Debt | = 1.50x N/A (3) Secured indebtedness ratio <= 45.0% N/A (3) Unencumbered indebtedness ratio <= 60.0% N/A (3) Unencumbered debt service coverage ratio >= 2.00x N/A (3) Maintain minimum liquidity level >= $125.0 million Yes (1) Leverage ratio is net indebtedness, as defined in the Revolver and Term Loan agreements, to corporate earnings before interest, taxes, depreciation, and amortization ("EBITDA"), as defined in the Revolver and Term Loan agreements. (2) Fixed charge coverage ratio is Adjusted EBITDA, generally defined in the Revolver and Term Loan agreements as EBITDA less furniture, fixtures and equipment ("FF&E") reserves, to fixed charges, which is generally defined in the Revolver and Term Loan agreements as interest expense, all regularly scheduled principal payments, preferred dividends paid, and cash taxes paid. (3) The Company is not currently required to comply with these covenants, see details below. In June 2020, the Company amended its Revolver and Term Loans. The amendments suspend the testing of all existing financial maintenance covenants under the Revolver and the Term Loan agreements for all periods through and including the fiscal quarter ending March 31, 2021 (the “Covenant Relief Period”). In addition, for periods following the Covenant Relief Period, the amendments modify the covenant thresholds for the leverage ratio and unencumbered debt service coverage ratio as follows: • Increasing the maximum leverage ratio to 8.50x for the first two quarters following the Covenant Relief Period, 8.00x for the third and fourth quarters following the Covenant Relief Period, 7.50x for the fifth quarter following the Covenant Relief Period, and returning to 7.00x for the quarter ending September 30, 2022. • Reducing the minimum unencumbered debt service coverage ratio to 1.65x for the first three quarters following the Covenant Relief Period until the minimum unencumbered debt service coverage ratio returns to 2.00x for the quarter ending March 31, 2022. • The Company is required to maintain a minimum liquidity level of $125.0 million. Pursuant to the amendments and through the date that the financial statements are delivered for the quarter ending June 30, 2021 (the "Restriction Period"), the Company is subject to the following restrictions: • The net cash proceeds from asset sales, equity issuances and incurrences of indebtedness will, subject to various exceptions, be required to be applied as a mandatory prepayment of certain amounts outstanding under the Revolver and the Term Loans. • Additional negative covenants that limit the ability of the Company and its subsidiaries to incur additional indebtedness, make prepayments of other indebtedness, make dividends and distributions (with certain exceptions, including for the payment of a quarterly cash dividend of $0.01 per common share, the payment of a quarterly cash dividend on the Company’s Series A Cumulative Convertible Preferred Shares and other payments for purposes of maintaining REIT status) and stock repurchases, make approximately $260.0 million of capital expenditures, and make investments, including up to $200.0 million of acquisitions or mergers, in each case, subject to various exceptions. • Requirement to pledge the equity interests in certain subsidiaries that own unencumbered properties to secure the Revolver and Term Loans. The equity pledge requirement is also required to be satisfied following the Restriction Period until such time as the leverage ratio is no greater than 6.50x for two consecutive fiscal quarters. The amendments further provide that, until the earlier of (1) the earlier of July 1, 2022 or the day after the end of the fifth quarter immediately following the end of the Covenant Relief Period and (2) such time as the leverage ratio is less than or equal to 7.00x, borrowings under the Revolver and the Term Loan agreements will bear interest, at the Company's election, at a per annum rate of (i) in the case of the Revolver, (a) LIBOR plus a margin of 230 basis points or (b) a base rate plus a margin of 130 basis points, and (ii) in the case of each of the Term Loans, (a) LIBOR plus a margin of 225 basis points or (b) a base rate plus a margin of 125 basis points. The amendments also add a floor of 0.25% to the LIBOR interest rate determination, subject to certain exceptions, under both the Revolver and the Term Loan agreements. At the Company's election, the Restriction Period and the Covenant Relief Period may be terminated early if the Company is at such time able to comply with the applicable financial covenants. If the Company assesses that it is unlikely to meet the financial covenant thresholds for periods following the Covenant Relief Period, then the Company will seek an extension of the Covenant Relief Period. Mortgage Loans The