Comfort Inn 2014 Annual Report Download - page 57

Table of Contents
The New Credit Facility is secured by first priority pledges of (i) 100% of the ownership interests in certain domestic subsidiaries owned by the
Company and the guarantors, (ii) 65% of the ownership interests in (a) the top-tier foreign holding company of Choice's foreign subsidiaries, and (b) the
domestic subsidiary that owns the top-tier foreign holding company of Choice's foreign subsidiaries and (iii) all presently existing and future domestic
franchise agreements (the “Franchise Agreements”) between the Company and individual franchisees, but only to the extent that the Franchise Agreements
may be pledged without violating any law of the relevant jurisdiction or conflicting with any existing contractual obligation of the Company or the
applicable franchisee. At the time that the maximum total leverage ratio is required to be no greater than 4.00 to 1.00 (beginning of year 4 of the New Credit
Facility), the security interest in the Franchise Agreements will be released.
The Company may at any time prior to the final maturity date increase the amount of the New Credit Facility by up to an additional $100 million to the
extent that any one or more lenders commit to being a lender for the additional amount and certain other customary conditions are met. Such additional
amounts may take the form of an increased revolver or term loan.
The Company may elect to have borrowings under the New Credit Facility bear interest at a rate equal to (i) LIBOR, plus a margin ranging from 200 to
425 basis points based on the Company's total leverage ratio or (ii) a base rate plus a margin ranging from 100 to 325 basis points based on the Company's
total leverage ratio.
The New Credit Facility requires the Company to pay a fee on the undrawn portion of the New Revolver, calculated on the basis the average daily
unused amount of the New Revolver multiplied by 0.30% per annum.
The Company may reduce the New Revolver commitment and/or prepay the Term Loan in whole or in part at any time without penalty, subject to
reimbursement of customary breakage costs, if any. Any Term Loan prepayments made by the Company shall be applied to reduce the scheduled
amortization payments in direct order of maturity.
Additionally, the New Credit Facility requires that the Company and its restricted subsidiaries comply with various covenants, including with respect to
restrictions on liens, incurring indebtedness, making investments, paying dividends or repurchasing stock, and effecting mergers and/or asset sales. With
respect to dividends, the Company may not make any payments if there is an existing event of default or if the payment would create an event of default. In
addition, if the Company's total leverage exceeds 4.50 to 1, the Company is generally restricted from paying aggregate dividends in excess of $50 million
during any calendar year.
The New Credit Facility also imposes financial maintenance covenants (as defined in the loan agreement) requiring the Company to maintain:
• a total leverage ratio of not more than 5.75 to 1.00 in year 1, 5.00 to 1.00 in year 2, 4.50 to 1.00 in year 3 and 4.00 to 1.00
thereafter,
• a maximum secured leverage ratio of not more than 2.50 to 1.00 in year 1, 2.25 to 1.00 in year 2, 2.00 to 1.00 in year 3 and 1.75 to
1.00 thereafter, and
• a minimum fixed charge coverage ratio of not less than 2.00 to 1.00 in years 1 and 2, 2.25 to 1.00 in year 3 and 2.50 to 1.00
thereafter.
At December 31, 2014, the Company maintained a total leverage ratio of 3.11x, a maximum secured leverage ratio of 0.51x and a minimum fixed
charge coverage ratio of 5.07x. At December 31, 2014, the Company was in compliance with all covenants under the New Credit Facility.
The New Credit Facility includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders
to, among other things, declare the principal, accrued interest and other obligations of the Company under the New Credit Facility to be immediately due and
payable.
The Company incurred debt issuance costs in connection with the New Credit Facility totaling approximately $3.7 million. These debt issuance costs
are amortized, on a straight-line basis, which is not materially different than the effective interest method, through the maturity of the New Credit Facility.
Amortization of these costs is included in interest expense in the consolidated statements of income.
In connection with the entry into the New Credit Facility, the Company's $300 million senior unsecured revolving credit agreement, dated as of
February 24, 2011, among the Company, Wells Fargo Bank, National Association, as administrative agent, and a syndicate of lenders (the “Old Credit
Facility”), was terminated and replaced by the New Credit Facility. The Old Credit Facility permitted the Company to borrow, repay and re-borrow revolving
loans until the scheduled maturity date of February 24, 2016. In addition, the Old Credit Facility bore interest, at the Company's election, at either (i) a base
rate plus a margin ranging from 5 to 80 basis points based on the Company's credit rating or (ii) LIBOR plus a margin ranging from 105 to 180 basis points
based on the Company's credit rating. The Old Credit Facility also required the Company to pay a quarterly
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