CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
May 7, 1996
Mr. George D. Johnson, Jr.
Mr. Robert A. Brannon
Extended Stay America, Inc.
500 East Broward Boulevard
Suite 950
Fort Lauderdale, FL 33394-3073
RE: $300 MILLION LINE OF CREDIT
Dear George and Bob:
The purpose of this commitment letter is to set forth the proposed terms
and conditions upon which "CS First Boston", or any of its affiliates (the
"Lender") will provide a line of credit up to $300 million. Such terms and
conditions are as follows:
COMPANY: Extended Stay America, Inc. ("STAY")
LOAN AMOUNT: $300 million
SECURITY/UNDERWRITING: The Line of Credit (the "Line") shall be secured by
first mortgages, assignments of leases and rents,
security deposits, etc. on certain extended stay hotels
(the "Properties") owned or to be owned by each
applicable Mortgagor as set forth below.
COMMITMENT FEE: $3,000,000 (1.00%) of which $300,000 shall be earned and
paid upon execution of this Commitment and $2,700,000
shall be earned upon execution of the Credit Facility
Agreement (the "CFA").
DRAWDOWN FEE: None
UNUSED LINE FEE: None
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CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
TERMINATION FEE: None
BORROWER/MORTGAGOR: Loans shall be made to individual bankruptcy-remote,
special-purpose entities controlled, directly or
indirectly and owned by STAY.
LOAN FUNDING: Subject to the provisions below, the Borrower/Mortgagor,
at the time a loan is to be funded, may choose at its
sole discretion, the Fixed Rate or Floating Rate
Program.
Once a Program is selected, however, all loans will be
funded under the chosen Program until $50 million of
such loans have been made. After each $50 million of
Loans have been advanced, Borrower/Mortgagor shall
again be free to choose the Fixed or Floating Rate
Program subject to the same $50 million aggregation
requirement.
So long as Lender has not sold or participated loans
made under the Floating Rate Program and to the extent
that Borrower/Mortgagor has taken not less than $50
million in loans under such Floating Rate Program, it
may convert said loans into the Fixed Rate Program as
described below; provided, however, that Borrower may
not elect to convert loans hereunder, if after giving
effect to such conversion, the Lender would be left
holding Floating Rate Loans greater than $0 but less
than $50 million. In the event of any such conversion,
Borrower and STAY shall be deemed to have selected the
Fixed Rate Program for the purposes of the preceeding
paragraph, unless, if after giving effect to such
conversion, Lender holds Fixed Rate Loans equal to an
integral multiple of $50 million. Borrower/Mortgagor
shall pay for all closing costs relating to the
conversions hereunder.
LOAN TERMS-FIXED RATE PROGRAM
- - -----------------------------
LOAN AMOUNT: Loan amounts shall be made at the time of each property's
certificate of occupancy and shall be calculated based
on the
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CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
lowest of: (a) a maximum of 65% of the lesser of the
actual land acquisition and construction cost or
estimated budgeted cost; (b) 65% of Appraised Value as
determined by an MAI appraiser; or (c) a loan amount
based on 1.40x DSC (based on projected "underwritable
net cash flow" as defined below) using the greater of:
(i) a loan constant based on the actual interest rate
using a 25-year amortization or (ii) an 11.5% loan
constant.
To the extent that the Line encumbers any acquired
properties with over 12 months of operating history,
those loans shall be calculated based on the lowest of:
(a) a maximum of 65% of the acquisition cost; (b) 65%
of Appraised Value as determined by an MAI appraiser;
or (c) a loan amount based on 1.40x DSC (based on
"underwritable net cash flow" as defined below) using
the greater of: (i) a loan constant based on the
actual interest rate using a 20-year amortization or
(ii) an 11.5% loan constant.
INTEREST RATE: The interest rate will be fixed based on the
interpolated 7-year U.S. Treasury plus the spread as
outlined below.
SPREAD: The applicable spread for each loan shall be based upon
the rate set on the date the loan is funded, it being
understood that once a Fixed Rate Spread has been
determined for a loan, in no event shall it be reduced.
The Spread shall be as follows:
Aggreate Fixed Spread
Rate Loans Funded in Basis Points
----------------- ---------------
$0 - 75 MM +385
$75.01 - 150 MM +375
$150.01 - 225 MM +365
$225.01 - 300 MM +355
FUNDING TERM: STAY may draw under the Line during the three year
period following execution of the CFA.
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CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
LOAN TERM: All loans shall be due the earlier of 7 years and 3
months from the date of the first loan funding or 8
years from the execution of the CFA.
PREPAYMENT: Years 1-5: Locked out
Year 6: 1% penalty
Year 7 (First 6 months): .5% penalty
Year 7 (Last 6 months): Prepayable at par.
Notwithstanding the above, all Prepayment provisions
for purposes of the Fixed Rate Program shall be based
on the date on which the applicable loan actually funds
and shall allow that said loan to be prepayable at par
during its final six months.
