SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2014 |
Subsequent Events [Abstract] | ' |
SUBSEQUENT EVENTS | ' |
NOTE 11. SUBSEQUENT EVENTS |
Subsequent to March 31, 2014, and in connection with the consummation of our IPO, the following significant transactions were effected which are more fully described below: |
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| • | | Exchanged the equity interests in the La Quinta Predecessor Entities held by the Funds and other pre-IPO owners for 81.06 million shares of Holdings common stock in the aggregate |
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| • | | Obtained replacement financing of our previous long-term debt through a new credit agreement |
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| • | | Entered into an interest rate swap agreement relating to a portion of our replacement financing under the new credit agreement |
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| • | | Issued and sold approximately 44.0 million shares of common stock of Holdings to the public at an initial public offering price of $17.00 per share |
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| • | | Issued approximately 3.1 million vested and unvested restricted shares of Holdings common stock in exchange for the Units issued under our long-term cash incentive plan |
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| • | | Issued approximately 0.3 million vested and unvested restricted shares of Holdings common stock to our employees under our 2014 Omnibus Incentive Plan |
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| • | | Acquired the 14 Managed Hotels for a combination of approximately $76.9 million in cash and approximately 4.35 million shares of common stock of Holdings |
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| • | | Acquired LQM for cash |
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| • | | Redeemed shares of capital stock held by third-party shareholders of our REIT entities for cash and converted the REITs into limited liability companies |
Initial public offering |
In connection with the IPO, the Funds and other pre-IPO owners contributed their equity interests in the La Quinta Predecessor Entities to Holdings in exchange for an aggregate of 81.06 million shares of common stock of Holdings. Holdings then transferred such equity interests to its wholly-owned subsidiary which pledged these interests as security for borrowings under the new credit agreement. |
Effective April 14, 2014 (the “IPO Effective Date”), Holdings completed an IPO in which Holdings issued and sold 44.0 million shares of common stock at an initial public offering price of $17.00 per share. Holdings received net proceeds of $710.4 million after deducting underwriting discounts and commissions of $37.4 million. Holdings incurred offering expenses of approximately $16.0 million (including $4.8 million of which expenses were previously reflected in the La Quinta Predecessor Entities financial statements for the year ended December 31, 2013 included in the prospectus). |
On the IPO Effective Date, the Units that were outstanding under our long-term cash incentive plan (see Note 8) at the time of the offering were exchanged for 3.1 million vested and unvested shares of common stock of Holdings of equivalent economic value, using the initial public offering price of Holdings shares of $17.00 and issued as follows: (1) 40% of the shares received were vested shares of common stock; (2) 40% of the shares received were unvested shares of restricted stock that will vest on the first anniversary of the IPO Effective Date, contingent upon continued employment through that date; and (3) 20% of the shares received were unvested shares of restricted stock that will vest on the earlier of the date that Blackstone and its affiliates cease to own 50% or more of Holdings or the seventh anniversary of the IPO Effective Date, contingent upon continued employment at that date. Holdings recorded compensation expense of approximately $20.8 million on the IPO Effective Date related to this exchange and will record additional compensation expense in the future for the unvested shares of restricted stock. |
In connection with, and prior to completion of, the IPO, Holdings’ Board of Directors adopted, and Holdings’ stockholders approved, the La Quinta Holdings Inc. 2014 Omnibus Incentive Plan (the “2014 Omnibus Incentive Plan”). The 2014 Omnibus Incentive Plan provides for the granting of stock options, restricted stock and other stock-based or performance-based awards denominated in cash or in stock to directors, officers, employees, consultants and advisors of Holdings and its affiliates. Effective the IPO Effective Date, Holdings issued 0.35 million shares of Holdings common stock under our 2014 Omnibus Incentive Plan with a grant price of $16.65 as follows: (1) 50% of the shares granted were vested shares of common stock; (2) 40% of the shares granted were unvested shares of restricted stock that will vest on the first anniversary of the IPO Effective Date, contingent upon continued employment through that date; and (3) 10% of the shares granted were unvested shares of restricted stock that will vest on the earlier of the date that Blackstone and its affiliates cease to own 50% or more of Holdings or the seventh anniversary of the IPO Effective Date, contingent upon continued employment at that date. Holdings recorded compensation expense of approximately $2.9 million on the IPO Effective Date related to this grant and will record additional compensation expense in the future for the unvested shares of restricted stock. |
