Subsequent Events |
3 Months Ended |
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Mar. 31, 2018 | |
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| Subsequent Events |
Subsequent Events
Senior Unsecured Notes Offering
In April 2018, Wyndham Hotels & Resorts, Inc. issued $500 million of senior unsecured notes, which mature in 2026 and bear interest at a rate of 5.375% per year. 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 the Parent on a senior unsecured basis and, immediately prior to the consummation of the spin-off, Parent’s guarantee of the notes was released. During May 2018, Wyndham Hotels entered into a second supplemental indenture with certain of its wholly owned domestic subsidiaries, pursuant to which they became guarantors of the notes.
Wyndham Hotels replaced a portion of Wyndham Worldwide’s bridge term loan facility with the net cash proceeds of the notes, reducing Parent’s outstanding bridge term loan facility commitments to approximately $1.5 billion. The remainder of the bridge term loan facility was terminated in conjunction with the issuance of the Term Loan described below. Wyndham Worldwide paid $9 million to obtain such financing commitments.
Distribution of Wyndham Hotels Common Stock to Parent Shareholders
In May 2018, the Wyndham Worldwide board of directors approved the Distribution of Wyndham Hotels & Resorts, Inc. common stock to Wyndham Worldwide Corporation stockholders to effect the spin-off of Wyndham Hotels. Wyndham Worldwide’s board of directors set the record date for the Distribution as the close of business on May 18, 2018 and the Distribution occurred on May 31, 2018. Wyndham Worldwide stockholders received one share of Wyndham Hotels & Resorts, Inc. common stock for each share of Wyndham Worldwide common stock they owned as of the record date. Approximately 100 million shares of Wyndham Hotels’ common stock were distributed to Wyndham Worldwide stockholders on May 31, 2018. Wyndham Hotels common stock began “regular way” trading on the New York Stock Exchange under the ticker symbol “WH” on June 1, 2018.
In connection with the Distribution, Wyndham Hotels entered into several agreements with Wyndham Destinations (previously known as Wyndham Worldwide) that govern the relationship of the parties following the spin-off, including a separation and distribution agreement, an employee matters agreement, a tax matters agreement, a transition services agreement and a license, development and noncompetition agreement.
These agreements have either not existed historically, or may be on different terms than the terms of the arrangement or agreements that existed prior to the spin-off. These Condensed Combined Financial Statements do not reflect the effect of these new and/or revised agreements.
Stock Repurchase Program
On May 9, 2018, Wyndham Hotels & Resorts, Inc.’s Board of Directors approved a stock repurchase program, which became effective immediately following, and conditional upon, the completion of the Distribution, under which it is authorized to repurchase up to $300 million of its outstanding common stock.
Dividend Declaration
On May 17, 2018, Wyndham Hotels & Resorts, Inc.’s Board of Directors declared, conditional upon the completion of the Distribution, a quarterly cash dividend with respect to its common stock of $0.25 per share, which will be paid on June 29, 2018 to the Company’s stockholders of record as of the close of business on June 15, 2018.
The La Quinta Acquisition
On May 30, 2018, Wyndham Hotels completed its previously announced acquisition of La Quinta’s hotel franchising and hotel management business for $1.95 billion in cash. The addition of La Quinta’s over 900 franchised hotels with a total of nearly 89,000 rooms builds Wyndham Hotels’ midscale presence and expands its reach further into the upper-midscale segment of the lodging industry. In addition, this transaction expands the Company’s number of managed hotel properties from 116 to more than 430.
In conjunction with the acquisition, stockholders of La Quinta Holdings received $16.80 per share in cash (approximately $1.0 billion in aggregate), and Wyndham Hotels repaid approximately $715 million of La Quinta Holdings' debt and set aside a reserve of $240 million for estimated taxes expected to be incurred in connection with the taxable spin-off of La Quinta Holdings’ owned real estate assets into CorePoint Lodging, Inc., which occurred immediately prior to the acquisition of La Quinta. Wyndham Hotels financed the $1.95 billion acquisition with proceeds from its $500 million offering of 5.375% senior notes due 2026 completed in April and a $1.6 billion term loan due 2025 that closed in connection with the acquisition.
A determination of the acquisition-date fair value of the assets acquired and the liabilities assumed at closing is pending the completion of an appraisal that will be performed by a third-party valuation specialist based on valuation techniques that Wyndham Hotels deems appropriate. There are no revenues or results of operations of La Quinta included in Wyndham Hotel’s Condensed Combined Statements of Operations for the three months ended March 31, 2018. Excluding any fair value and other acquisition-related adjustments, Wyndham Hotels’ Pro Forma Net Revenues and Operating income would have been $457 million and $59 million, respectively, during the three months ended March 31, 2018, if La Quinta’s historical results had been included in Wyndham Hotels’ Condensed Combined Statement of Operations since January 1, 2018. For 2017, Pro Forma Net Revenues and Net Income would have been $2,041 million and $263 million, respectively.
