| Item 1.01. |
Entry into a Material Definitive Agreement. |
On May 10, 2023 (the “Closing Date”),
RLJ Lodging Trust (the “Company”), as parent guarantor, and RLJ Lodging Trust, L.P., the Company’s operating partnership
(the “Operating Partnership”), as borrower, entered into a Fourth Amended and Restated Credit Agreement (the “Amended
Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the other
lenders party thereto. The Amended Credit Agreement amends and restates in its entirety the Third Amended and Restated Credit Agreement,
dated as of December 18, 2019, among the Company, the Operating Partnership, Wells Fargo, as administrative agent and a lender, and the
other lenders party thereto (the “Prior Credit Agreement”).
The Amended Credit Agreement (1) extends the maturity
date of the Operating Partnership’s $600 million unsecured revolving credit facility (the “Revolver”) to May 10, 2027,
which maturity date may be extended by the Operating Partnership pursuant to either a one 1-year extension option or up to two 6-month
extension options, each of which may be exercised subject to the satisfaction of certain customary conditions set forth in the Amended
Credit Agreement and (2) provides for a new $225 million unsecured term loan with a scheduled maturity date of May 10, 2026 (the “Tranche
A-1 Term Loan”), which maturity date may be extended by the Operating Partnership pursuant to up to two 1-year extension options
subject to the satisfaction of certain customary conditions set forth in the Amended Credit Agreement. In connection with the incurrence
of the Tranche A-1 Term Loan, the Operating Partnership repaid all amounts outstanding under each of (1) the Operating Partnership’s
existing $400 million unsecured term loan, which had a scheduled maturity date of January 25, 2024 and (2) the Operating Partnership’s
existing $225 million unsecured term loan, which had a scheduled maturity date of January 25, 2024 (the “Prior $225M Term Loan”).
The Amended Credit Agreement also documents the existing $400 million unsecured term loan originally incurred under the Prior Credit Agreement
with a scheduled maturity date of May 18, 2025 (the “Tranche A-2 Term Loan”). With the exception of transitioning the interest
rate from LIBOR to Adjusted SOFR (as defined below), the economic terms of the Tranche A-2 Term Loan were not changed from those applicable
under the Prior Credit Agreement. As of the Closing Date, the Company had no borrowings outstanding under the Revolver, $225 million outstanding
under the Tranche A-1 Term Loan and $400 million outstanding under the Tranche A-2 Term Loan.
The Amended Credit Agreement includes options for
the Operating Partnership to (1) increase the aggregate revolving loan commitment to up to $750 million, (2) increase the total Tranche
A-1 Term Loan amount to up to $325 million, (3) increase the total Tranche A-2 Term Loan amount to up to $600 million, and (4) incur one
or more additional tranches of term loans in an aggregate amount of up to $475 million, in each case, subject to certain conditions, including
obtaining commitments from one or more lenders to provide such increased amounts or additional tranches. The Amended Credit Agreement
also permits the Operating Partnership to utilize up to $30 million of the available revolving loan commitment under the Revolver for
the issuance of letters of credit.
Borrowings under the Amended Credit Agreement will,
subject to certain exceptions, accrue interest at a per annum rate of (i) in the case of the Revolver, (a) SOFR plus a credit spread adjustment
of 10 basis points (“Adjusted SOFR”) plus a margin ranging from 140 to 195 basis points or (b) a base rate plus a margin ranging
from 40 to 95 basis points, (ii) in the case of the Tranche A-1 Term Loan, (a) Adjusted SOFR plus a margin ranging from 145 to 220 basis
points or (b) a base rate plus a margin ranging from 45 to 120 basis points, and (iii) in the case of the Tranche A-2 Term Loan, (a) Adjusted
SOFR plus a margin ranging from 135 to 190 basis points or (b) a base rate plus a margin ranging from 35 to 90 basis points. In all cases,
the actual margin is determined from time to time based on the total leverage ratio of the Company and its subsidiaries. An unused
commitment fee (the “Unused Revolver Fee”) of 20 or 25 basis points per annum, depending on the amount of borrowings under
the Revolver, accrues on unused portions of the Revolver.
