MeriStar Hospitality Corporation Refinances $300 Million CMBS Portfolio Loan
biz.yahoo.com
Thursday September 15, 8:00 am ET
Reduces Interest Rate by More Than 300 Basis Points
ARLINGTON, Va.--(BUSINESS WIRE)--Sept. 15, 2005--MeriStar Hospitality Corporation (NYSE: MHX), one of the nation's largest hotel real estate investment trusts (REIT), today announced that it had completed the previously announced refinancing of its 19-property, $300 million CMBS loan. The refinancing lowers the company's rate of borrowing by more than 300 basis points, provides greater flexibility for property dispositions and substitutions, releases approximately $45 million of cash currently held in escrow and frees up future property cash flow for general use.
"This transaction is another important step, which, when combined with the strength of our properties' performance, will continue our efforts to provide value to our shareholders by strengthening our balance sheet and improving our overall credit statistics," said Donald D. Olinger, chief financial officer. "Significantly, it reduces our expected annualized interest expense by more than $9 million."
The refinancing included a defeasance of the existing loan and borrowings under two new facilities, using 18 properties that were included in the original collateral package. The new borrowings consist of a $312 million, 17-property CMBS loan at a rate of LIBOR plus 135 basis points, or 309 basis points below the effective rate of the original loan; and a $15 million term loan covering one property with a borrowing rate of LIBOR plus 350 basis points. The new CMBS facility will have an initial maturity of October 9, 2007 plus three one-year extensions at the company's option. The term loan facility will initially mature on April 9, 2006 with an option to extend the maturity for an additional six months.
Olinger said that the transaction also provides the company with significantly greater flexibility and control over the 18 hotels in the loan collateral pool, noting that, "We now have the flexibility to sell assets included in the collateral group that do not fit with our long-term strategy, generating proceeds to further reduce our debt while at the same time reducing our future capital requirements."
In the third quarter, the company expects to record a $45.9 million loss on early extinguishment of debt related to the defeasance cost and an $8.7 million charge related to the termination of the interest rate swap on the original CMBS loan. In addition, the company also expects to record a non-cash impairment charge of approximately $36 million related to four assets in the collateral package that the company expects to sell, but which could not be sold under the original CMBS structure. Despite the one-time debt related charges, the company expects the transaction to be net present value (NPV) positive.
The CMBS refinancing is one of a number of financial transactions completed by the company in 2005. In addition to the CMBS refinancing, the company expanded its bank facility to $150 million while lowering the borrowing rate on the facility by 100 basis points. Since the end of the first quarter the company has bought back more than $37 million of its senior unsecured notes and redeemed the remaining $32.7 million of 8 3/4 percent senior subordinated notes at par on August 15, 2005. The company also recently announced its intention to expand its asset disposition activity for the year in response to strong market conditions for dispositions and expressed interest. "Pending the sale of additional hotels, we plan to call between $175 million and $200 million of our 10.5% senior notes when they become callable on December 15th of this year, significantly reducing our most costly piece of debt," Olinger said.
"We are continuing to see the positive financial results of our overall corporate strategy. We expect our weighted average interest rate to decrease by nearly 70 basis points to 7.8% and our interest coverage ratio to improve from 1.4 to between 1.7 and 1.8 by year end 2005. Our next material maturity is not until 2008. The performance of our properties combined with our capital markets activities are strengthening our balance sheet and improving our overall credit statistics. Shareholder value has been increased by all of these achievements." |
