HSBC CORPORATE BANKING
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
New York Branch: 140 Broadway, New York, NY 10005-1196
April 3, 1995
Mr. Michael Sheh
Senior Vice President and Treasurer
Richfield Hospitality Services, Inc.
5775 DTC Boulevard
Englewood, CO 80111
Dear Michael:
BANKING FACILITIES FOR AIRCOA HOTEL PARTNERS, L.P.
We are pleased to confirm the willingness of the New York Branch of the Hongkong
and Shanghai Banking Corporation Limited to grant the following facilities,
subject to the terms and conditions mentioned hereunder:
LENDER: The Hongkong and Shanghai Banking Corporation Limited, New York
Branch (the "Bank").
BORROWER: Aircoa Hotel Partners, L.P., a Delaware limited partnership (the
"Borrower").
GUARANTOR: Regal Hotels International Holdings Limited, a Bermuda registered
corporation (the "Guarantor").
AMOUNT: (A) USD45,000,000 first mortgage loan (the "Mortgage Loan"), and
(B) USD1,000,000 revolving credit line (the "Revolving Loan").
Maximum aggregate amount of facilities A and B shall not exceed
65% of aggregate appraised value of the Properties (as defined in
the Collateral section below) as reviewed and accepted by the
Bank.
PURPOSE: (A) (1) Refinance USD39,200,000 of first mortgage debt secured by
first mortgages on the Properties (as defined below),
(2) Refinance USD1,790,000 of junior unsecured debt owed to
National City Bank (Indiana),
(3) Provide USD3,310,000 to partially fund property renovations
at some of the Properties, and
(4) Provide approximately USD700,000 to fund the facility fee
and estimated closing costs including legal, environmental,
and engineering due diligence expenses.
(B) Seasonal working capital needs of the properties. Subject to 60
day annual cleanup.
INTEREST RATE: At the Borrower's option:
(A) (1) Prime plus 1. 25% p.a., payable monthly (the
EXHIBIT 10.39
AIRCOA HOTEL PARTNERS, L.P. APRIL 3, 1995
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"Floating Rate Option"). Prime Rate means, for any day, the
rate of interest publicly announced from time to time by
Marine Midland Bank at the New York City Main Branch as its
prime rate, and is a base rate for calculating interest on
certain loans. Any change in the interest rate on this
facility resulting from a change in Marine Midland Bank's
Prime Rate shall be effective on the date of such change.
(2) 1, 2, 3, 6, or 12 month Reserve Adjusted LIBOR plus 2.00%,
p.a., with payments of interest due at the maturity of the
LIBOR period chosen (the "LIBOR Option"). For LIBOR periods
longer than 3 months, interest payments shall be due
quarterly. Borrower will be required to reimburse the Bank
for and indemnify the Bank against all costs incurred by or
imposed against the Bank as a result of any change in laws,
regulations, rules or directives which impose, modify or
deem applicable any reserve or special deposit requirements
against all losses, penalties, taxes, expenses, and other
charges suffered by the Bank in connection with Borrower's
selection of a LIBOR option.
(3) For periods longer than one year up to a maximum of three
years, fixed rate financing calculated at a rate of the
Bank's fixed-rate cost of funds for this period plus a
margin of 2.00% p.a., with interest payments due quarterly
(the "Fixed Rate Option").
(B) (1) MMB Floating Prime plus 1.25% p.a. (as above),
(2) 1, 2, 3, 6, and 12 month Reserve Adjusted LIBOR plus 2.00%
p.a. (as above).
PENALTY RATE: After maturity and with respect to late payments, the Loan shall
bear interest at a rate per annum equal to the interest rate then
in effect plus 2.00% p.a. (the "Default Rate"). In the case of
funding under the LIBOR option only, the Default Rate shall be
2.00% p.a. above the rate in effect until the maturity of the
LIBOR funding period, after which time the Default Rate shall be
2.00% p.a. above the rate applicable under the Floating Rate
option.
FACILITY FEE: Extension fee of USD300,000 payable at closing.