Credit Agreement
In May 2018, in connection with the La Quinta acquisition, Wyndham Hotels & Resorts, Inc. entered into new senior secured credit facilities (the “Credit Facilities”) in an aggregate principal amount of $2.35 billion, consisting of a term loan (the “Term Loan”) in an aggregate principal amount of $1.6 billion maturing in 2025 and of a revolving credit facility in an aggregate principal amount of $750 million maturing in 2023, which was undrawn at closing.
Wyndham Hotels & Resorts, Inc. used the proceeds from the Term Loan primarily to finance the cash consideration for the La Quinta acquisition, as well as to pay related fees and expenses and for general corporate purposes.
The interest rate per annum applicable to the Term Loan is equal to, at the borrower’s option, either a base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75%. The interest rate per annum applicable to borrowings under the revolving credit facility is equal to, at the borrower’s 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 borrower and its restricted subsidiaries. The LIBOR rate with respect to the Term Loan is subject to a “floor” of 0%.
The Term Loan will amortize in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount thereof. Borrowings under the revolving credit facility are not subject to interim amortization. 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 the borrowers 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 the borrower 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 the borrower and its restricted subsidiaries, subject to customary exceptions and limitations.
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.
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 a term of five years and $500 million has a 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.
Credit Support Provided for Wyndham Worldwide’s Sale of its European Vacation Rentals Business
In May 2018, Wyndham Destination Network, LLC (“WDN”), a subsidiary of Parent, and certain other Parent subsidiaries, completed the previously announced sale of the European Vacation Rentals business to Compass IV Limited, an affiliate of Platinum Equity, LLC.
In connection with the sale of the European Vacation Rentals business, Wyndham Hotels has provided certain post-closing credit support in the form of guarantees of up to approximately $87 million to ensure that the business meets the requirements of certain service providers and regulatory authorities. In addition, WDN has agreed that either Parent or Wyndham Hotels will provide an additional $47 million in post-closing credit support to certain regulatory authorities by September 30, 2018. In connection with such additional post-closing credit support, Parent has deposited $47 million in escrow account funding. The escrow account funding will be released to Parent to the extent alternative post-closing credit support is provided.
Such post-closing credit support may be called if the European Vacation Rentals business fails to meets its primary obligation to pay amounts when due. The European Vacation Rentals business has provided an indemnity to Parent in the event that the post-closing credit support is enforced or called upon. Pursuant to the terms of the Separation and Distribution Agreement that was entered into in connection with the Distribution, Wyndham Hotels will assume one-third and Parent will assume two-thirds of any such losses actually incurred by the Parent or Wyndham Hotels in the event that these credit support arrangements are enforced or called upon by any beneficiary and any amounts paid or received by Parent in respect of any indemnification claims made. Wyndham Hotels will record the fair value of its post-closing credit support guarantee with its June 30, 2018 Condensed Consolidated Balance Sheet.
License Agreement related to Wyndham Worldwide’s Sale of its European Vacation Rentals Business
In connection with its sale, the European Vacation Rentals business has entered into a 20-year agreement under which it will pay Wyndham Hotels a royalty fee of 1% of net revenue for the right to use the “by Wyndham” endorser brand.
Sale of Knights Inn
In May 2018, Wyndham Hotels sold its Knights Inn brand and franchise system to a subsidiary of RLH Corporation for $27 million in cash, subject to customary closing conditions and certain post-closing adjustments. Wyndham Hotels expects to record a pretax gain of approximately $20 million within transaction-related expenses on the Condensed Combined Statement of Income in connection with the sale of Knights Inn.
Debt Due to Parent
Prior to the Distribution on May 31, 2018, Wyndham Hotels' outstanding borrowings from its Parent of $197 million was contributed to Parent’ s net investment.
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| Wyndham Hotels & Resorts, Inc. | |
| Subsequent Event [Line Items] | |
| Subsequent Events |
Subsequent Events
During April and May 2018, the Corporation underwent an internal reorganization, pursuant to which it became the holder, directly or through its subsidiaries, of the Wyndham Hotels & Resorts Businesses. On May 31, 2018, Wyndham Destinations, Inc. (previously known as Wyndham Worldwide Corporation) completed the previously announced spin-off of the hotel franchising and management business (the “Wyndham Hotels & Resorts businesses”) from (“Wyndham Destinations”) through the pro rata distribution of all of the shares of outstanding common stock of Wyndham Hotels & Resorts, Inc. to Wyndham Destinations’ stockholders (the “Distribution”). Following the Distribution, the Corporation became an independent, publicly traded company. The Corporation will, through the Wyndham Hotels & Resorts Businesses, continue to conduct the business that is currently conducted by such entities.
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