Office Properties Income Trust, a real estate investment trust struggling with the ongoing downturn in the office sector, asked a Texas bankruptcy court to approve a $125 million debtor-in-possession financing facility that includes an important feature: the entire amount can be converted to equity at the company's discretion upon emergence from Chapter 11.
The Newton, Massachusetts-based REIT, which owns 124 office properties totaling approximately 17.2 million rentable square feet across the United States, filed for bankruptcy protection on October 30, 2025, in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. The case is being jointly administered under case number 25-90530 (CML).
The proposed DIP facility would provide $10 million immediately upon entry of an interim order, with the remaining $115 million available after a final order is entered. The financing is being provided by certain holders of the company's September 2029 Notes and is fully backstopped by members of an ad hoc group representing more than 80% of those notes.
Unique Equitization Feature Provides Path to Emergence
A key distinguishing feature of the proposed DIP facility is its treatment at emergence. According to the motion filed November 1, 2025, "A key feature of the DIP Facility is that it can be equitized into common equity of the reorganized Debtors at the Debtors' sole discretion upon emergence, providing greater certainty of exit without requiring additional cash to repay the facility."
This structure allows OPI to preserve liquidity rather than needing to generate cash through asset sales, additional debt financing, or equity raises to repay the DIP facility. The company estimates this provides significantly more certainty of a successful exit from bankruptcy compared to alternative financing proposals that would have required cash repayment.
The motion explains: "If the Debtors were required to generate proceeds from asset sales to repay the DIP Facility, then the timeline for the Debtors to exit chapter 11 could be prolonged and uncertain."
Financial Distress Driven by Office Sector Challenges
Office Properties Income Trust has faced mounting financial pressure from the fundamental shifts in office space utilization following the COVID-19 pandemic. The company's motion describes how "the Debtors have faced significant financial challenges leading to the commencement of the Chapter 11 Cases." It continues: "These challenges include a property portfolio that has been adversely affected by the broader macroeconomic shifts in office space utilization in recent years, approximately $1.1 billion of debt maturities in the next twenty-four (24) months, and significant ongoing debt service costs. These challenges are exacerbated by higher interest rates, lack of available capital and financing for office properties, inflationary pressures, government policies (including the potential reduction of U.S. federal office leases) and ongoing concerns that the U.S. economy may enter an economic recession."
As of the petition date, OPI carried total funded debt of approximately $2.421 billion, including $1.753 billion in secured debtor debt. The proposed restructuring would dramatically reduce the company's balance sheet liabilities to approximately $1.3 billion.
The company's debt structure includes a $425 million credit facility, $300 million in March 2029 Notes bearing 9.000% interest, $610 million in September 2029 Notes also at 9.000%, $418 million in March 2027 Notes at 3.250%, and approximately $491.1 million in unsecured debt.
Terms and Economics of the DIP Facility
The proposed DIP facility carries a fixed interest rate of 12.00% per annum, payable in cash. In addition to interest, the facility includes three categories of fees, all of which can be paid in equity at the company's election:
- An upfront fee of 2.25% of commitments
- An exit fee of 5.75% of loans paid or commitments terminated
- An anchor capital commitment fee of 10.00% of aggregate commitments
The anchor capital commitment fee was required to induce the DIP lenders to backstop the full amount of the facility. The motion notes that "During negotiations with the DIP Lenders, the Debtors insisted that the opportunity to participate in the DIP Facility be opened to as many holders of September 2029 Notes as possible; however, the Debtors also wanted certainty that the total amount of the DIP Facility would be available, which necessitated the inclusion of the Anchor Capital Commitment Fee."
The DIP facility will be secured by first-priority liens on the company's unencumbered properties and junior liens on encumbered properties, subordinate to existing secured creditors. The facility matures 185 days after the petition date, though it can be extended with consent.
Comprehensive Restructuring Support Agreement
Concurrent with its bankruptcy filing, OPI entered into a Restructuring Support Agreement with the September 2029 Ad Hoc Group and The RMR Group LLC, which provides management services to the company. The RSA provides a comprehensive framework for the restructuring, including:
- Funding the Chapter 11 cases through the backstopped $125 million DIP facility
- Equitization of up to the full DIP facility amount at a 37% discount to plan equity value
- Issuance of up to $420 million in secured exit notes to fund recoveries to September 2029 Notes holders
- An equity rights offering open to various noteholder groups
- A separate $25 million equity rights offering for unsecured noteholders
The restructuring is designed to substantially delever the company's balance sheet while providing a clear path to emergence from bankruptcy.
Need for Immediate Liquidity
The company emphasized the urgent need for both the DIP facility and access to cash collateral. With only approximately $29.0 million in cash on hand as of the petition date, the company stated: "Without the combined access to the DIP Facility and ability to use Cash Collateral, current and anticipated liquidity in the form of Cash Collateral is insufficient to cover the Debtors' operating expenses."
The motion stressed that the company needs the liquidity to "pay Chapter 11 administrative expenses; Provide adequate protection payments to use Cash Collateral; Demonstrate to tenants, vendors, and suppliers that they can maintain operations; Fund operating expenses and necessary capital expenditures."
Without access to the DIP facility and cash collateral, the motion warned, "the Debtors would soon be unable to pay their vendors and service providers or to comply with the terms of their leases, resulting in (a) value-destructive interruption to their businesses; and (b) the loss of support from parties upon whom the Debtors' businesses depend."
Business Operations and Structure
Office Properties Income Trust operates as a REIT formed in 2009 under Maryland law. The company's portfolio includes properties leased to over 220 tenants, including government entities. Notably, the company has no employees of its own and instead relies entirely on The RMR Group LLC for personnel and services pursuant to business management and property management agreements.
The company's properties have been significantly affected by the broader shift in office space utilization that accelerated during and after the COVID-19 pandemic. This trend, combined with higher interest rates and a lack of available financing for office properties, has created what the motion describes as a "perfect storm" of challenges for the company.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 65 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.