Extended Stay of America amended its $900 million credit facility last month to temporarily allow for higher leverage. Gregory Moxley, cfo, explained that the company wants to be positioned for growth projects in 2002 in anticipation of a stronger economy in 2003. "By temporarily raising the total leverage, it will give us the ability to accelerate our development," he said. According to the covenant amendments, the allowable maximum leverage multiple has been increased from 4.75x to 5.25x EBITDA. In the second quarter of 2003, leverage will go back to its original limit. The Spartanburg, S.C.-based company offers extended stay lodging services.
Moxley explained that leverage needed to be raised since "debt usually comes before EBITDA when a company is building projects." The company has developed and constructed about 420 properties. "We incur the debt while projects are under construction," Moxley said. As of last September, the company had 38 properties under construction. Acknowledging the weakness in the lodging industry currently, he nonetheless anticipates a turnaround in early 2003. "Everybody in lodging is going to see low numbers for the next few quarters. To compensate for that we needed to allow for active development," he said.
Morgan Stanley leads the $900 million deal, while FleetBoston Financial and Bear Stearns are co-leads. No additional banks joined the group with the amendment. Moxley said the bank group was receptive to the amendment since the company wasn't "asking for forgiveness, but permission." Pricing was raised one quarter of a point across the board to LIBOR plus 3% on the $500 million term loan and LIBOR plus 21/2 % on the $200 million revolver and $200 million "A" term loan.