Extended Stay America is to be acquired by Blackstone and Starwood. In a new special report Xtract Research discusses the impact of the anticipated acquisition by Blackstone and Starwood on Extended Stay’s bonds.
Extended Stay will need enough restricted payments capacity under each series of Notes to pay the merger consideration with the proceeds of ESH debt financing. The restricted payments covenants in the 2025 and 2027 Notes are substantially similar. Due to minimal capped baskets, the main question is whether there is enough capacity under the Build Up Basket and if ESH can meet the financial test to pay such amounts.
RP capacity under the capped baskets in connection with a potential merger is limited here to a general permitted restricted payments basket up to the greater of $300mm and a 5% Incremental-Loan-to Value Ratio of ESH and its Restricted Subsidiaries. While there are investment baskets that, if available, amount to the greater of $400mm and 6% of Incremental Loan-to-Value that can be transferred to an Unrestricted Subsidiary, there is no two-step dividend exception that would allow Unrestricted Subsidiary shares to be distributed to shareholders.
Read more/Source: Yahoo Finance
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