Company's mortgage loans consisted of the following (in thousands): Outstanding Borrowings at Number of Assets Encumbered Interest Rate at September 30, 2020 Maturity Date September 30, 2020 December 31, 2019 Mortgage loan (1) 7 1.67 % April 2022 (5) $ 200,000 $ 200,000 Mortgage loan (2) 1 5.25 % June 2022 30,554 31,215 Mortgage loan (3) 3 4.95 % October 2022 87,410 89,299 Mortgage loan (4) 1 4.94 % October 2022 28,177 28,785 Mortgage loan (1) 4 1.75 % April 2024 (5) 85,000 85,000 Mortgage loan (1) 3 1.75 % April 2024 (5) 96,000 96,000 19 527,141 530,299 Deferred financing costs, net (2,774) (3,869) Total mortgage loans, net $ 524,367 $ 526,430 (1) The hotels encumbered by the mortgage loan are cross-collateralized. Requires payments of interest only through maturity. (2) Includes $0.3 million and $0.5 million at September 30, 2020 and December 31, 2019, respectively, related to a fair value adjustment on a mortgage loan. (3) Includes $1.0 million and $1.4 million at September 30, 2020 and December 31, 2019, respectively, related to fair value adjustments on the mortgage loans. (4) Includes $0.3 million and $0.4 million at September 30, 2020 and December 31, 2019, respectively, related to a fair value adjustment on the mortgage loan. (5) The mortgage loan provides two one year extension options. Certain mortgage agreements are subject to various maintenance covenants requiring the Company to maintain a minimum debt yield or debt service coverage ratio ("DSCR"). Failure to meet the debt yield or DSCR thresholds is not an event of default, but instead triggers a cash trap event. During the cash trap event, the lender or servicer of the mortgage loan controls cash outflows until the loan is covenant compliant. In addition certain mortgage loans have other requirements including continued operation and maintenance of the hotel property. While operations at certain hotel properties securing the mortgage loans had been temporarily suspended, the business operations remained that of a hotel, not another form of business, and the hotel properties were maintained. At September 30, 2020, five mortgage loans failed to meet the DSCR threshold and were in a cash trap event. The Company was in compliance with all other maintenance covenants associated with the other mortgage loan at September 30, 2020. Interest Expense The components of the Company's interest expense consisted of the following (in thousands): For the three months ended September 30, For the nine months ended September 30, 2020 2019 2020 2019 Senior Notes $ 5,942 $ 5,954 $ 17,825 $ 17,842 Revolver and Term Loans 15,730 10,805 39,087 31,795 Mortgage loans 4,368 5,001 13,483 15,575 Amortization of deferred financing costs 1,147 1,116 3,214 3,018 Undesignated interest rate swaps (1,203) 457 (18) 402 Total interest expense $ 25,984 $ 23,333 $ 73,591 $ 68,632 " id="sjs-B4" xml:space="preserve">Debt The Company's debt consisted of the following (in thousands): September 30, 2020 December 31, 2019 Senior Notes $ 496,940 $ 500,484 Revolver and Term Loans, net 1,569,024 1,168,793 Mortgage loans, net 524,367 526,430 Debt, net $ 2,590,331 $ 2,195,707 Senior Notes The Company's senior unsecured notes are referred to as the "Senior Notes." The Company's Senior Notes consisted of the following (in thousands): Outstanding Borrowings at Interest Rate Maturity Date September 30, 2020 December 31, 2019 Senior unsecured notes (1) (2) (3) 6.00% June 2025 $ 496,940 $ 500,484 (1) Requires payments of interest only through maturity. (2) The senior unsecured notes include $22.1 million and $25.6 million at September 30, 2020 and December 31, 2019, respectively, related to acquisition related fair value adjustments on the senior unsecured notes. (3) The Company has the option to redeem the senior unsecured notes at a price of 103.0% of face value. The Senior Notes are subject to a maximum unsecured leverage maintenance covenant, which is based on asset value that is calculated at historical cost. In addition, the Senior Notes are subject to various incurrence covenants that limit the ability of the Company's subsidiary, FelCor Lodging Limited Partnership, to incur additional debt if these covenants are violated. As of September 30, 2020, the Company was in compliance with all maintenance and incurrence covenants associated with the Senior Notes. Revolver and Term Loans The Company has the following unsecured credit agreements in place: • $600.0 million revolving credit facility with a scheduled maturity date of May 18, 2024 and a one year extension option if certain conditions are satisfied (the "Revolver"); • $150.0 million term loan with a scheduled maturity date of January 22, 2022 (the "$150 Million Term Loan Maturing 2022"); • $400.0 million term loan with a scheduled maturity date of January 25, 2023 (the "$400 