AutoNation 2015 Annual Report Download - page 49

Table of Contents
under the revolving credit facility of $1.8 billion at December 31, 2015. As of December 31, 2015, this borrowing capacity was limited under the maximum
consolidated leverage ratio contained in our credit agreement to $1.5 billion.
Funds borrowed under our credit agreement may be used to repay indebtedness, finance acquisitions, and for working capital, capital expenditures, share
repurchases, and other general corporate purposes.
Our revolving credit facility provides for a commitment fee on undrawn amounts ranging from 0.175% to 0.25% and interest on borrowings at LIBOR or
the base rate, in each case plus an applicable margin. The applicable margin ranges from 1.25% to 1.625% for LIBOR borrowings and 0.25% to 0.625% for
base rate borrowings. The interest rate charged for our revolving credit facility is affected by our leverage ratio. For instance, an increase in our leverage ratio
from greater than or equal to 2.0x but less than 3.25x to greater than or equal to 3.25x would result in a 12.5 basis point increase in the interest rate.
Borrowings under the credit agreement are guaranteed by substantially all of our subsidiaries.
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At December 31, 2015, we had $175.7 million outstanding under a mortgage facility with an automotive manufacturer’s captive finance subsidiary that
matures on November 30, 2017. The mortgage facility utilizes a fixed interest rate of 5.864% and is secured by 10-year mortgages on certain of our store
properties. The mortgage facility requires monthly principal and interest payments of $1.7 million based on a fixed amortization schedule with a balloon
payment of $155.4 million due November 2017. Repayment of the mortgage facility is subject to a prepayment penalty.
At December 31, 2015, we had capital lease and other debt obligations of $95.0 million, which are due at various dates through 2034.
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On May 22, 2015, we established a commercial paper program pursuant to which we may issue short-term, unsecured commercial paper notes on a private
placement basis up to a maximum aggregate amount outstanding at any time of $300.0 million. On August 4, 2015, we increased the maximum aggregate
principal amount that may be outstanding at any time to $1.0 billion. The interest rate for the commercial paper notes varies based on duration and market
conditions. The maturities of the commercial paper notes may vary, but may not exceed 397 days from the date of issuance. The commercial paper notes are
guaranteed by substantially all of our subsidiaries. Proceeds from the issuance of commercial paper notes are used to repay borrowings under the revolving
credit facility, to finance acquisitions and for working capital, capital expenditures, share repurchases and/or other general corporate purposes. We plan to use
the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under the commercial paper program. A downgrade in our
credit ratings could negatively impact our ability to issue, or the interest rates for, commercial paper notes.
At December 31, 2015, we had $599.5 million of commercial paper notes outstanding with a weighted-average annual interest rate of 0.92% and a
weighted-average remaining term of 20 days.
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Our credit agreement, the indentures for our senior unsecured notes, our vehicle floorplan facilities, and our mortgage facility contain customary financial
and operating covenants that place restrictions on us, including our ability to incur additional indebtedness or prepay existing indebtedness, to create liens
or other encumbrances, to sell (or otherwise dispose of) assets, and to merge or consolidate with other entities.
Under our credit agreement, we are required to remain in compliance with a maximum leverage ratio and maximum capitalization ratio. The leverage ratio
is a contractually defined amount principally reflecting non-vehicle debt divided by a contractually defined measure of earnings with certain adjustments.
The capitalization ratio is a contractually defined amount principally reflecting vehicle floorplan payable and non-vehicle debt divided by our total
capitalization including vehicle floorplan payable. Under our credit agreement, the maximum leverage ratio is 3.75x and the maximum capitalization ratio is
70.0%. In calculating our leverage and capitalization ratios, we are not required to include letters of credit in the definition of debt (except to the extent of
letters of credit in excess of $150.0 million). In addition, in calculating our capitalization ratio, we are permitted to add back to shareholders’ equity all
goodwill, franchise rights, and long-lived asset impairment charges subsequent to September 30, 2014 plus $1.53 billion. The specific terms of these
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