1021-00001 · Verimark Hospitality Group · Engagement & Preliminary

existing-credit-facilities-summary.docx DOCUMENT Finance & Banking

15 / 75 ← → ✕

Contract analysis Extract to table

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

SUMMARY OF EXISTING CREDIT FACILITIES

VERIMARK HOSPITALITY GROUP INC.

WORKING MEMORANDUM

April 12, 2022

TO: Ian Blackwood, Partner, Banking & Finance Sophie Tremblay, Lead Associate, Banking & Finance

FROM: Daniel Obi, Associate, Banking & Finance

RE: Summary of Existing Credit Facilities of Verimark Hospitality Group Inc. in Connection with Proposed $700,000,000 Term Loan B Refinancing

ENGAGEMENT NO.: 1016-00009

CLIENT: Verimark Hospitality Group Inc. ("VHG")

This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is prepared solely for the internal use of the engagement team at Calderwood & Harkness LLP in connection with the representation of Verimark Hospitality Group Inc. This memorandum should not be disclosed to any third party without the prior written consent of the undersigned or the responsible partner.

Right-click to update Table of Contents

I. Purpose and Executive Summary

A. Purpose. The purpose of this memorandum is to provide the engagement team with a comprehensive summary of VHG's existing credit facilities and outstanding indebtedness. This summary is intended to serve as foundational context for structuring and negotiating the proposed $700,000,000 Term Loan B refinancing (the "Proposed Refinancing") with Crescent Harbor Bank, N.A., as lead arranger and administrative agent. This memorandum catalogues the material terms, conditions, covenants, collateral arrangements, and intercreditor relationships governing VHG's current debt instruments, and identifies key considerations and open items relevant to the Proposed Refinancing.

This memorandum is based on a review of the following documents, copies of which are maintained in the deal room:

(a) Credit Agreement, dated as of February 14, 2020, among Verimark Hospitality Group Inc., the Guarantors party thereto, the Lenders party thereto, and Greystone Federal Credit Corp., as Administrative Agent and Collateral Agent (the "Existing TLB Credit Agreement");

(b) Credit Agreement, dated as of [date to be confirmed], among Verimark Hospitality Group Inc., the Guarantors party thereto, the Lenders party thereto, and Crescent Harbor Bank, N.A., as Administrative Agent (the "RCF Credit Agreement");

(c) Indenture, dated as of [date to be confirmed], among Verimark Hospitality Group Inc., as Issuer, and Atlantic Standard Trust Company, as Indenture Trustee (the "Unsecured Notes Indenture");

(d) Intercreditor Agreement, dated as of [date to be confirmed], among Greystone Federal Credit Corp. (as Term Loan Agent) and Crescent Harbor Bank, N.A. (as Revolving Agent) (the "Existing Intercreditor Agreement");

(e) VHG's Annual Report on Form 10-K for the fiscal year ended December 31, 2021; and

(f) Internal financial data provided by VHG's Treasurer, Glenn Fischbach.

B. Executive Summary

VHG currently maintains three principal debt instruments:

(i) A $625,000,000 Senior Secured Term Loan B (the "Existing TLB") originated on February 14, 2020, with Greystone Federal Credit Corp. as administrative agent and collateral agent;

(ii) A $400,000,000 Senior Secured Revolving Credit Facility (the "RCF") with Crescent Harbor Bank, N.A. as administrative agent; and

(iii) $245,000,000 in aggregate principal amount of Senior Unsecured Notes due 2028 (the "Unsecured Notes") issued under an indenture with Atlantic Standard Trust Company as indenture trustee.

As of the date of this memorandum, total outstanding funded debt is approximately $866,875,000, comprising the outstanding principal balance on the Existing TLB of approximately $621,875,000 and the $245,000,000 in Unsecured Notes. The RCF is currently fully undrawn and therefore is not included in the funded debt total, although the $400,000,000 in revolving commitments brings VHG's aggregate debt capacity to $1,270,000,000.

The following table provides a high-level summary of VHG's key financial metrics for context:

C. Company Overview

Verimark Hospitality Group Inc. is a Delaware corporation, publicly traded on the New York Stock Exchange under the ticker symbol "VMRK." VHG is headquartered at 8200 West Palmetto Park Road, Suite 1500, Boca Raton, Florida 33433. VHG's Employer Identification Number is 82-3741956, and its Delaware File Number is 7291843.

VHG is an owner-operator of 74 full-service and select-service hotels across 18 states, with a portfolio appraised at approximately $3.1 billion. VHG's management team includes:

• Chief Executive Officer: Marcus Delvecchio

• Chief Financial Officer: Renata Haines

• General Counsel: Priya Narayanan

• Treasurer: Glenn Fischbach

VHG's hotel portfolio spans a range of urban, resort, and convention-oriented properties, and the company operates under several proprietary and licensed brand flags. The breadth and geographic diversification of the portfolio is a key credit strength and supports the robust collateral base underlying VHG's senior secured indebtedness.

II. Existing Senior Secured Term Loan B

A. Overview and Key Terms

The Existing TLB was originated on February 14, 2020 pursuant to the Existing TLB Credit Agreement. The following table summarizes the key structural terms of the facility:

The guarantor group consists of five direct and indirect domestic subsidiaries of VHG. Each guarantor has provided a full and unconditional guaranty of VHG's obligations under the Existing TLB Credit Agreement, and each has pledged substantially all of its assets as collateral for the facility. This guarantor group is coextensive with the guarantor group under the RCF, as discussed further in Section III below, ensuring that the first-lien collateral package is consistent across both senior secured facilities.

B. Pricing and Interest Rate

The Existing TLB bears interest at a floating rate equal to the London Interbank Offered Rate ("LIBOR") plus an applicable margin of 425 basis points (4.25%). As noted below in Section II.I, the Existing TLB's reliance on LIBOR as its benchmark rate presents a transition risk that will be addressed through the Proposed Refinancing.

The Existing TLB Credit Agreement provides for a default rate equal to the otherwise applicable interest rate plus 200 basis points. This default rate provision is subject to confirmation upon completion of the detailed review of the Existing TLB Credit Agreement currently being conducted by Sophie Tremblay (see separate memorandum dated April 14, 2022).

As of the date of this memorandum, VHG is current on all interest payments under the Existing TLB, and no event of default or default has occurred or is continuing under the Existing TLB Credit Agreement.

C. Maturity and Amortization

The Existing TLB has a maturity date of February 14, 2027, reflecting a seven-year tenor from the date of origination. The facility amortizes at a rate of 1.00% per annum of the original principal amount, with amortization payments due quarterly. The quarterly amortization payment is calculated as follows:

$625,000,000 × 1.00% ÷ 4 = $1,562,500 per quarter

From the origination date of February 14, 2020 through the anticipated payoff date in connection with the Proposed Refinancing (estimated to be on or about July 21, 2022), VHG will have made approximately eight (8) quarterly amortization payments totaling approximately $3,125,000 in aggregate scheduled amortization. The exact number of quarterly payments made through the anticipated payoff date is to be confirmed against the payment schedule maintained by Greystone Federal Credit Corp.

On this basis, the outstanding principal balance of the Existing TLB as of the date of this memorandum is approximately:

$625,000,000 − $3,125,000 = approximately $621,875,000

We note that the remaining scheduled amortization payments due between the date of this memorandum (April 12, 2022) and the anticipated closing date of the Proposed Refinancing (July 21, 2022) may further reduce the outstanding principal balance. The payoff quote to be obtained from Greystone will reflect the exact outstanding balance as of the closing date.

D. Prepayment Provisions

The Existing TLB Credit Agreement permits voluntary prepayment of the outstanding principal, subject to a prepayment premium. The prepayment premium applicable to a voluntary prepayment is 0.50% of the principal amount prepaid. Based on the full outstanding principal balance, the prepayment premium is calculated as follows:

$625,000,000 × 0.50% = $3,125,000

The estimated total payoff amount for the Existing TLB in connection with the Proposed Refinancing is approximately $627,916,667, comprising the following components:

The accrued and unpaid interest estimate is based on the current outstanding principal balance and the applicable interest rate, prorated through the anticipated closing date. The precise amount will be set forth in the payoff letter to be issued by Greystone Federal Credit Corp. A separate detailed analysis of the prepayment, assignment, and repricing provisions of the Existing TLB is being prepared by Sophie Tremblay and will be circulated under separate cover (memorandum dated April 14, 2022). That analysis will address, among other things, whether the Proposed Refinancing constitutes a "repricing transaction" under the Existing TLB Credit Agreement and, if so, any additional prepayment or repricing premiums that may be applicable.

E. Collateral and Security

The Existing TLB is secured by a first-priority lien on substantially all assets of VHG and the Guarantors. The collateral package includes the following categories of assets:

(a) Real Property. Fee simple and leasehold interests in 42 hotel properties owned by Verimark Resort Properties LLC, with an aggregate appraised value of approximately $2.18 billion. The real property collateral is secured by mortgages and/or deeds of trust recorded against the applicable properties in the following jurisdictions:

(b) Equity Interests. 100% of the equity interests in each direct domestic subsidiary of VHG, and 65% of the equity interests in any first-tier foreign subsidiaries.

(c) Personal Property. All personal property of VHG and the Guarantors, including accounts receivable, inventory, equipment, intellectual property (including trademarks, trade names, and service marks), and general intangibles.

Greystone Federal Credit Corp. serves as the Collateral Agent for the benefit of the secured parties under the Existing TLB Credit Agreement. Perfection of the security interests is maintained through the following filings:

• UCC-1 Financing Statements: Filed with the Delaware Secretary of State for VHG and each Delaware-organized subsidiary, and with the Florida Secured Transaction Registry for Palmetto Beachfront Hotels LLC (a Florida limited liability company).

• Mortgages/Deeds of Trust: Recorded against each of the 42 hotel properties in the applicable county recording offices across 12 states, as described above.

