NOTE 6. LONG-TERM DEBT

On February 14, 2020, with the purchase of the remaining interest in the Atlanta JV (see Note 3), the Company became the primary obligator on the New Term Loan and drew an additional $7,300 under its credit facility with Key Bank to fund the transaction. The New Term Loan was refinanced using the credit facility subsequent to quarter end as discussed in Subsequent Events (see Note 16).

On March 30, 2020, the Company entered into a Sixth Amendment to its credit facility with Key Bank which, among other things, makes the following changes to the credit facility:

Sets the size of the credit facility at $102,000 and removes the ability to reborrow under the credit facility in the future (without lender approval).

Extends the maturity date of the credit facility to April 1, 2021, and provides for two extension options (six months and five months) with the satisfaction of certain conditions, including payment of extension fees, no defaults existing, delivery of evidence of pro forma compliance with financial covenants and delivery of updated appraisals.

Provides for principal prepayments with certain proceeds and cash flows through a cash management system / cash flow waterfall.

Implements a collateral-specific minimum debt yield (ratio of adjusted net operating income for the borrowing base properties to indebtedness outstanding under the credit facility) of 10%. The covenant is first tested on September 30, 2020 and for purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.

Maintains the maximum consolidated leverage ratio (ratio of consolidated total indebtedness to consolidated total asset value) of 60% but provides for updated appraisals to determine consolidated total asset value (if required by the lenders).

Modifies the fixed charge coverage ratio (ratio of adjusted consolidated Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) to consolidated fixed charges) to (a) 1.25 to 1 as of the end of the fiscal quarter ending September 30, 2020 and (b) 1.50 to 1 as of the end of the fiscal quarter ending December 31, 2020 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.

Implements a maximum borrowing base leverage ratio (ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated appraisals required by the lenders) of 65%. The covenant is first tested on June 30, 2021.

Eliminates the financial covenants regarding secured leverage ratio, tangible net worth and variable rate debt.

Modifies the covenant on dividends and distributions to provide that no cash dividends or distributions may be made to common or preferred shareholders.

Modifies the covenants on recourse debt and investments to provide that no additional recourse debt or investments will be permitted.

Adds certain monthly reporting obligations.

Increases the interest rate for the credit facility to LIBOR plus 3.25% or a base rate plus 2.25%, and further increases the interest rate spreads by 0.25% at six month intervals. The LIBOR rate is subject to a floor of 0.25%.

Provides for an interest reserve account, which was funded with $1,720 on March 30, 2020. The funds are available to make interest payments under the credit facility upon the satisfaction of certain conditions, including if the Company’s unrestricted cash balance is less than $1,500.

Additionally, on March 30, 2020, the Company entered into an agreement with Great Western Bank to defer the monthly principal and interest payments due under that loan on April 1, 2020, May 1, 2020, and June 1, 2020 until the loan’s maturity date in December 2021.

Subsequent to quarter end, the Company amended its credit facility with Key Bank and its loan agreements with Wells Fargo and Great Western Bank as discussed in Subsequent Events (see Note 16).

Long-term debt related to wholly owned properties, including debt related to hotel properties held for sale, consisted of the following loans payable at March 31, 2020 and December 31, 2019:


Lender		Balance at March 31, 2020	Interest rate at March 31, 2020	Maturity	Amortization provision	Properties encumbered at March 31, 2020	Balance at December 31, 2019
Fixed rate debt
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18	$	8,593	4.54%	08/2024	25 years	1	$	8,639
Great Western Bank (1)		13,199	4.33%	12/2021 (5)	25 years	1		13,290
Great Western Bank (1)		915	4.33%	12/2021 (5)	7 years	-		971
Total fixed rate debt		22,707						22,900

Variable rate debt
Wells Fargo		25,499	3.97% (2)	11/2022 (6)	30 years	3		25,612
KeyBank credit facility (3)		95,865	4.84% (4)	4/2021 (7)	Interest only	9		86,845
KeyBank Aloft		34,080	3.05% (8)	5/2020 (9)	Interest only	1		-
Total variable rate debt		155,444				15		112,457

Total long-term debt	$	178,151					$	135,357
Less: Deferred financing costs		(1,426)						(1,356)
Total long-term debt, net of deferred financing costs	$	176,725					$	134,001

(1) Both loans are collateralized by Aloft Leawood.

(2) Variable rate of 30-day LIBOR plus 2.39%, effectively fixed at 4.44% after giving effect to interest rate swap (see Note 8).