AMORTISATION: (A) Five years from closing. Monthly principal payments of
USD90,000 (approximately based on a 20 year amortization
schedule), with a balloon repayment of approximately
USD39.6M due at maturity.
(B) Renewable annually subject to no default.
AIRCOA HOTEL PARTNERS, L.P. APRIL 3, 1995
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Subject to repayment on demand in the event of a default.
Annual 60 day reduction of outstandings to a maximum of
USD500,000 required.
PREPAYMENT
PROVISIONS: During loan years 1 and 2 a penalty of 1% will be assessed on
principal amounts prepaid, and during loan year 3 a penalty of
0.5% will be assessed on principal amounts prepaid, provided
however, that the penalty shall not apply to mandatory
prepayments or prepayments arising from a sale of the Properties
to a third party. No prepayment penalties will be assessed for
prepayments occuring in loan years 4 and 5.
(1) In the case of LIBOR Option funding the loan may be prepaid
in full or in partial increments upon 7 days written notice
to the Bank. Should prepayment occur during the LIBOR
interest option, an amount equal to the Bank's funding
losses will be assessed on the amount prepaid and the
remaining days to maturity in the LIBOR period in effect at
the time of prepayment based on the difference between the
Bank's LIBOR rate for such interest option and the
prevailing LIBOR rate offered for comparable amounts and
tenures at the time of prepayment. A determination of the
funding loss shall be made in accordance with the Bank's
funding loss provisions which are customary for loans of
this type.
(2) In the case of Fixed Rate Option funding the loan may be
prepaid in full or in partial increments upon 7 days written
notice to the Bank. An amount equal to the Bank's funding
losses will be assessed on the amount prepaid and the
remaining days to maturity in the fixed rate funding period
in effect at the time of prepayment based on the difference
between the Bank's fixed rate for such interest option and
the prevailing rate offered for comparable amounts and
tenures at the time of prepayment. A determination of the
funding loss shall be made in accordance with the Bank's
funding loss provisions which are customary for loans of
this type.
(3) In the case of Floating Rate Option funding, any prepayments
(subject to 7 days written notice to the Bank) will be
permitted without additional breakage costs.
COLLATERAL: (A) Registered first mortgages on seven hotel properties owned
by the Borrower (each, a "Property" and collectively, the
"Properties) :
AIRCOA HOTEL PARTNERS L.P. APRIL 3, 1995
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Aurora Inn - Aurora, OH
Pine Lake Trout Club - Chagrin Falls, OH
Fourwinds/Clarion - Bloomington, IN
Regal McCormick Ranch - Scotsdale, AZ
Sheraton Inn - Buffalo, NY
Sheraton Lakeside Inn - Orlando, FL
Sheraton University Center - Durham, NC
(B) First lien on all assets relating to the operation of the
hotel Properties, including FF&E and inventory, supported by
UCC-1 filings.
(C) Assignment of accounts receivable, management contracts, and
all licenses, patents, and franchises.
(D) Assignment of leases and rents of all the Properties.
(E) Assignment of proceeds from the sale or refinancing of any
of the Properties securing the Mortgage Loan, which shall be
used to pay down loan principal and accrued interest in an
amount equal to: (i) the pro rata share of the Mortgage Loan
amount allocated to the Property (to be set forth in the
Credit Agreement); plus (ii) 50% of Excess Proceeds
derived from the sale or refinancing of the Property.
"Excess Proceeds" shall mean the gross proceeds derived from
the sale or refinancing less (a) commissions, broker's fees
and closing costs actually incurred by the Borrower, and (b)
the pro rata share of Mortgage Loan amount allocated to the
Property.
