Debt

6 Months Ended

Jun. 30, 2020

Debt

Debt

7. DEBT:

The Company’s debt and finance lease obligations at June 30, 2020 and December 31, 2019 consisted of (in thousands):

	June 30,		December 31,
	2020		2019
$700M Revolving Credit Facility, interest at LIBOR plus 1.95%, maturing March 31, 2024, less unamortized deferred financing costs of $8,169 and $0	$	16,831	$	—
$300M Term Loan A, interest at LIBOR plus 1.90%, maturing May 31, 2025, less unamortized deferred financing costs of $2,401 and $2,478		297,599		297,522
$500M Term Loan B, interest at LIBOR plus 2.00%, maturing May 11, 2024, less unamortized deferred financing costs of $4,019 and $4,501		379,731		381,749
$400M Senior Notes, interest at 5.0%, maturing April 15, 2023, less unamortized deferred financing costs of $2,761 and $3,222		397,239		396,778
$700M Senior Notes, interest at 4.75%, maturing October 15, 2027, less unamortized deferred financing costs of $11,312 and $11,808, plus unamortized premium of $2,301 and $2,434		690,989		690,626
$800M Term Loan (Gaylord Rockies JV), interest at LIBOR plus 2.50%, maturing July 2, 2023, less unamortized deferred financing costs of $7,278 and $8,015		792,722		791,985
Finance lease obligations		1,196		1,308
Total debt	$	2,576,307	$	2,559,968

Amounts due within one year consist of the amortization payments for the $500 million term loan B of 1.0% of the original principal balance, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

At June 30, 2020, there were no defaults under the covenants related to the Company’s outstanding debt, and the lenders had waived the covenant in the credit facility that prohibits closure of the Gaylord Hotels properties for longer than a specified period of time.

Credit Facility

On April 23, 2020, the Company entered into Amendment No. 1 (the “Amendment”) to the Company’s Sixth Amended and Restated Credit Agreement (the “Credit Agreement”) among the Company, as a guarantor, the Operating Partnership, as borrower, certain other subsidiaries of the Company party thereto, as guarantors, certain subsidiaries of the Company party thereto, as pledgors, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent.

The Amendment provides for a waiver of the existing financial covenants through March 31, 2021 and ending on April 1, 2021 (the “Temporary Waiver Period”), amends covenant computations for the three months ended June 30, 2021 and September 30, 2021, and confirms the availability of the remaining $674.1 million of undrawn amounts under the revolving credit facility. In addition, the Amendment contains a covenant that the Company must maintain unrestricted liquidity (in the form of unrestricted cash on hand or undrawn availability under the Revolver) of at least $100 million. Following the Temporary Waiver Period, in the event the Company is unable to comply with the Credit Agreement’s financial covenants, it expects to further amend the Credit Agreement or take other mitigating actions prior to a potential breach.

During the Temporary Waiver Period, the Amendment provides for increased interest and fees, additional restrictions on debt, investments, dividends, share repurchases and capital expenditures, and a minimum liquidity requirement.

The Company may elect to terminate the Temporary Waiver Period prior to expiration. Upon expiration or termination of the Temporary Waiver Period, it will calculate compliance with the financial covenants in the Credit Agreement using a designated annualized calculation based on the Company’s most recently completed fiscal quarter or quarters, as applicable. Pursuant to the Amendment, the Company is required to use any proceeds from borrowings drawn during the Temporary Waiver Period to fund operating expenses, debt service of the Company and its subsidiaries, and permitted capital expenditures and investments.

$800 Million Term Loan (Gaylord Rockies Joint Venture)

On June 30, 2020, Aurora Convention Center Hotel, LLC (“Hotel Owner”) and Aurora Convention Center Hotel Lessee, LLC (“Tenant” and collectively with Hotel Owner, the “Loan Parties”), subsidiaries of the entities comprising the Gaylord Rockies joint venture, entered into Amendment No. 1 (the “Loan Amendment”) to the Second Amended and Restated Loan Agreement (the “Loan Agreement”), by and among the Loan Parties, Wells Fargo Bank, National Association, as administrative agent, and the lenders from time to time party thereto.

The Loan Amendment modified the Loan Agreement to (i) provide for the ability to use cash for certain purposes, even during a Cash Sweep Period (as defined in the Loan Agreement), which the Gaylord Rockies joint venture was in beginning in July 2020, (ii) extend the deadline for Hotel Owner to commence construction of an expansion to Gaylord Rockies, and (iii) provide favorable changes to the debt service coverage ratio provisions.

