AutoNation 2015 Annual Report Download - page 76

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Table of Contents
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Our senior unsecured notes and borrowings under our credit agreement are guaranteed by substantially all of our 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.
Other Long-Term Debt
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. See Note 8 of the
Notes to Consolidated Financial Statements for more information related to capital lease obligations.
Commercial Paper
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.
Restrictions and Covenants
Our credit agreement, the indentures for our senior unsecured notes, our vehicle floorplan facilities, and our mortgage facility contain numerous customary
financial and operating covenants that place significant 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 indentures for our senior unsecured notes contain certain limited covenants, including limitations on liens and sale and leaseback transactions. Our
mortgage facility contains covenants regarding maximum cash flow leverage and minimum interest coverage.
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