amount of up to $100 million (the “Additional DDTL,” and together with the Initial Term Loan and the Initial DDTL, collectively, the “Loans”), in each case to fund general corporate operations of the Company and its subsidiaries.
The Loans under the Credit Agreement will bear interest (a) with respect to the Initial Term Loan and the Initial DDTL, at an annual rate equal to 16% for the first two years, reducing to 14% thereafter and (b) with respect to the Additional DDTL, at an annual rate equal to 18.5% for the first two years, reducing to 16.5% thereafter. Interest payments on the Loans will be due and payable in arrears on the last business day of March, June, September and December of each calendar year and the maturity date. For the first two years following the closing of the Credit Agreement, the borrower will have the option to pay accrued interest “in kind” by adding such amount of accrued interest to the outstanding principal balance of the Loans (such interest, “PIK Interest”). The initial maturity date of the Credit Agreement (the “Maturity Date”) shall be three years, with two optional one-year extensions subject to satisfaction of certain terms and conditions. The Lenders shall, subject to certain terms, have the ability to make protective advances to the borrower pursuant to the terms of the Credit Agreement to cure defaults with respect to mortgage and mezzanine-level indebtedness of subsidiaries of the borrower having principal balances in excess of $400 million.
Based on the provisions in the Credit Agreement, the Company is required to pay an exit fee as follows: upon the earliest of the repayment of the Loans in full (including as a result of a change of control, as defined in the Credit Agreement), the Maturity Date, or the acceleration of the Loans following an event of default, as defined in the Credit Agreement, the borrower shall pay an exit fee at the Lender’s election of either:
a) A cash payment equal to 15% times the amount of Loans advanced under the credit agreement (including PIK Interest). If the Loans were not accelerated, all or any portion of the cash payment may be paid, at the borrower’s discretion, in common stock; or
b) The issuance of warrants for the purchase of 19.9% of the Company’s outstanding common stock as of the closing date (calculated on a pro forma basis after giving effect to the warrants) for the Initial Term Loan (as such percentage may be increased by up to 15% dependent on the amount of delayed draw term loans drawn or decreased by up to 4% if the borrower delivers equity pledges from certain subsidiaries, in addition to ordinary course adjustments for recapitalization, stock splits and similar transactions), pursuant to a warrants certificate to be signed upon Lender’s election to take warrants.
The exit fee is considered a derivative, under the applicable accounting guidance, which results in bifurcation from the loan resulting in a discount on the loan. The Company recorded a debt discount equal to the fair value of the embedded debt derivative of $43.7 million on the issuance date. The debt discount attributed to the embedded debt derivative is being amortized using the effective interest method over the remaining term of the Term Loans and is included in “interest expense and amortization of discounts and loan costs” in the consolidated statement of operations. See notes 9 and 10 for further discussion.
On February 9, 2021, the Company executed an agreement regarding existing defaults and extension options for the MS 17 Pool loan pursuant to which (a) the Company paid to the lender all current and past due debt service and tax reserve contributions, and (b) the lender suspended all FF&E reserve contributions (for the furniture, fixtures and equipment reserve accounts generally reserved to finance capital improvements to the property) through December 2021. Additionally, the modification agreement lowers the debt yield extension test for the fifth extension option from 10.38% to 8.0%. Finally, the forbearance agreement provides that the second extension option is deemed exercised as of November 9, 2020.
In February 2021 the Company was informed by its lender that the lender is initiating foreclosure proceedings for the foreclosure of the SpringHill Suites Durham and SpringHill Suites Charlotte, which secures the Company’s $19.4 million mortgage loan. The foreclosure proceedings were completed on April 29, 2021.
Additionally, as a result of the troubled debt restructurings all accrued default interest and late charges were capitalized into the applicable loan balances and will be amortized over the remaining term of the loan using the effective interest method. The amount of default interest and late charges capitalized into the loan balance was $32.6 million. The amount of the capitalized principal that was amortized during the three months ended March 31, 2021 was $16.8 million, which is included in “interest expense and amortization of discounts and loan costs” in the consolidated statement of operations.
We recognized net premium (discount) amortization as presented in the table below (in thousands):
Three Months Ended March 31,
Line Item20212020
Interest expense and amortization of discounts and loan costs$(2,465)$56 
The amortization of the net premium is computed using a method that approximates the effective interest method, which is included in “interest expense and amortization of discounts and loan costs” in the consolidated statements of operations.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. As of March 31, 2021, we were in compliance with all covenants related to mortgage loans for which we entered into forbearance and other agreements. We were also in compliance with all covenants under the Oaktree Credit Agreement. The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of Ashford Trust or Ashford Trust OP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations of Ashford Trust or Ashford Trust OP.