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As of the IPO Effective Date, approximately 129.7 million of Holdings’ 2.0 billion authorized shares of common stock were issued and outstanding. Of the shares issued and outstanding on this date, 44.0 million, or approximately 33.9%, were held by the public, while 85.7 million, or approximately 66.1%, were held by Blackstone, management of Holdings and other pre-existing owners. Additionally, of the 100.0 million authorized shares of preferred stock, none were issued or outstanding. |
New credit agreement |
On April 14, 2014, Holdings’ wholly owned subsidiary, La Quinta Intermediate Holdings L.L.C. (the “Borrower”) entered into a new credit agreement (the “Agreement”) with JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent, collateral agent, swingline lender and L/C issuer, J.P. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs Bank USA, and Wells Fargo Securities, LLC, as joint lead arrangers and joint book runners, and the other agents and lenders from time to time party thereto. |
The credit agreement provides for senior secured credit facilities (collectively the “Senior Facilities”) consisting of: |
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| • | | $2.1 billion senior secured term loan facility (the “Term Facility”), which will mature in 2021; and |
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| • | | $250 million senior secured revolving credit facility (the “Revolving Facility”), $50 million of which is available in the form of letters of credit, which will mature in 2019. |
The Revolving Facility includes borrowing capacity available for letters of credit and for short-term borrowings referred to as the swing line borrowings. In addition, the Senior Facilities also provide the Borrower with the option to raise incremental credit facilities including an uncommitted incremental facility that provides the Borrower the option to increase the amounts available under the Term Facility and/or the Revolving Facility by an aggregate of up to $350 million, subject to additional increases upon achievement of a consolidated first lien net leverage ratio of less than or equal to 6.00 to 1.00 (or, after the first anniversary of the closing date, 5.75 to 1.00), refinance the loans with debt incurred outside the Senior Facilities, and extend the maturity date of the Revolving Credit Facility and Term Facility, subject to certain limitations. |
The proceeds of the Term Facility, together with the net cash proceeds of the IPO and other cash on hand, were used to repay the Loans and the Holdco III Mortgage Loan and acquire the Managed Hotels. |
Interest Rate and Fees—Borrowings under the Term Facility bear interest, at the Borrower’s option, at a rate equal to a margin over either (a) a base rate determined by reference to the highest of (1) the JPM prime lending rate, (2) the Federal Funds Effective Rate plus 1/2 of 1.00% and (3) the adjusted LIBOR rate for a one-month interest period plus 1.00% or (b) a LIBOR rate determined by reference to the Reuters LIBOR rate for the interest period relevant to such borrowing. The margin for the Term Facility is 2.00%, in the case of base rate loans, and 3.00%, in the case of LIBOR rate loans, subject to one step-down of 0.25% upon the achievement of a consolidated first lien net leverage ratio (as defined in the Agreement) of less than or equal to 4.50 to 1.00, subject to a base rate floor of 2.00% and a LIBOR floor of 1.00%. |
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Borrowings under the Revolving Facility will bear interest, at the Borrower’s option, at a rate equal to a margin over either (a) a base rate determined by reference to the highest of (1) the JPM prime lending rate, (2) the Federal Funds Effective Rate plus 1/2 of 1.00% and (3) the adjusted LIBOR rate for a one-month interest period plus 1.00% or (b) a LIBOR rate determined by reference to the Reuters LIBOR rate for the interest period relevant to such borrowing. The margin for the Revolving Facility is 1.50%, in the case of base rate loans, and 2.50%, in the case of LIBOR rate loans, subject to three step-downs of 0.25% each upon the achievement of a consolidated first lien net leverage ratio of less than or equal to 5.00 to 1.00, 4.50 to 1.00 and 4.00 to 1.00, respectively. |
In addition, the Borrower is required to pay a commitment fee to the lenders under the Revolving Facility in respect of the unutilized commitments thereunder. The commitment fee rate is 0.50% per annum subject to a step-down to 0.375%, upon achievement of a consolidated first lien net leverage ratio less than or equal to 5.00 to 1.00. The Borrower is also required to pay customary letter of credit fees. |
