EAGLE Hospitality Trust’s (EHT) managers are delaying the distribution to stapled security holders, after having received a notice of default and acceleration on a syndicated loan of which US$341 million have been borrowed.
In a bourse filing on Tuesday, the managers disclosed that they received the notice on March 20, issued on behalf of Bank of America, the administrative agent for the syndicate of lenders.
On behalf of the lenders, Bank of America exercised its right to accelerate the entirety of the loan. This means that the principal amount of US$341 million was declared to have become immediately due and owing, the managers said.
These lenders had provided term loan facilities and/or a revolving credit facility to Eagle Hospitality Real Estate Investment Trust (EH-Reit) in May 2019 under a facilities agreement.
The notice states that an event of default has occurred for the loan, due to the master lessees’ non-payment of rent to EHT under the master lease agreements (MLAs) for certain properties in EHT’s portfolio.
The coronavirus pandemic has caused steep declines in occupancy levels in the hospitality market, and this has slashed the income productivity of the EHT properties and affected the master lessees' ability to pay rents.
That being said, EHT itself has been meeting its own scheduled debt service obligations on the loan to the lenders as at March 20, the managers noted.
In light of the notice of default and acceleration, the managers will not be able to draw on the security deposits as planned. They had said on March 19 that they were intending to use the security deposits to make the rent payments - owed by the master lessees to EHT - in accordance with the MLAs, and to increase liquidity.
Stapled security holders will also not receive the distribution of 3.478 US cents per security on the previously announced payment date of March 30, 2020. The distribution is for the period from EHT’s listing date of May 24, 2019 to Dec 31, 2019.
This is because EH-Reit is now restricted from paying out the distribution, following the acceleration of the loan.
The managers have deferred any action to pay the funds to The Central Depository for settlement of the distribution, pending further discussions with the lenders and pending overall assessment of the financial implications of the notice of default and acceleration.
“Stapled security holders should note and expect that there is no certainty or assurance as to the period of the delay in receipt of the distribution or that such distribution will be made at all,” they said on Tuesday.
The managers are seeking professional advice and will need more time to assess the implications of the notice.
In addition, they need more time to engage in further discussions with the lenders, with a view to negotiate and obtain an agreement for the lenders to forebear from exercising their rights and remedies. The managers are also aiming to develop a “longer-term consensual strategy for operating EHT going forward amid an unprecedented and extreme operating environment” in a way that protects the interests of EHT stapled security holders.
On Tuesday before market open, the managers requested a voluntary suspension in the trading of EHT stapled securities with immediate effect.
The counter last traded at 13.7 US cents on March 19.