Red Lion Hotels Corporation recently extended its revolving credit facility with Wells Fargo Bank. The renewed credit facility expands the outstanding $12 million under the original facility by $18 million. The original facility, collateralized by two properties and bearing interest at prime rate plus 0.075%, matures in September 2012.
Substantially all of the additional term debt is targeted to pay off maturing loans secured by the Red Lion Hotel at the Park in Spokane and the Red Lion Hotel Olympia.
The new facility will allow the company to borrow $10 million extra through an additional guarantee and is expected to be completed in the next 30 days. Red Lion plans to use the new line to pay off the loan maturing in October 2011 secured by the Red Lion Colonial Hotel in Helena.
The balance of the line will be utilized for general corporate purposes including working capital management. The company paid off its previous credit facility with Key Bank in June 2011.
As of June 30, 2011, the company had cash and cash equivalents of $46.8 million and a long-term debt of $24.6 million maturing within one year. The latest credit facility has an option to refinance this debt to enjoy the additional financial flexibility.
Management believes that this new facility will help the balance sheet by retiring lease and debt obligations. As a point of reference, one of major competitors of Red Lion, Hyatt Hotels Corporation (H - Snapshot Report) recently renewed and extended its unsecured revolving credit facility.
Red Lion Hotels currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. However, we are maintaining our long-term Neutral recommendation on the stock.