The Borrower incurred a ticking fee of approximately $1.8 million for the period between the date the allocations were notified to the lenders, February 21, 2014, and the closing date of April 14, 2014. |
Prepayments—The Term Facility requires mandatory prepayments, subject to certain exceptions, with: |
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| • | | 50% (which percentage will be reduced to 25% and 0%, as applicable, subject to achievement of a consolidated first lien net leverage ratio of less than or equal to 5.25 to 1.00 and 4.00 to 1.00, respectively) of annual excess cash flow, calculated in accordance with the Agreement; |
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| • | | 100% of the net cash proceeds (including insurance and condemnation proceeds) of all non-ordinary course asset sales or other dispositions of property by the Borrower and its restricted subsidiaries subject to de minimus thresholds, if those net cash proceeds are not reinvested in assets to be used in the Borrower’s business or to make certain other permitted investments (a) within 12 months of the receipt of such net cash proceeds or (b) if the borrower commits to reinvest such net cash proceeds within 12 months of the receipt thereof, within 180 days of the date of such commitment; and |
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| • | | 100% of the net proceeds of any incurrence of debt by the Borrower or any of its restricted subsidiaries, other than debt permitted to be incurred or issued under the Senior Facilities. |
Each lender of the Term Facility will have the right to reject its pro rata share of mandatory prepayments described above, in which case the Borrower may retain the amounts so rejected. The foregoing mandatory prepayments will be applied to installments of the Term Facility in direct order of maturity. |
The Borrower has the ability to voluntarily repay outstanding loans at any time without premium or penalty, other than prepayment premium of 1.0% on voluntary prepayment of Term Facility in connection with a repricing transaction on or prior to the date which is six months after the closing of the Senior Facilities and customary “breakage” costs with respect to LIBOR loans. |
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Amortization—Beginning September 2014, the Borrower is required to repay installments on the Term Facility in quarterly installments equal to 0.25% of the original principal amount of the Term Facility, with the remaining amount payable on the applicable maturity date with respect to the Term Facility. |
Guarantees and security—The obligations under the Senior Facilities will be unconditionally and irrevocably guaranteed by Holdings, any subsidiary of Holdings that directly or indirectly owns any issued and outstanding equity interests of the Borrower, and, subject to certain exceptions, each of the Borrower’s existing and future material domestic wholly owned subsidiaries (collectively, the “Guarantors”). In addition, the Senior Facilities will be collateralized by first priority or equivalent security interests in (i) all the capital stock, or other equity interests in, the Borrower and each of the Borrower’s and the Guarantors’ material direct or indirect wholly owned restricted domestic subsidiaries, and 65% of the voting stock (and 100% of the nonvoting stock) of, or other equity interests in, each of the Borrower’s or any subsidiary guarantors’ material direct wholly owned first-tier restricted foreign subsidiaries, and (ii) certain tangible and intangible assets of the Borrower (other than real property except for certain real property described in the credit agreement) and Guarantors (subject to certain exceptions and qualifications). |
As of the closing date for the Senior Facilities, Holdings did not have any of its foreign subsidiaries, non-wholly owned domestic subsidiaries that are restricted subsidiaries or immaterial subsidiaries guarantee the Senior Facilities. The Borrower will also have the ability to designate certain subsidiaries as unrestricted subsidiaries utilizing its investment capacity under the Agreement. |
Certain covenants and events of default—The Agreement contains a number of significant affirmative and negative covenants and customary events of default. Such covenants, among other things, will limit or restrict, subject to certain exceptions, the ability of (i) Holdings, the direct parent of the Borrower, to engage in any material operating or business activities other than the ownership of the equity interests of the Borrower and (ii) the Borrower and its restricted subsidiaries to: |
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| • | | incur additional indebtedness and make guarantees |
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| • | | create liens on assets; |
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| • | | enter into sale and leaseback transactions; |
