Eagle Hospitality gets notice of default on US$341m loan; delays payout
Singapore
THE crisis at Eagle Hospitality Trust (EHT) has escalated sharply, with its issue managers disclosing on Tuesday that they had received a demand for the immediate repayment of a US$341 million loan.
The managers said in a Singapore Exchange filing that they received a notice of default and acceleration on March 20, issued on behalf of Bank of America, the administrative agent for a syndicate of lenders on a syndicated loan of which US$341 million has been borrowed.
As a result, the managers are delaying a distribution to stapled security holders that had been promised to them earlier.
Bank of America, on behalf of the lenders, has exercised its right to accelerate the entirety of the loan. This means that the principal amount of US$341 million was declared immediately due and owing.
The lenders had in May 2019 provided term loan facilities and/or a revolving credit facility to Eagle Hospitality Real Estate Investment Trust (EH-Reit) - one part of the stapled EHT group.
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The notice states that an event of default has occurred for the loan, due to master lessees' non-payment of rent to EHT under the master lease agreements (MLAs) for certain EHT properties. The MLAs - entered into with EH-Reit subsidiaries that directly own each EHT property - require master lessees to pay rents, including a monthly fixed rent payment, to EHT.
However, the coronavirus pandemic has caused steep declines in occupancy levels in the hospitality market. That has reduced the income productivity of EHT's properties, impeding the ability of some master lessees to pay their rents.
This notwithstanding, EHT has been meeting its own scheduled debt-service obligations on the loan to the lenders as at March 20, the managers noted.
Stapled security holders will not receive the distribution of 3.478 US cents per security on the previously announced payment date of March 30. The distribution is for the period from EHT's listing date of May 24, 2019 to Dec 31, 2019.
This is because EH-Reit is now restricted from paying the distribution, following the acceleration of the loan.
The managers are deferring the payment of funds to The Central Depository for settlement of the distribution, pending talks with the lenders and an assessment of the financial implications of the notice of default and acceleration.
"Stapled security holders should note and expect that there is no certainty or assurance as to the period of the delay in receipt of the distribution or that such distribution will be made at all," they said on Tuesday.
In the light of the notice of default and acceleration, the managers are also unable to draw on the security deposits. They announced on March 19 that they were planning to use up to US$12.5 million of the US$28.7 million in security deposits to make the rent payments - owed by the master lessees to EHT - in accordance with the MLAs and to increase liquidity.
The managers are seeking professional advice and will need more time to assess the notice's implications.
In addition, they need more time to engage in further discussions with the lenders, with a view to negotiating and obtaining an agreement for the lenders to forebear from exercising their rights and remedies. The managers are also aiming to develop a "longer-term consensual strategy for operating EHT going forward amid an unprecedented and extreme operating environment" in a way that protects the interests of EHT stapled security holders.
"The operating landscape has been changing on an almost daily basis," the managers said, adding that recent projections provided by the master lessees reflect "significant operating dislocation".
The global and US hospitality markets are deteriorating at an accelerated pace amid the Covid-19 situation. EHT's portfolio comprises 18 hotels across the US. The country has the third-largest number of confirmed Covid-19 cases in the world, totalling more than 46,300 as at March 24.
On March 19, the managers' board said it will identify assets to be sold as part of a portfolio reconsitution plan.
It will also start a comprehensive strategic review which will include an assessment of the appropriateness of the existing MLA structure, the managers said on Tuesday. The board has developed "material concerns" about the viability of the MLAs' existing terms and arrangements in the current environment amid the pandemic and the impact on the master lessees' ability to fulfil their commitments.
The issue managers have converted the trading halt they called last Thursday on EHT stapled securities into a trading suspension.
The counter last changed hands at 13.7 US cents on Thursday morning before trading was halted.
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