Debt

Consolidated debt consisted of the following (in thousands):



	Encumbered Hotels			Interest Rate (%)			December 31,
	Encumbered Hotels			Interest Rate (%)		Maturity Date	2011		2010
Line of credit ^(a)		11		L + 4.50		August 2014^(b)	$	—	$	—
Hotel mortgage debt
Mortgage debt		8		L + 5.10	^(c)	April 2015	202,982		212,000
Mortgage debt		9		L + 2.20		May 2013^(d)	156,398		250,000
Mortgage debt		7		9.02		April 2014	109,044		113,220
Mortgage debt		5	^(e)	6.66		June - August 2014	67,375		69,206
Mortgage debt		1		5.81		July 2016	10,876		11,321
Senior notes
Senior secured notes		6		6.75		June 2019	525,000		—
Senior secured notes^(f)		11		10.00		October 2014	459,931		582,821
Other^(g)		—		L + 1.50		December 2012	64,860		—
Retired debt		—		—		—	—		309,741
Total		58					$	1,596,466	$	1,548,309


(a)	We currently have full availability under our $225 million line of credit.


(b)	The line of credit can be extended for one year (to 2015), subject to satisfying certain conditions.


(c)	LIBOR (for this loan) is subject to a 3% floor. We purchased an interest rate cap ($212 million notional amount) that caps LIBOR at 5.0% and expires May 2012.


(d)	This loan can be extended for six months, subject to satisfying certain conditions.


(e)	The hotels securing this debt are subject to separate loan agreements and are not cross-collateralized.


(f)	These notes have $492 million in aggregate principal outstanding ($144 million in aggregate principal amount was redeemed in June 2011) and were initially sold at a discount that provided an effective yield of 12.875% before transaction costs.

(g)

This loan is related to our Knickerbocker development project and is fully secured by restricted cash and a mortgage. Because we were able to assume an existing loan when we purchased this hotel, we were not required to pay any local mortgage recording tax. When that loan is transferred to a new lender and made part of our construction loan, we expect to only pay such tax to the extent of the incremental principal amount of the construction loan.

In March 2011, we established a $225 million secured line of credit with a group of seven banks. At the same time, we repaid a $198.3 million secured loan and a $28.8 million secured loan with a combination of $52.1 million of cash on hand and funds drawn under our new line of credit (all of which has subsequently been repaid). The repaid loans would have matured in 2013 and 2012 (including extensions), respectively, and were secured by mortgages on 11 hotels. Those same hotels secure repayment of amounts outstanding under the line of credit. The credit facility bears interest at LIBOR, plus 4.5%, with no LIBOR floor.

In May 2011, we issued $525.0 million in aggregate principal amount of 6.75% senior secured notes due 2019 and used the proceeds to repay existing higher-cost debt (including the remaining $46 million of our outstanding senior notes due 2011) and fund our purchase of Royalton and Morgans for $140.0 million.


9.	Debt — (continued)

In May 2011, we repaid $45.3 million in secured loans when we sold the mortgaged hotels.

In June 2011, we repaid (at maturity) a $7.3 million loan that was secured by one hotel.

In June 2011, we obtained a $24.0 million loan to refinance a loan secured by one hotel. The old loan balance was $27.8 million and by the terms of the old loan, upon refinancing, $3.8 million of the old loan was forgiven. We recognized a $3.7 million net gain from extinguishment of debt in connection with the refinancing. In July 2011, we repaid the new loan in full and recognized a $187,000 charge from extinguishment at that time.

In June 2011, we repaid the remaining outstanding $46.4 million of our senior notes when they matured.

In June 2011, we redeemed $144 million in aggregate principal amount of our 10% senior notes using $158 million of net proceeds of our recent equity offering. Under the terms of the indenture governing the redeemed notes, the redemption price was 110% of the principal amount of the redeemed notes, together with accrued and unpaid interest thereon to the redemption date. We recognized a $27.4 million debt extinguishment charge related to the prepayment premium and the write-off of a pro rata portion of the related debt discount and deferred loan costs.

In July 2011, we repaid $35.2 million in secured loans when we sold the mortgaged hotels.

In October 2011, we modified the term of a CMBS mortgage loan scheduled to mature in November 2011, extending its maturity for up to two years. The loan now bears an average interest rate at LIBOR plus 2.20% and is prepayable at any time, in whole or in part, with no penalty. In conjunction with the modification, we repaid $20 million of the principal balance, reducing the outstanding balance to $158 million at that time.