Upon payoff and termination of the Existing TLB, all existing UCC filings will need to be terminated and all existing mortgages and deeds of trust will need to be released. New UCC-1 financing statements will be filed, and new mortgages/deeds of trust will be recorded, in favor of Crescent Harbor Bank, N.A. (as the new Collateral Agent under the Proposed Refinancing). The lien release and re-perfection process is discussed further in Section VI.D below.

F. Intercreditor Arrangements

The Existing TLB shares first-lien collateral on a pari passu basis with the $400,000,000 RCF (described in Section III below). The relative rights and priorities of the secured parties under the Existing TLB and the RCF are governed by the Existing Intercreditor Agreement, which was entered into between Greystone Federal Credit Corp. (as the Term Loan Agent) and Crescent Harbor Bank, N.A. (as the Revolving Agent) at the time of the origination of the Existing TLB.

The Existing Intercreditor Agreement provides for, among other things:

(a) Pari passu sharing of all first-lien collateral proceeds in an enforcement scenario, subject to customary waterfall provisions;

(b) A standstill period during which the Term Loan Agent may not exercise remedies against the collateral without the consent of the Revolving Agent (or vice versa), subject to customary exceptions;

(d) Provisions addressing DIP financing and adequate protection in a bankruptcy proceeding.

Upon closing of the Proposed Refinancing, the Existing Intercreditor Agreement will need to be amended and restated to reflect Crescent Harbor Bank, N.A. as the agent for both the new Term Loan B and the RCF. This is discussed further in Section VI.E below.

G. Financial Covenants

The Existing TLB Credit Agreement contains a single springing financial covenant: a Maximum Total Net Leverage Ratio of 4.5x, tested quarterly on a trailing four-quarter (LTM) basis. This financial covenant is a "springing" covenant, meaning that it is tested only when the aggregate revolving credit exposure under the RCF exceeds 35% of the total revolving commitments (i.e., 35% × $400,000,000 = $140,000,000).

Because the RCF is currently fully undrawn, the springing financial covenant is not currently in effect and has not been triggered. VHG's current Total Net Leverage Ratio, calculated on the basis of LTM Adjusted EBITDA for FY2021, is approximately 2.29x, which provides significant headroom under the 4.5x maximum even if the covenant were to be triggered.

The proposed new Term Loan B is expected to maintain the same springing covenant structure, including the same 4.5x maximum threshold and 35% revolving utilization trigger. The retention of this covenant structure is consistent with the market standard for Term Loan B facilities in the hospitality sector and will preserve consistency across VHG's capital structure.

H. Governing Law

The Existing TLB Credit Agreement is governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts-of-law principles. The Existing TLB Credit Agreement includes customary submission to jurisdiction in the courts of the State of New York sitting in the Borough of Manhattan and in the United States District Court for the Southern District of New York.

I. LIBOR Transition Considerations

The Existing TLB uses LIBOR as its benchmark interest rate. As the engagement team is aware, the publication of most U.S. dollar LIBOR tenors (including overnight, 1-month, 3-month, 6-month, and 12-month settings) is expected to cease after June 30, 2023, following the announcements by ICE Benchmark Administration and the Financial Conduct Authority. The continued use of LIBOR as a benchmark rate in the Existing TLB therefore presents transition risk that would need to be addressed either through the facility's existing benchmark replacement fallback provisions or through a refinancing.

The Proposed Refinancing will address the LIBOR transition issue by replacing LIBOR with Adjusted Term SOFR (based on CME Term SOFR), with credit spread adjustments as recommended by the Alternative Reference Rates Committee ("ARRC"):

• 1-month tenor: CME Term SOFR + 0.10% credit spread adjustment

• 3-month tenor: CME Term SOFR + 0.15% credit spread adjustment

• 6-month tenor: CME Term SOFR + 0.25% credit spread adjustment

The new Term Loan B credit agreement will incorporate hardwired benchmark replacement fallback language consistent with ARRC recommendations, providing for an automatic transition to a replacement benchmark rate in the event that Adjusted Term SOFR ceases to be available. This approach eliminates the need for future amendments to address benchmark rate transitions and provides certainty for VHG and the lender group.

III. Senior Secured Revolving Credit Facility

A. Overview and Key Terms

VHG maintains a $400,000,000 Senior Secured Revolving Credit Facility (the "RCF") pursuant to the RCF Credit Agreement. The following table summarizes the key structural terms of the RCF:

It is noteworthy that Crescent Harbor Bank, N.A. serves as the administrative agent under the RCF and is also the proposed lead arranger and administrative agent for the new Term Loan B under the Proposed Refinancing. This dual role is expected to simplify the intercreditor arrangements following the closing of the Proposed Refinancing, as Crescent Harbor will serve as agent for both the senior secured term loan and the revolving credit facility. The alignment of agent roles under a single institution eliminates the need for a multi-agent intercreditor framework and should facilitate a more streamlined documentation process.

The guarantor group under the RCF is identical to the guarantor group under the Existing TLB, consisting of Verimark Resort Properties LLC, VHG Management Services Inc., Verimark Convention Holdings LLC, Palmetto Beachfront Hotels LLC, and Cascadia Hospitality Corp. The use of a consistent guarantor group across the senior secured facilities ensures that all first-lien creditors benefit from the same credit support.

B. Utilization and Outstanding Balance

As of the date of this memorandum, the RCF is fully undrawn. The current drawn amount is $0, and the full $400,000,000 in revolving commitments remains available to VHG for borrowings and the issuance of letters of credit, subject to the terms and conditions of the RCF Credit Agreement.

Because the RCF is undrawn, it is excluded from the calculation of VHG's funded debt and does not contribute to the Total Net Leverage Ratio. However, the availability of $400,000,000 in undrawn revolving capacity provides VHG with significant liquidity, which, together with the $87,000,000 in unrestricted cash on the balance sheet, gives VHG total available liquidity of approximately $487,000,000.

C. Collateral and Intercreditor

The RCF shares the same first-priority lien on substantially all assets of VHG and the Guarantors, on a pari passu basis with the Existing TLB. The collateral package is identical to that described in Section II.E above and includes real property interests in 42 hotel properties, equity interests in domestic and foreign subsidiaries, and all personal property of VHG and the Guarantors.

The relative rights and priorities of the lenders under the RCF and the Existing TLB are governed by the Existing Intercreditor Agreement, as described in Section II.F above. Under the Existing Intercreditor Agreement, Greystone Federal Credit Corp. (as Term Loan Agent) and Crescent Harbor Bank, N.A. (as Revolving Agent) are the parties governing the pari passu sharing arrangement.

Upon the closing of the Proposed Refinancing, the Existing Intercreditor Agreement will be amended and restated. Since Crescent Harbor Bank, N.A. will serve as agent for both the new Term Loan B and the RCF following the refinancing, the pari passu sharing arrangement will continue but will be administered under a single-agent structure. This is expected to simplify the administration of collateral matters, including the release and re-perfection of security interests, the application of collateral proceeds, and the coordination of enforcement actions.

D. Significance for the Proposed Refinancing

The RCF will remain in place following the closing of the Proposed Refinancing and will not be refinanced or otherwise modified as part of this transaction. The RCF will continue to provide VHG with $400,000,000 in revolving credit availability for working capital, letters of credit, and general corporate purposes.

The springing financial covenant under the RCF (which, as noted above, mirrors the springing financial covenant under the Existing TLB) is triggered only when the aggregate revolving credit exposure exceeds 35% of total revolving commitments, calculated as follows:

35% × $400,000,000 = $140,000,000

Since the RCF is fully undrawn as of the date of this memorandum, and is expected to remain undrawn at the closing of the Proposed Refinancing, the springing financial covenant is not expected to be triggered at the time of closing. Even if the financial covenant were to be triggered, VHG's pro forma Total Net Leverage Ratio at closing would provide ample headroom:

Pro forma net leverage at closing: $858,000,000 net debt ÷ $341,000,000 LTM Adjusted EBITDA = approximately 2.52x (vs. 4.5x maximum)

Notwithstanding the foregoing, the RCF Credit Agreement should be reviewed to confirm whether any consent or notice requirements apply in connection with the Proposed Refinancing. In particular, the RCF Credit Agreement may require that VHG provide notice to the Revolving Agent (Crescent Harbor Bank, N.A.) of the prepayment and termination of the Existing TLB and the entry into the new Term Loan B facility. Since Crescent Harbor is also the lead arranger of the new facility, we do not anticipate any issues in obtaining any required consents, but this should be confirmed as a matter of proper documentation.

E. Governing Law

The RCF Credit Agreement is governed by, and construed in accordance with, the laws of the State of New York.

IV. Senior Unsecured Notes Due 2028

A. Overview and Key Terms

VHG has $245,000,000 in aggregate principal amount of Senior Unsecured Notes outstanding (the "Unsecured Notes"), issued pursuant to the Unsecured Notes Indenture with Atlantic Standard Trust Company as indenture trustee. The following table summarizes the key terms:

The Unsecured Notes constitute senior unsecured obligations of VHG and rank pari passu in right of payment with all other existing and future senior unsecured obligations of VHG. The specific coupon rate, interest payment dates, optional redemption provisions, and other terms of the Unsecured Notes are subject to confirmation upon detailed review of the Unsecured Notes Indenture, which is among the open items identified in Section VIII below.

B. Security and Priority

The Unsecured Notes are senior but unsecured. They do not benefit from any lien on or security interest in the assets of VHG or the Guarantors, and they do not share in the first-lien collateral package that secures the Existing TLB and the RCF. As a result, the holders of the Unsecured Notes are effectively subordinated to the holders of the senior secured indebtedness to the extent of the value of the collateral.

More specifically, the Unsecured Notes are structurally subordinated to the secured facilities. In the event of a liquidation, bankruptcy, or other enforcement scenario, the secured creditors (i.e., the lenders under the Existing TLB and the RCF) would have priority claims against the collateral ahead of the unsecured noteholders. The unsecured noteholders would have recourse to VHG's unsecured assets and, to the extent that the collateral value exceeds the secured claims, to any surplus collateral proceeds.

