Business Context and Reporting Period
Company: Asbury Automotive Group, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 7, 2009
Event Date: May 7, 2009 (Amendments effective April 29, 2009)
Context: The Company entered into amendments to its Master Loan Agreement and Unconditional Guaranties with Wachovia Bank, National Association (WBNA) and Wachovia Financial Services, Inc. (WFSI).
Key Financial Metrics and Debt Structure
This filing does not report revenue, profit, cash flow, or margin figures. It focuses exclusively on debt covenants and facility terms.
- Debt Restriction Change: The previous total leverage ratio covenant of 5.00 to 1.00 has been eliminated.
- Permitted New Debt:
- Debt under the existing Revolving Credit Facility with Bank of America, N.A.
- A one-time real estate term loan not to exceed $12,000,000.
- Debt existing as of March 31, 2009, and renewals/extensions thereof.
- Floor plan debt.
- Covenant Definitions:
- EBITDA: Now excludes gains and losses on repurchases of long-term debt.
- Fixed Charges: Now excludes non-cash, non-floor plan interest expense and the cash portion of income taxes associated with gains on repurchases of long-term debt.
Material Changes Versus Prior Period
The primary material change is the relaxation of financial covenants and debt incurrence restrictions compared to the terms prior to April 29, 2009.
- Leverage Ratio: Removed entirely from the Guaranties (previously capped at 5.00:1.00).
- Debt Incurrence: Previously prohibited debt other than the Revolving Credit Facility; now explicitly permits a specific real estate term loan up to $12 million and existing debt renewals.
- Reinstatement Option: The Company retains the option to reinstate the total leverage ratio and prior debt restrictions at any time after April 30, 2010, upon 30 days' written notice.
Outlook, Risks, and Management Commentary
Management Commentary: The filing describes the amendments as technical adjustments to reflect the entry into the Revolving Credit Facility and strategic changes to leverage and debt definitions. No forward-looking guidance on sales or earnings is provided in this document.
Risks and Contingencies:
- The removal of the leverage ratio may increase financial risk if debt levels rise significantly without the previous covenant constraints.
- The ability to incur a new $12 million real estate term loan increases potential fixed obligations.
- The filing notes that the description of the agreements is qualified by the actual terms filed as Exhibits 10.1, 10.2, and 10.3.
Key Facts for Investor Verification
- Verify the exact terms of the $12,000,000 real estate term loan in the attached exhibits.
- Confirm the total amount of debt existing as of March 31, 2009, which is now grandfathered under the new terms.
- Review the impact of the new EBITDA and Fixed Charges definitions on future covenant compliance calculations.
- Monitor whether the Company exercises the option to reinstate leverage ratios after April 30, 2010.