NOTE 6. LONG-TERM DEBT

Long-term debt related to wholly owned properties consisted of the following loans payable at December 31:



Lender	Balance at December 31, 2020		Interest rate at December 31, 2020	Maturity	Amortization provision	Properties encumbered at December 31, 2020	Balance at December 31, 2019
Fixed rate debt
Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18	$	8,454	4.54%	08/2024	25 years	1	$	8,639
OSK X, LLC (1)		13,199	4.33%	12/2023 (5)	25 years	1		13,290
OSK X, LLC (1)		880	4.33%	12/2023 (5)	7 years	-		971
Paycheck Protection Program (7)		2,299	1.00%	05/2022	(7)	-		-
Total fixed rate debt		24,832						22,900

Variable rate debt
Wells Fargo		25,386	2.55% (2)	11/2022 (6)	30 years	3		25,612
KeyBank credit facility (3)		118,114	4.00% (4)	1/2023	Interest only	10		86,845
Total variable rate debt		143,500				15		112,457

Total long-term debt	$	168,332					$	135,357
Less: Deferred financing costs		(1,806)						(1,356)
Total long-term debt, net of deferred financing costs	$	166,526					$	134,001

(1) Both loans are collateralized by Aloft Leawood. These loans were formerly held by Great Western Bank prior to being purchased by OSK X, LLC on December 24, 2020.

(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 unused facility was 0.20%. Subsequent amendments to the credit facility in 2020 modified this availability to set the size of the facility at $130,000, of which $4,000 is reserved for the payment of interest under the facility. The ability to borrow under the credit facility is limited to payment of interest and fees under the credit facility and funding any shortfalls to an approved budget. The commitment fee on unused facility is 0.20% when the usage is over 50% of the total commitment and 0.25% when the usage under 50% of the commitment. Total unused availability under this credit facility was $11,886 at December 31, 2020.

(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). Subsequent amendments to the credit facility in 2020 increased the interest rate to LIBOR plus 3.25% or a base rate plus 2.25%, and further increased the interest rate spreads by 0.25% at six month intervals. The LIBOR floor was also increased to 0.50%.

(5) Term was extended for additional two years on December 2, 2020.

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

(7) The PPP loans are made up of three separate loans received in April 2020. Monthly payments totaling $121 are scheduled to begin October 2021 if the loan or a portion of it is not forgiven. The entire amount of the loans was used for payroll, utilities and interest, and therefore, management anticipates that the loans will be substantially forgiven. The Company completed and submitted to the Small Business Association applications for the forgiveness of two of the three PPP loans during the first quarter of 2021 and plans to submit the application for the third loan later in 2021. To the extent that they are not forgiven, the Company would be required to repay that portion at an interest rate of 1.00%.

At December 31, 2020, we had long-term debt of $168,332 with a weighted average term to maturity of 2.1 years and a weighted average interest rate of 3.79%. Of this total, at December 31, 2020, 24,832 was fixed rate debt with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 4.09% and $143,500 was variable rate debt with a weighted average term to maturity of 2.0 years and a weighted average interest rate of 3.74%. At December 31, 2019, we had long-term debt of $135,357 with a weighted average term to maturity of 1.5 years and a weighted average interest rate of 4.22%. Of this total, at December 31, 2019, $22,900 was fixed rate debt with a weighted average term to maturity of 2.3 years and a weighted average interest rate of 4.41% and $112,457 was variable rate debt with a weighted average term to maturity of 1.2 years and a weighted average interest rate of 4.18%.

Aggregate annual principal payments on debt for the next five years and thereafter are as follows:



	Total
2021	$	1,412
2022		27,686
2023		131,394
2024		7,840
2025		-
Thereafter		-
Total	$	168,332

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:

Borrowing Base Debt Service Coverage Ratio: The ratio of adjusted net operating income from borrowing base properties to debt service for the credit facility (assuming a 30 year amortization) must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 when the calculation is based on the most recently ended four fiscal quarters.

Fixed Charge Coverage Ratio: The ratio of adjusted consolidated EBITDA to consolidated fixed charges must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending September 30, 2021 and December 31, 2021, (b) 1.25 to 1 as of the end of the fiscal quarters ending March 31, 2022 and June 30, 2022 and (c) 1.50 to 1 as of the end of the fiscal quarter ending September 30, 2022 and each fiscal quarter thereafter. For purposes of calculating compliance with the covenant, annualized results are used until June 30, 2022 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 as-stabilized appraisals) cannot exceed 65%. The covenant is first tested on March 31, 2022.