Given the aggregate appraised value of the collateral portfolio (approximately $3.1 billion for the total hotel portfolio, of which approximately $2.18 billion is attributable to the 42 mortgaged properties), there is substantial asset coverage for both the secured facilities and the Unsecured Notes. However, the unsecured noteholders bear greater credit risk than the senior secured lenders in a distressed scenario.

C. Key Covenants and Restrictions

The Unsecured Notes Indenture is expected to contain customary incurrence-based covenants, including the following provisions that are relevant to the Proposed Refinancing:

(a) Limitation on Indebtedness. The indenture is expected to restrict VHG's ability to incur additional indebtedness beyond specified thresholds or baskets, subject to exceptions for permitted indebtedness (including refinancing indebtedness).

(b) Limitation on Liens. The indenture is expected to restrict VHG's ability to grant liens on its assets to secure indebtedness, subject to exceptions for permitted liens (including liens securing senior secured credit facilities within specified amounts).

(c) Change of Control. The indenture may contain a change-of-control put provision requiring VHG to offer to repurchase the Unsecured Notes at a specified premium (typically 101% of par) upon a change of control.

The Unsecured Notes Indenture will need to be reviewed in detail to confirm that the Proposed Refinancing — including the $75,000,000 upsize in the term loan facility — does not trigger any of these provisions. Since the new Term Loan B will replace the Existing TLB within substantially the same secured debt basket, and the upsize represents an incremental amount of senior secured indebtedness, the refinancing is not expected to raise issues under the indenture. However, this conclusion is preliminary and must be confirmed through a full review of the applicable covenant baskets and exceptions. This review is among the open items identified in Section VIII below.

D. Significance for the Proposed Refinancing

The $245,000,000 in Unsecured Notes will remain outstanding following the closing of the Proposed Refinancing and is included in the total debt and net leverage calculations. The pro forma capital structure following the Proposed Refinancing is as follows:

• New Term Loan B: $700,000,000

• Unsecured Notes: $245,000,000

• Total Funded Debt: $945,000,000 (RCF undrawn)

• Less: Unrestricted Cash: ($87,000,000)

• Net Debt: $858,000,000

• LTM Adjusted EBITDA (FY2021): $341,000,000

• Pro Forma Total Net Leverage Ratio: $858,000,000 ÷ $341,000,000 = 2.52x

The pro forma leverage of 2.52x provides significant headroom under the 4.5x maximum Total Net Leverage Ratio covenant and is consistent with VHG's stated financial policy of maintaining conservative leverage through the cycle.

V. Consolidated Capital Structure Summary Table

The following table summarizes VHG's existing capital structure as of the date of this memorandum, prior to giving effect to the Proposed Refinancing:

Additional Capital Structure Metrics (Pre-Refinancing):

As reflected in the table above, VHG's pre-refinancing leverage profile is conservative, with a Total Net Leverage Ratio of approximately 2.29x against a 4.5x maximum covenant. The Proposed Refinancing will modestly increase VHG's total funded debt by approximately $78,125,000 (from approximately $866,875,000 to $945,000,000), resulting in a pro forma Total Net Leverage Ratio of approximately 2.52x. This still provides approximately 1.98x of headroom under the 4.5x maximum leverage covenant.

VI. Key Considerations for the Proposed Refinancing

A. LIBOR-to-SOFR Transition

As discussed in Section II.I above, the Existing TLB is benchmarked to LIBOR, which is scheduled to cease publication for most USD tenors after June 30, 2023. The Proposed Refinancing addresses this transition risk by replacing LIBOR with Adjusted Term SOFR as the benchmark rate for the new Term Loan B.

The proposed pricing for the new facility is Adjusted Term SOFR + 375 basis points, with a SOFR floor of 0.50%. The credit spread adjustments to be added to CME Term SOFR, consistent with ARRC guidance, are as follows:

By transitioning to Adjusted Term SOFR through the Proposed Refinancing, VHG eliminates the LIBOR transition risk on the term loan portion of its capital structure. The new Term Loan B credit agreement will incorporate hardwired benchmark replacement fallback language consistent with ARRC recommendations, providing a clear mechanism for transitioning to a successor benchmark rate in the event that Adjusted Term SOFR becomes unavailable in the future. This forward-looking approach avoids the administrative burden and execution risk associated with an "amendment" or "amendment approach" to benchmark transition.

B. Pricing Improvement

The Proposed Refinancing represents a meaningful reduction in VHG's borrowing costs on the term loan portion of its capital structure. The applicable margin under the Existing TLB is LIBOR + 425 basis points, whereas the applicable margin under the proposed new Term Loan B will be Adjusted Term SOFR + 375 basis points — a 50 basis point spread reduction.

The estimated annual interest savings attributable to this spread reduction are as follows:

$700,000,000 × 0.50% = approximately $3,500,000 per annum

This estimate reflects the spread reduction applied to the full $700,000,000 principal amount of the new facility, before accounting for the incremental $75,000,000 in principal that exceeds the original $625,000,000 facility size. On the base $625,000,000 principal amount (the portion that replaces the Existing TLB), the annual savings would be approximately $3,125,000. The incremental $75,000,000 would bear interest at the new facility's rate but does not produce "savings" relative to the Existing TLB since it represents new borrowings.

The pricing improvement reflects both the general improvement in credit market conditions for hospitality-sector borrowers since the origination of the Existing TLB in February 2020 (which was closed in the period immediately preceding the onset of the COVID-19 pandemic) and the strengthening of VHG's credit profile over the past two years.

C. Incremental Proceeds

The Proposed Refinancing upsizes VHG's term loan facility from $625,000,000 to $700,000,000, generating approximately $75,000,000 in incremental gross proceeds. The sources and uses of the Proposed Refinancing are summarized as follows:

Sources:

Uses:

The estimated net proceeds of approximately $60,483,333 are expected to be used by VHG for permitted acquisitions and general corporate purposes, consistent with the terms of the new Term Loan B credit agreement. The advisory fee of $1,400,000 is payable to Meridian Strauss Advisory LLC, which is serving as VHG's financial advisor in connection with the Proposed Refinancing.

D. Lien Release and Re-Perfection

The closing of the Proposed Refinancing will require a comprehensive lien release and re-perfection process to transition the collateral package from Greystone Federal Credit Corp. (as the existing Collateral Agent) to Crescent Harbor Bank, N.A. (as the new Collateral Agent). This process will involve the following steps:

(a) Termination of Existing UCC Filings. UCC-3 termination statements will need to be filed with the Delaware Secretary of State (for VHG and each Delaware-organized subsidiary) and the Florida Secured Transaction Registry (for Palmetto Beachfront Hotels LLC) to terminate the existing UCC-1 financing statements filed in favor of Greystone Federal Credit Corp.

(b) New UCC Filings. New UCC-1 financing statements will need to be filed with the Delaware Secretary of State and the Florida Secured Transaction Registry in favor of Crescent Harbor Bank, N.A. (as the new Collateral Agent under the new Term Loan B facility).

(c) Release of Existing Mortgages. Satisfactions, releases, or reconveyances of the existing mortgages/deeds of trust will need to be recorded in each of the 12 states where mortgaged properties are located (covering all 42 hotel properties).

(d) Recording of New Mortgages. New mortgages and/or deeds of trust will need to be prepared, executed, and recorded against each of the 42 hotel properties in favor of Crescent Harbor Bank, N.A. (as the new Collateral Agent). Given the number of properties and jurisdictions involved, this is expected to be a significant documentation and coordination effort.

(e) Title Insurance. Title insurance policies (or endorsements, as applicable) will be obtained from Continental Fidelity Title Company (1221 Brickell Avenue, Suite 900, Miami, FL 33131) to ensure that the new mortgages constitute valid first-priority liens on the mortgaged properties, subject only to customary permitted exceptions.

The lien release and re-perfection process will require close coordination with Greystone Federal Credit Corp. (for the release of existing liens), Crescent Harbor Bank, N.A. (for the granting and perfection of new liens), local counsel in each of the 12 states where mortgaged properties are located, and Continental Fidelity Title Company. A detailed timeline and checklist for this workstream will be prepared as part of the closing checklist for the Proposed Refinancing.

E. Intercreditor Agreement

The Existing Intercreditor Agreement between Greystone Federal Credit Corp. (as Term Loan Agent) and Crescent Harbor Bank, N.A. (as Revolving Agent) will need to be amended and restated in connection with the Proposed Refinancing. Following the closing, Crescent Harbor Bank, N.A. will serve as both the new Term Loan B Collateral Agent and the Revolving Agent, resulting in a single-agent intercreditor structure.

The amended and restated intercreditor agreement is expected to maintain the existing pari passu sharing arrangement between the term loan lenders and the revolving lenders, while simplifying the administrative and operational provisions to reflect the single-agent structure. Key provisions to be addressed in the amended and restated intercreditor agreement include:

(a) Allocation of collateral proceeds and application of waterfall provisions;

(b) Voting and consent rights with respect to collateral matters;

(d) DIP financing and adequate protection provisions; and

(e) Appointment of Crescent Harbor Bank, N.A. as sole Collateral Agent.

F. Indenture Compliance

Prior to the closing of the Proposed Refinancing, a thorough review of the Unsecured Notes Indenture must be conducted to confirm that the refinancing transaction (including the $75,000,000 upsize in the term loan facility) is permitted under the applicable covenant baskets and exceptions. The following provisions are of particular relevance:

(a) Limitation on Indebtedness. Confirm that the new $700,000,000 Term Loan B is permitted under the indenture's limitation on indebtedness covenant, either as refinancing indebtedness within a permitted exception or within the general incurrence test. The $75,000,000 incremental amount must be specifically analyzed to confirm that it fits within an available basket.

(b) Limitation on Liens. Confirm that the first-priority liens securing the new Term Loan B are permitted under the indenture's limitation on liens covenant, either within a permitted liens exception or within a general secured debt basket. The incremental $75,000,000 in secured debt must be confirmed to be within the applicable basket capacity.

