In a brand new particular report Xtract Analysis discusses the affect of the anticipated acquisition by Blackstone and Starwood on Prolonged Keep’s bonds. This fall 2020 hedge fund letters, conferences and extra Xtract Analysis specialists consider that there won’t be ample restricted cost and secured debt capability to assist the acquisition, requiring every collection of bonds […]
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Xtract Analysis specialists consider that there won’t be ample restricted cost and secured debt capability to assist the acquisition, requiring every collection of bonds to be refinanced.
Prolonged Keep America To Be Acquired By Blackstone and Starwood
Highlights from the report embrace:
Prolonged Keep will want sufficient restricted funds capability beneath every collection of Notes to pay the merger consideration with the proceeds of ESH debt financing. The restricted funds covenants within the 2025 and 2027 Notes are considerably related. As a result of minimal capped baskets, the primary query is whether or not there’s sufficient capability beneath the Construct Up Basket and if ESH can meet the monetary take a look at to pay such quantities.
RP capability beneath the capped baskets in reference to a possible merger is restricted right here to a common permitted restricted funds basket as much as the larger of $300mm and a 5% Incremental-Mortgage-to Worth Ratio of ESH and its Restricted Subsidiaries. Whereas there are funding baskets that, if obtainable, quantity to the larger of $400mm and 6% of Incremental Mortgage-to-Worth that may be transferred to an Unrestricted Subsidiary, there isn’t any two-step dividend exception that will permit Unrestricted Subsidiary shares to be distributed to shareholders.
To the extent that worth may be shifted to Unrestricted Subsidiaries via funding baskets to lift debt financing exterior of the Notes’ restricted group, Unrestricted Subsidiary debt would scale back restricted group ratio debt availability beneath the ratio incurrence exams.
The merger wouldn’t end in a Change of Management beneath the 2025 Notes, however one would come up beneath the 2027 Notes. Given the covenant limitations mentioned above and the current redemption and buying and selling costs for the Notes, a noteholder wouldn’t be incentivized to train the 101% Change of Management put proper.