(3) Prior to March 30, 2020, the $150,000 credit facility included an accordion feature that would allow the credit facility to be increased to $400,000 with additional lender commitments. Available borrowing capacity under the credit facility was based on a borrowing base formula for the pool of hotel properties securing the facility. The commitment fee on the unused facility was 0.20%. On March 30, 2020, the Sixth Amendment to the credit facility, as discussed above, modified this availability to set the size of the facility at $102,000 with no ability to reborrow under the facility in the future without lender approval.

(4) Prior to March 30, 2020, borrowings under the facility accrued interest based on a leverage-based pricing grid, at the Company’s option, at either LIBOR plus a spread ranging from 2.25% to 3.00% (depending on leverage) or a base rate plus a spread ranging from 1.25% to 2.00% (depending on leverage). On March 30, 2020, these terms were modified with the Sixth Amendment to the credit facility, as discussed above, to increase the interest rate to LIBOR (with a floor of 0.25%) plus 3.25% or a base rate plus 2.25%, with further increases to interest rate spreads of 0.25% at six month intervals. The 30-day LIBOR for $30,000 notional capped at 3.35% after giving effect to market rate cap (see Note 8).

(5) Term may be extended for additional two years subject to interest rate adjustments.

(6) Two one-year extension options subject to the satisfaction of certain conditions.

(7) With the signing of the Sixth Amendment to the credit facility as discussed above, two extension options (six months and five months) are available subject to the satisfaction of certain conditions.

(8) Borrowings accrue interest at the Company’s option at LIBOR plus 2.25% or a base rate plus 1.25%.

(9) Matures upon the earlier to occur of (a) consummation of the merger under the Merger Agreement (see Note 1) and (b) May 8, 2020. This loan was refinanced using the credit facility subsequent to quarter end as discussed in Subsequent Events (see Note 16).

Aggregate annual principal payments on debt for the remainder of 2020 and thereafter are as follows:


	Total
Remainder of 2020	$	35,002
2021		110,209
2022		24,886
2023		214
2024		7,840
Thereafter		-
Total	$	178,151

After consideration of the refinancing of the New Term Loan on May 13, 2020 as discussed above, aggregate annual principal payments on debt for the remainder of 2020 and thereafter are as follows:


	Total
Remainder of 2020	$	922
2021		144,289
2022		24,886
2023		214
2024		7,840
Thereafter		-
Total	$	178,151

Financial Covenants

We are required to satisfy various financial covenants within our debt agreements, including the following financial covenants within our credit facility with KeyBank:

Debt Yield: The ratio of adjusted net operating income for the borrowing base properties to indebtedness outstanding under the credit facility cannot be less than 10%. The covenant is first tested on September 30, 2020 and for purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.

Consolidated Leverage Ratio: The ratio of consolidated total indebtedness to consolidated total asset value cannot exceed 60%.

Fixed Charge Coverage Ratio: The ratio of adjusted consolidated EBITDA to consolidated fixed charges cannot be less than (a) 1.25 to 1 as of the end of the fiscal quarter ending September 30, 2020 and (b) 1.50 to 1 as of the end of the fiscal quarter ending December 31, 2020 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2021 when the calculation is based on the most recently ended four fiscal quarters.

Borrowing Base Leverage Ratio: The ratio of indebtedness outstanding under the credit facility to borrowing base asset value (based on updated appraisals required by the lenders) cannot exceed 65%. The covenant is first tested on June 30, 2021.

Certain of the terms used in the foregoing descriptions of the financial covenants within our credit facility have the meanings given to them in the credit facility, and certain of the financial covenants are subject to pro forma adjustments for acquisitions and sales of hotel properties and for specific capital events.

As a result of the actual and anticipated impact of the COVID-19 virus on the hotel industry generally, the Company has received waivers from Great Western Bank with respect to compliance with its quarterly debt service coverage ratios (consolidated and for the Leawood Aloft collateral) for March 31, 2020 and June 30, 2020 and modifications for September 30, 2020, December 31, 2020, March 31, 2021, and June 30, 2021 (providing for lower collateral covenant and use of annualized results).

If we fail to pay our indebtedness when due, fail to comply with covenants or otherwise default on our loans, unless waived, we could incur higher interest rates during the period of such loan defaults, be required to immediately pay our indebtedness, and ultimately lose our hotels through lender foreclosure if we are unable to obtain alternative sources of financing with acceptable terms. Our credit facility contains cross-default provisions which would allow the lenders under our credit facility to declare a default and accelerate our indebtedness to them if we default on our other loans and such default would permit that lender to accelerate our indebtedness under any such loan.

As of March 31, 2020, we are not in default of any of our loans.