(F) A Debt Service Reserve Account to be funded in an amount
equal to three months debt service (principal and interest)
on the Mortgage Loan and the Revolving Loan. This account
will be gradually funded with 25% of Annual Excess Cash Flow
from the Properties deposited on an annual basis until the
required balance (estimated at USD1.35M) is met. "Annual
Excess Cash Flow" shall be defined as aggregate net
operating income from the Properties less: (a) debt service
(P + I) on the Mortgage Loan and Revolving Loan, (b)
required contributions to the capex reserve account, and (c)
interest payments on affiliate debt. Once the Debt Service
Reserve Account is funded at the required level, the 25% of
Annual Excess Cash Flow previously used to fund this account
will be available for distribution subject to the
restrictions discussed in the Covenant section below. If
the Borrower achieves a Debt Service Coverage Ratio (see
Covenant section below for
AIRCOA HOTEL PARTNERS, L.P. APRIL 3, 1995
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definition and method of calculation) of 1.5OX or greater
for two successive years, funds in the Debt Service Reserve
Account will be released for distribution.
GUARANTEES: (1) Continuing limited guarantee ("Debt Service Guarantee") of
the Guarantor for all interest and scheduled principal
repayments, excluding the final principal repayment at
maturity.
(2) Continuing limited guarantee ("Principal Guarantee") of the
Guarantor for the amount, if any, by which principal
outstandings exceed 65% of the aggregate appraised value of
the Properties as reviewed and accepted by the Bank. The
amount of such Principal Guarantee shall be fixed as of the
closing date and the amount of such Principal Guarantee
shall not be reduced due to any principal reduction or
increase in the appraised value of the Properties. In the
event that the appraised value of the Properties as
determined at the closing date should decrease during the
term of the facilities, the amount of the Principal
Guarantee shall be increased so that the Principal Guarantee
will cover any amount by which the loan to value ratio
exceeds 65%.
COVENANTS: Standard, including:
(1) Minimum debt service coverage ratio of 1.25X in loan years
1, 2, and 3 and 1. 3OX in loan years 4 and 5. "Debt Service
Coverage Ratio" shall be defined as aggregate net operating
income of the Properties, less capex reserves, divided by
debt service (P + I) on the Mortgage Loan and the Revolving
Loan. Debt Service Coverage Ratio shall be calculated on
an annual basis using actual aggregate net operating income
and capex reserves for the calendar year just ended and
projected debt service for the coming calendar year.
(2) No additional debt except unsecured borrowings from
affiliates which shall be subordinated to bank debt.
(3) Debt owed to affiliate companies to be subordinated to the
bank. Subject to the Borrower meeting the required Debt
Service Coverage Ratios, up to 25% of Annual Excess Cash
Flow may be applied to repayment of affiliate debt.
Interest payments allowed only after debt service (P + I) on
the Mortgage Loan and Revolving Loan. No principal or
interest payments on affiliate debt if Debt Service Coverage
Ratios are not met or in an event of default.
AIRCOA HOTEL PARTNERS, L.P. APRIL 3, 1995
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(4) Management fees paid to Richfield shall not exceed 4% of
gross revenues and shall be subordinated to the bank.
Management fees shall not be paid to Richfield if the
Borrower fails to meet minimum debt service coverage
ratios, or in the event of any monetary default. Provided
however, that any unpaid fees will accrue and become payable
upon Borrower's curing any such failure or default.
(5) Maintenance of a capital expenditure reserve account for
each property equal to at least 5% of annual gross revenues.
If, for reasons of the timing of capital repairs or
upgrades, the full 5% is not expended during the year, or if
the Bank and the Borrower mutually agree that capital
expenditures in an amount less than 5% of a given Property's
annual gross revenues is adequate for a given year, the
difference between the amount expended and the 5%
requirement will be escrowed for application against the
following year's requirement. The funds so escrowed may
only be used for capital expenditures. For the balance of
calendar year 1995, the reserve requirement will only be 4%
in view of the funds being made available for capital
improvements.
(6) The Regal Group's ownership interest in the Borrower
(approximately 71% of the total voting rights of all
outstanding Class A limited partnership units) may not be
diluted or changed without the Bank's approval. The Bank
will not unreasonably withhold such approval as long as the
Regal Group's ownership interest does not fall below a
controlling 51%.
