Annual report pursuant to Section 13 and 15(d)

Debt

v2.4.1.9
Debt
 12 Months Ended
Dec. 31, 2014
Debt Disclosure [Abstract]  
Debt
Debt
 
Debt Summary

Our debt consisted of the following (dollars in thousands):
 
Maximum
 
 
 
 
 
 
 
 
 
 Availability as of
 
Carrying Value as of
 
 
 
Scheduled Maturity
 
December 31,
2014
 
December 31,
2014
 
December 31,
2013
 
Stated Interest Rates as of
 
as of
 
 
 
 
December 31, 2014
 
December 31, 2014
Mortgage and Other Secured Loans:
 

 
 

 
 

 
 
 
 
Fixed rate mortgage loans (1)
 
 
$
387,139

 
$
675,060

 
3.96% - 10.65% (2)
 
2015-2024
Variable rate secured loan
 
 
36,877

 
37,691

 
LIBOR + 2.25% (3)
 
November 2015
Total mortgage and other secured loans
 

 
424,016

 
712,751

 
 
 
 
Revolving Credit Facility (4)
$
800,000

 
83,000

 
—

 
LIBOR + 0.975% to 1.75%
 
July 2017
Term Loan Facilities
(5)
 
520,000

 
620,000

 
LIBOR + 1.10% to 2.60% (6)
 
2015-2019
Unsecured Senior Notes (4)
 
 
 
 
 
 
 
 
 
3.600% Senior Notes
 
 
347,496

 
347,244

 
3.60%
 
May 2023
5.250% Senior Notes
 
 
245,797

 
245,445

 
5.25%
 
February 2024
3.700% Senior Notes
 
 
297,569

 
—

 
3.70%
 
June 2021
Unsecured notes payable
 
 
1,607

 
1,700

 
0% (7)
 
2026
4.25% Exchangeable Senior Notes (4)
 
 
572

 
563

 
4.25%
 
April 2030
Total debt
 

 
$
1,920,057

 
$
1,927,703

 
 
 
 

(1)  
Several of the fixed rate mortgages carry interest rates that were above or below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates.  The carrying values of these loans reflect net unamortized premiums totaling $42,000 as of December 31, 2014 and $69,000 as of December 31, 2013.
(2)
The maximum stated interest rate would be 7.87%, excluding the incremental additional interest rate associated with the default rate on a nonrecourse mortgage loan discussed further below. The weighted average interest rate on our fixed rate mortgage loans was 8.10% as of December 31, 2014 (or 6.16% excluding the incremental additional interest rate associated with the default rate on the loan discussed above).
(3) 
The interest rate on the loan outstanding was 2.41% as of December 31, 2014.
(4)
Refer to the paragraphs below for further disclosure.
(5)  
As discussed below, we have the ability to borrow an additional $180.0 million in the aggregate under these term loan facilities, provided that there is no default under the facilities and subject to the approval of the lenders.
(6) 
The weighted average interest rate on these loans was 1.80% as of December 31, 2014.
(7)  
These notes carry interest rates that were below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates.  The carrying value of these notes reflects an unamortized discount totaling $654,000 as of December 31, 2014 and $761,000 as of December 31, 2013.

All debt is owed by the Operating Partnership. While COPT is not directly obligated by any debt, it has guaranteed the Operating Partnership’s Revolving Credit Facility, Term Loan Facilities, Unsecured Senior Notes and 4.25% Exchangeable Senior Notes.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum net worth, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio. In addition, the terms of some of COPLP’s debt may limit its ability to make certain types of payments and other distributions to COPT in the event of default or when such payments or distributions may prompt failure of debt covenants.  As of December 31, 2014, we were within the compliance requirements of these financial covenants.

Our debt matures on the following schedule (in thousands):
2015
$
343,545

(1)
2016
171,399

 
2017
339,247

(2)
2018
2,036

 
2019
122,094

 
Thereafter
951,489

 
Total
$
1,929,810

(3)
(1)
Includes $150.0 million pertaining to a nonrecourse mortgage loan on which we defaulted on the payment terms as discussed further below. Also includes $150.0 million that may be extended for two one-year periods at our option, subject to certain conditions.
(2)    Includes $333.0 million that may be extended for one year at our option, subject to certain conditions.
(3)     Represents scheduled principal amortization and maturities only and therefore excludes net discounts of $9.8 million.

We capitalized interest costs of $6.1 million in 2014, $8.8 million in 2013 and $13.9 million in 2012.

