Debt

9 Months Ended

Sep. 30, 2020

The following table presents the carrying amount of our debt as of September 30, 2020 and December 31, 2019 (in millions):


	September 30, 2020		December 31, 2019
CMBS Facility	$	767	$	921
Revolving Facility	100		—
	867		921
Less deferred financing costs, net	—		(6)
Total debt, net	$	867	$	915

CMBS Facility

Certain indirect wholly-owned subsidiaries of CorePoint Lodging Inc. (collectively, the “CorePoint CMBS Borrower”), CorePoint TRS and CorePoint Operating Partnership L.P. (“CorePoint OP”) are parties to a loan agreement (the “CMBS Loan Agreement”) providing for a mortgage loan secured primarily by mortgages for substantially all of our wholly-owned and ground leased hotels, an excess cash flow pledge for five owned and ground leased hotels and other collateral customary for mortgage loans of this type (the “CMBS Facility”).

The CMBS Facility currently matures on June 9, 2021, with four remaining one-year extension options, exercisable at the CorePoint CMBS Borrower’s election, provided there is no event of default existing as of the commencement of the applicable extension period and the CorePoint CMBS Borrower either extends the current interest rate cap or purchases a new interest rate cap covering the extension period at a strike price as set forth in the CMBS Loan Agreement. No principal payments are due prior to the scheduled or extended maturity date. The CMBS Facility is pre-payable in whole or in part subject to payment of all accrued interest through the end of the applicable accrual period.

The terms of the CMBS Facility state that it bears interest at a rate equal to the sum of an applicable margin plus one-month LIBOR. Interest is generally payable monthly. As of September 30, 2020, the applicable margin on the CMBS Facility was 2.79% and the interest rate was 2.94%. As of December 31, 2019, the applicable margin on the CMBS Facility was 2.75% and the interest rate was 4.51%. The applicable margin will increase by 15 basis points after June 2023 and an additional 10 basis points after June 2024. Additional prepayments, if any, will be applied to the lower interest bearing principal tranches, reducing total future interest expense but having the effect of increasing the applicable margin thereafter on the remaining outstanding principal balance.

We may obtain the release of individual properties from the CMBS Facility provided that certain conditions of the CMBS Loan Agreement are satisfied. The most restrictive of these conditions provide that after giving effect to such release the debt yield for the CMBS Facility (generally defined as hotel property operating net income before interest, depreciation and a fixed amount of corporate general and administrative expenses divided by the outstanding principal balance of the CMBS Facility, “Debt Yield”) is not less than the greater of (x) 16.44% and (y) the lesser of (i) the Debt Yield in effect immediately prior to such release and (ii) 16.94% (such result the “Release Debt Yield”). However, if such release is in connection with the sale of a property to an unrelated third party, such sold property may be released if the CMBS Borrower prepays an amount equal to the greater of (x) the allocated portion of

the outstanding CMBS Facility plus a premium ranging from 5% to 10%, as defined in the CMBS Loan Agreement, and (y) the lesser of (i) the full net proceeds from the sale of the property received by us and (ii) the amount necessary to satisfy the Release Debt Yield. Accordingly, such CMBS Loan Agreement release provisions could affect our ability to sell properties or restrict the use of sale proceeds only to (or substantially to) the required partial prepayment of the CMBS Facility. Since May 2020, all net sale proceeds have been required to be paid under the CMBS Loan Agreement to release the collateralized property under the CMBS Facility, and we believe that future hotel collateral releases will likely require the payment of all (or substantially all) net sale proceeds as well. During the nine months ended September 30, 2020, primarily in connection with the sale of 50 secured hotel properties, $154 million of the net proceeds were used to pay down the principal of the CMBS Facility.

The CMBS Facility lender has the right to control the disbursement of hotel operating cash receipts (referred to as a “CMBS Facility cash trap”) during the continuation of an event of default under the loan or if and while the debt yield for the CMBS Facility falls below 12.33% through May 30, 2023 and 12.83% thereafter, in each case, for two consecutive quarters. As of the September 30, 2020 calculation date, we were below the CMBS Facility cash trap Debt Yield threshold for the second consecutive quarter, and we expect therefore to be subject to a CMBS Facility cash trap beginning in November 2020. So long as there is no continuing event of default under the CMBS facility, cash and cash equivalents subject to the CMBS Facility cash trap are generally available for any operating, emergency repairs and/or life safety issues, capital expenditures (after application of any amounts then held in reserve), hotel taxes and custodial funds, costs incurred in connection with the purchase of any furniture, fixtures and equipment, costs incurred in connection with the purchase of interest rate caps, voluntary prepayment of the CMBS Facility, certain legal, audit, tax and accounting expenses, certain required REIT distributions, restoration expenses, debt service under the CMBS Facility and the Revolving Facility, fees and costs payable under the CMBS Facility and Revolving Facility, leasing costs, alterations of the properties, payment of shortfalls for required deposits under the CMBS Loans, payments due under ground leases and such other items as reasonably approved by the CMBS Facility lender. Certain disbursements, primarily other corporate general and administrative expenditures, dividends to common stockholders and repurchases of our common stock, would require consent of the CMBS Facility lender. We will be subject to the CMBS Facility cash trap until we are in compliance with the applicable debt yield requirement described above for two consecutive quarters or prepay the loan in an mount such that we are in compliance with the required debt yield, which we may be unable to meet through the maturity date of the CMBS Facility.