(7) Annual cash distributions to Class A partnership unitholders
limited to 50% of Annual Excess Cash Flow (as defined
above). Provided however, that if the Borrower achieves a
Debt Service Coverage Ratio of 1.50X or greater for any
calendar year during the loan term, and the Debt Service
Reserve Account is fully funded, then up to 75% of Annual
Excess Cash Flow may be distributed. Cash distributions may
not be paid if the Borrower fails to meet the minimum debt
service coverage ratio or in the event of a monetary
default.
(8) Annual audited financials and 10K statements within 90 days
of fiscal year end, and quarterly management prepared
financials and 10Q statements for the Borrower within 60
days of the end of first, second, and third quarters.
(9) Annual audited financials of Regal Hotels International
Holdings Limited within 180 days of fiscal year end.
AIRCOA HOTEL PARTNERS, L.P. APRIL 3, 1995
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(10) Annual audited financial statements and quarterly management
prepared financial statements of Richfield Hospitality
Services, Inc. within 120 days of fiscal year end and 60
days of quarter end.
(11) For Each Property, monthly operating statement within 30
days of month end, and STAR reports as soon as possible
after received by the Borrower.
(12) New property appraisals every two years at the Borrower's
expense. If, upon reappraisal, the aggregate value of the
portfolio should yield an LTV in excess of 65%, the
Guarantor shall increase its Principal Guarantee by an
amount which, when added to aggregate appraised portfolio
value, will yield an LTV of 65% or lower. The Bank shall
have the right to commission new appraisals or require
updates of the current appraisals more frequently than every
two years, provided that the expense of these additional
appraisals/updates are paid by the Bank.
(13) Subordination of ground leases for the Sheraton-Buffalo and
Clarion-Fourwinds Properties. On a best efforts basis, the
Borrower will try to negotiate the subordination of the
ground lease for the Regal McCormick Ranch Property.
(14) The Borrower and Richfield must comply with all requirements
of the franchise/licensing agreements.
(15) Such other covenants as the Bank may require.
INSURANCE: The Borrower must provide evidence of public liability and
casualty insurance coverage on the Properties (along with flood
insurance should the Properties be located in a flood hazard
zone) with the Bank's interest noted as mortgagee and loss payee,
and such other coverage that the Bank may reasonably deem
necessary to protect its interest.
INDEMNITIES: Applicable environmental and Americans With Disabilities Act
indemnities.
EVENTS OF
DEFAULT: Standard including:
(1) Non payment of principal or interest.
(2) Material adverse change in the financial condition of the
Borrower, Richfield, or the Guarantor.
(3) Failure to meet any covenant requirement.
(4) Such other events of default as the Bank may require.
CONDITIONS
PRECEDENT: (1) Delivery of Phase I environmental surveys of each Property
satisfactory to the Bank.
AIRCOA HOTEL PARTNERS, L.P. APRIL 3, 1995
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(2) Delivery of property condition surveys of each property
satisfactory to the Bank. The Bank shall commission these
surveys at the expense of the Borrower. The Borrower will
be required to substantially comply with the reasonable
recommendations of the property condition surveys as a part
of their ongoing plans for capital expenditures and
renovations.
(3) Delivery of all deeds of trust, mortgages, security
agreements, pledge agreements, insurance policies, financing
statements, evidence of recordation and all other
documentation necessary or requested by the Bank to perfect
and maintain the Bank's security interest as described
above.
(4) Delivery of title insurance policies issued by a company or
companies acceptable to the Bank in an amount not less than
the total Mortgage Loan amount ensuring that the Bank has
valid first mortgage liens on the Properties providing
affirmative insurance required by the Bank, and confirming
the nonexistence of any liens, mortgages, judgments, taxes
or assessments affecting the Properties and an updated
survey for each Property certified by a registered surveyor
or updated by title company inspection and dated within 60
days prior to the date of closing.
(5) At the time of closing, the Bank shall have received
evidence satisfactory to it that none of the Properties nor
any parts thereof have suffered any casualty or are subject
to actual or threatened condemnation or taking by eminent
domain or otherwise.