(c) Change-of-Control Triggers. Confirm that the refinancing does not constitute or trigger a "change of control" under the indenture. While a refinancing of existing term loan debt is not typically considered a change of control, the specific definition of "change of control" in the indenture should be reviewed to confirm.

As noted in Section IV.C above, since the new Term Loan B replaces the Existing TLB within substantially the same secured debt basket, the refinancing is not expected to raise issues under the indenture. However, this preliminary assessment must be validated through a detailed review of the indenture's provisions.

VII. Pro Forma Capitalization Table (Post-Refinancing)

The following table sets forth VHG's pro forma capital structure following the closing of the Proposed Refinancing:

Pro Forma Capital Structure Metrics (Post-Refinancing):

The pro forma Total Net Leverage Ratio of 2.52x reflects a modest increase from the pre-refinancing ratio of approximately 2.29x, driven by the $75,000,000 upsize in the term loan facility (net of the incremental cash proceeds retained by VHG). The pro forma leverage ratio remains well within the 4.5x maximum covenant, with approximately 1.98x of headroom. This headroom provides VHG with significant flexibility to pursue acquisitions and absorb cyclical fluctuations in operating performance without triggering the financial covenant.

It should be noted that the financial covenant is a springing covenant that is tested only when aggregate revolving credit exposure exceeds 35% of total revolving commitments ($140,000,000). As the RCF is expected to remain undrawn at closing, the covenant will not be triggered, and the 2.52x leverage ratio is provided for reference and monitoring purposes only.

VIII. Open Items and Next Steps

The following items remain open and will need to be addressed in connection with the Proposed Refinancing:

1. Payoff Quote. Obtain a formal payoff quote from Greystone Federal Credit Corp. (contact: Marion Stillwell, Vice President, Agency Services, 200 Park Avenue South, 22nd Floor, New York, NY 10003) to confirm the exact outstanding principal balance, accrued and unpaid interest, and prepayment premium as of the anticipated closing date. The payoff quote should also confirm the existence and amount of any additional fees, breakage costs, or administrative charges that may be payable in connection with the payoff and termination of the Existing TLB.

2. RCF Terms Confirmation. Confirm the maturity date, pricing, and other key terms of the RCF that were not available for inclusion in this memorandum (marked as "to be confirmed" in the tables above). In addition, review the RCF Credit Agreement to determine whether any consent, notice, or other procedural requirements apply in connection with the Proposed Refinancing, including the substitution of collateral agents and the amendment and restatement of the intercreditor agreement.

3. Unsecured Notes Indenture Review. Obtain and review the Unsecured Notes Indenture in full to confirm compliance with the limitation on indebtedness, limitation on liens, and change-of-control provisions, as discussed in Sections IV.C and VI.F above. This review should specifically address whether the $75,000,000 upsize in the term loan facility is permitted within the applicable covenant baskets.

4. UCC and Mortgage Search. Obtain a full and current list of all existing UCC-1 financing statements and mortgage recordings filed or recorded in connection with the Existing TLB and the RCF. This information is necessary for planning the lien release and re-perfection process described in Section VI.D above. UCC searches should be run against VHG and each Guarantor in all relevant filing jurisdictions, and title searches should be conducted for each of the 42 mortgaged properties.

5. Existing TLB Provisions Analysis. Coordinate with Sophie Tremblay on the detailed analysis of the prepayment, assignment, and repricing provisions of the Existing TLB Credit Agreement (separate memorandum dated April 14, 2022). This analysis will determine whether the Proposed Refinancing constitutes a "repricing transaction" and whether any additional premiums or restrictions apply.

6. Tax Considerations. Coordinate with Leonard Cross (Tax Department) on the tax treatment of the following items arising from the Proposed Refinancing (separate memorandum to be circulated on or about April 18, 2022):

(a) The prepayment premium of $3,125,000 payable in connection with the payoff of the Existing TLB;

(b) The unamortized deferred financing costs and OID associated with the 2020 origination of the Existing TLB; and

7. Closing Checklist. Prepare a comprehensive closing checklist for the Proposed Refinancing, incorporating all documentation, filing, recording, and administrative requirements identified in this memorandum and in the forthcoming memoranda from Sophie Tremblay and Leonard Cross.

Please do not hesitate to reach out with any questions or if additional detail is required on any of the items discussed in this memorandum.

CALDERWOOD & HARKNESS LLP One Liberty Plaza, 52nd Floor New York, New York 10006

Engagement No. 1016-00009

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

This memorandum is prepared for the exclusive use of the engagement team in connection with the representation of Verimark Hospitality Group Inc. It is protected by the attorney-client privilege and the work product doctrine. Any unauthorized disclosure, distribution, or copying of this memorandum or its contents is strictly prohibited.

Metric	Amount
FY2021 Revenue	$1.42 billion
FY2021 EBITDA	$318 million
FY2021 Adjusted EBITDA	$341 million
Unrestricted Cash (as of date hereof)	$87 million
Total Funded Debt (as of date hereof)	~$866,875,000
Net Funded Debt (as of date hereof)	~$779,875,000
Pre-Refinancing Net Leverage Ratio	~2.29x
Credit Rating (Kellaway Ratings Group)	BB-
Credit Rating (Pinnacle Credit Services)	Ba3
Term	Detail
Facility Type	Senior Secured Term Loan B
Original Principal Amount	$625,000,000
Date of Origination	February 14, 2020
CUSIP	92347LAA0
Administrative Agent / Collateral Agent	Greystone Federal Credit Corp.
Agent Address	200 Park Avenue South, 22nd Floor, New York, NY 10003
Agent Contact	Marion Stillwell, Vice President, Agency Services
Borrower	Verimark Hospitality Group Inc.
Guarantors	Verimark Resort Properties LLC; VHG Management Services Inc.; Verimark Convention Holdings LLC; Palmetto Beachfront Hotels LLC; Cascadia Hospitality Corp.
Governing Law	State of New York
Component	Amount
Outstanding principal balance	$621,875,000
Accrued and unpaid interest (estimated)	$2,916,667
Prepayment premium (0.50%)	$3,125,000

Estimated Total Payoff	$627,916,667
State	Number of Properties
Florida	12
New York	6
California	5
Texas	4
Georgia	3
Colorado	3
Arizona	2
Illinois	2
Washington	2
Oregon	1
Nevada	1
Virginia	1
Total	42 properties across 12 states
Term	Detail
Facility Type	Senior Secured Revolving Credit Facility
Commitment Amount	$400,000,000
Administrative Agent	Crescent Harbor Bank, N.A.
Agent Address	600 Lexington Avenue, 34th Floor, New York, NY 10022
Borrower	Verimark Hospitality Group Inc.
Guarantors	Verimark Resort Properties LLC; VHG Management Services Inc.; Verimark Convention Holdings LLC; Palmetto Beachfront Hotels LLC; Cascadia Hospitality Corp.
Governing Law	State of New York
Term	Detail
Instrument Type	Senior Unsecured Notes

Aggregate Principal Amount Outstanding	$245,000,000
Maturity Date	2028 (specific month and day to be confirmed against indenture)
Indenture Trustee	Atlantic Standard Trust Company
Issuer	Verimark Hospitality Group Inc.
Governing Law	To be confirmed
Facility	Original Amount	Outstanding Amount	Agent / Trustee	Maturity	Interest Rate	Security
Existing Term Loan B	$625,000,000	~$621,875,000	Greystone Federal Credit Corp.	Feb. 14, 2027	LIBOR + 425 bps	First Lien (pari passu with RCF)
Revolving Credit Facility	$400,000,000	$0 (undrawn)	Crescent Harbor Bank, N.A.	[to be confirmed]	[to be confirmed]	First Lien (pari passu with TLB)
Senior Unsecured Notes	$245,000,000	$245,000,000	Atlantic Standard Trust Company	2028	[to be confirmed]	Unsecured
Total	$1,270,000,000	~$866,875,000 (funded)
Metric	Amount
Total Funded Debt	~$866,875,000
Less: Unrestricted Cash	($87,000,000)
Net Funded Debt	~$779,875,000
LTM Adjusted EBITDA (FY2021)	$341,000,000
Pre-Refinancing Total Net Leverage Ratio	~2.29x
Maximum Total Net Leverage Ratio (Covenant)	4.5x
Headroom Under Leverage Covenant	~2.21x
Tenor	Credit Spread Adjustment
1-month	+0.10%
3-month	+0.15%
6-month	+0.25%
Source	Amount
New Term Loan B	$700,000,000
Total Sources	$700,000,000

Use	Amount
Payoff of Existing TLB (principal, accrued interest, and prepayment premium)	~$627,916,667
Original Issue discount (OID) on new facility	$7,000,000
Advisory fee (Meridian Strauss Advisory LLC)	$1,400,000
Estimated legal and closing costs	~$3,200,000
Net Proceeds to VHG	~$60,483,333
Total Uses	$700,000,000
Facility	Amount	Agent / Trustee	Maturity	Interest Rate	Security
New Term Loan B	$700,000,000	Crescent Harbor Bank, N.A.	July 21, 2029	Adj. Term SOFR + 375 bps (floor: 0.50%)	First Lien
Revolving Credit Facility	$400,000,000 ($0 drawn)	Crescent Harbor Bank, N.A.	[existing maturity]	[existing rate]	First Lien (pari passu)
Senior Unsecured Notes	$245,000,000	Atlantic Standard Trust Company	2028	[existing rate]	Unsecured
Total Debt	$945,000,000 (funded)
Metric	Amount
Total Funded Debt	$945,000,000
Less: Unrestricted Cash	($87,000,000)
Net Debt	$858,000,000
LTM Adjusted EBITDA (FY2021)	$341,000,000
Pro Forma Total Net Leverage Ratio	2.52x
Maximum Total Net Leverage Ratio (Covenant)	4.5x
Headroom Under Leverage Covenant	~1.98x