Minimum Liquidity: Liquidity must be greater than or equal to $3,000. In addition, the Ninth Amendment provided that if liquidity is below $6,000, (a) the agent may engage a financial advisor to advise it with respect to the Company and the credit facility, (b) a $2,000 interest reserve must be maintained, (c) certain reporting must be completed on a weekly basis and (d) advances under the credit facility can only be made and applied pursuant to a cash flow waterfall.

We are also required to satisfy a debt yield financial covenant within our loan agreement relating to the three properties financed by Wells Fargo Bank. The loan agreement provides that if the Company fails to satisfy a debt yield (adjusted net cash flow / outstanding principal amount of the loan) of 10% at the end of any fiscal quarter, then a cash trap occurs. During a cash trap, the revenue generated from the hotels is directed to an account controlled by the lender and used to pay certain hotel expenses and debt service costs and fund certain reserves. Any excess funds are held by the lender as additional collateral. Failure to satisfy the debt yield and the occurrence of a cash trap do not constitute a default under the loan agreement.

In connection with the first amendment to the loan agreement entered into in May 2020, measurement of the debt yield was suspended until the measurement date occurring on March 31, 2021. The Company does not currently expect that it will satisfy the debt yield as of March 31, 2021 and that a cash trap will occur. Any cash trap will expire when the debt yield is equal to or greater than 10.5%.

We are also required to satisfy various financial covenants within our loan agreement with OSK X, LLC relating to the Leawood, Kansas Aloft, including the following:

Property-Specific Pre-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for the Leawood, Kansas Aloft (before distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending December 31, 2020, March 31, 2021 and June 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter ending September 30, 2021 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.

Property-Specific Post-Distribution Debt Service Coverage Ratio. The ratio of adjusted net operating income for the Leawood, Kansas Aloft (after distributions) to debt service for the loans must be equal to or greater than (a) 1.00 to 1 as of the end of the fiscal quarters ending December 31, 2020, March 31, 2021 and June 30, 2021 and (b) 1.35 to 1 as of the end of the fiscal quarter ending September 30, 2021 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.

Consolidated Debt Service Coverage Ratio. The ratio of consolidated adjusted net operating income for the Company to consolidated debt service must be equal to or greater than 1.05 to 1.

Certain of the terms used in the foregoing descriptions of the financial covenants within our credit facility and loan agreement have the meanings given to them in the credit facility and loan agreement, 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 unprecedented negative impact of the COVID-19 virus on the hotel industry generally, the Company has received waivers of compliance with financial covenants from various lenders (including Great Western Bank with respect to the Leawood, Kansas Aloft) for the first three quarters of 2020. The Company and certain of its other lenders have also modified various financial covenants by suspending measurements, providing for lower covenants and/or using annualized results (including Great Western Bank with respect to the Leawood, Kansas Aloft).

On December 24, 2020, the Company’s loans with Great Western Bank (financing the Leawood, Kansas Aloft), with a December 31, 2020 balance of $14,079, were purchased by OSK X, LLC, an equity fund affiliate of O’Brien Staley Partners. The Company did not satisfy the financial covenants for these loans as of December 31, 2020, as was the case for the first three quarters of 2020. The Company has been advised by OSK X, LLC that it is in default for failure to comply with the financial covenants as of December 31, 2020 (unlike Great Western Bank that waived the covenants for the first three quarters of 2020). The Company is continuing to negotiate with OSK X, LLC to obtain waivers.

The loan documents with OSK X, LLC provide (a) that the Company has a 90 day cure period (ending on May 27, 2021) within which it can cure the defaults and (b) that OSK X, LLC is precluded from accelerating the loans and taking any action to foreclose on the Leawood, Kansas Aloft during the cure period. The Company also believes that there are serious questions under applicable law about whether OSK X, LLC has the ability to declare a default, accelerate the loans or foreclose on the Leawood, Kansas Aloft due to the impossibility of performance of financial covenants during the COVID-19 pandemic. The Company is diligently pursuing commitments from lenders to refinance the loans with OSK X, LLC during the cure period.

The Company intends to seek any available damages in the event of litigation that may result from the actions of OSK X, LLC.

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. The above-described defaults under our loan agreement with OSK X, LLC will not result in a cross-default under our credit facility until the 90-day cure period with respect to those defaults expires on May 27, 2021. As indicated above, the Company is diligently pursuing commitments from lenders to refinance the loans with OSK X, LLC in order to cure those defaults during the cure period.

As of December 31, 2020, other than with respect to our financial covenants for OSK X, LLC (as discussed above), we are not in default of any of our loans.