One of the reasons provided for the misguided merger of Diversified Healthcare Trust with Office Properties Trust, since terminated, was that DHC needed to do it in order not to default on its debt and go Chapter 11. Afterall, they had issued a “going concern” letter early this year because they did not see any way to pay off their maturing debt in 2024. Oops.
But in this case, it is a good “oops,” because they did manage to find a way to raise net proceeds of $732 million to pay off all their 2024 debt. The $941 million par value of zero coupon senior secured notes come with a rate of 11.25%, so this is quite expensive. The notes are due in two years with a one-year extension. But if the extension is exercised, the interest rate increases by 50 basis points every 90 days. We have to assume they believe their senior housing assets will be performing better in two years, and we assume so too. Otherwise, there could be another “going concern” letter. Shares jumped a bit on the news.
