Answer:
The Phoenix‑portfolio sale is a non‑recourse asset disposition that adds $266 million of cash to City Office REIT’s balance sheet. In most of the REIT’s senior credit agreements, the primary covenant triggers are tied to net‑leverage (total debt / EBITDA) and interest‑coverage thresholds, not to the mere occurrence of a sale. Because the proceeds are being earmarked for debt repayment and balance‑sheet strengthening, the transaction is more likely to improve covenant compliance rather than breach it. Consequently, we do not anticipate an automatic covenant event or a mandatory repricing of the existing senior facilities at this stage.
That said, the credit documents often contain asset‑sale covenants that require the issuer to maintain a minimum asset‑to‑debt ratio or to obtain lender consent for disposals exceeding a certain percentage of the portfolio. The Phoenix sale represents roughly 10‑12 % of City Office’s total asset base, which is typically below any “material disposal” thresholds (commonly 15‑20 %). Unless the REIT’s loan agreements contain unusually low caps, the sale should not trigger a consent‑required event or a covenant breach. The company’s next 10‑Q/10‑K filing will disclose the exact covenant calculations; traders should monitor those filings for any disclosed covenant waivers or amendments that could affect the senior debt pricing.
Trading implication: The cash inflow is expected to lower leverage and tighten balance‑sheet metrics, supporting the REIT’s credit profile and likely keeping the senior spread stable. In the short term, the market may price in a modest upside to the stock as investors view the disposal as a deleveraging move. Keep an eye on the upcoming quarterly report for the final covenant‑compliance numbers—if the REIT confirms a stronger‑than‑expected leverage ratio, the stock could see further upside; any surprise covenant breach or need for a repricing would be a bearish catalyst.