(6) Delivery to the Bank of copies of all liquor licenses and
other material licenses and permits relating to the
operation of the Properties.
(7) Delivery to the Bank of copies of the hotel operating
agreements between each hotel operator and the Borrower and
copies of the franchise and/or license agreements relating
to the hotels, with estoppel letters in form satisfactory to
the Bank signed by each operator, franchisor, and licensor.
(8) Delivery to the Bank of evidence that all taxes with respect
to the Properties are current and have been paid.
(9) Delivery to the Bank of Certificates of
AIRCOA HOTEL PARTNERS, L.P. APRIL 3, 1995
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Occupancy, Fire Underwriter's Certificates and any other
licenses or permits relating to the legal use of the
Properties, and evidence that no municipal or other
violations exist, and that the premises comply with all
local, state, and federal laws and regulations.
(10) Delivery to the Bank of such corporate documents as the Bank
shall require as evidence of the Borrower's existence,
power, and authority to enter into the transaction described
in this proposal.
(11) Satisfactory opinion from counsel to the Borrower and the
Guarantor and any other legal opinion relating to the Bank's
security interest in the collateral.
AVAILABILITY: Upon completion of loan documentation required and compliance
with all conditions described above.
DOCUMENTATION: All loan documentation will be prepared by the Bank's lawyers and
will contain such terms and conditions considered by the bank
(and its lawyers) to be reasonable and necessary for a
transaction of this nature.
All documentation and formalities should be accomplished on or
before 30 June 1995. If closing has not occurred by such date
for any reason, the Bank reserves the right to terminate this
offer.
EXPENSES: All transaction costs, including legal, appraisal, environmental,
and engineering fees incurred in connection with the negotiation
and preparation of documentation and closing of this transaction
will be for the account of the Borrower.
TAXATION: All payments of principal, interest, fees and other expenses
shall be made by the Borrower free and clear of taxes, levies,
imposts, duties, charges or withholdings of any nature
whatsoever.
GOVERNING
LAW: This offer letter shall be governed by the laws of the state of
New York. The documents evidencing and securing the facilities
shall be governed by the laws of the state of New York except
that such documents may provide for the law of the states in
which any of the Properties is located to be the law governing
such documents.
ASSIGNMENT: Borrower may not assign or transfer this offer letter.
The terms and conditions of this commitment are not limited to the
AIRCOA HOTEL PARTNERS, L.P. APRIL 3, 1995
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above terms and conditions. Those matters which are not covered by or made
clear in the above outline are subject to mutual agreement of the parties.
This commitment is conditional upon the preparation, execution and delivery of
legal documentation in form and substance satisfactory to us and to our counsel
incorporating substantially the terms and conditions outlined or referred to
above. This offer is open for acceptance until 15 April 1995 ("Expiry Date") .
Please indicate your understanding and acceptance of the foregoing terms and
conditions by signing and returning to us the duplicate copy of this letter on
or before the Expiry Date.
We are pleased to advise that your Corporate Banking relationship officers are:
Josephine Lee (212) 658-2858
A.J. Andreasen (212) 658-2847
While the individuals listed above are the primary contact people between you
and the Bank and will always be pleased to assist you, it may sometimes be more
effective if you have any matters of an operational nature to transact or
discuss, that you contact our Loan Operations area:
David Colberg (212) 658-2825
We look forward to being of continued assistance.
Yours sincerely,
/s/ J N Rider /s/ Josephine Lee
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J N Rider Josephine Lee
Senior Vice President Vice President
Real Estate Real Estate
The undersigned consent and agree in principle to all of the terms of this
letter.
For: Aircoa Hotel Partners, L.P.
By: AIRCOA Hospitality Services, Inc.,
its general partner
By: /s/ Michael Sheh/ David Ridgley
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AIRCOA HOTEL PARTNERS, L.P. APRIL 3, 1995
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Authorized Signature(s)
Michael Sheh / David Ridgley
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Print Name
Sr. V.P./
Treasurer V.P./Chief Accounting Officer
- ----------------------------------
Title
Date: April 4, 1995
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