AutoNation 2006 Annual Report Download - page 57

Table of Contents
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shares of the Company’s common stock at $23 per share for an aggregate purchase price of $1.15 billion pursuant to the Company’s
equity tender offer, (2) purchase $309.4 million aggregate principal of the Company’s 9% senior unsecured notes for an aggregate total
consideration of $339.8 million pursuant to the Company’s debt tender offer and consent solicitation, and (3) pay related financing costs.
Approximately $34.5 million of tender premium and other financing costs related to the Company’s debt tender offer was expensed during
2006.
As discussed above, in April 2006 the Company purchased $309.4 million aggregate principal amount of the 9% senior notes. The
9% senior unsecured notes are guaranteed by substantially all of the Company’s subsidiaries. As of April 12, 2006, covenants related to
the 9% senior unsecured notes were substantially eliminated as a result of the successful completion of the consent solicitation. The
remaining aggregate principal amount of 9% senior unsecured notes was not tendered for purchase and, accordingly, remains outstanding
after completion of the transaction.
During 2005 and 2004, the Company repurchased $123.1 million and $3.4 million (face value) of its 9.0% senior unsecured notes
at an average price of 110.5% and 114.3% of face value or $136.0 million and $3.9 million, respectively. The premium paid and
financing costs of $17.4 million and $.6 million, respectively, were recognized as Other Interest Expense — Senior Note Repurchases in
the accompanying 2005 and 2004 Consolidated Income Statements.
At December 31, 2006, the Company had $116.0 million outstanding under a mortgage facility with an automotive manufacturer’s
captive finance subsidiary. The facility, which utilizes LIBOR-based interest rates, averaged 6.4% and 5.2% for 2006 and 2005,
respectively. The mortgage facility is secured by mortgages on certain of the Company’s store properties.
The Company’s new senior unsecured notes, amended credit agreement and mortgage facility contain numerous customary financial
and operating covenants that place significant restrictions on the Company, including the Company’s ability to incur additional
indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell (or otherwise dispose of) assets and merge or
consolidate with other entities. The indenture for the Company’s new senior unsecured notes restricts the Company’s ability to make
payments in connection with share repurchases, dividends, debt retirement, investments and similar matters to a cumulative aggregate
amount that is limited to $500 million plus 50% of the Company’s cumulative consolidated net income (as defined in the indenture),
subject to certain exceptions and conditions set forth in the indenture. The amended credit agreement requires the Company to meet certain
financial ratios, including financial covenants, as defined, requiring the maintenance of a maximum consolidated cash flow leverage
ratio, as defined, (2.75 times) and a maximum capitalization ratio (65%), as defined. In addition, the indenture for the new senior
unsecured notes contains a debt incurrence restriction based on a minimum fixed charge coverage ratio (2:1), and the mortgage facility
contains covenants regarding maximum cash flow leverage and minimum interest coverage. In the event that the Company were to default
in the observance or performance of any of the financial covenants in the amended credit agreement or mortgage facility and such default
were to continue beyond any cure period or waiver, the lender under the respective facility could elect to terminate the facilities and declare
all outstanding obligations under such facilities immediately payable. The Company’s amended credit agreement, the indenture for the
Company’s new senior unsecured notes, vehicle floorplan payable facilities and mortgage facility have cross-default provisions that
trigger a default in the event of an uncured default under other material indebtedness of the Company. In connection with the issuance of
the new senior unsecured notes, in November 2006, the Company completed an exchange offer registered with the SEC pursuant to which
the senior unsecured notes were exchanged for substantially similar new notes that are not subject to certain transfer restrictions. As of
December 31, 2006, the Company was in compliance with the requirements of all applicable financial and operating covenants.
The Company’s senior unsecured notes and borrowings under the amended credit agreement are guaranteed by substantially all of
the Company’s subsidiaries. Within the meaning of Regulation S-X, Rule 3-10, AutoNation, Inc. (the parent company) has no
independent assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries
other than the guarantor subsidiaries are minor.
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