Office Properties Income Trust Bankruptcy Term Sheet – Key Investor Details

Summary of Key Points

• Bankruptcy Filing: Office Properties Income Trust (OPITQ) has entered Chapter 11 proceedings in the Southern District of Texas, Houston Division.
• Effective Date & Payments: The restructuring term sheet sets the effective date on or before August 1, 2026, with a series of mandatory payments totaling \$60 million to holders of the 2027 notes. These payments are structured as follows:
  • \$15 million by August 1, 2026 (includes \$10 million support fee)
  • \$15 million by November 1, 2026
  • \$30 million by February 1, 2027
• Interest & Security: Deferred payments bear interest at 8.375% and are secured by mortgage and treated as mandatory amortization.
• Collateral & Loan-to-Value: The payments must come primarily from outside the current 2027 First Lien Collateral. The minimum collateral package must have a cumulative fair market value of \$480 million, establishing a 70% loan-to-value ratio. If this requirement is not met, additional properties must be pledged.
• Appraisals: Appraisals of collateral properties will be provided by a nationally recognized firm, reviewed and accepted by the 2027 holders.

Details of the Restructuring Plan

• Secured Promissory Note:
  • After the initial principal payments, the 2027 holders will retain a claim of \$335 million, which will be paid through a new secured promissory note issued by a bankruptcy remote special purpose vehicle (SPV).
  • The new 2027 notes will bear interest at 8.375% and initially total \$385 million. The note is without recourse to the reorganized debtor except for a limited guarantee capped at \$60 million, covering \$50 million of principal and \$10 million support fee.
  • The SPV structure includes a Holdco entity as a guarantor and pledgor of the SPV’s equity, with an Indenture Trustee.
  • The collateral excludes certain properties (Irving, TX and Parsippany, NJ) and includes capital improvement and reserve accounts.
• Mandatory Additional Amortization:
  • At least \$45 million in principal payments by February 1, 2028.
  • At least \$45 million more by February 1, 2029.
• Interest & Professional Fees: Interest on the notes will accrue at 8.375% post-effective date; reasonable and documented professional fees will be reimbursed by the debtors on a current basis.

Collateral Management & Sale Provisions

• Collateral Package Management:
  • The SPV must maintain detailed records, including initial appraisals, release prices, and adjusted valuations.
  • Release price for each property is 70% of its appraised value.
  • Quarterly reporting of reserve account balances in public filings and a 144A-style data room for noteholders.
• Property Sale Mechanism:
  • Properties may be sold, releasing liens at closing.
  • Minimum sale price must meet or exceed release price; exceptions require consent from independent SPV director or majority of 2027 holders.
  • Distribution of proceeds prioritizes capital improvements, paydown of notes, and reserve account deposits.
  • For proceeds above the first \$150 million, balances are split 50/50 between note paydown and reserve account.
  • Funds received must remain in SPV accounts and cannot be distributed to equity holders.

Final Maturity and Prepayment Terms

• Maturity Dates:
  • Promissory note matures December 2029.
  • Debt for 2029 holders matures no earlier than June 2031.
• Prepayment Schedule:
  • Through July 31, 2027: At par
  • Aug 1, 2027 – Jan 31, 2028: 103% of par
  • Feb 1, 2028 – July 31, 2028: 102% of par
  • Aug 1, 2028 – Jan 31, 2029: 101% of par
  • Feb 1, 2029 – maturity: At par

Governance and Management Covenants

• SPV Governance:
  • SPV will have an independent director appointed by 2027 holders. Consent of this director is required for related party transactions, changes to constituent documents, and bankruptcy filings.
  • Sale to related parties allowed only if process is transparent, competitive, and meets release price.
  • SPV prohibited from guaranteeing debts of other debtor entities or entering into non-arms’ length affiliate contracts.
  • SPV directors have fiduciary duties to the SPV, not the larger OPI enterprise.
  • Management agreements are terminable by SPV following note default.
• Expense Allocation: Overhead and management fees to be allocated consistent with Chapter 11 methodology, subject to mutual agreement.

Fee and Release Arrangements

• Professional Fees: All reasonable and documented professional fees will be reimbursed as adequate protection. Objections to fees can only be made by debtors.
• Mutual Releases: Parties will exchange mutual releases and agree to customary documentation to implement the term sheet. Disputes will be resolved by the Bankruptcy Court.

Key Shareholder Considerations & Potential Price Sensitivity

• Restructuring Impact: The bankruptcy and restructuring, including asset sales, new secured notes, and governance changes, are highly material and price sensitive. The plan will affect debt service, asset values, and liquidity, potentially impacting share values significantly.
• Collateral Valuation: Minimum collateral values and mandatory amortization requirements may impact future asset sales and cash flows.
• Governance Structure: Enhanced governance, including independent directors and restrictions on related party transactions, may improve creditor confidence but could limit operational flexibility.
• Prepayment and Maturity Terms: Flexible prepayment options and extended maturities for 2029 debt may influence market perception of risk and recovery prospects.
• Professional Fee Reimbursements: Ongoing reimbursement of professional fees may affect cash available for operations and distributions.

Conclusion

The restructuring plan outlined in the bankruptcy court term sheet for Office Properties Income Trust is highly material for investors. The combination of secured debt restructuring, mandatory asset sales, enhanced governance, and strict collateral requirements represents major changes to capital structure and risk profile. Investors should closely monitor the execution of the plan, asset sale results, and collateral valuations, as these factors are likely to drive share price volatility and recovery prospects.

Disclaimer

This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence and consult professional advisors before making investment decisions. The restructuring process is ongoing and subject to court approval and further negotiation. Future outcomes may differ materially from those described herein.

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