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
SUMMARY OF EXISTING CREDIT FACILITIES
VERIMARK HOSPITALITY GROUP INC.
WORKING MEMORANDUM
April 12, 2022
TO: Ian Blackwood, Partner, Banking & Finance Sophie Tremblay, Lead Associate, Banking & Finance
FROM: Daniel Obi, Associate, Banking & Finance
RE: Summary of Existing Credit Facilities of Verimark Hospitality Group Inc. in Connection with Proposed $700,000,000 Term Loan B Refinancing
ENGAGEMENT NO.: 1016-00009
CLIENT: Verimark Hospitality Group Inc. ("VHG")
This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is prepared solely for the internal use of the engagement team at Calderwood & Harkness LLP in connection with the representation of Verimark Hospitality Group Inc. This memorandum should not be disclosed to any third party without the prior written consent of the undersigned or the responsible partner.
Right-click to update Table of Contents
I. Purpose and Executive Summary
A. Purpose. The purpose of this memorandum is to provide the engagement team with a comprehensive summary of VHG's existing credit facilities and outstanding indebtedness. This summary is intended to serve as foundational context for structuring and negotiating the proposed $700,000,000 Term Loan B refinancing (the "Proposed Refinancing") with Crescent Harbor Bank, N.A., as lead arranger and administrative agent. This memorandum catalogues the material terms, conditions, covenants, collateral arrangements, and intercreditor relationships governing VHG's current debt instruments, and identifies key considerations and open items relevant to the Proposed Refinancing.
This memorandum is based on a review of the following documents, copies of which are maintained in the deal room:
(a) Credit Agreement, dated as of February 14, 2020, among Verimark Hospitality Group Inc., the Guarantors party thereto, the Lenders party thereto, and Greystone Federal Credit Corp., as Administrative Agent and Collateral Agent (the "Existing TLB Credit Agreement");
(b) Credit Agreement, dated as of [date to be confirmed], among Verimark Hospitality Group Inc., the Guarantors party thereto, the Lenders party thereto, and Crescent Harbor Bank, N.A., as Administrative Agent (the "RCF Credit Agreement");
(c) Indenture, dated as of [date to be confirmed], among Verimark Hospitality Group Inc., as Issuer, and Atlantic Standard Trust Company, as Indenture Trustee (the "Unsecured Notes Indenture");
(d) Intercreditor Agreement, dated as of [date to be confirmed], among Greystone Federal Credit Corp. (as Term Loan Agent) and Crescent Harbor Bank, N.A. (as Revolving Agent) (the "Existing Intercreditor Agreement");
(e) VHG's Annual Report on Form 10-K for the fiscal year ended December 31, 2021; and
(f) Internal financial data provided by VHG's Treasurer, Glenn Fischbach.
B. Executive Summary
VHG currently maintains three principal debt instruments:
(i) A $625,000,000 Senior Secured Term Loan B (the "Existing TLB") originated on February 14, 2020, with Greystone Federal Credit Corp. as administrative agent and collateral agent;
(ii) A $400,000,000 Senior Secured Revolving Credit Facility (the "RCF") with Crescent Harbor Bank, N.A. as administrative agent; and
(iii) $245,000,000 in aggregate principal amount of Senior Unsecured Notes due 2028 (the "Unsecured Notes") issued under an indenture with Atlantic Standard Trust Company as indenture trustee.
As of the date of this memorandum, total outstanding funded debt is approximately $866,875,000, comprising the outstanding principal balance on the Existing TLB of approximately $621,875,000 and the $245,000,000 in Unsecured Notes. The RCF is currently fully undrawn and therefore is not included in the funded debt total, although the $400,000,000 in revolving commitments brings VHG's aggregate debt capacity to $1,270,000,000.
The following table provides a high-level summary of VHG's key financial metrics for context:
C. Company Overview
Verimark Hospitality Group Inc. is a Delaware corporation, publicly traded on the New York Stock Exchange under the ticker symbol "VMRK." VHG is headquartered at 8200 West Palmetto Park Road, Suite 1500, Boca Raton, Florida 33433. VHG's Employer Identification Number is 82-3741956, and its Delaware File Number is 7291843.
VHG is an owner-operator of 74 full-service and select-service hotels across 18 states, with a portfolio appraised at approximately $3.1 billion. VHG's management team includes:
• Chief Executive Officer: Marcus Delvecchio
• Chief Financial Officer: Renata Haines
• General Counsel: Priya Narayanan
• Treasurer: Glenn Fischbach
VHG's hotel portfolio spans a range of urban, resort, and convention-oriented properties, and the company operates under several proprietary and licensed brand flags. The breadth and geographic diversification of the portfolio is a key credit strength and supports the robust collateral base underlying VHG's senior secured indebtedness.
II. Existing Senior Secured Term Loan B
A. Overview and Key Terms
The Existing TLB was originated on February 14, 2020 pursuant to the Existing TLB Credit Agreement. The following table summarizes the key structural terms of the facility:
The guarantor group consists of five direct and indirect domestic subsidiaries of VHG. Each guarantor has provided a full and unconditional guaranty of VHG's obligations under the Existing TLB Credit Agreement, and each has pledged substantially all of its assets as collateral for the facility. This guarantor group is coextensive with the guarantor group under the RCF, as discussed further in Section III below, ensuring that the first-lien collateral package is consistent across both senior secured facilities.
B. Pricing and Interest Rate
The Existing TLB bears interest at a floating rate equal to the London Interbank Offered Rate ("LIBOR") plus an applicable margin of 425 basis points (4.25%). As noted below in Section II.I, the Existing TLB's reliance on LIBOR as its benchmark rate presents a transition risk that will be addressed through the Proposed Refinancing.
The Existing TLB Credit Agreement provides for a default rate equal to the otherwise applicable interest rate plus 200 basis points. This default rate provision is subject to confirmation upon completion of the detailed review of the Existing TLB Credit Agreement currently being conducted by Sophie Tremblay (see separate memorandum dated April 14, 2022).
As of the date of this memorandum, VHG is current on all interest payments under the Existing TLB, and no event of default or default has occurred or is continuing under the Existing TLB Credit Agreement.
C. Maturity and Amortization
The Existing TLB has a maturity date of February 14, 2027, reflecting a seven-year tenor from the date of origination. The facility amortizes at a rate of 1.00% per annum of the original principal amount, with amortization payments due quarterly. The quarterly amortization payment is calculated as follows:
$625,000,000 × 1.00% ÷ 4 = $1,562,500 per quarter
From the origination date of February 14, 2020 through the anticipated payoff date in connection with the Proposed Refinancing (estimated to be on or about July 21, 2022), VHG will have made approximately eight (8) quarterly amortization payments totaling approximately $3,125,000 in aggregate scheduled amortization. The exact number of quarterly payments made through the anticipated payoff date is to be confirmed against the payment schedule maintained by Greystone Federal Credit Corp.
On this basis, the outstanding principal balance of the Existing TLB as of the date of this memorandum is approximately:
$625,000,000 − $3,125,000 = approximately $621,875,000
We note that the remaining scheduled amortization payments due between the date of this memorandum (April 12, 2022) and the anticipated closing date of the Proposed Refinancing (July 21, 2022) may further reduce the outstanding principal balance. The payoff quote to be obtained from Greystone will reflect the exact outstanding balance as of the closing date.
D. Prepayment Provisions
The Existing TLB Credit Agreement permits voluntary prepayment of the outstanding principal, subject to a prepayment premium. The prepayment premium applicable to a voluntary prepayment is 0.50% of the principal amount prepaid. Based on the full outstanding principal balance, the prepayment premium is calculated as follows:
$625,000,000 × 0.50% = $3,125,000
The estimated total payoff amount for the Existing TLB in connection with the Proposed Refinancing is approximately $627,916,667, comprising the following components:
The accrued and unpaid interest estimate is based on the current outstanding principal balance and the applicable interest rate, prorated through the anticipated closing date. The precise amount will be set forth in the payoff letter to be issued by Greystone Federal Credit Corp. A separate detailed analysis of the prepayment, assignment, and repricing provisions of the Existing TLB is being prepared by Sophie Tremblay and will be circulated under separate cover (memorandum dated April 14, 2022). That analysis will address, among other things, whether the Proposed Refinancing constitutes a "repricing transaction" under the Existing TLB Credit Agreement and, if so, any additional prepayment or repricing premiums that may be applicable.
E. Collateral and Security
The Existing TLB is secured by a first-priority lien on substantially all assets of VHG and the Guarantors. The collateral package includes the following categories of assets:
(a) Real Property. Fee simple and leasehold interests in 42 hotel properties owned by Verimark Resort Properties LLC, with an aggregate appraised value of approximately $2.18 billion. The real property collateral is secured by mortgages and/or deeds of trust recorded against the applicable properties in the following jurisdictions:
(b) Equity Interests. 100% of the equity interests in each direct domestic subsidiary of VHG, and 65% of the equity interests in any first-tier foreign subsidiaries.
(c) Personal Property. All personal property of VHG and the Guarantors, including accounts receivable, inventory, equipment, intellectual property (including trademarks, trade names, and service marks), and general intangibles.
Greystone Federal Credit Corp. serves as the Collateral Agent for the benefit of the secured parties under the Existing TLB Credit Agreement. Perfection of the security interests is maintained through the following filings:
• UCC-1 Financing Statements: Filed with the Delaware Secretary of State for VHG and each Delaware-organized subsidiary, and with the Florida Secured Transaction Registry for Palmetto Beachfront Hotels LLC (a Florida limited liability company).
• Mortgages/Deeds of Trust: Recorded against each of the 42 hotel properties in the applicable county recording offices across 12 states, as described above.
Upon payoff and termination of the Existing TLB, all existing UCC filings will need to be terminated and all existing mortgages and deeds of trust will need to be released. New UCC-1 financing statements will be filed, and new mortgages/deeds of trust will be recorded, in favor of Crescent Harbor Bank, N.A. (as the new Collateral Agent under the Proposed Refinancing). The lien release and re-perfection process is discussed further in Section VI.D below.
