Slate Office REIT 9 00 Convertible Unsecured Subordinated Debentures Exp 28 Feb 2026 T.SOT.DB

Status of Debt Covenants

[TVR]

There is a detailed description of the various debt covenant defaults that the REIT is attempting to deal with in the Management Discussion and Analysis document filed with the Q2 results on SEDAR.

This is one short summary section:

The REIT's debt is subject to the following financial leverage, debt service coverage and minimum unitholders equity covenants:

• Total debt to gross book value 65% or less. At June 30, 2024 the REIT's total debt to gross book value was 73.8%. 

• Senior debt, which is total debt excluding the REIT's convertible debentures to gross book value, of 55% or less. At June 30, 2024 the REIT's senior debt to gross book value was 64.4%.

• Debt service coverage ratio not less than 1.25:1. At June 30, 2024 the REIT's debt service coverage ratio was 1.20:1.

• Minimum unitholders' equity, which includes the REIT's Class B LP units, of $425.0 million. For purposes of the REIT's revolving credit facility, the threshold is $350.0 million. At June 30, 2024 the REIT's unitholders' equity was $349.0 million.

The REIT is also subject to additional covenants associated with various mortgages. Additionally, certain of the REIT's debt, including the REIT's revolving credit facility, includes cross default provisions, generally for defaults on debt in excess of $5.0 million. At June 30, 2024, as discussed above, the REIT exceeded the financial leverage and debt service coverage covenants on its revolving credit facility and certain other mortgages resulting in other mortgages being in breach due to cross-default clauses.

The REIT is in active discussions with its lenders to amend, renew or consider alternate arrangements to reach amendable terms on conditions that are acceptable to the REIT.

It is quite clear from the MD&A information that the REIT is in default on just about every debt related covenant it has.  The debenture interest due in June could not have been paid due to default covenants even if they had the money.

At this point it is a stretch to think they can extricate themslves from the financing problems by selling off properties.  Looks like they would need to net something in the order of $100 million after repaying all debt associated with sold properties which means they have to sell something in the ballpark of $300 million of properties at decent prices to get back on side.   Selling properties one at a time is not going to do this in a timeframe that is acceptable to the various lenders.  They probably need to unload the Ireland or U.S portfolios  or do something else significant.  I'm sure they are trying to come up with a way out but if they do not come up with a solution in the next one to two months at some point they will find they have no option but to file for CCAA protection to give them more time.  This has been building up for a year now and Slate are not going to be given much more time on this..  

Hope there is someone in the mix who can see a deal that will fix the problems.  Not sure another REIT would take this on, but a merger with another REIT might be a possible solution.  Unfortunately I doubt the terms would be very attractive for SOT.UN unit holders.

[Tree2tree]

TVR, I agree that SOT appears to be in a deep hole with respect to debt covenants.  But being on the wrong side of debt covenants does not mean being insolvent.  Yes, the debt holders probably have the right to force a fire sale in an effort to get their money out.  But the key is, it would not likely be in their interest to do so.  The debt holders are better off if SOT

[TVR]

T2T - Agree that the debtholders will likley be better off if SOT.UN remains a going concern.  The fact that the debtholders installed a monitor (and the REIT accepted this) is indication that pushing the company into a receivership is a last resort.  The lenders would not have gone this route if they did not think there was a reasonable chance of a resolution that would be of benefit to

[Tree2tree]

Agreed, falling interest rates will not have a major impact on the debt service in the short term, but they may make SOT's assets more affordable and more attractive to a wider range of potential buyers.

[pennylane101]

Great re-cap of the debt covenant breaches facing Slate.  Thank-you.