In the event that the Company’s or the
Operating Partnership’s long-term senior unsecured non-credit enhanced debt receives an investment grade credit rating (an
“Investment Grade Rating”), at the election of the Operating Partnership (the “Investment Grade Pricing
Election”), borrowings under the Amended Credit Agreement will, subject to certain exceptions, accrue interest at a per annum
rate of (i) in the case of the Revolver, (a) Adjusted SOFR plus a margin ranging from 72.5 basis points to 140 basis points, or (b)
a base rate plus a margin ranging from 0 basis points to 40 basis points, in each case, with the actual margin determined
according to such credit rating then in effect, (ii) in the case of the Tranche A-1 Term Loan, (a) Adjusted SOFR plus a margin
ranging from 80 basis points to 160 basis points, or (b) a base rate plus a margin ranging from 0 basis points to 60 basis
points, in each case, with the actual margin determined according to such credit rating then in effect, and (iii) in the case of the
Tranche A-2 Term Loan, (a) Adjusted SOFR plus a margin ranging from 85 basis points to 175 basis points, or (b) a base rate plus a
margin ranging from 0 basis points to 75 basis points. In all cases, the actual margin is determined from time to time
according to the applicable credit rating then in effect. Following the Investment Grade Pricing Election and in lieu of the Unused
Revolver Fee, a facility fee ranging from 10 basis points to 30 basis points, depending on the applicable credit rating in effect
from time to time, accrues on the total commitment under the Revolver, regardless of usage.
Amounts owing under the Amended Credit Agreement
are guaranteed by the Company and, subject to certain exceptions, each subsidiary of the Company that owns a property included in the
pool of eligible unencumbered properties (the “Unencumbered Pool”) or directly or indirectly owns a subsidiary that owns a
property included in the Unencumbered Pool (collectively, the “Subsidiary Guarantors”), pursuant to a Fourth Amended and Restated
Guaranty (the “Amended Credit Agreement Guaranty”). Subject to certain conditions and exceptions, upon achieving an Investment
Grade Rating, the Subsidiary Guarantors will be released from the Amended Credit Agreement Guaranty.
The proceeds of borrowings under the Amended Credit
Agreement may be used by the Operating Partnership and the Company (a) for the payment of redevelopment and development costs
incurred in connection with hotel properties owned by the Company and its subsidiaries, (b) to finance hotel acquisitions, (c) to
finance capital expenditures, dividends and the repayment of debt of the Company and its subsidiaries, and (d) to provide for general
working capital needs and for other general corporate purposes of the Company and its subsidiaries.
The Amended Credit Agreement requires, and the
Operating Partnership’s ability to borrow under the Revolver will be subject to, ongoing compliance by the Company, the Operating
Partnership and their subsidiaries with various affirmative and negative covenants, including with respect to liens, indebtedness, investments,
dividends, mergers and asset sales. In addition, the Amended Credit Agreement requires that the Company satisfy certain financial
covenants, including:
| · | ratio of total indebtedness (net of the amount of unrestricted cash and cash
equivalents in excess of $25,000,000) to EBITDA (the “Leverage Ratio”) of not more than 7.25 to 1.0; |
| · | ratio of adjusted EBITDA to fixed charges of not less than 1.5 to 1.0; |
| · | ratio of secured indebtedness to total asset value of no more than 45%; |
| · | ratio of unsecured indebtedness (net of the amount of unrestricted cash and
cash equivalents in excess of $25,000,000) to unencumbered asset value of not more than 60% (which may be increased to 65% for up to four
quarters following a material acquisition on up to two occasions during the term of the Amended Credit Agreement); and |
| · | ratio of adjusted net operating income of the Unencumbered Pool to unsecured
interest expense of not less than 2.0 to 1.0. |
In the event that the Leverage Ratio exceeds
6.5 to 1.0 as of the end of any applicable four-quarter fiscal period, the applicable interest rate on all borrowings under the Amended
Credit Agreement will increase by 35 basis points for a six-month period.
The Amended Credit Agreement includes customary
representations and warranties of the Company and the Operating Partnership, which must continue to be true and correct in all material
respects as a condition to future draws under the Revolver. The Amended Credit Agreement also includes customary events of default, in
certain cases subject to customary periods to cure, following which the lenders may accelerate all amounts outstanding under the Amended
Credit Agreement.
The foregoing summary of the Amended Credit Agreement
and the Amended Credit Agreement Guaranty is qualified in its entirety by reference to the Amended Credit Agreement and the Amended Credit
Agreement Guaranty, copies of which are attached as Exhibits 10.1 and 10.2 hereto, respectively, and incorporated herein by reference.
