Long-Term Debt and Borrowing Arrangements |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-Term Debt and Borrowing Arrangements |
Long-Term Debt and Borrowing Arrangements
The Company’s indebtedness consisted of:
* The carrying amount of the term loan and senior unsecured notes are net of debt issuance costs of $21 million as of September 30, 2018.
Maturities and Capacity
The Company’s outstanding debt as of September 30, 2018 matures as follows:
As of September 30, 2018, the available capacity under the Company’s revolving credit facility was as follows:
Long-Term Debt
$750 million Revolving Credit Facility. During May 2018, the Company entered into an agreement for a $750 million revolving credit facility expiring in May 2023. This facility is subject to an interest rate per annum equal to, at Wyndham Hotels’ option, either a base rate plus a margin ranging from 0.50% to 1.00% or LIBOR plus a margin ranging from 1.50% to 2.00%, in either case based upon the total leverage ratio of the Company and its restricted subsidiaries. In addition, Wyndham Hotels will pay a commitment fee on the unused portion of the revolving credit facility of 0.20% per annum.
$1.6 billion Term Loan Agreement. During May 2018, the Company entered a credit agreement for a $1.6 billion term loan (“Term Loan”) expiring in May 2025. The interest rate per annum applicable to the Term Loan is equal to, at the Company’s option, either a base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75%. The LIBOR rate with respect to the Term Loan is subject to a “floor” of 0.00%. The Term Loan will amortize in equal quarterly installments beginning in the fourth quarter of 2018 in aggregate annual amounts equal to 1.00% of the original principal amount thereof. The Term Loan is subject to standard mandatory prepayment provisions including (i) 100% of the net cash proceeds from issuances or incurrence of debt by Wyndham Hotels or any of its restricted subsidiaries (other than with respect to certain permitted indebtedness); (ii) 100% (with step-downs to 50% and 0% based upon achievement of specified first-lien leverage ratios) of the net cash proceeds from certain sales or other dispositions of assets by Wyndham Hotels or any of its restricted subsidiaries in excess of a certain amount and subject to customary reinvestment provisions and certain other exceptions; and (iii) 50% (with step-downs to 25% and 0% based upon achievement of specified first-lien leverage ratios) of annual (commencing with the 2019 fiscal year) excess cash flow of Wyndham Hotels and its restricted subsidiaries, subject to customary exceptions and limitations.
The revolving credit facility and term loan (the “Credit Facilities”) are guaranteed, jointly and severally, by certain of Wyndham Hotels & Resorts, Inc.’s wholly-owned domestic subsidiaries and secured by a first-priority security interest in substantially all of the assets of Wyndham Hotels & Resorts, Inc. and those subsidiaries. The Credit Facilities were initially guaranteed by Wyndham Worldwide, which guarantee was released immediately prior to the consummation of the spin-off. The Credit Facilities contain customary covenants that, among other things, restrict, subject to certain exceptions, Wyndham Hotels & Resorts, Inc. and its restricted subsidiaries’ ability to grant liens on Wyndham Hotels & Resorts, Inc. and its restricted subsidiaries’ assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations and pay certain dividends and other restricted payments. The Credit Facilities require Wyndham Hotels & Resorts, Inc. to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum first-lien leverage ratio.
Subject to customary conditions and restrictions, Wyndham Hotels & Resorts, Inc. may obtain incremental term loans and/or revolving loans in an aggregate amount not to exceed (i) the greater of $550 million and 100% of EBITDA, plus (ii) the amount of all voluntary prepayments and commitment reductions under the Credit Facilities, plus (iii) additional amounts subject to certain leverage-based ratio tests.
The Credit Facilities also contain certain customary events of default, including, but not limited to: (i) failure to pay principal, interest, fees or other amounts under the Credit Facilities when due, taking into account any applicable grace period; (ii) any representation or warranty proving to have been incorrect in any material respect when made; (iii) failure to perform or observe covenants or other terms of the Credit Facilities subject to certain grace periods; (iv) a cross-default and cross-acceleration with certain other material debt; (v) bankruptcy events; (vi) certain defaults under ERISA; and (vii) the invalidity or impairment of security interests.
5.375% Senior Unsecured Notes. In April 2018, the Company issued $500 million of senior unsecured notes, which mature in 2026 and bear interest at a rate of 5.375% per year, for net proceeds of $493 million. Interest is payable semi-annually in arrears on October 15 and April 15 of each year, commencing on October 15, 2018.
The notes were initially guaranteed by Wyndham Worldwide on a senior unsecured basis and, immediately prior to the consummation of the spin-off, Wyndham Worldwide’s guarantee of the notes was released. During May 2018, the Company entered into a second supplemental indenture with certain of its wholly owned domestic subsidiaries, pursuant to which they became guarantors of the notes.
The Company used the net cash proceeds from the notes to replace a portion of Wyndham Worldwide’s bridge term loan facility, reducing former Parent’s outstanding bridge term loan facility commitments to approximately $1.5 billion. The remainder of the bridge term loan facility, which had been put in place to provide funding for the La Quinta acquisition, was terminated in conjunction with the issuance of the Term Loan. Wyndham Worldwide paid $12 million to obtain such financing commitments.
Capital Lease. In connection with the Company’s separation from Wyndham Worldwide, Wyndham Hotels was assigned the lease for its corporate headquarters located in Parsippany, New Jersey from its former Parent, which resulted in the Company recording a capital lease obligation and asset of $66 million and $43 million, respectively. Such capital lease has an interest rate of 4.5% during 2018.
Deferred Financing Costs
The Company classifies debt issuance costs related to its revolving credit facility within other non-current assets on the Consolidated and Combined Balance Sheets. The Company had debt issuance costs of $5 million as of September 30, 2018.
Cash Flow Hedge
On May 30, 2018, Wyndham Hotels hedged a portion of its $1.6 billion term loan. The pay-fixed/receive-variable interest rate swaps have a total notional amount $1.0 billion, of which $500 million has an initial term of five years and $500 million has an initial term of two and half years, with fixed rates of 2.66% and 2.52%, respectively. The variable rates of the swap agreements are based on one-month LIBOR. The aggregate fair value of these interest rate swaps was a $9 million asset as of September 30, 2018, which was included within other non-current assets on the Condensed Consolidated and Combined Balance Sheet. Gains recognized in Accumulated other comprehensive income for the three and nine months ended September 30, 2018 were $5 million and $7 million, respectively.
Debt Due to former Parent
During May 2018, the Company’s former Parent contributed $197 million of debt that was due from a subsidiary of Wyndham Hotels. Such outstanding borrowings are eliminated within the Condensed Consolidated and Combined Financial Statements. As of December 31, 2017, Wyndham Hotels had $184 million of outstanding borrowings from its former Parent.
Interest Expense, Net
Wyndham Hotels incurred net interest expense of $24 million and $2 million for the three months ended September 30, 2018 and 2017, respectively, and $36 million and $5 million for the nine months ended September 30, 2018 and 2017, respectively. Cash paid related to such interest was $22 million for the three and nine months ended September 30, 2018.
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