MedEquities Realty Trust Inc. amended its master lease with a tenant to defer about $2.4 million in rent and amended its credit agreement with KeyBank NA to add performance hurdles related to a separate Texas skilled nursing portfolio.
Under the master lease amendment, subsidiaries of MedEquities and the tenant, Fundamental Healthcare, agreed to defer rent payments for a period from May 20, 2018, through March 20, 2019. During that period, the tenant will be required to pay monthly interest on the then-outstanding amount at an annual interest rate of 9%, in addition to its reduced rent and other payments.
Fundamental, which leases four facilities from MedEquities, is required to repay the total abatement amount beginning on April 20, 2019. The agreement also amends the minimum portfolio rent coverage ratio to 1.20x for the first four years of the lease term and 1.25x for each year after that, though the covenant will not apply during the abatement period.
In amending the credit agreement, MedEquities and KeyBank agreed to reduce the borrowing base availability attributable to the 10-property Texas portfolio and to temporarily increase the borrowing base availability attributable to other company assets. If the company does not terminate the existing lease on the Texas properties and get its creditors' approval for a new tenant by Dec. 31, its borrowing base availability for the properties will be reduced to zero.
The agreement restricts MedEquities' use of proceeds under the credit agreement until the company meets certain performance hurdles, including the tenant replacement at the Texas properties, the completion of an expansion at Fundamental's Mountain's Edge Hospital, and receipt of regular rent payments from the new Texas tenant and Fundamental for at least one quarter.
The lenders also consented in advance to a potential refinancing of the company's mortgage loan secured by Lakeway Hospital in Texas, provided that the net proceeds of the refinancing are not less than the outstanding October 2018 principle balance of about $69.8 million, and are used to repay outstanding borrowings under the credit agreement. Such a refinancing and repayment would be expected to increase the company's available borrowing capacity under the credit agreement by about $20 million.