The CMBS Facility includes customary non-recourse carve-out guarantees, affirmative and negative covenants and events of default, including, among other things, guarantees for certain losses arising out of customary “bad-boy” acts of CorePoint OP and its affiliates and environmental matters (which will be recourse for environmental matters only to the CorePoint CMBS Borrower provided that the required environmental insurance is delivered to the lender), a full recourse guaranty with respect to certain bankruptcy events, restrictions on the ability of the CorePoint CMBS Borrower to incur additional debt and transfer, pledge or assign certain equity interests or its assets, and covenants requiring the CorePoint CMBS Borrower to exist as “special purpose entities,” maintain certain ongoing reserve funds and comply with other customary obligations for commercial mortgage-backed securities loan financings. As of September 30, 2020, we believe we were in compliance with these covenants.

At the origination of the CMBS Facility, the CorePoint CMBS Borrower deposited in the loan servicer’s account $15 million in upfront reserves for property improvement and environmental remediation, which funds may be periodically disbursed to the CorePoint CMBS Borrower throughout the term of the loan to cover such costs. In June 2020, the CorePoint CMBS Borrower deposited in the loan servicer’s account an additional $6 million in reserves related to property insurance coverage and higher property insurance deductibles, which funds may be periodically disbursed to the CorePoint CMBS Borrower throughout the term of the loan to cover such costs.

Revolving Facility

CorePoint Lodging Inc., CorePoint Borrower L.L.C. (the “CorePoint Revolver Borrower”) CorePoint OP GP, L.L.C., and CorePoint OP are parties to a credit agreement (the “Revolver Credit Agreement”), as amended, providing for a $110 million Revolving Facility (“Revolving Facility”). The CorePoint Revolver Borrower is our indirect wholly-owned subsidiary and the direct wholly-owned subsidiary of CorePoint OP. Required principal payments of $5 million per month began in August 2020 and continue through December 2020 (the “Scheduled Payments”). The Revolving Facility matures on May 31, 2021. As of September 30, 2020, $100 million was outstanding under the Revolving Facility and we had no additional borrowings available. In addition, as of September 30, 2020, there was a $2 million outstanding letter of credit issued under the Revolving Facility.

In May 2020, in connection with the amendment to the Revolver Credit Agreement, interest under the Revolving Facility increased, at the option of the CorePoint Revolver Borrower, to either a base rate plus a margin of 4.0% per annum or a LIBOR rate plus a margin of 5.0% per annum. Prior to the amendment to the Revolver Credit Agreement, the base rate and LIBOR margins were 3.5% and 4.5%, respectively. With respect to base rate loans, interest will be payable at the end of each quarter. With respect to LIBOR loans, interest will be payable at the end of the selected interest period but no less frequently than quarterly. Additionally, there is a commitment fee payable at the end of each quarter equal to 0.75% per annum of unused commitments under the Revolving Facility and customary letter of credit fees. As of September 30, 2020, the Revolving Facility interest rate was 5.15%.

The Revolving Facility contains customary representations and warranties. The obligations under the Revolving Facility are unconditionally and irrevocably guaranteed by CorePoint OP, CorePoint Lodging Inc. and CorePoint OP GP L.L.C. and, subject to certain exceptions, each of the CorePoint Revolver Borrower and its existing and future domestic subsidiaries that own equity interests in any CorePoint CMBS Borrower. Furthermore, CorePoint Lodging Inc., CorePoint OP GP L.L.C. and CorePoint OP each pledge certain equity interests in subsidiaries, representing substantially all of the Company’s hotel operations, as security for the obligations.

The Revolver Credit Agreement, as amended, also requires that we maintain a minimum liquidity of $60 million of cash and cash equivalents, as defined, at all times. The minimum liquidity amount is reduced on a dollar-for-dollar basis in respect of 50% of any amounts utilized to repay our Revolving Facility and permanently reduce the commitments thereunder (other than in respect of the Scheduled Payments). Beginning in May 2020, the Revolving Facility lenders have rights to control the disbursement of our hotel operating cash receipts (referred to as the “Revolving Facility cash trap”). As of September 30, 2020, the cash and cash equivalents subject to the Revolving Facility cash trap were approximately $34 million. Cash and cash equivalents subject to the cash trap are generally available for hotel operations, interest payments and certain corporate administrative expenses. Certain disbursements, primarily other corporate general and administrative expenditures, dividends to common stockholders and repurchases of our common stock, would require consent of our lenders. The terms of the CMBS Facility cash trap are senior to the Revolving Facility cash trap but are generally similar in scope and are not cumulative in the effect on our cash and cash equivalents. We will be subject to the Revolving Facility cash trap until we are in compliance with a debt yield threshold of not less than 13.8% under the Revolving Facility, which we may be unable to meet during the remainder of the term of the Revolving Facility. The Revolving Facility also includes other customary covenants for commercial revolver facilities. As of September 30, 2020, we believe we were in compliance with these terms and covenants of the Revolver Credit Agreement.