Million Term Loan Maturing 2023"); • $225.0 million term loan with a scheduled maturity date of January 25, 2023 (the "$225 Million Term Loan Maturing 2023"); and • $400.0 million term loan with a scheduled maturity date of May 18, 2025 (the "$400 Million Term Loan Maturing 2025"). The $150 Million Term Loan Maturing 2022, the $400 Million Term Loan Maturing 2023, the $225 Million Term Loan Maturing 2023, and the $400 Million Term Loan Maturing 2025 are collectively the "Term Loans." The Company's unsecured credit agreements consisted of the following (in thousands): Outstanding Borrowings at Interest Rate at September 30, 2020 (1) Maturity Date September 30, 2020 December 31, 2019 Revolver (2) 3.49% May 2024 $ 400,000 $ — $150 Million Term Loan Maturing 2022 3.88% January 2022 150,000 150,000 $400 Million Term Loan Maturing 2023 4.58% January 2023 400,000 400,000 $225 Million Term Loan Maturing 2023 4.58% January 2023 225,000 225,000 $400 Million Term Loan Maturing 2025 3.77% May 2025 400,000 400,000 1,575,000 1,175,000 Deferred financing costs, net (3) (5,976) (6,207) Total Revolver and Term Loans, net $ 1,569,024 $ 1,168,793 (1) Interest rate at September 30, 2020 gives effect to interest rate hedges. (2) At September 30, 2020 and December 31, 2019, there was $200.0 million and $600.0 million, respectively, undrawn on the Revolver. The Company also has the ability to extend the maturity date for an additional one year period ending May 2025 if certain conditions are satisfied. (3) Excludes $3.7 million and $3.4 million as of September 30, 2020 and December 31, 2019, respectively, related to deferred financing costs on the Revolver, which are included in prepaid expense and other assets in the accompanying consolidated balance sheets. The Revolver and Term Loans are subject to various financial covenants. A summary of the most restrictive covenants is as follows: Covenant Compliance Leverage ratio (1) <= 7.00x N/A (3) Fixed charge coverage ratio (2) >= 1.50x N/A (3) Secured indebtedness ratio <= 45.0% N/A (3) Unencumbered indebtedness ratio <= 60.0% N/A (3) Unencumbered debt service coverage ratio >= 2.00x N/A (3) Maintain minimum liquidity level >= $125.0 million Yes (1) Leverage ratio is net indebtedness, as defined in the Revolver and Term Loan agreements, to corporate earnings before interest, taxes, depreciation, and amortization ("EBITDA"), as defined in the Revolver and Term Loan agreements. (2) Fixed charge coverage ratio is Adjusted EBITDA, generally defined in the Revolver and Term Loan agreements as EBITDA less furniture, fixtures and equipment ("FF&E") reserves, to fixed charges, which is generally defined in the Revolver and Term Loan agreements as interest expense, all regularly scheduled principal payments, preferred dividends paid, and cash taxes paid. (3) The Company is not currently required to comply with these covenants, see details below. In June 2020, the Company amended its Revolver and Term Loans. The amendments suspend the testing of all existing financial maintenance covenants under the Revolver and the Term Loan agreements for all periods through and including the fiscal quarter ending March 31, 2021 (the “Covenant Relief Period”). In addition, for periods following the Covenant Relief Period, the amendments modify the covenant thresholds for the leverage ratio and unencumbered debt service coverage ratio as follows: • Increasing the maximum leverage ratio to 8.50x for the first two quarters following the Covenant Relief Period, 8.00x for the third and fourth quarters following the Covenant Relief Period, 7.50x for the fifth quarter following the Covenant Relief Period, and returning to 7.00x for the quarter ending September 30, 2022. • Reducing the minimum unencumbered debt service coverage ratio to 1.65x for the first three quarters following the Covenant Relief Period until the minimum unencumbered debt service coverage ratio returns to 2.00x for the quarter ending March 31, 2022. • The Company is required to maintain a minimum liquidity level of $125.0 million. Pursuant to the amendments and through the date that the financial statements are delivered for the quarter ending June 30, 2021 (the "Restriction Period"), the Company is subject to the following restrictions: • The net cash proceeds from asset sales, equity issuances and incurrences of indebtedness will, subject to various exceptions, be required to be applied as a mandatory prepayment of certain amounts outstanding under the Revolver and the Term Loans. • Additional negative covenants that limit the ability of the Company and its subsidiaries to incur additional indebtedness, make prepayments of other indebtedness, make dividends and distributions (with certain exceptions, including for the payment of a quarterly cash dividend of $0.01 per common