Aarons 2015 Annual Report Download - page 75

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The revolving credit and term loan agreement, senior unsecured notes discussed below and franchise loan program discussed in Note 9 contain financial
covenants. These covenants include requirements that the Company maintain ratios of (i) EBITDA plus lease expense to fixed charges of no less than 1.75 to
1.00 through December 31, 2015 and 2.00 to 1.00 thereafter and (ii) total debt to EBITDA of no greater than 3.25 to 1.00 through December 31, 2015 and
3.00 to 1.00 thereafter. In each case, EBITDA refers to the Company’s consolidated net income before interest and tax expense, depreciation (other than lease
merchandise depreciation), amortization expense and other non-cash charges. On September 21, 2015, the Company amended the revolving credit and term
loan agreement to, among other things, exclude DAMI financial information from the calculation of financial debt covenants.
If the Company fails to comply with these covenants, the Company will be in default under these agreements, and all amounts would become due
immediately. Under the Company’s revolving credit and term loan agreement, senior unsecured notes and franchise loan program, the Company may pay
cash dividends in any year so long as, after giving pro forma effect to the dividend payment, the Company maintains compliance with its financial covenants
and no event of default has occurred or would result from the payment.
At December 31, 2015, the Company was in compliance with all covenants related to the revolving credit and term loan agreement, senior unsecured notes
and franchise loan program.
Senior Unsecured Notes
2011 Note Purchase Agreement
Pursuant to the note purchase agreement dated as of July 5, 2011, as amended, the Company and certain of its subsidiaries as co-obligors previously issued
$125.0 million in senior unsecured notes to the purchasers in a private placement. The notes bear interest at a rate of 3.95% per year and mature on April 27,
2018. Payments of interest commenced on July 27, 2011 and are due quarterly, and principal payments of $25.0 million commenced on April 27, 2014 and
are due annually until maturity.
On April 14, 2014, the Company entered into the third amendment which revised the 2011 note purchase agreement to, among other things, replace the
interest rate of 3.75% per year with an interest rate of 3.95% commencing April 28, 2014, conform the covenants, representations, warranties and events of
default to the changes reflected in the revolving credit and term loan agreement, to contemplate the acquisition of Progressive and to authorize the new 2014
senior unsecured notes.
2014 Note Purchase Agreements
On April 14, 2014, the Company entered into note purchase agreements, as amended, pursuant to which the Company and certain of its subsidiaries as co-
obligors issued $300.0 million in aggregate principal amount of senior unsecured notes in a private placement. The notes bear interest at the rate of 4.75%
per year and mature on April 14, 2021. Payments of interest are due quarterly, commencing July 14, 2014, with principal payments of $60.0 million each due
annually commencing April 14, 2017.
On September 21, 2015, the Company entered into the fifth amendment to the 2011 note purchase agreement and the second amendment to the 2014 note
purchase agreements to, among other things, exclude DAMI financial information from the calculation of financial debt covenants.
Capital Leases with Related Parties
As of December 31, 2015, the Company had 19 remaining capital leases with a limited liability company ("LLC") controlled by a group of current and former
executives. In October and November 2004, the Company sold 11 properties, including leasehold improvements, to the LLC. The LLC obtained borrowings
collateralized by the land and buildings totaling $6.8 million. The Company occupies the land and buildings collateralizing the borrowings under a 15-year
term lease, with a five-year renewal at the Company’s option, at an aggregate annual rental of $788,000. The transaction has been accounted for as a
financing in the accompanying consolidated financial statements. The rate of interest implicit in the leases is approximately 9.7%. Accordingly, the land and
buildings, associated depreciation expense and lease obligations are recorded in the Company’s consolidated financial statements. No gain or loss was
recognized in this transaction.
In December 2002, the Company sold 10 properties, including leasehold improvements, to the LLC. The LLC obtained borrowings collateralized by the land
and buildings totaling $5.0 million. The Company occupies the land and buildings collateralizing the borrowings under a 15-year term lease at an aggregate
annual rental of approximately $1.2 million. The transaction has been accounted for as a financing in the accompanying consolidated financial statements.
The rate of interest implicit in the leases is approximately 10.1%. Accordingly, the land and buildings, associated depreciation expense and lease obligations
are recorded in the Company’s consolidated financial statements. No gain or loss was recognized in this transaction.
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