Mon 11/30/2020 12:07 PM
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Relevant Items:
Covenants Tear Sheet, Debt Document Summaries
Vici Properties’ Debt Documents

Vici Properties Inc. is a Maryland REIT primarily engaged in the business of owning and acquiring gaming, hospitality and entertainment destinations, including Caesars Palace Las Vegas and Harrah’s Las Vegas, according to its latest 10-Q. A recent investor presentation states that the company has collected 100% of rent as of November 2020, despite the Covid-19 pandemic. Continue reading for our Americas Covenants team's analysis of the Vici Properties Inc. covenant card and Request a Trial for access to the linked documents and analysis as well as our coverage of thousands of other stressed/distressed debt situations.

Caesars Entertainment is the company’s largest tenant, comprising 83% of the company’s lease revenue for the nine month period ended Sept. 30, 2020, and Las Vegas is the company’s most concentrated geographic area, with properties on the strip generating 27% of the lease revenues for the nine months ended Sept. 30.

The company issued $2.5 billion of unsecured notes in February, with the majority of the proceeds used in July 2020, when the company entered into a number of transactions in connection with the Eldorado/Caesars merger, including acquiring the land and real estate assets associated with Harrah’s New Orleans, Harrah’s Laughlin and Harrah’s Atlantic City.

The company’s capital structure as of Sept. 30, 2020, is shown below, for reference.
Vici Properties Inc. Covenant Card

Covenant Conclusions

Financial covenants - There are two financial covenants in the credit agreement, both of which only benefit the revolving facility:

  1. The ratio of total net debt to adjusted total assets cannot exceed 0.65x (stepping up to 0.7x for four quarters following a significant acquisition); and

  2. The interest coverage ratio must be at least 2x.

The company reported that it was in compliance with all financial covenants as of Sept. 30.

A default of the financial covenants is not a default under the term loan facility until the revolving lenders have terminated and accelerated the revolver.

Debt and Lien Capacity - Under the credit agreement, the company can incur debt secured by collateral as long as the senior secured net debt to adjusted total asset ratio wouldn’t exceed 0.45x and the total net debt to adjusted total assets ratio would not exceed 0.75x (a redundant requirement, since the financial covenant requires a ratio under 0.65x). The senior notes permit debt as long as the total net debt to adjusted total assets ratio wouldn’t exceed 0.65x and the interest coverage ratio is greater than 2x; they permit secured debt as long as the ratio of senior secured net debt to adjusted total assets does not exceed 0.45x. The company can therefore incur unlimited secured debt as long as the ratio of senior secured net debt to adjusted total assets does not exceed 0.45x and it is in compliance with the financial covenants.

If the company cannot meet the required ratios, it can incur at least $50 million of secured debt and at least another $50 million of unsecured debt, and nonguarantors can incur at least $60 million of debt secured by their assets.

Restricted Payments and Investments - Both the credit agreement and the senior notes allow the company to make restricted payments in an amount up to 95% of “Funds from Operations,” with the credit agreement taking the amount each fiscal year and the senior notes building from Oct. 1, 2019. Combined with the general restricted payment basket, we estimate that the company can make at least $564 million of restricted payments. The company can also make at least $375 million of general investments outside of the loan parties.

Note Purchases - While the credit agreement does contain a prepayment covenant, it applies only to payment subordinated debt and debt secured by junior liens. The senior notes are unsecured and can therefore be freely purchased in the open market.

--Alisha Turak
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