Debt

12 Months Ended

Dec. 31, 2013

The following table presents debt outstanding as of December 31, 2013 and 2012:



		As of December 31,
($ in thousands)	Final		Face value			Book value			Face value		Book value
Project name/lender	maturity		2013			2013			2012		2012
Amended facility -
Note A/Vegas HR Private Limited	March 1, 2018		$	575,213		$	504,775		$	553,826	$	472,740

Amended facility -
Note B/Vegas HR Private Limited	March 1, 2018		327,290			182,075			327,290		160,124

Second Mortgage -
Brookfield Financial	March 1, 2018		30,000			16,596			30,000		15,021
Total debt			932,503			703,446			911,116		647,885


Current portion of long-term debt			(902,503		)	(686,850		)	—		—
Total long-term debt			$	30,000		$	16,596		$	911,116	$	647,885

The difference between the face and book value of the debt represents debt discounts that are amortized to interest expense using the effective interest method over the term of the debt.

As discussed in Note 1, Company Structure and Significant Accounting Policies, the PIK interest will become due and payable on June 2, 2014. Currently, we believe the Company may not have sufficient funds to satisfy the expected PIK interest payment on June 2, 2014, and therefore, the Company could be in default upon notification by the lender. Accordingly, the Amended Facility, supplemental interest, and PIK interest is classified as current as of December 31, 2013.

As of December 31, 2013, the Company has outstanding $61.2 million in supplemental interest under the Amended Facility. In addition, the Company has outstanding $10.5 million in accrued interest and contractually owes $14.6 million under the Second Mortgage, the difference representing application of the effective interest method and its affects on accrued interest and amortization of the discount as of December 31, 2013.

Amended Facility. On March 1, 2011, as part of the Assignment, the Company assumed the obligations under the Facility and entered into the Amended Facility pursuant to which the land, building and improvements, equipment, fixtures and all personal properties were pledged as security and collateral. The Amended Facility has a maturity date of March 1, 2018 and provides for interest only at The London InterBank Offered Rate (LIBOR) plus 2.5% with a 1.5% LIBOR floor (total of 4% at December 31, 2013). In addition, supplemental interest is accrued at a rate sufficient to provide for the greater of 6.5% or LIBOR + 4% effective interest rate at maturity after consideration of all prior payments of principal and interest. The rates of accrual are dependent on fluctuations in the applicable LIBOR rate. The Amended Facility has a provision whereby if the cash available for debt service is less that the current interest due, the PIK interest will be automatically added to the outstanding principal balance of the Amended Facility and shall thereafter accrue interest. In addition, excess cash in the cash management account will be applied to the outstanding PIK interest, supplemental interest and principal according to the terms of the Amended Facility.

The Amended Facility requires that the Company repay in full all “paid in kind” interest (PIK Interest) outstanding on March 1, 2014 and February 28, 2016, in the event the Company has not made sufficient payments to the lender to provide a specified debt yield for the twelve month period ending March 1, 2014, on the terms specified in the Amended Facility. The Company did not meet the specified debt yield threshold as of March 1, 2014. However, on March 5, 2014, the lender entered into a Forbearance Agreement effective as of March 1, 2014, pursuant to which it agreed not to exercise any rights or remedies with respect to the PIK interest until June 2, 2014. The Company is currently assessing its options to satisfy the PIK interest payment obligation, including, but not limited to, negotiating a waiver of this requirement from the lender, selling off a portion of existing collateral or attempting to obtain borrowings from other sources. However, there is no certainty on the outcome. If the PIK payment is not made on June 2, 2014 we risk losing some or all of our property to foreclosure. If this occurs, our business and results of operations would be materially adversely affected. The outstanding PIK interest as of December 31, 2013 and 2012 was $39.8 million and $18.5 million, respectively. See further discussion in Note 1, Company Structure and Significant Accounting Policies.

The total amount of the Company’s debt, under certain exceptions described in the Amended Facility, is due on March 1, 2018, and no principal payments are due until then.

Second Mortgage. On March 1, 2011, as part of the Assignment, the Company entered into the Second Mortgage loan agreement with Brookfield Financial in the amount of $30.0 million pursuant to which certain land, building and improvements, equipment, fixtures and personal properties were pledged as security and collateral. The Second Mortgage is subordinate in right of payment to the Amended Facility. The maturity date of the Second Mortgage is March 1, 2018 and provides for an effective interest rate of 15% payable at maturity.

The Amended Facility and Second Mortgage include affirmative and negative covenants, including, among others, restrictive covenants regarding incurrence of liens, sales or assets, distributions to affiliates, changes in business, cancellation of indebtedness, dissolutions, mergers and consolidations, as well as limitations on security issuances, transfers of any of the Company's real property and removal of any material article of furniture, fixture or equipment from the Company's real property. As of December 31, 2013, the Company was in compliance with all covenants.

The estimated annual amortization of the debt discounts under the effective interest method assuming estimated future cash flow payments of the Amended Facility and the Second Mortgage for each of the five succeeding years and thereafter, is as follows:



($ in thousands)	Amortization - Amended Facility		Amortization - Second Mortgage
2014	$	40,018	$	2,042
2015	47,530		2,645
2016	55,076		3,439
2017	62,321		4,445
2018	10,708		833
Thereafter	—		—
Total	$	215,653	$	13,404

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details

BREF HR, LLC 10-K/A