In 2010, we retired $40.3 million of our senior notes due 2011 for $1.6 million in excess of par.

Two loans (totaling $32 million) matured in May 2010. The cash flows for the hotels that secured those loans did not cover debt service, and we stopped funding the shortfalls in December 2009. In 2010 we were unable to negotiate an acceptable debt modification or reduction that favored our stockholders, and we recorded a $21.1 million impairment charge in discontinued operations. We transferred these hotels to the lenders in full satisfaction of the related debt, and recorded a $15.2 million gain on extinguishment of debt in 2010.

In May 2010, we obtained a new $212 million loan, secured by nine hotels, that matures in 2015. This loan bears interest at LIBOR (subject to a 3.0% floor) plus 5.1%. The proceeds were used to repay $210 million in loans that were secured by 11 hotels and scheduled to mature in May 2010. The terms and interest rate of this financing are significantly more favorable than the refinanced debt, and we unencumbered two previously mortgaged hotels in the process.

In June 2010, we repaid $177 million of secured debt scheduled to mature in 2012 for $130 million, plus accrued interest, representing a 27% discount to the principal balance. This reduced our leverage substantially and unencumbered two hotels.

In November 2010, we incurred $29 million of new debt secured by two hotels. This loan was repaid in 2011.


9.	Debt — (continued)

Our senior notes require that we satisfy total leverage, secured leverage and interest coverage thresholds in order to: (i) incur additional indebtedness except to refinance maturing debt with replacement debt, as defined under our indentures; (ii) pay dividends in excess of the minimum distributions required to meet the REIT qualification test; (iii) repurchase capital stock; or (iv) merge. We currently exceed all minimum

thresholds, other than for certain “restricted” payments. (Under the terms of our preferred stock, we are also prohibited from paying common dividends or repurchasing shares of common stock until our accrued preferred dividends are paid in full.) These notes are guaranteed by us, and payment of our 10% notes are secured by a pledge of the limited partner interests in FelCor LP owned by FelCor. In addition, our senior notes are secured by a combination of first lien mortgages and related security interests and/or negative pledges on up to 17 hotels, and pledges of equity interests in certain subsidiaries of FelCor LP.

At December 31, 2011, we had consolidated secured debt totaling $1.6 billion, encumbering 58 of our consolidated hotels with a $1.8 billion aggregate net book value. Except in the case of our Senior Notes, our mortgage debt is generally recourse solely to the specific assets securing the debt. However, a violation of any of the recourse carve-out provisions, including fraud, misapplication of funds and other customary recourse carve-out provisions, could cause this debt to become fully recourse to us. Much of our hotel mortgage debt allows us to substitute collateral under certain conditions and is prepayable subject (in come instances) to various prepayment, yield maintenance or defeasance obligations.

Much of our secured debt (other than our senior notes) includes lock-box arrangements under certain circumstances. We are permitted to spend an amount required to cover our budgeted hotel operating expenses, taxes, debt service, insurance and capital expenditure reserves even if revenues are flowing through a lock-box in cases where a specified debt service coverage ratio is not met. With the exception of loans secured by two hotels, all of our consolidated hotels subject to lock-box provisions currently exceed the applicable minimum debt service coverage ratios.

To fulfill requirements under certain loans, we owned interest rate caps with aggregate notional amounts of $212.0 million and $639.2 million as of December 31, 2011 and 2010, respectively. These interest rate caps were not designated as hedges and had insignificant fair values at both December 31, 2011 and 2010, resulting in no significant net earnings impact.

We reported interest income of $240,000, $360,000 and $687,000 for the years ended December 31, 2011, 2010 and 2009, respectively, which is included in net interest expense. We capitalized interest of $2.2 million, $638,000 and $767,000, for the years ended December 31, 2011, 2010 and 2009, respectively.

The early retirement of certain indebtedness in 2009 resulted in net charges related to debt extinguishment of $1.7 million.


9.	Debt — (continued)

Future scheduled principal payments on debt obligations at December 31, 2011, are as follows (in thousands):



Year
2012	$	93,970
2013	138,569
2014	661,359
2015	200,824
2016	8,813
Thereafter	525,000
	1,628,535
Discount accretion over term	(32,069		)
	$	1,596,466