F. Intercreditor Arrangements
The Existing TLB shares first-lien collateral on a pari passu basis with the $400,000,000 RCF (described in Section III below). The relative rights and priorities of the secured parties under the Existing TLB and the RCF are governed by the Existing Intercreditor Agreement, which was entered into between Greystone Federal Credit Corp. (as the Term Loan Agent) and Crescent Harbor Bank, N.A. (as the Revolving Agent) at the time of the origination of the Existing TLB.
The Existing Intercreditor Agreement provides for, among other things:
(a) Pari passu sharing of all first-lien collateral proceeds in an enforcement scenario, subject to customary waterfall provisions;
(b) A standstill period during which the Term Loan Agent may not exercise remedies against the collateral without the consent of the Revolving Agent (or vice versa), subject to customary exceptions;
(c) Provisions governing the release of collateral and the application of proceeds from asset sales; and
(d) Provisions addressing DIP financing and adequate protection in a bankruptcy proceeding.
Upon closing of the Proposed Refinancing, the Existing Intercreditor Agreement will need to be amended and restated to reflect Crescent Harbor Bank, N.A. as the agent for both the new Term Loan B and the RCF. This is discussed further in Section VI.E below.
G. Financial Covenants
The Existing TLB Credit Agreement contains a single springing financial covenant: a Maximum Total Net Leverage Ratio of 4.5x, tested quarterly on a trailing four-quarter (LTM) basis. This financial covenant is a "springing" covenant, meaning that it is tested only when the aggregate revolving credit exposure under the RCF exceeds 35% of the total revolving commitments (i.e., 35% × $400,000,000 = $140,000,000).
Because the RCF is currently fully undrawn, the springing financial covenant is not currently in effect and has not been triggered. VHG's current Total Net Leverage Ratio, calculated on the basis of LTM Adjusted EBITDA for FY2021, is approximately 2.29x, which provides significant headroom under the 4.5x maximum even if the covenant were to be triggered.
The proposed new Term Loan B is expected to maintain the same springing covenant structure, including the same 4.5x maximum threshold and 35% revolving utilization trigger. The retention of this covenant structure is consistent with the market standard for Term Loan B facilities in the hospitality sector and will preserve consistency across VHG's capital structure.
H. Governing Law
The Existing TLB Credit Agreement is governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts-of-law principles. The Existing TLB Credit Agreement includes customary submission to jurisdiction in the courts of the State of New York sitting in the Borough of Manhattan and in the United States District Court for the Southern District of New York.
I. LIBOR Transition Considerations
The Existing TLB uses LIBOR as its benchmark interest rate. As the engagement team is aware, the publication of most U.S. dollar LIBOR tenors (including overnight, 1-month, 3-month, 6-month, and 12-month settings) is expected to cease after June 30, 2023, following the announcements by ICE Benchmark Administration and the Financial Conduct Authority. The continued use of LIBOR as a benchmark rate in the Existing TLB therefore presents transition risk that would need to be addressed either through the facility's existing benchmark replacement fallback provisions or through a refinancing.
The Proposed Refinancing will address the LIBOR transition issue by replacing LIBOR with Adjusted Term SOFR (based on CME Term SOFR), with credit spread adjustments as recommended by the Alternative Reference Rates Committee ("ARRC"):
• 1-month tenor: CME Term SOFR + 0.10% credit spread adjustment
• 3-month tenor: CME Term SOFR + 0.15% credit spread adjustment
• 6-month tenor: CME Term SOFR + 0.25% credit spread adjustment
The new Term Loan B credit agreement will incorporate hardwired benchmark replacement fallback language consistent with ARRC recommendations, providing for an automatic transition to a replacement benchmark rate in the event that Adjusted Term SOFR ceases to be available. This approach eliminates the need for future amendments to address benchmark rate transitions and provides certainty for VHG and the lender group.
III. Senior Secured Revolving Credit Facility
A. Overview and Key Terms
VHG maintains a $400,000,000 Senior Secured Revolving Credit Facility (the "RCF") pursuant to the RCF Credit Agreement. The following table summarizes the key structural terms of the RCF:
It is noteworthy that Crescent Harbor Bank, N.A. serves as the administrative agent under the RCF and is also the proposed lead arranger and administrative agent for the new Term Loan B under the Proposed Refinancing. This dual role is expected to simplify the intercreditor arrangements following the closing of the Proposed Refinancing, as Crescent Harbor will serve as agent for both the senior secured term loan and the revolving credit facility. The alignment of agent roles under a single institution eliminates the need for a multi-agent intercreditor framework and should facilitate a more streamlined documentation process.
The guarantor group under the RCF is identical to the guarantor group under the Existing TLB, consisting of Verimark Resort Properties LLC, VHG Management Services Inc., Verimark Convention Holdings LLC, Palmetto Beachfront Hotels LLC, and Cascadia Hospitality Corp. The use of a consistent guarantor group across the senior secured facilities ensures that all first-lien creditors benefit from the same credit support.
B. Utilization and Outstanding Balance
As of the date of this memorandum, the RCF is fully undrawn. The current drawn amount is $0, and the full $400,000,000 in revolving commitments remains available to VHG for borrowings and the issuance of letters of credit, subject to the terms and conditions of the RCF Credit Agreement.
Because the RCF is undrawn, it is excluded from the calculation of VHG's funded debt and does not contribute to the Total Net Leverage Ratio. However, the availability of $400,000,000 in undrawn revolving capacity provides VHG with significant liquidity, which, together with the $87,000,000 in unrestricted cash on the balance sheet, gives VHG total available liquidity of approximately $487,000,000.
C. Collateral and Intercreditor
The RCF shares the same first-priority lien on substantially all assets of VHG and the Guarantors, on a pari passu basis with the Existing TLB. The collateral package is identical to that described in Section II.E above and includes real property interests in 42 hotel properties, equity interests in domestic and foreign subsidiaries, and all personal property of VHG and the Guarantors.
The relative rights and priorities of the lenders under the RCF and the Existing TLB are governed by the Existing Intercreditor Agreement, as described in Section II.F above. Under the Existing Intercreditor Agreement, Greystone Federal Credit Corp. (as Term Loan Agent) and Crescent Harbor Bank, N.A. (as Revolving Agent) are the parties governing the pari passu sharing arrangement.
Upon the closing of the Proposed Refinancing, the Existing Intercreditor Agreement will be amended and restated. Since Crescent Harbor Bank, N.A. will serve as agent for both the new Term Loan B and the RCF following the refinancing, the pari passu sharing arrangement will continue but will be administered under a single-agent structure. This is expected to simplify the administration of collateral matters, including the release and re-perfection of security interests, the application of collateral proceeds, and the coordination of enforcement actions.
D. Significance for the Proposed Refinancing
The RCF will remain in place following the closing of the Proposed Refinancing and will not be refinanced or otherwise modified as part of this transaction. The RCF will continue to provide VHG with $400,000,000 in revolving credit availability for working capital, letters of credit, and general corporate purposes.
The springing financial covenant under the RCF (which, as noted above, mirrors the springing financial covenant under the Existing TLB) is triggered only when the aggregate revolving credit exposure exceeds 35% of total revolving commitments, calculated as follows:
35% × $400,000,000 = $140,000,000
Since the RCF is fully undrawn as of the date of this memorandum, and is expected to remain undrawn at the closing of the Proposed Refinancing, the springing financial covenant is not expected to be triggered at the time of closing. Even if the financial covenant were to be triggered, VHG's pro forma Total Net Leverage Ratio at closing would provide ample headroom:
Pro forma net leverage at closing: $858,000,000 net debt ÷ $341,000,000 LTM Adjusted EBITDA = approximately 2.52x (vs. 4.5x maximum)
Notwithstanding the foregoing, the RCF Credit Agreement should be reviewed to confirm whether any consent or notice requirements apply in connection with the Proposed Refinancing. In particular, the RCF Credit Agreement may require that VHG provide notice to the Revolving Agent (Crescent Harbor Bank, N.A.) of the prepayment and termination of the Existing TLB and the entry into the new Term Loan B facility. Since Crescent Harbor is also the lead arranger of the new facility, we do not anticipate any issues in obtaining any required consents, but this should be confirmed as a matter of proper documentation.
E. Governing Law
The RCF Credit Agreement is governed by, and construed in accordance with, the laws of the State of New York.
IV. Senior Unsecured Notes Due 2028
A. Overview and Key Terms
VHG has $245,000,000 in aggregate principal amount of Senior Unsecured Notes outstanding (the "Unsecured Notes"), issued pursuant to the Unsecured Notes Indenture with Atlantic Standard Trust Company as indenture trustee. The following table summarizes the key terms:
The Unsecured Notes constitute senior unsecured obligations of VHG and rank pari passu in right of payment with all other existing and future senior unsecured obligations of VHG. The specific coupon rate, interest payment dates, optional redemption provisions, and other terms of the Unsecured Notes are subject to confirmation upon detailed review of the Unsecured Notes Indenture, which is among the open items identified in Section VIII below.
B. Security and Priority
The Unsecured Notes are senior but unsecured. They do not benefit from any lien on or security interest in the assets of VHG or the Guarantors, and they do not share in the first-lien collateral package that secures the Existing TLB and the RCF. As a result, the holders of the Unsecured Notes are effectively subordinated to the holders of the senior secured indebtedness to the extent of the value of the collateral.