share, the payment of a quarterly cash dividend on the Company’s Series A Cumulative Convertible Preferred Shares and other payments for purposes of maintaining REIT status) and stock repurchases, make approximately $260.0 million of capital expenditures, and make investments, including up to $200.0 million of acquisitions or mergers, in each case, subject to various exceptions. • Requirement to pledge the equity interests in certain subsidiaries that own unencumbered properties to secure the Revolver and Term Loans. The equity pledge requirement is also required to be satisfied following the Restriction Period until such time as the leverage ratio is no greater than 6.50x for two consecutive fiscal quarters. The amendments further provide that, until the earlier of (1) the earlier of July 1, 2022 or the day after the end of the fifth quarter immediately following the end of the Covenant Relief Period and (2) such time as the leverage ratio is less than or equal to 7.00x, borrowings under the Revolver and the Term Loan agreements will bear interest, at the Company's election, at a per annum rate of (i) in the case of the Revolver, (a) LIBOR plus a margin of 230 basis points or (b) a base rate plus a margin of 130 basis points, and (ii) in the case of each of the Term Loans, (a) LIBOR plus a margin of 225 basis points or (b) a base rate plus a margin of 125 basis points. The amendments also add a floor of 0.25% to the LIBOR interest rate determination, subject to certain exceptions, under both the Revolver and the Term Loan agreements. At the Company's election, the Restriction Period and the Covenant Relief Period may be terminated early if the Company is at such time able to comply with the applicable financial covenants. If the Company assesses that it is unlikely to meet the financial covenant thresholds for periods following the Covenant Relief Period, then the Company will seek an extension of the Covenant Relief Period. Mortgage Loans The Company's mortgage loans consisted of the following (in thousands): Outstanding Borrowings at Number of Assets Encumbered Interest Rate at September 30, 2020 Maturity Date September 30, 2020 December 31, 2019 Mortgage loan (1) 7 1.67 % April 2022 (5) $ 200,000 $ 200,000 Mortgage loan (2) 1 5.25 % June 2022 30,554 31,215 Mortgage loan (3) 3 4.95 % October 2022 87,410 89,299 Mortgage loan (4) 1 4.94 % October 2022 28,177 28,785 Mortgage loan (1) 4 1.75 % April 2024 (5) 85,000 85,000 Mortgage loan (1) 3 1.75 % April 2024 (5) 96,000 96,000 19 527,141 530,299 Deferred financing costs, net (2,774) (3,869) Total mortgage loans, net $ 524,367 $ 526,430 (1) The hotels encumbered by the mortgage loan are cross-collateralized. Requires payments of interest only through maturity. (2) Includes $0.3 million and $0.5 million at September 30, 2020 and December 31, 2019, respectively, related to a fair value adjustment on a mortgage loan. (3) Includes $1.0 million and $1.4 million at September 30, 2020 and December 31, 2019, respectively, related to fair value adjustments on the mortgage loans. (4) Includes $0.3 million and $0.4 million at September 30, 2020 and December 31, 2019, respectively, related to a fair value adjustment on the mortgage loan. (5) The mortgage loan provides two one year extension options. Certain mortgage agreements are subject to various maintenance covenants requiring the Company to maintain a minimum debt yield or debt service coverage ratio ("DSCR"). Failure to meet the debt yield or DSCR thresholds is not an event of default, but instead triggers a cash trap event. During the cash trap event, the lender or servicer of the mortgage loan controls cash outflows until the loan is covenant compliant. In addition certain mortgage loans have other requirements including continued operation and maintenance of the hotel property. While operations at certain hotel properties securing the mortgage loans had been temporarily suspended, the business operations remained that of a hotel, not another form of business, and the hotel properties were maintained. At September 30, 2020, five mortgage loans failed to meet the DSCR threshold and were in a cash trap event. The Company was in compliance with all other maintenance covenants associated with the other mortgage loan at September 30, 2020. Interest Expense The components of the Company's interest expense consisted of the following (in thousands): For the three months ended September 30, For the nine months ended September 30, 2020 2019 2020 2019 Senior Notes $ 5,942 $ 5,954 $ 17,825 $ 17,842 Revolver and Term Loans 15,730 10,805 39,087 31,795 Mortgage loans 4,368 5,001 13,483 15,575 Amortization of deferred financing costs 1,147 1,116 3,214 3,018 Undesignated interest rate swaps (1,203) 457 (18) 402 Total interest expense $ 25,984 $ 23,333 $ 73,591 $ 68,632 |