The Loan Amendment includes restrictions on distributions to the owners of the Gaylord Rockies joint venture and requires a certain level of equity financing for a Gaylord Rockies expansion.

Interest Rate Derivatives

The Company and the Gaylord Rockies joint venture have each entered into interest rate swaps to manage interest rate risk associated with the Company’s $500 million term loan B and the Gaylord Rockies joint venture’s $800 million term loan, respectively. Each swap has been designated as a cash flow hedge whereby the Company or the joint venture receives variable-rate amounts in exchange for fixed-rate payments over the life of the agreement without exchange of the underlying principal amount. Neither the Company nor the Gaylord Rockies joint venture use derivatives for trading or speculative purposes and currently do not hold any derivatives that are not designated as hedges.

For derivatives designated as and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified to interest expense in the same period during which the hedged transaction affects earnings. These amounts reported in accumulated other comprehensive loss will be reclassified to interest expense as interest payments are made on the related variable-rate debt. The Company estimates that $15.8 million will be reclassified from accumulated other comprehensive loss to interest expense in the next twelve months.

The estimated fair value of the Company’s derivative financial instruments at June 30, 2020 and December 31, 2019 is as follows (in thousands):

						Estimated Fair Value
						Asset (Liability) Balance
		Strike			Notional	June 30,		December 31,
Hedged Debt	Type	Rate	Index	Maturity Date	Amount	2020		2019
Term Loan B	Interest Rate Swap	1.2235%	1-month LIBOR	May 11, 2023	$ 87,500	$	(2,739)	$	959
Term Loan B	Interest Rate Swap	1.2235%	1-month LIBOR	May 11, 2023	$ 87,500		(2,738)		959
Term Loan B	Interest Rate Swap	1.2235%	1-month LIBOR	May 11, 2023	$ 87,500		(2,739)		956
Term Loan B	Interest Rate Swap	1.2315%	1-month LIBOR	May 11, 2023	$ 87,500		(2,759)		934
Gaylord Rockies Loan	Interest Rate Swap	1.6500%	1-month LIBOR	August 1, 2022	$ 800,000		(25,049)		(2,174)
						$	(36,024)	$	1,634

Derivative financial instruments in an asset position are included in prepaid expenses and other assets, and those in a liability position are included in other liabilities in the accompanying condensed consolidated balance sheets.

The effect of the Company’s derivative financial instruments on the accompanying condensed consolidated statements of operations for the respective periods is as follows (in thousands):

	Amount of Gain (Loss)					Amount of Gain (Loss)
	Recognized in OCI					Reclassified from Accumulated
	on Derivative				Location of Gain (Loss)	OCI into Income (Expense)
	Three Months Ended				Reclassified from	Three Months Ended
	June 30,				Accumulated OCI	June 30,
	2020		2019		into Income (Expense)	2020		2019
Derivatives in Cash Flow Hedging Relationships:
Interest rate swaps	$	(4,201)	$	—	Interest expense	$	(2,942)	$	—
Total derivatives	$	(4,201)	$	—		$	(2,942)	$	—

	Amount of Gain (Loss)					Amount of Gain (Loss)
	Recognized in OCI on					Reclassified from Accumulated
	Derivative				Location of Gain (Loss)	OCI into Income (Expense)
	Six Months Ended				Reclassified from	Six Months Ended
	June 30,				Accumulated OCI	June 30,
	2020		2019		into Income (Expense)	2020		2019
Derivatives in Cash Flow Hedging Relationships:
Interest rate swaps	$	(40,148)	$	—	Interest expense	$	(2,490)	$	—
Total derivatives	$	(40,148)	$	—		$	(2,490)	$	—

Reclassifications from accumulated other comprehensive loss for interest rate swaps are shown in the table above and included in interest expense. Total consolidated interest expense for the three months ended June 30, 2020 and 2019 was $30.0 million and $33.5 million, respectively, and for the six months ended June 30, 2020 and 2019 was $59.4 million and $65.6 million, respectively.

At June 30, 2020, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $37.8 million. As of June 30, 2020, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at the aggregate termination value of $37.8 million. In addition, the Company has an agreement with its derivative counterparty that contains a provision whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.