More specifically, the Unsecured Notes are structurally subordinated to the secured facilities. In the event of a liquidation, bankruptcy, or other enforcement scenario, the secured creditors (i.e., the lenders under the Existing TLB and the RCF) would have priority claims against the collateral ahead of the unsecured noteholders. The unsecured noteholders would have recourse to VHG's unsecured assets and, to the extent that the collateral value exceeds the secured claims, to any surplus collateral proceeds.
Given the aggregate appraised value of the collateral portfolio (approximately $3.1 billion for the total hotel portfolio, of which approximately $2.18 billion is attributable to the 42 mortgaged properties), there is substantial asset coverage for both the secured facilities and the Unsecured Notes. However, the unsecured noteholders bear greater credit risk than the senior secured lenders in a distressed scenario.
C. Key Covenants and Restrictions
The Unsecured Notes Indenture is expected to contain customary incurrence-based covenants, including the following provisions that are relevant to the Proposed Refinancing:
(a) Limitation on Indebtedness. The indenture is expected to restrict VHG's ability to incur additional indebtedness beyond specified thresholds or baskets, subject to exceptions for permitted indebtedness (including refinancing indebtedness).
(b) Limitation on Liens. The indenture is expected to restrict VHG's ability to grant liens on its assets to secure indebtedness, subject to exceptions for permitted liens (including liens securing senior secured credit facilities within specified amounts).
(c) Change of Control. The indenture may contain a change-of-control put provision requiring VHG to offer to repurchase the Unsecured Notes at a specified premium (typically 101% of par) upon a change of control.
The Unsecured Notes Indenture will need to be reviewed in detail to confirm that the Proposed Refinancing — including the $75,000,000 upsize in the term loan facility — does not trigger any of these provisions. Since the new Term Loan B will replace the Existing TLB within substantially the same secured debt basket, and the upsize represents an incremental amount of senior secured indebtedness, the refinancing is not expected to raise issues under the indenture. However, this conclusion is preliminary and must be confirmed through a full review of the applicable covenant baskets and exceptions. This review is among the open items identified in Section VIII below.
D. Significance for the Proposed Refinancing
The $245,000,000 in Unsecured Notes will remain outstanding following the closing of the Proposed Refinancing and is included in the total debt and net leverage calculations. The pro forma capital structure following the Proposed Refinancing is as follows:
• New Term Loan B: $700,000,000
• Unsecured Notes: $245,000,000
• Total Funded Debt: $945,000,000 (RCF undrawn)
• Less: Unrestricted Cash: ($87,000,000)
• Net Debt: $858,000,000
• LTM Adjusted EBITDA (FY2021): $341,000,000
• Pro Forma Total Net Leverage Ratio: $858,000,000 ÷ $341,000,000 = 2.52x
The pro forma leverage of 2.52x provides significant headroom under the 4.5x maximum Total Net Leverage Ratio covenant and is consistent with VHG's stated financial policy of maintaining conservative leverage through the cycle.
V. Consolidated Capital Structure Summary Table
The following table summarizes VHG's existing capital structure as of the date of this memorandum, prior to giving effect to the Proposed Refinancing:
Additional Capital Structure Metrics (Pre-Refinancing):
As reflected in the table above, VHG's pre-refinancing leverage profile is conservative, with a Total Net Leverage Ratio of approximately 2.29x against a 4.5x maximum covenant. The Proposed Refinancing will modestly increase VHG's total funded debt by approximately $78,125,000 (from approximately $866,875,000 to $945,000,000), resulting in a pro forma Total Net Leverage Ratio of approximately 2.52x. This still provides approximately 1.98x of headroom under the 4.5x maximum leverage covenant.
VI. Key Considerations for the Proposed Refinancing
A. LIBOR-to-SOFR Transition
As discussed in Section II.I above, the Existing TLB is benchmarked to LIBOR, which is scheduled to cease publication for most USD tenors after June 30, 2023. The Proposed Refinancing addresses this transition risk by replacing LIBOR with Adjusted Term SOFR as the benchmark rate for the new Term Loan B.
The proposed pricing for the new facility is Adjusted Term SOFR + 375 basis points, with a SOFR floor of 0.50%. The credit spread adjustments to be added to CME Term SOFR, consistent with ARRC guidance, are as follows:
By transitioning to Adjusted Term SOFR through the Proposed Refinancing, VHG eliminates the LIBOR transition risk on the term loan portion of its capital structure. The new Term Loan B credit agreement will incorporate hardwired benchmark replacement fallback language consistent with ARRC recommendations, providing a clear mechanism for transitioning to a successor benchmark rate in the event that Adjusted Term SOFR becomes unavailable in the future. This forward-looking approach avoids the administrative burden and execution risk associated with an "amendment" or "amendment approach" to benchmark transition.
B. Pricing Improvement
The Proposed Refinancing represents a meaningful reduction in VHG's borrowing costs on the term loan portion of its capital structure. The applicable margin under the Existing TLB is LIBOR + 425 basis points, whereas the applicable margin under the proposed new Term Loan B will be Adjusted Term SOFR + 375 basis points — a 50 basis point spread reduction.
The estimated annual interest savings attributable to this spread reduction are as follows:
$700,000,000 × 0.50% = approximately $3,500,000 per annum
This estimate reflects the spread reduction applied to the full $700,000,000 principal amount of the new facility, before accounting for the incremental $75,000,000 in principal that exceeds the original $625,000,000 facility size. On the base $625,000,000 principal amount (the portion that replaces the Existing TLB), the annual savings would be approximately $3,125,000. The incremental $75,000,000 would bear interest at the new facility's rate but does not produce "savings" relative to the Existing TLB since it represents new borrowings.
The pricing improvement reflects both the general improvement in credit market conditions for hospitality-sector borrowers since the origination of the Existing TLB in February 2020 (which was closed in the period immediately preceding the onset of the COVID-19 pandemic) and the strengthening of VHG's credit profile over the past two years.
C. Incremental Proceeds
The Proposed Refinancing upsizes VHG's term loan facility from $625,000,000 to $700,000,000, generating approximately $75,000,000 in incremental gross proceeds. The sources and uses of the Proposed Refinancing are summarized as follows:
Sources:
Uses:
The estimated net proceeds of approximately $60,483,333 are expected to be used by VHG for permitted acquisitions and general corporate purposes, consistent with the terms of the new Term Loan B credit agreement. The advisory fee of $1,400,000 is payable to Meridian Strauss Advisory LLC, which is serving as VHG's financial advisor in connection with the Proposed Refinancing.
D. Lien Release and Re-Perfection
The closing of the Proposed Refinancing will require a comprehensive lien release and re-perfection process to transition the collateral package from Greystone Federal Credit Corp. (as the existing Collateral Agent) to Crescent Harbor Bank, N.A. (as the new Collateral Agent). This process will involve the following steps:
(a) Termination of Existing UCC Filings. UCC-3 termination statements will need to be filed with the Delaware Secretary of State (for VHG and each Delaware-organized subsidiary) and the Florida Secured Transaction Registry (for Palmetto Beachfront Hotels LLC) to terminate the existing UCC-1 financing statements filed in favor of Greystone Federal Credit Corp.
(b) New UCC Filings. New UCC-1 financing statements will need to be filed with the Delaware Secretary of State and the Florida Secured Transaction Registry in favor of Crescent Harbor Bank, N.A. (as the new Collateral Agent under the new Term Loan B facility).
(c) Release of Existing Mortgages. Satisfactions, releases, or reconveyances of the existing mortgages/deeds of trust will need to be recorded in each of the 12 states where mortgaged properties are located (covering all 42 hotel properties).
(d) Recording of New Mortgages. New mortgages and/or deeds of trust will need to be prepared, executed, and recorded against each of the 42 hotel properties in favor of Crescent Harbor Bank, N.A. (as the new Collateral Agent). Given the number of properties and jurisdictions involved, this is expected to be a significant documentation and coordination effort.
(e) Title Insurance. Title insurance policies (or endorsements, as applicable) will be obtained from Continental Fidelity Title Company (1221 Brickell Avenue, Suite 900, Miami, FL 33131) to ensure that the new mortgages constitute valid first-priority liens on the mortgaged properties, subject only to customary permitted exceptions.
The lien release and re-perfection process will require close coordination with Greystone Federal Credit Corp. (for the release of existing liens), Crescent Harbor Bank, N.A. (for the granting and perfection of new liens), local counsel in each of the 12 states where mortgaged properties are located, and Continental Fidelity Title Company. A detailed timeline and checklist for this workstream will be prepared as part of the closing checklist for the Proposed Refinancing.
E. Intercreditor Agreement
The Existing Intercreditor Agreement between Greystone Federal Credit Corp. (as Term Loan Agent) and Crescent Harbor Bank, N.A. (as Revolving Agent) will need to be amended and restated in connection with the Proposed Refinancing. Following the closing, Crescent Harbor Bank, N.A. will serve as both the new Term Loan B Collateral Agent and the Revolving Agent, resulting in a single-agent intercreditor structure.
The amended and restated intercreditor agreement is expected to maintain the existing pari passu sharing arrangement between the term loan lenders and the revolving lenders, while simplifying the administrative and operational provisions to reflect the single-agent structure. Key provisions to be addressed in the amended and restated intercreditor agreement include:
(a) Allocation of collateral proceeds and application of waterfall provisions;
(b) Voting and consent rights with respect to collateral matters;
(c) Release of collateral and application of proceeds from asset sales;
(d) DIP financing and adequate protection provisions; and
(e) Appointment of Crescent Harbor Bank, N.A. as sole Collateral Agent.
F. Indenture Compliance
Prior to the closing of the Proposed Refinancing, a thorough review of the Unsecured Notes Indenture must be conducted to confirm that the refinancing transaction (including the $75,000,000 upsize in the term loan facility) is permitted under the applicable covenant baskets and exceptions. The following provisions are of particular relevance:
(a) Limitation on Indebtedness. Confirm that the new $700,000,000 Term Loan B is permitted under the indenture's limitation on indebtedness covenant, either as refinancing indebtedness within a permitted exception or within the general incurrence test. The $75,000,000 incremental amount must be specifically analyzed to confirm that it fits within an available basket.
(b) Limitation on Liens. Confirm that the first-priority liens securing the new Term Loan B are permitted under the indenture's limitation on liens covenant, either within a permitted liens exception or within a general secured debt basket. The incremental $75,000,000 in secured debt must be confirmed to be within the applicable basket capacity.
(c) Change-of-Control Triggers. Confirm that the refinancing does not constitute or trigger a "change of control" under the indenture. While a refinancing of existing term loan debt is not typically considered a change of control, the specific definition of "change of control" in the indenture should be reviewed to confirm.
As noted in Section IV.C above, since the new Term Loan B replaces the Existing TLB within substantially the same secured debt basket, the refinancing is not expected to raise issues under the indenture. However, this preliminary assessment must be validated through a detailed review of the indenture's provisions.
VII. Pro Forma Capitalization Table (Post-Refinancing)
The following table sets forth VHG's pro forma capital structure following the closing of the Proposed Refinancing:
Pro Forma Capital Structure Metrics (Post-Refinancing):
The pro forma Total Net Leverage Ratio of 2.52x reflects a modest increase from the pre-refinancing ratio of approximately 2.29x, driven by the $75,000,000 upsize in the term loan facility (net of the incremental cash proceeds retained by VHG). The pro forma leverage ratio remains well within the 4.5x maximum covenant, with approximately 1.98x of headroom. This headroom provides VHG with significant flexibility to pursue acquisitions and absorb cyclical fluctuations in operating performance without triggering the financial covenant.
It should be noted that the financial covenant is a springing covenant that is tested only when aggregate revolving credit exposure exceeds 35% of total revolving commitments ($140,000,000). As the RCF is expected to remain undrawn at closing, the covenant will not be triggered, and the 2.52x leverage ratio is provided for reference and monitoring purposes only.
VIII. Open Items and Next Steps
The following items remain open and will need to be addressed in connection with the Proposed Refinancing:
1. Payoff Quote. Obtain a formal payoff quote from Greystone Federal Credit Corp. (contact: Marion Stillwell, Vice President, Agency Services, 200 Park Avenue South, 22nd Floor, New York, NY 10003) to confirm the exact outstanding principal balance, accrued and unpaid interest, and prepayment premium as of the anticipated closing date. The payoff quote should also confirm the existence and amount of any additional fees, breakage costs, or administrative charges that may be payable in connection with the payoff and termination of the Existing TLB.
2. RCF Terms Confirmation. Confirm the maturity date, pricing, and other key terms of the RCF that were not available for inclusion in this memorandum (marked as "to be confirmed" in the tables above). In addition, review the RCF Credit Agreement to determine whether any consent, notice, or other procedural requirements apply in connection with the Proposed Refinancing, including the substitution of collateral agents and the amendment and restatement of the intercreditor agreement.
3. Unsecured Notes Indenture Review. Obtain and review the Unsecured Notes Indenture in full to confirm compliance with the limitation on indebtedness, limitation on liens, and change-of-control provisions, as discussed in Sections IV.C and VI.F above. This review should specifically address whether the $75,000,000 upsize in the term loan facility is permitted within the applicable covenant baskets.
4. UCC and Mortgage Search. Obtain a full and current list of all existing UCC-1 financing statements and mortgage recordings filed or recorded in connection with the Existing TLB and the RCF. This information is necessary for planning the lien release and re-perfection process described in Section VI.D above. UCC searches should be run against VHG and each Guarantor in all relevant filing jurisdictions, and title searches should be conducted for each of the 42 mortgaged properties.
5. Existing TLB Provisions Analysis. Coordinate with Sophie Tremblay on the detailed analysis of the prepayment, assignment, and repricing provisions of the Existing TLB Credit Agreement (separate memorandum dated April 14, 2022). This analysis will determine whether the Proposed Refinancing constitutes a "repricing transaction" and whether any additional premiums or restrictions apply.
6. Tax Considerations. Coordinate with Leonard Cross (Tax Department) on the tax treatment of the following items arising from the Proposed Refinancing (separate memorandum to be circulated on or about April 18, 2022):
(a) The prepayment premium of $3,125,000 payable in connection with the payoff of the Existing TLB;
(b) The unamortized deferred financing costs and OID associated with the 2020 origination of the Existing TLB; and
(c) The OID of $7,000,000 on the new Term Loan B facility and its amortization for tax purposes.
7. Closing Checklist. Prepare a comprehensive closing checklist for the Proposed Refinancing, incorporating all documentation, filing, recording, and administrative requirements identified in this memorandum and in the forthcoming memoranda from Sophie Tremblay and Leonard Cross.
Please do not hesitate to reach out with any questions or if additional detail is required on any of the items discussed in this memorandum.
CALDERWOOD & HARKNESS LLP One Liberty Plaza, 52nd Floor New York, New York 10006
Engagement No. 1016-00009
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
This memorandum is prepared for the exclusive use of the engagement team in connection with the representation of Verimark Hospitality Group Inc. It is protected by the attorney-client privilege and the work product doctrine. Any unauthorized disclosure, distribution, or copying of this memorandum or its contents is strictly prohibited.
Metric | Amount
FY2021 Revenue | $1.42 billion
FY2021 EBITDA | $318 million
FY2021 Adjusted EBITDA | $341 million
Unrestricted Cash (as of date hereof) | $87 million
Total Funded Debt (as of date hereof) | ~$866,875,000
Net Funded Debt (as of date hereof) | ~$779,875,000
Pre-Refinancing Net Leverage Ratio | ~2.29x
Credit Rating (Kellaway Ratings Group) | BB-
Credit Rating (Pinnacle Credit Services) | Ba3
Term | Detail
Facility Type | Senior Secured Term Loan B
Original Principal Amount | $625,000,000
Date of Origination | February 14, 2020
CUSIP | 92347LAA0
Administrative Agent / Collateral Agent | Greystone Federal Credit Corp.
Agent Address | 200 Park Avenue South, 22nd Floor, New York, NY 10003
Agent Contact | Marion Stillwell, Vice President, Agency Services
Borrower | Verimark Hospitality Group Inc.
Guarantors | Verimark Resort Properties LLC; VHG Management Services Inc.; Verimark Convention Holdings LLC; Palmetto Beachfront Hotels LLC; Cascadia Hospitality Corp.
Governing Law | State of New York
Component | Amount
Outstanding principal balance | $621,875,000
Accrued and unpaid interest (estimated) | $2,916,667
Prepayment premium (0.50%) | $3,125,000
Estimated Total Payoff | $627,916,667
State | Number of Properties
Florida | 12
New York | 6
California | 5
Texas | 4
Georgia | 3
Colorado | 3
Arizona | 2
Illinois | 2
Washington | 2
Oregon | 1
Nevada | 1
Virginia | 1
Total | 42 properties across 12 states
Term | Detail
Facility Type | Senior Secured Revolving Credit Facility
Commitment Amount | $400,000,000
Administrative Agent | Crescent Harbor Bank, N.A.
Agent Address | 600 Lexington Avenue, 34th Floor, New York, NY 10022
Borrower | Verimark Hospitality Group Inc.
Guarantors | Verimark Resort Properties LLC; VHG Management Services Inc.; Verimark Convention Holdings LLC; Palmetto Beachfront Hotels LLC; Cascadia Hospitality Corp.
Governing Law | State of New York
Term | Detail
Instrument Type | Senior Unsecured Notes
Aggregate Principal Amount Outstanding | $245,000,000
Maturity Date | 2028 (specific month and day to be confirmed against indenture)
Indenture Trustee | Atlantic Standard Trust Company
Issuer | Verimark Hospitality Group Inc.
Governing Law | To be confirmed
Facility | Original Amount | Outstanding Amount | Agent / Trustee | Maturity | Interest Rate | Security
Existing Term Loan B | $625,000,000 | ~$621,875,000 | Greystone Federal Credit Corp. | Feb. 14, 2027 | LIBOR + 425 bps | First Lien (pari passu with RCF)
Revolving Credit Facility | $400,000,000 | $0 (undrawn) | Crescent Harbor Bank, N.A. | [to be confirmed] | [to be confirmed] | First Lien (pari passu with TLB)
Senior Unsecured Notes | $245,000,000 | $245,000,000 | Atlantic Standard Trust Company | 2028 | [to be confirmed] | Unsecured
Total | $1,270,000,000 | ~$866,875,000 (funded)
Metric | Amount
Total Funded Debt | ~$866,875,000
Less: Unrestricted Cash | ($87,000,000)
Net Funded Debt | ~$779,875,000
LTM Adjusted EBITDA (FY2021) | $341,000,000
Pre-Refinancing Total Net Leverage Ratio | ~2.29x
Maximum Total Net Leverage Ratio (Covenant) | 4.5x
Headroom Under Leverage Covenant | ~2.21x
Tenor | Credit Spread Adjustment
1-month | +0.10%
3-month | +0.15%
6-month | +0.25%
Source | Amount
New Term Loan B | $700,000,000
Total Sources | $700,000,000
Use | Amount
Payoff of Existing TLB (principal, accrued interest, and prepayment premium) | ~$627,916,667
Original Issue discount (OID) on new facility | $7,000,000
Advisory fee (Meridian Strauss Advisory LLC) | $1,400,000
Estimated legal and closing costs | ~$3,200,000
Net Proceeds to VHG | ~$60,483,333
Total Uses | $700,000,000
Facility | Amount | Agent / Trustee | Maturity | Interest Rate | Security
New Term Loan B | $700,000,000 | Crescent Harbor Bank, N.A. | July 21, 2029 | Adj. Term SOFR + 375 bps (floor: 0.50%) | First Lien
Revolving Credit Facility | $400,000,000 ($0 drawn) | Crescent Harbor Bank, N.A. | [existing maturity] | [existing rate] | First Lien (pari passu)
Senior Unsecured Notes | $245,000,000 | Atlantic Standard Trust Company | 2028 | [existing rate] | Unsecured
Total Debt | $945,000,000 (funded)
Metric | Amount
Total Funded Debt | $945,000,000
Less: Unrestricted Cash | ($87,000,000)
Net Debt | $858,000,000
LTM Adjusted EBITDA (FY2021) | $341,000,000
Pro Forma Total Net Leverage Ratio | 2.52x
Maximum Total Net Leverage Ratio (Covenant) | 4.5x
Headroom Under Leverage Covenant | ~1.98x

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

SUMMARY OF EXISTING CREDIT FACILITIES

VERIMARK HOSPITALITY GROUP INC.

WORKING MEMORANDUM

ENGAGEMENT NO.: 1016-00009

Record

Parties

Dates

Amounts