Since the start of April LCD has captured more than 350 transactions in which U.S. loan issuers have relieved financial covenants under their credit facilities amid the coronavirus pandemic, which has upended the asset class and economies worldwide. Many of these activities have included suspending and/or waiving financial maintenance covenant tests, readjusting financial maintenance covenants after that covenant holiday, and adding other covenants, such as minimum liquidity requirements. Some borrowers recently have extended the original suspension/waiver periods they initially received. LCD will periodically update this tracker as warranted by the market.
Some of the recent additions to the Covenant-Relief Tracker (the xls is available to LCD Research subscribers) include Hubbard Radio LLC, Alcoa Corp., Apple Hospitality REIT Inc., InterContinental Hotels Group (UK) Ltd, TouchTunes Music Corporation, Myriad Genetic Laboratories Inc., Hersha Hospitality Trust and Host Hotels & Resorts Inc. Below is a summary of those changes:
- Suspends the testing of the company's financial covenant through the second quarter of 2022.
- Required to maintain a minimum liquidity position of $5 million and is still be subject to a 100% excess cash flow sweep through the third quarter of 2022.
- Increases maximum leverage ratio to 2.75x, from 2.5x.
- Decreases minimum interest expense ratio to 4x, from 5x.
- Amends definition of total debt.
- Suspends testing of the minimum fixed charge coverage ratio and the minimum unsecured interest coverage ratio until the compliance certificate is required to be delivered for the fiscal quarter ending March 31, 2022.
- Suspends testing for all other of the company’s existing financial maintenance covenants until the date the compliance certificate is required to be delivered for the fiscal quarter ending June 30, 2022.
- Requires maintenance of covenants measured on an annualized basis following the Extended Covenant Waiver Period until the calculation is based on a trailing four quarter period.
- Modifies certain of existing financial maintenance covenants to less restrictive levels following the Extended Covenant Waiver Period.
InterContinental Hotel Group
- Relaxes covenants for June 30, 2022 and Dec. 31, 2022 (sets interest coverage at 1.5x through June 2022, then 2x through December 2022; sets leverage ratio at 7.5x through June 2022 and 6.5x through December 2022).
- Extends maturity of revolver by 18 months, to September 2023, from March 2022.
Octave Music Group
- Proposes a senior secured covenant amendment to ease risk that it could breach covenants in 2021 as a result of continued EBITDA declines during the pandemic.
- The proposed covenant amendment provides an extension of the covenant amendment period, adds a temporary minimum adjusted EBITDA covenant, and resets the existing total secured not leverage covenant to provide more headroom under the calculation starting September 2021.
- Waives compliance with the leverage ratio and interest coverage covenants through the quarter ending March 31, 2022 and lowered minimum liquidity covenant applicable through March 31, 2022.
- Extends modification period for additional year, through June 2022, and revised certain negative covenants in connection with the extension.
- Reduces revolver commitments to $300 million, with a further reduction to $250 million by Sept. 30, 2021.
- Removes the minimum EBITDA covenant.
- Permits the company to change its fiscal year to Dec. 31.
- Restricts the company from borrowing under the revolver if unrestricted cash and cash equivalents exceed $150 million, unless such borrowings are in connection with an acquisition.
- Permits the company to keep the net cash proceeds of material asset sales received above a certain dollar threshold without corresponding mandatory prepayments or commitment reductions.
- Extends maturity date of $194 million term loan A to August 2022, from August 2021.
- Provides a limited waiver of financial covenants, including an agreement that the COVID-19 pandemic and the general economic conditions resulting therefrom are not “material matters” with respect to certain borrowing base conditions and, resultantly, do default or event of default has occurred thereunder.
- Amends the leverage ratio and fixed charge coverage ratio for the second quarter of 2022, requiring a leverage ratio not greater than 65% (versus 60%) and a fixed charge coverage ratio not less than 1.2x (versus 1.5x).
- Adds a new financial covenant the requires the borrowing base leverage ratio to not exceed 60% at any time.
- Requires at all times the borrower and its subsidiaries have assets in an aggregate amount of at least $30 million.
Host Hotels & Resorts
- Extends covenant suspension waiver period through Q1 2022 (from Q3 2021), with the fixed charge coverage ratio (1x) to only be tested for the first test period. All other covenants will not be tested through Q3 2022.
- Modifies leverage covenant to 8.5x for Q3 & Q4 2022, 8x through Q1 & Q2 2023, 7.5x for Q3 2023, and 7.25x thereafter.
- Increases minimum liquidity level to $400 million, from $300 million.
The data in the Covenant-Relief Tracker is mostly sourced from LCD News reporting and SEC filings. It is not an exhaustive list of all covenant-relief activity.