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| • | | engage in mergers or consolidations; |
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| • | | sell certain assets; |
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| • | | make fundamental changes; |
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| • | | pay dividends and distributions or repurchase capital stock; |
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| • | | make investments, loans and advances; |
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| • | | engage in certain transactions with affiliates; |
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| • | | make changes in the nature of their business; and |
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| • | | make prepayments of junior debt. |
In addition, if, on the last day of any period of four consecutive quarters on or after the first full fiscal quarter following the closing of the Senior Facilities, the aggregate principal amount of the Revolving Facility, swing line loans and/or letters of credit (excluding up to $20 million of letters of credit and certain other letters of credit that have been cash collateralized or back-stopped) that are issued and/or outstanding is greater than 25% of the Revolving Facility, the Agreement will require the Borrower to maintain a consolidated first lien net leverage ratio not to exceed 8.0 to 1.0. During the period in which Holdings’ corporate issuer rating is equal to or higher than Baa3 (or the equivalent) according to Moody’s Investors Service, Inc. or BBB- (or the equivalent) according to Standard & Poor’s Ratings Services and no default has occurred and is continuing, the restrictions in the Senior Facility regarding incurring additional indebtedness, dividends and distributions or repurchases of capital stock and transactions with affiliates will not apply to the Borrower and its restricted subsidiaries during such period. |
The Senior Facilities also contain certain customary representations and warranties, affirmative covenants and events of default. If an event of default occurs, the lenders under the Senior Facilities will be entitled to take various actions, including the acceleration of amounts due under the Senior Facilities and actions permitted to be taken by a secured creditor. |
Term Facility Interest Rate Swap |
On April 14, 2014, the Borrower entered into an interest rate swap agreement with an aggregate notional amount of $850.0 million that expires on April 14, 2019. This agreement swaps the LIBOR rate in effect under the new credit agreement for this portion of the loan to a fixed-rate of 2.0311%, which includes the 1% LIBOR floor. Management has elected to designate these interest rate swaps as cash flow hedges for accounting purposes. |
Acquisition of the Managed Hotels |
Effective April 14, 2014, Holdco III acquired BRE/Prime Mezz L.L.C. and BRE/Wellesley Properties L.L.C. which hold the Managed Hotels for a purchase price of $161.7 million. Total net consideration paid was $150.8 million, which equals the total purchase price of $161.7 million less $10.9 million owed by the parent of the Managed Hotels to the La Quinta Predecessor Entities. The total net consideration was paid in the form of $76.9 million of cash and $73.9 million of equity consideration, in the form of common stock of Holdings. Of the total $161.7 million purchase price, significant assets acquired consist of $156.3 million of property and equipment and $1.4 in intangible assets for favorable leasehold interests. Other significant long term liabilities acquired include unfavorable leasehold interests of $5.3 million. Goodwill of $10.4 million was recognized as a result of this acquisition which does not include subsequent fair value adjustments that are still being finalized. The goodwill is primarily attributable to maintaining brand distribution and penetration, and positive guest experience in the key locations and markets represented by these hotels. |
Acquisition of LQ Management L.L.C. |
Effective April 14, 2014, Holdings’ wholly owned subsidiary, La Quinta Intermediate Holdings L.L.C, acquired 100% of the ownership interests of LQM for $0.8 million in cash. |
Income taxes |
Prior to the completion of the IPO, we operated primarily as limited liability companies treated as partnerships for U.S. federal income tax purposes, REIT entities, and taxable entities. As a result, we were not subject to U.S. federal and most state income taxes for our limited liability companies and our REIT entities. On April 14, 2014, the La Quinta Predecessor Entities were contributed to Holdings, a “C” corporation, the shares of capital stock held by third-party shareholders of our REIT entities were redeemed for cash totaling approximately $3.9 million, and our REITs were converted into limited liability companies. As a result of these transactions, we have become subject to additional entity-level taxes and, as of this date, we recorded a one-time net tax expense of approximately $340 million, which reflects the establishment of the associated net deferred tax liability. |