Notes Payable

6 Months Ended

Jun. 30, 2020

7. Notes Payable

Notes payable consisted of the following (in thousands):


	June 30,		December 31,
	2020		2019
	(unaudited)
Notes payable requiring payments of interest and principal, with fixed rates ranging from 4.12% to 5.95%; maturing at dates ranging from November 1, 2020 through January 6, 2025. The notes are collateralized by first deeds of trust on four hotel properties at both June 30, 2020 and December 31, 2019.	$	326,247	$	329,863
Note payable requiring payments of interest only, bearing a blended rate of one-month LIBOR plus 105 basis points; initial maturity on December 9, 2020 with three one-year extensions, which the Company intends to exercise. The note is collateralized by a first deed of trust on one hotel property.		220,000		220,000
Unsecured term loan requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 135 to 220 basis points over one-month LIBOR, depending on the Company's leverage ratios. LIBOR has been swapped to a fixed rate of 1.591%, resulting in an effective interest rate of 2.941%. Matures on September 3, 2022.		85,000		85,000
Unsecured term loan requiring payments of interest only, with a blended interest rate based on a pricing grid with a range of 135 to 220 basis points over one-month LIBOR, depending on the Company's leverage ratios. LIBOR has been swapped to a fixed rate of 1.853%, resulting in an effective interest rate of 3.203%. Matures on January 31, 2023.		100,000		100,000
Credit facility requiring payments of interest only, bearing a blended rate based on a pricing grid with a range of 140 to 225 basis points over one-month LIBOR, depending on the Company's leverage ratios. Matures on April 14, 2023. The interests of 14 hotel subsidiaries are pledged to the credit facility.		50,000		—
Unsecured Senior Notes requiring semi-annual payments of interest only, bearing interest at 4.69%; maturing on January 10, 2026.		120,000		120,000
Unsecured Senior Notes requiring semi-annual payments of interest only, bearing interest at 4.79%; maturing on January 10, 2028.		120,000		120,000
Total notes payable	$	1,021,247	$	974,863

Current portion of notes payable	$	189,945	$	83,975
Less: current portion of deferred financing costs		(1,188)		(1,866)
Carrying value of current portion of notes payable	$	188,757	$	82,109

Notes payable, less current portion	$	831,302	$	890,888
Less: long-term portion of deferred financing costs		(1,629)		(1,934)
Carrying value of notes payable, less current portion	$	829,673	$	888,954

The Company has not made its debt payments for the $77.2 million loan secured by the Hilton Times Square since April 2020; although the Company continues to accrue interest expense on the debt, including $0.8 million in default interest accrued as of June 30, 2020. While the Company is required to record such default interest, recovery of default interest is non-recourse to the Company, and thus the Company does not intend to actually fund default interest as part of the ultimate resolution with the lender. The loan matures on November 1, 2020, and is included in current portion of notes payable on the Company’s consolidated balance sheet as of June 30, 2020. In addition, the hotel’s ground leases require monthly rental payments be paid to the respective landlords, which the Company has not made since March 2020 (see Notes 9 and 12). As such, the Company has received default notices from its lender and landlords, and is working with the lender to explore various options in advance of the November 2020 debt maturity, which could include a negotiated transfer of the hotel to the lender or its landlords or a discounted payoff of the loan.

The Company is subject to various financial covenants on its credit facility, secured debt, corporate-level unsecured term loans and corporate-level unsecured senior notes. As of June 30, 2020, the Company was not in compliance with its unsecured debt covenants, but had received a temporary waiver of financial covenants pending the completion of a formal amendment. In July 2020, the Company finalized the amendments on its credit agreement, unsecured term loans and unsecured senior notes, providing covenant relief through the first quarter of 2021, with the first quarterly covenant test as of the period ended June 30, 2021 (see Note 13).

In March 2020, the Company drew $300.0 million under the revolving portion of its amended credit agreement as a precautionary measure to increase the Company’s cash position and preserve financial flexibility. In June 2020, the Company repaid $250.0 million of the outstanding credit facility balance after determining that the Company had sufficient cash on hand in addition to access to its credit facility. At June 30, 2020, $50.0 million remains outstanding on the revolving portion of the Company’s amended credit agreement.

Pursuant to the terms of the amended credit agreement, interest is based upon one-month LIBOR plus an applicable margin determined by the Company’s ratio of net indebtedness to EBITDA. As of June 30, 2020, the applicable margin was 1.40%, resulting in an effective rate of 1.57%. The revolving portion of the amended credit agreement matures on April 14, 2023, but may be extended for two six-month periods to April 14, 2024, upon the payment of applicable fees and satisfaction of certain customary conditions.

The Company has $450.0 million of capacity available for additional borrowing under the revolving portion of its amended credit agreement. In addition, the Company has the right to increase the revolving portion of the amended credit agreement, or to add term loans, in an amount up to $115.0 million, subject in each case, to a lender’s willingness to provide such increase or such term loans.

Interest Expense

Total interest incurred and expensed on the notes payable was as follows (unaudited and in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Interest expense on debt and finance lease obligations	$	12,037	$	11,484	$	22,765	$	22,993
Noncash interest on derivatives and finance lease obligations, net		216		3,634		6,296		5,753
Amortization of deferred financing costs		697		698		1,396		1,396
Total interest expense	$	12,950	$	15,816	$	30,457	$	30,142