The following table sets forth information pertaining to the fair value of our debt (in thousands):
 
December 31, 2014
 
December 31, 2013
 
Carrying
 
Estimated
 
Carrying
 
Estimated
 
Amount
 
Fair Value
 
Amount
 
Fair Value
Fixed-rate debt
 

 
 

 
 

 
 

Unsecured Senior Notes
$
890,862

 
$
901,599

 
$
592,689

 
$
575,374

4.25% Exchangeable Senior Notes
572

 
575

 
563

 
575

Other fixed-rate debt
388,746

 
355,802

 
676,760

 
650,997

Variable-rate debt
639,877

 
642,091

 
657,691

 
657,527

 
$
1,920,057

 
$
1,900,067

 
$
1,927,703

 
$
1,884,473



Mortgage and Other Secured Loans

In April 2014, a wholly owned subsidiary defaulted on the payment terms of a $150.0 million nonrecourse mortgage loan secured by 15000 and 15010 Conference Center Drive, two operating properties in Northern Virginia with an aggregate estimated fair value that was less than the loan balance. This loan had an interest rate of 10.65% (including the effect of default interest) and was originally scheduled to mature in 2017. The lender subsequently accelerated the loan’s maturity date to July 2014. Additional disclosure regarding this loan is provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Annual Report on Form 10-K.

In December 2014, we completed the defeasance of, and full satisfaction of our obligations with respect to, (1) $103.0 million principal amount of secured nonrecourse mortgage loan due to mature on November 6, 2015 and bearing an interest rate of 5.53% and (2) $108.5 million principal amount of secured nonrecourse mortgage loan due to mature on January 1, 2016 and bearing an interest rate of 5.56%, as well as costs related to the defeasance and satisfaction. As a result, we recognized a loss on early extinguishment of debt of $9.1 million.

Revolving Credit Facility

We have a credit agreement providing for an unsecured revolving credit facility (the “Revolving Credit Facility”) with a group of lenders for which J.P. Morgan Securities LLC and KeyBanc Capital Markets acted as joint lead arrangers and joint book runners, KeyBank National Association acted as administrative agent and JPMorgan Chase Bank, N.A. and Bank of America, N.A. acted as co-syndication agents. The lenders’ aggregate commitment under the facility is $800.0 million, with the ability for us to increase the lenders’ aggregate commitment to $1.3 billion, provided that there is no default under the facility and subject to the approval of the lenders. Amounts available under the facility are computed based on 60% of our unencumbered asset value, as defined in the agreement.  The facility matures on July 1, 2017, and may be extended by one year at our option, provided that there is no default under the facility and we pay an extension fee of 0.15% of the total availability under the facility. The interest rate on the facility is based on LIBOR (customarily the 30-day rate) plus 0.975% to 1.750%, as determined by the credit ratings assigned to COPLP by Standard & Poor’s Rating Services, Moody’s Investor Services, Inc. or Fitch Ratings Ltd. (collectively, the “Ratings Agencies”). The facility also carries a quarterly fee that is based on the lenders’ aggregate commitment under the facility multiplied by a per annum rate of 0.125% to 0.350%, as determined by the credit ratings assigned to COPLP by the Ratings Agencies. As of December 31, 2014, the maximum borrowing capacity under this facility totaled $800.0 million, of which $702.2 million was available.

Weighted average borrowings under our Revolving Credit Facility totaled $15.9 million in 2014 and $55.5 million in 2013. The weighted average interest rate on our Revolving Credit Facility was 1.47% in 2014 and 1.74% in 2013.

Term Loan Facilities

Effective September 1, 2011, we entered into an unsecured term loan agreement with the same group of lenders as the Revolving Credit Facility under which we borrowed $400.0 million, with a right for us to borrow an additional $100.0 million, provided that there is no default under the agreement and subject to the approval of the lenders. In 2013, we amended this term loan and repaid $150.0 million of the loan balance. In 2014, we repaid an additional $100.0 million of the loan balance. The term loan matures on September 1, 2015, and may be extended by two one-year periods at our option, provided that there is no default and we pay an extension fee of 0.15% of the total availability of the agreement. The variable interest rate on the term loan is based on the LIBOR rate (customarily the 30-day rate) plus 1.10% to 2.00%, as determined by the credit ratings assigned to COPLP by the Ratings Agencies.

Effective February 14, 2012, we entered into an unsecured term loan agreement with a group of lenders for which J.P. Morgan Securities LLC and KeyBank Capital Markets acted as joint lead arrangers and joint book runners, KeyBank National Association acted as administrative agent and JPMorgan Chase Bank, N.A. acted as syndication agent.  We borrowed $250.0 million under the term loan.  The term loan matures on February 14, 2017, and may be extended by one year at our option, provided that there is no default and we pay an extension fee of 0.15% of the total availability of the agreement.  The variable interest rate on the loan is based on the LIBOR rate (customarily the 30-day rate) plus 1.10% to 2.00%, as determined by the credit ratings assigned to COPLP by the Ratings Agencies.

