Medical Properties Trust is currently negotiating with a bank lender group to draw down more cash to pay off at least one of its upcoming credit instruments and its bankers are making moves now to sweep up billions in MPT’s remaining unrestricted collateral, sources say.
According to a person familiar with the negotiations the bankers want $3.85 billion of secured assets for a draw down of around $750 million. The offer is just a proposal and it’s still unclear if MPT will accept it.
According to credit analyst who spoke with this reporter the RCF agreement definition of qualified assets is different than how assets are defined in the bond documents. Distressed debt funds invested in MPT bonds and term loans are currently trying to come up with their own risk model calculations to determine if this kind of asset sweep by its bank lenders will mean MPT has run out of time thus limiting its ability to negotiation/refi other credit securities down the road. MPT unsecured leverage ratio and how much it will take in impairments of its assets (like loans/rents associated with Prospect who the WSJ reported yesterday has hired bankruptcy advisors). Keep in mind the bank lenders also need to make a deal 90 days out from any kind of possible MPT in-court restructuring to perfect the security and not get challenged for a voidable preference or fraudulent conveyance in court.
The 3.7% term loan B due January 15th needs around 700 million EUR of cash to get paid off at par. Next is the 3.325% senior unsecured bond with 500 million EUR maturing in March, which is trading is in the high 90s, according to trade data.
Credit funds I interviewed in 2024 for the most part felt comfortable about MPT’s ability to pay off both credit instruments in Q1 2025 totaling around 1.2 billion EUR but this week some of that sentiment has changed.
“The company has thus far made no announcement regarding the Term Loan maturity next week, it clearly needs to be retired or refinanced. There is not sufficient cash to repay the loan, and the credit agreement covenants appear to limit their ability to incur additional unsecured debt. I think the open questions are: (1) how much security will the existing bank group and/or other lenders require to refi the bank debt, and (2) what will the rate be after two downgrades to junk?” according to former Hedgeye REIT analyst Rob Simone.
In early November 2024 Varun Gianchandani and Emmet McNally, some of 9fin‘s best credit analysts, published a report which came up with multiple scenarios on how MPT can pay off its $9.5 billion debt wall (8.6 billion of that is unsecured). All scenarios concluded MPT wouldn’t last past early 2027. In their review of MPT’s credit documents they conclude that the term loan due 2027 and RCF are solely governed solely by incurrence covenants while the SUNs are governed by one maintenance covenant in addition to incurrence covenants.
Additionally the 9fin analyst wrote:
Considering the most restrictive covenants in the RCF and TL credit agreement and the SUNs, we estimate that MPT has a theoretical capacity to raise up to $4.1bn through secured refinancing debt. This is based on the 25% secured LTV covenant in the company’s TL & RCF credit agreement, which we calculate is the most restrictive.
(Note 9fin assumed: any new debt issuance will carry an interest rate of 6.9%, similar to the rate at which MPT recently raised secured debt from Song Capital.)
But sources who met with MPT’s leadership while they were running around Europe and London trying to raise more secured capital over the last few months say the interest rate offers it got was more like 13%+ off new secured debt and MPT wouldn’t do a deal at that price using good assets at Circle or Priory.
Bondholders long MPT credit who hired Evercore to negotiate with the company where also shut out from any new financing offers, sources say.
This recent pattern of behavior by MPT’s leadership appears to leave them now negotiating with its lenders on the bankers terms who want to use this chance to once again redo their credit agreement and grab what they can ahead of bondholders.
As of press time MPT did not respond for comment.
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