Difficult situation has required stepping up in 'unprecedented manner': EH-Reit's trustee
On top of having a limited runway in terms of total available funds, the clock is ticking for EHT's caretakers to take action.
Funds available to Eagle Hospitality Real Estate Investment Trust (EH-Reit) are "depleting... on a daily basis", as it costs money to maintain and operate the existing hotel properties.
And DBS Trustee, which as the trustee of EH-Reit has been saddled with the task of looking after the interests of the various stakeholders of Eagle Hospitality Trust (EHT), said there are few options available.
Trading in EHT, a stapled group consisting of EH-Reit and the dormant Eagle Hospitality Business Trust, has been suspended since March last year. The trust no longer has a manager, after the Monetary Authority of Singapore (MAS) ordered the removal of the previous manager in November last year.
EH-Reit Trustee, with the help of professional adviser Moelis, had given stapled security-holders of EHT the option of a new manager in December last year. But this was voted down at an extraordinary general meeting (EGM).
At the EGM, stapled security-holders were also asked to vote on a voluntary winding up of both EH-Reit and EH Business Trust. This resolution was also voted down, leading some security-holders to question a decision to seek Chapter 11 bankruptcy in the United States for some of the group's units.
But EH-Reit Trustee told The Business Times that without the Chapter 11 filing, the creditors of the various EHT entities would have had the right to foreclose on EH-Reit's properties. This could have led to "increased legal liabilities against EHT, which would have been even less beneficial to stakeholders", a spokesperson for EH-Reit Trustee said.
Properties held by these Chapter 11 entities are currently up for sale - another point of contention among security-holders, some of whom have suggested that a more opportune moment to sell may occur down the road.
EH-Reit Trustee, however, pointed out that the group "does not have the luxury of delaying the sale or restructuring process" as the properties continue to consume cash.
The various entities are currently drawing on a debtor-in-possession (DIP) credit facility from Monarch Alternative Capital. Under the DIP facility, Monarch is extending up to US$100 million to the Chapter 11 entities. This facility can be increased to as much as US$125 million.
But the DIP facility will mature in January 2022. This means that on top of having a limited runway in terms of total available funds, the clock is ticking for EHT's caretakers to take action.
In addition, a waiver from MAS allowing EH-Reit's total borrowings and deferred payments to exceed 50 per cent of its deposited property before Jan 1, 2022, and 45 per cent after that date, will end on the earlier of either March 31, 2022, or the date on which the Chapter 11 cases are concluded. As at end-September, EH-Reit's aggregate leverage already stood at 65.5 per cent.
EH-Reit Trustee emphasised that the sale "has not been a rushed process", noting that Moelis contacted more than 180 qualified parties to solicit their interest in submitting proposals for the restructuring and recapitalisation of EHT and/or the purchase of one or more of the 15 properties in EH-Reit's portfolio. The process of selling the properties is also "highly competitive", the spokesperson for EH-Reit Trustee said.
In all this, EH-Reit Trustee said it "has not acted alone, but has been working closely with advisers.
Moelis, an independent investment bank, is acting as professional financial adviser to the Chapter 11 entities. FTI Consulting, a business advisory firm, is acting as chief restructuring officer overseeing the operational aspects of the Chapter 11 entities.
"Given the circumstances and challenges facing EHT, the EH-Reit Trustee stepped up in an unprecedented manner," the spokesperson said.
"During the process, the EH-Reit Trustee has gone over and above in its responsibilities as a trustee in efforts to protect the interests of EHT stakeholders."
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