Business Context and Reporting Period
This Form 8-K is filed by KAR Auction Services, Inc. (the "Company") on March 2, 2016. The report details a material definitive agreement entered into by Automotive Finance Corporation ("AFC"), a subsidiary of the Company, and AFC Funding Corporation, a special purpose subsidiary of AFC.
Key Financial Metrics and Agreements
The filing concerns an amendment to the Sixth Amended and Restated Receivables Purchase Agreement. Key financial terms include:
- Commitment Increase: The aggregate maximum commitment of the Purchasers (Fairway Finance, Deutsche Bank, Fifth Third, and Chariot Funding) was increased from $1.15 billion to $1.25 billion.
- Collateral: Finance receivables sold and a cash reserve serve as security for obligations to the Purchasers.
- Payment Source: Purchaser investments and returns are paid from collections of finance receivables held by AFC Funding.
Note: This filing does not provide specific revenue, profit, cash flow, margin, or liquidity figures for the Company or its subsidiaries.
Material Changes Versus Prior Period
The primary material change is the expansion of the financing facility capacity by $100 million through Amendment No. 1 to the existing Receivables Purchase Agreement dated June 16, 2015.
Outlook, Risks, and Contingencies
The agreement outlines specific termination events that could trigger the transfer of AFC Funding stock to the agent for the benefit of Purchasers or liquidation of receivables. These events include:
- Breaches of representations and warranties or failures to perform covenants.
- Violations of financial covenants, including limits on debt, minimum tangible net worth levels, and covenants in the Company's senior secured credit agreement.
- Defaults in payment of other indebtedness.
- Material adverse changes in the collectability of receivables or the financial condition of AFC/AFC Funding.
- Certain changes in control or bankruptcy events.
Related Party Transactions: Certain Purchasers and agents (including JPMorgan Chase, Fifth Third, and Deutsche Bank) provide financial advisory, investment banking, and commercial banking services to the Company and are lenders under the Company's credit agreement.
Investor Verification Checklist
- Verify the full text of Amendment No. 1, which will be filed as an exhibit to the Company's Form 10-Q for the quarter ended March 31, 2016.
- Review the specific financial covenants (debt limits, tangible net worth) that could trigger a termination event.
- Assess the impact of the increased $1.25 billion commitment on the Company's overall leverage and liquidity position.
- Confirm the status of the Company's senior secured credit agreement and any potential cross-default risks.