AMORTIZATION: Based on a 15-year schedule.
LOAN TERMS-FLOATING RATE PROGRAM
- - --------------------------------
LOAN AMOUNT: Loan amounts shall be made at the time of each
property's certificate of occupancy and shall be
calculated based on the lowest of: (a) a maximum of 65%
of the lesser of the actual land acquisition and
construction cost or estimated budgeted cost; (b) 65%
of Appraised Value as determined by an MAI appraiser;
or (c) a loan amount based on 1.40x DSC (based on
projected "underwritable net cash flow" as defined
below) using the greater of: (i) a loan constant based
on the actual interest rate using a 25-year
amortization or (ii) an 11.5% loan constant.
To the extent that the Line encumbers any acquired
properties with over 12 months operating history, those
loans shall be calculated based on the lowest of: (a) a
maximum of 65% of the acquisition cost; (b) 65% of
Appraised Value as determined by an MAI appraiser; or
(c)
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CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
a loan amount based on 1.40x DSC (based on
"underwritable net cash flow" as defined below)
using the greater of: (i) a loan constant based
on the actual interest rate using a 20-year
amortization or (ii) an 11.5% loan constant.
INTEREST RATE: The interest rate will float monthly based on
the 30-day LIBOR plus 300 basis points.
FUNDING TERM: STAY may draw under the Line during the 3-year
period following the execution of the CFA.
LOAN TERM: All loans shall be due 3 years from the date
following execution of the CFA.
PREPAYMENT: Year 1: Locked out
Years 2-3: Prepayable at par
Notwithstanding the above, all Prepayment
provisions for purposes of the Floating Rate
Program shall be based on the date on which the
applicable loan actually funds and shall allow
that said loan shall be prepayable at par during
its final six months. Additionally, the
Borrower/Mortgagor shall be liable for any
prepayment penalty created with regard to any
LIBOR contract breakage costs.
AMORTIZATION: Based on a 20-year schedule and an assumed 9.90%
interest rate.
GENERAL TERMS
-------------
CROSS-COLLATERALIZATION: Properties encumbered by the Line shall be
cross-defaulted and cross-collateralized with
one another. Notwithstanding the foregoing, the
Lender may modify and release the cross-
collateralization and cross-defaulting of
individual loans in its sole discretion to
create separate pools of Loans.
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CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
RECOURSE: The Lender will have recourse to STAY equal to
25% of the aggregate, non-securitized principal
balance outstanding under the Line at the time
of the default. Said recourse shall be released
(for the loans that have been securitized) upon
securitization provided there have been no
defaults that have not been cured under the
Line. In addition, STAY and Borrower/Mortgagor
shall be responsible for any interest due on any
loan which has not been securitized.
The Lender will have full recourse to
Borrower/Mortgagor.
RELEASES: Individual releases of Properties from the Line
shall be allowed within 12 months of a loan
funding at Borrower/Mortgagor's request to the
extent that said loan(s) have less than 1.25X
DSC and (i) the Lender receives the greater of
1% of the outstanding principal balance or yield
maintenance to the extent that said loan is
subject to lock out provisions plus any relevant
LIBOR contract breakage costs and (ii) the
remaining loans in the pool have not less than
1.55X DSC.
After the lock out period, any loan may be
released from the line such that Lender
receives: (i) (x) the greater of 120% of its
original allocated loan amount and (y) 95% of
any net sales proceeds (with such excess in
either instance to be used to paydown the
aggregate loan balance), (ii) any required
prepayment penalty and (iii) an opinion from
Borrower/Mortgagor's counsel acceptable to
Lender and its counsel regarding the continued
nonconsolidation of STAY with any
Borrower/Mortgagor.
Upon a Release as described above, Line capacity
shall remain unchanged.
UNDERWRITABLE NET
CASH FLOW: "Underwritable Net Cash Flow" shall be defined
as the most recent 12 months of actual revenues
(or reasonable projected revenues, as
appropriate) at the lower of actual or
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CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
95% occupancy, less actual (or projected, as
appropriate) expenses including a 4% management
fee and a 5% FF&E reserve. The management
agreement shall also include an additional 1%
management fee, subordinated to Lender's debt
service. In addition, the management agreement
shall be terminable, at Lender's option, upon
default.
COSTS AND EXPENSES: Borrower/Mortgagor shall be responsible for all
customary loan closing related expenses,
including, but not limited to, the cost of title
insurance, transfer and recording fees, and the
fees and expenses of Lender's counsel.
Borrower/Mortgagor shall reimburse Lender and
Servicer for any out of pocket expenses,
including travel, due diligence (including
appraisal, architectural, environmental and
engineering reports), legal costs and
miscellaneous expenses. Lender and STAY shall
agree on reasonable, per asset limits on such
expenses.
RESERVES: The Lender shall hold as additional collateral
for its loan (i) reserves from loan proceeds at
closing, if required, for deferred maintenance,
capital improvements, and environmental
remediation, (ii) any required real estate tax
and insurance premium escrow account, (iii) a
to-be-agreed upon FF&E reserve, and (iv) a
liquidity reserve for 4 month's debt service (to
be reduced and released upon certain specified
property performance).