Effective August 3, 2012, we entered into an unsecured term loan agreement with a group of lenders for which Wells Fargo Securities, LLC acted as sole arranger and sole book runner, Wells Fargo Bank, National Association acted as administrative agent and Capital One, N.A. acted as documentation agent.  We borrowed $120.0 million under the term loan, with the ability for us to borrow an additional $80.0 million, provided that there is no default under the loan and subject to the approval of the lenders.  The term loan matures on August 2, 2019.  The variable interest rate on the loan is based on the LIBOR rate (customarily the 30-day rate) plus 2.10% to 2.60%, as determined by our leverage levels.

Unsecured Senior Notes

In 2013 and 2014, we issued the following senior notes:

•
a $350.0 million aggregate principal amount of 3.600% Senior Notes at an initial offering price of 99.816% of their face value on May 6, 2013, resulting in proceeds, after deducting discounts of the initial purchasers of the notes, but before other offering expenses, of $347.1 million. The notes mature on May 15, 2023. The carrying value of these notes reflects an unamortized discount totaling $2.5 million as of December 31, 2014 and $2.8 million as of December 31, 2013. The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%;
•
a $250.0 million aggregate principal amount of 5.250% Senior Notes at an initial offering price of 98.783% of their face value on September 16, 2013, resulting in proceeds, after deducting underwriting discounts, but before other offering expenses, of $245.3 million. The notes mature on February 15, 2024. The carrying value of these notes reflects an unamortized discount totaling $4.2 million as of December 31, 2014 and $4.6 million as of December 31, 2013. The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%; and
•
a $300.0 million aggregate principal amount of 3.700% Senior Notes at an initial offering price of 99.739% of their face value on May 14, 2014, resulting in proceeds, after deducting underwriting discounts, but before other offering expenses, of $297.3 million. The notes mature on June 15, 2021. The carrying value of these notes reflects an unamortized discount totaling $2.4 million as of December 31, 2014. The effective interest rate under the notes, including amortization of the issuance costs, was 3.85%.
 
We may redeem these notes, in whole at any time or in part from time to time, at our option, at a redemption price equal to the greater of (1) the aggregate principal amount of the notes being redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to its present value, on a semi-annual basis at an adjusted treasury rate plus a spread (30 basis points for the 3.600% Senior Notes, 40 basis points for the 5.250% Senior Notes and 25 basis points for the 3.700% Senior Notes), plus, in each case, accrued and unpaid interest thereon to the date of redemption. However, in each case, if this redemption occurs on or after three months prior to the maturity date, the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not including, the applicable redemption date. These notes are unconditionally guaranteed by COPT.

Exchangeable Senior Notes

In 2010, COPLP issued a $240.0 million aggregate principal amount of 4.25% Exchangeable Senior Notes due 2030.  In 2013, we repaid $239.4 million principal amount of these notes and recognized a $25.9 million loss on early extinguishment of debt. The carrying value of these notes included a principal amount of $575,000 and an unamortized discount totaling $3,000 as of December 31, 2014 and $12,000 as of December 31, 2013.  Interest on the notes is payable on April 15 and October 15 of each year.  These notes have an exchange settlement feature that provides that the notes may, under certain circumstances, be exchangeable for cash and, at COPLP’s discretion, COPT common shares at an exchange rate (subject to adjustment) of 20.8513 shares per one thousand dollar principal amount of the notes (exchange rate is as of December 31, 2014 and is equivalent to an exchange price of $47.96 per common share) (the initial exchange rate of the notes was based on a 20% premium over the closing price on the NYSE on the transaction pricing date).  On or after April 20, 2015, COPLP may redeem the notes in cash in whole or in part. The holders of the notes have the right to require us to repurchase the notes in cash in whole or in part on each of April 15, 2015, April 15, 2020 and April 15, 2025, or in the event of a “fundamental change,” as defined under the terms of the notes, for a repurchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest.  The notes are general unsecured senior obligations of COPLP and rank equally in right of payment with all other senior unsecured indebtedness of COPLP and are guaranteed by COPT. The effective interest rate under the notes, including amortization of the issuance costs, was 6.05%.  Because the closing price of COPT’s common shares at December 31, 2014 and 2013 was less than the exchange price per common share applicable to these notes, the if-converted value of the notes did not exceed the principal amount.  The table below sets forth interest expense recognized on these notes (in thousands):
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Interest expense at stated interest rate
$
24

 
$
4,208

 
$
10,200

Interest expense associated with amortization of discount
10

 
1,615

 
3,651

Total
$
34

 
$
5,823

 
$
13,851