Item 1.01.
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Entry Into a Material Definitive Agreement.
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On March 11, 2019, certain wholly-owned subsidiaries (collectively, the Borrowers) of Retail Value Inc., an Ohio corporation (RVI
or the Company), entered into a Loan Agreement (the Loan Agreement) with Column Financial, Inc. (an affiliate of Credit Suisse AG), JPMorgan Chase Bank, National Association and Morgan Stanley Bank, N.A. (collectively, the
Lenders) which provides for a secured loan facility in the aggregate principal amount of $900,000,000 (the Loan Facility). Proceeds from the Loan Facility were used to refinance and prepay all amounts outstanding under the
Borrowers existing loan agreement, dated February 14, 2018, with Column Financial, Inc. and the other lenders party thereto in the original principal amount of $1,350,000,000 (the Original Loan). Compared to the terms of the
Original Loan, the Loan Facility provides a lower interest rate, an extended maturity date, a lower allocation of loan principal to the Companys continental U.S. properties as a result of the mortgage placed on Plaza Del Sol and a lower debt
yield requirement with respect to the Companys ability to maintain control of excess cash flow from its properties.
The Borrowers obligations
to pay principal, interest and other amounts under the Loan Facility are evidenced by certain promissory notes executed by the Borrowers as of March 11, 2019 (collectively, the Notes). The Notes are secured by, among other things:
(i) mortgages encumbering the Borrowers properties located in the continental U.S. (which comprise substantially all of the Companys properties located in the continental U.S.) and Plaza Del Sol located in Bayamon, Puerto Rico
(collectively, the Mortgaged Properties); (ii) a pledge of the equity of each of the Companys subsidiaries that own the Companys Puerto Rico properties (collectively, the Pledged Properties), and a pledge of
related rents and other cash flows, insurance proceeds and condemnation awards; and (iii) a pledge of any reserves and accounts of any Borrower.
The
Loan Facility will mature on March 9, 2021, subject to three
one-year
extensions at Borrowers option which are conditioned upon certain items including, with respect to the second and third
extensions, satisfaction of certain minimum debt yield requirements with respect to the Mortgaged Properties. No debt yield requirement or other financial tests will apply to the Borrowers exercise of the first extension option. The initial
weighted-average interest rate applicable to the Notes is equal to
one-month
LIBOR plus a spread of 2.50% per annum, provided that such spread is subject to (i) amendment upon the occurrence of certain
events and (ii) an increase of 0.25% per annum in connection with any exercise of the third extension option. Borrowers are required to maintain an interest rate cap with respect to the principal amount of the Notes having (i) during the
initial term of the Loan Facility, a LIBOR strike rate equal to 4.5% and (ii) with respect to any extension period, a LIBOR strike rate that would result in a debt service coverage ratio of 1.20x based on the Mortgaged Properties.
The Loan Facility is structured as an interest only loan throughout the initial
two-year
term and any exercised
extension options. However, amounts outstanding under the Loan Facility will begin to amortize through the application of excess property cash flows in the event the Borrowers fail to meet a minimum debt yield of 10.0% with respect to the Mortgaged
Properties at the conclusion of any fiscal quarter. The debt yield with respect to the Mortgage Properties at closing was approximately 12.7%.
Subject to
certain conditions described in the Loan Agreement, the Borrowers may prepay the outstanding loan amount in whole or in part by providing (i) advance notice of prepayment to the Lenders and (ii) remitting the prepayment premium described
in the Loan Agreement. No prepayment premium is required with respect to any prepayments made on or after April 9, 2020. Additionally, no prepayment premium will apply to prepayments made in connection with permitted property sales. Each
Mortgaged Property is assigned a required release price which represents the minimum net disposition proceeds required by the Lenders to release that property from their lien and is based on the principal amount of the Loan Facility allocated to
that property at closing; Pledged Properties other than Plaza Del Sol generally do not have minimum release prices. The amount of proceeds from sales of Mortgaged Properties required to be applied towards prepayment of the Notes will depend upon the
Mortgaged Properties debt yield at the time of the sale; all proceeds from sales of Pledged Properties other than Plaza Del Sol are required to be used to prepay the Notes. Prepayments of the Notes are expected to be applied by the servicer in
descending order of seniority (i.e. such prepayments will be first applied to the most senior tranches of the Notes).
In the event of a default, the
contract rate of interest on the Notes will increase to the lesser of (i) the maximum rate allowed by law, or (ii) the greater of (A) 4% above the interest rate then otherwise applicable and (B) the Prime Rate (as defined in the Loan
Agreement) plus 1.0%. The Notes contain other terms and provisions that are customary for instruments of this nature.