RIGHT OF REFUSAL: STAY, prior to funding of the first loan, must
deliver to Lender proof, to be determined in its
sole discretion, that it has fulfilled its
obligations to other parties regarding required
financings under other credit lines or has
received a waiver thereto.
With regard to the Line, in the event STAY
finances in excess of $175 million of secured
hotel debt (excluding construction financing,
the existing $100 million mortgage facility, and
the financing of any loans rejected by Lender)
with another lender within the Funding Term,
without
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CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
financing at least $100 million of hotel debt
under the Line, Lender's obligations under the
Line shall be terminated at Lender's option.
OTHER INDEBTEDNESS: The Borrower/Mortgagor will not incur any other
indebtedness related to the Properties (i.e.,
Properties securing loans under the Line.)
LOAN DOCUMENTATION: All documentation shall be in form and content
acceptable to Lender and its counsel, and shall
be supported by acceptable representations and
warranties of the Borrower/Mortgagor, opinions
of counsel and proof of related matters that
counsel shall deem necessary.
PROCESS: Borrower/Mortgagor shall submit detailed
information (per a to-be-determined schedule)
regarding a prospective property to Lender and
Lender shall have 5 business days to approve or
decline said request upon receipt of selected
information provided that Lender has, prior
thereto, received substantially all of the
information not less than 15 business days prior
thereto. Said time periods described above
shall be doubled for the initial four
prospective Properties presented to Lender. At
the time that the Commitment is executed, form
loan documents shall have been prepared to
facilitate quick turnaround.
ASSUMABILITY: Loans under the Line may be assumed subject to
Lender and Rating Agency approval (if
applicable), defeasance reserves, other Rating
Agency (if applicable) and Lender requirements,
and upon payment of a 1% (of outstanding
balance) transfer fee at the time of the
Assumption.
LOAN COVENANTS: Pre-conditions of funding of the first loan
under the Line: STAY shall have completed at
least $100 million in a follow-on equity or
quasi-equity offering.
Pre-conditions of funding of any loan under the
Line: 1) STAY's stock market capitalization
shall at all times be at
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CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
least $300 million; 2) the current Board of
Directors shall always constitute a majority of
the Board; 3) both Wayne Huizenga and George
Johnson shall be Board members to the extent
that they are living and have not been declared
judicially incompetent; 4) neither STAY nor any
of its subsidiaries shall have had a bankruptcy
filing; 5) STAY's overall debt service coverage
shall always exceed 1.40x (not including cash
flows and associated debt related to properties
in service for less than nine months); 6) STAY's
overall book debt/total capitalization ratio
cannot exceed 70%; 7) STAY's tangible net worth
shall always exceed $50 million; 8) the dividend
payout by STAY shall not be in excess of 50% of
the difference between net income over
cumulative losses not included in the previous
definition of net income; 9) STAY shall at all
times have unrestricted and unpledged cash on
hand of not less than $20 million; 10) a
declared default or acceleration under other
STAY financings which financings are in
principal amount exceeding $10 million, and 11)
other customary loan covenants.
Events of Default/Acceleration: 1) the current
Board of Directors shall not constitute a
majority of the Board; 2) either Wayne Huizenga
or George Johnson shall cease to be Board
members to the extent that they are living and
have not been declared judicially incompetent;
3) a bankruptcy filing by either STAY or any of
its subsidiaries; 4) STAY's tangible net worth
shall always exceed $50 million; 5) the dividend
payout by STAY shall be in excess of 50% of the
difference between net income over cumulative
losses not included in the previous definition
of net income; 6) a declared default or
acceleration under other STAY financings which
financings are in principal amount exceeding $10
million, and 7) other customary loan covenants.
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CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
May 7, 1996
SECURITIZATION: CS First Boston shall have a right of first
refusal with regard to the securitized financing
of the Floating Rate Loans. Such right of first
refusal shall be based upon the then-
competitive fees for said engagement based on
the size, complexity and other relevant
conditions. In addition, STAY will cooperate
with Lender in any securitization it undertakes
of STAY-sponsored loans in terms of Rating
Agency and investor meetings, site inspections,
management interviews, provision of additional
information, etc.
Please acknowledge your acceptance of the terms and conditions relating to
the financing described herein by executing the acknowledgment below. By
your signature below, you agree to work exclusively with CS First Boston
and CS First Boston Mortgage Capital Corporation to proceed in good faith
to mutually acceptable Loan Documents. This Agreement may be executed in
one or more counterparts, each of which when so executed and delivered
shall be deemed an original.
Sincerely,
William S. Pitofsky
Managing Director
Acknowledged:
By: By: /s/ Robert A. Brannon
------------------------------ -----------------------------------
Mr. George D. Johnson, Jr. Mr. Robert A. Brannon
Chief Executive Officer Chief Financial Officer
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