Item 1.01 Entry into a Material Definitive Agreement.
Term Loan Credit Agreement
On November 12, 2021 (the “TL Closing Date”), Ares Commercial Real Estate Corporation (the “Company”), as borrower, and ACRC Holdings LLC, ACRC Mezz Holdings LLC and ACRC Warehouse Holdings LLC, wholly-owned subsidiaries of the Company, as guarantors (collectively, the “Guarantors”), entered into an Amended & Restated Credit and Guaranty Agreement (the “A&R Term Loan Agreement”) with the lenders referred to therein (the “Lenders”) and Cortland Capital Market Services LLC, as the administrative agent and collateral agent for the Lenders (the “Collateral Agent”), which amends and restates the Credit and Guaranty Agreement entered into on December 9, 2015 (as amended prior to the date hereof, the “Existing Term Loan Agreement”).
Except as described in this Current Report on Form 8-K, the terms and conditions of the A&R Term Loan Agreement remain substantially consistent with the Existing Term Loan Agreement. The A&R Term Loan Agreement includes a total drawn term loan commitment of $150,000,000. The term loan was funded net of an original issue discount amount equal to 0.50% of the drawn term loan commitment. The A&R Term Loan Agreement also amends the financial covenants with respect to the Company such that the minimum asset coverage ratio is 115%, the minimum unencumbered asset ratio is 125%, the maximum total net leverage ratio is 4.50:1.00, and a minimum interest coverage ratio of 1.10:1.00 was added.
The A&R Term Loan Agreement has a term of five (5) years from the TL Closing Date. Pursuant to the A&R Term Loan Agreement, interest accrues at the following fixed rates: (i) commencing on the TL Closing Date until the 42-month anniversary of the TL Closing Date, the fixed rate is 4.500% per annum; (ii) after the 42-month anniversary of the TL Closing Date through the 48-month anniversary date, the interest rate increases 12.5 basis points every three months; and (iii) after the 48-month anniversary date of the TL Closing Date through the 60-month anniversary date, the interest rate increases 25.0 basis points every three months.
The A&R Term Loan Agreement is subject to a prepayment premium for the first 36 months following the TL Closing Date (through November 12, 2024), which is equal to the greater of (i) 1.00% of the outstanding principal amount of the term loan; and (ii) the present value of the amount that the lender would earn if that portion of the term loan being repaid were invested in U.S. treasury obligations.
The obligations of the Company under the A&R Term Loan Agreement continue to be guaranteed by the Guarantors, including pursuant to a Reaffirmation Agreement with the Collateral Agent pursuant to which the Company and the Guarantors reaffirmed the security interests and guarantees, in each case, granted in favor of the Collateral Agent.
The foregoing descriptions of the A&R Term Loan Agreement and the Reaffirmation Agreement are only summaries of certain material provisions of the agreements relating to the term loan and are qualified in their entirety by reference to copies of such agreements, which are filed herewith as Exhibits 10.1 and 10.2, respectively, and by this reference incorporated herein.
CNB Facility
On November 12, 2021 (the “CNB Facility Closing Date”), ACRC Lender LLC (“ACRC Lender”), a subsidiary of the Company, entered into an amendment to its secured revolving credit facility (the “CNB Facility”) with City National Bank. The purpose of the amendment to the CNB Facility was to, among other things: (1) increase the commitment amount from $50.0 million to $75.0 million and (2) amend the financial covenants with respect to the Company, as guarantor, to delete the financial covenant regarding recourse debt to tangible net worth and to set the maximum debt to tangible net worth ratio to 4.50 to 1.00. In connection with the increased commitment, the $25.0 million accordion feature was also removed. Under the CNB Facility, ACRC Lender may request advances as SOFR loans or base rate loans. The interest rate on advances after the CNB Facility Closing Date will accrue at a per annum rate equal to (a) with respect to SOFR loans, Daily Simple SOFR (with a 0.35% floor) plus 2.65% and (b) with respect to base rate loans, the greater of (i) a base rate (which is the highest of a prime rate, the federal funds rate plus 0.50%, or Daily Simple SOFR plus 1.00%) plus 1.00% and (ii) 2.65%.
The foregoing description of the CNB Facility is only a summary of certain material provisions of the amendment to the CNB Facility and is qualified in its entirety by reference to a copy of such agreement, which is filed herewith as Exhibit 10.3, and by this reference incorporated herein.