Annual report pursuant to Section 13 and 15(d)

Long-Term Debt (Tables)

v3.22.0.1
Long-Term Debt (Tables)
 12 Months Ended
Dec. 31, 2021
Debt Disclosure [Abstract]  
Future Maturities of Long-Term Debt
Future maturities of long-term debt are as follows:
Principal
Year Ending December 31, (In millions)
2022 $ 50.6 
2023 76.1 
2024 118.2 
2025 88.6 
2026 30.2 
Thereafter 1,222.4 
Total $ 1,586.1 
Debt Instrument [Line Items]  
Financial Covenants Include Required Specified Ratios
We were in compliance with the financial covenants under the 2021 Credit Facilities and the 2019 Mortgage Facility as of December 31, 2021. Financial covenants include required specified ratios (as each is defined in the 2021 Credit Facilities and the 2019 Mortgage Facility) of:
Covenant
Minimum
Consolidated
Liquidity
Ratio
Minimum
Consolidated
Fixed Charge
Coverage
Ratio
Maximum
Consolidated
Total Lease
Adjusted Leverage
Ratio
Required ratio 1.05  1.20  5.75 
December 31, 2021 actual 1.26  2.69  2.46 
Summary of Interest Received and Paid under Term of Cash Flow Swap
Notional Amount Cap Rate (1) Receive Rate (1) (2) Start Date Maturing Date
(In millions)
$ 225.0  3.000% one-month LIBOR July 1, 2020 June 30, 2021
$ 150.0  2.000% one-month LIBOR July 1, 2020 July 1, 2021
$ 250.0  3.000% one-month LIBOR July 1, 2021 July 1, 2022
(1)Under these interest rate caps, no payment from the counterparty will occur unless the stated receive rate exceeds the stated cap rate, in which case a net payment to us from the counterparty, based on the spread between the receive rate and the cap rate, will be recognized as a reduction of interest expense, other, net in the accompanying consolidated statements of operations.
(2)The one-month LIBOR rate was approximately 0.101% at December 31, 2021.
Long-Term Debt
Long-term debt consists of the following:
December 31, 2021 December 31, 2020
(In millions)
2021 Revolving Credit Facility (1) $ —  $ — 
6.125% Senior Subordinated Notes due 2027 (the “6.125% Notes”) —  250.0 
4.625% Senior Notes due 2029 (the “4.625% Notes”) 650.0  — 
4.875% Senior Notes due 2031 (the “4.875% Notes”) 500.0  — 
2019 Mortgage Facility (2) 90.0  100.9 
Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03% 213.4  212.1 
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR 132.8  164.9 
   Subtotal $ 1,586.2  $ 727.9 
Debt issuance costs (24.9) (7.9)
Total debt 1,561.3  720.0 
Less current maturities (50.6) (68.2)
Long-term debt $ 1,510.7  $ 651.8 
(1)The interest rate on the 2021 Revolving Credit Facility (as defined below) was 100 and 150 basis points above LIBOR at both December 31, 2021 and 2020. The balance as of December 31, 2020 was under the Company’s prior revolving credit facility, which was replaced by the 2021 Revolving Credit Facility.
(2)The interest rate on the 2019 Mortgage Facility (as defined below) was 150 basis points above LIBOR at both December 31, 2021 and 2020.
Debt Disclosure [Text Block] Long-Term Debt
Long-term debt consists of the following:
December 31, 2021 December 31, 2020
(In millions)
2021 Revolving Credit Facility (1) $ —  $ — 
6.125% Senior Subordinated Notes due 2027 (the “6.125% Notes”) —  250.0 
4.625% Senior Notes due 2029 (the “4.625% Notes”) 650.0  — 
4.875% Senior Notes due 2031 (the “4.875% Notes”) 500.0  — 
2019 Mortgage Facility (2) 90.0  100.9 
Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03% 213.4  212.1 
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR 132.8  164.9 
   Subtotal $ 1,586.2  $ 727.9 
Debt issuance costs (24.9) (7.9)
Total debt 1,561.3  720.0 
Less current maturities (50.6) (68.2)
Long-term debt $ 1,510.7  $ 651.8 
(1)The interest rate on the 2021 Revolving Credit Facility (as defined below) was 100 and 150 basis points above LIBOR at both December 31, 2021 and 2020. The balance as of December 31, 2020 was under the Company’s prior revolving credit facility, which was replaced by the 2021 Revolving Credit Facility.
(2)The interest rate on the 2019 Mortgage Facility (as defined below) was 150 basis points above LIBOR at both December 31, 2021 and 2020.
Future maturities of long-term debt are as follows:
Principal
Year Ending December 31, (In millions)
2022 $ 50.6 
2023 76.1 
2024 118.2 
2025 88.6 
2026 30.2 
Thereafter 1,222.4 
Total $ 1,586.1 

2021 Credit Facilities
On April 14, 2021, we entered into an amended and restated syndicated revolving credit facility (the “2021 Revolving Credit Facility”) and amended and restated syndicated new and used vehicle floor plan credit facilities (the “2021 Floor Plan Facilities” and, together with the 2021 Revolving Credit Facility, the “2021 Credit Facilities”). The amendment and restatement of the 2021 Credit Facilities extended the scheduled maturity dates to April 14, 2025. On October 8, 2021, we entered into an amendment to the 2021 Credit Facilities (the “Credit Facility Amendment”) to, among other things: (1) increase the aggregate commitments under the 2021 Revolving Credit Facility to the lesser of $350.0 million (which may be increased at the Company’s option up to $400.0 million upon satisfaction of certain conditions) and the applicable revolving borrowing base, and the 2021 Floor Plan Facilities to $2.6 billion (which, under certain conditions, may be increased at the Company’s option up to $2.85 billion that may be allocated between the new vehicle revolving floor plan facility and the used vehicle revolving floor plan facility the comprise the 2021 Floor Plan Facilities as the Company requests, with no more than 40% of the aggregate commitments allocated to the commitments under the used vehicle floor plan facility); and (2) permit the issuance of the 4.625% Notes and the 4.875% Notes.
Our obligations under the 2021 Credit Facilities are guaranteed by us and certain of our subsidiaries and are secured by a pledge of substantially all of our and our subsidiaries’ assets. As of the dates presented in the accompanying consolidated financial statements, the amounts outstanding under the 2021 Credit Facilities bear interest at variable rates based on specified percentages above LIBOR. We have agreed under the 2021 Credit Facilities not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the 2021 Credit Facilities), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2021 Credit Facilities contain certain negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the 2021 Credit Facilities permit quarterly cash dividends on our Class A and Class B Common Stock up to $0.25 per share so long as no Event of Default (as defined in the 2021 Credit Facilities) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2021 Credit Facilities.
6.125% Notes
On March 10, 2017, we issued $250.0 million in aggregate principal amount of unsecured senior subordinated 6.125% Notes, which were scheduled to mature on March 15, 2027. On October 28, 2021, Sonic redeemed all of the outstanding 6.125% Notes using a portion of the net proceeds from the issuance and sale of the 4.625% Notes and the 4.875% Notes (as described below). Sonic paid approximately $263.2 million in cash, including an early redemption premium and accrued and unpaid interest, to extinguish the 6.125% Notes and recognized a loss of approximately $15.6 million on the repurchase of the 6.125% Notes, recorded in other income (expense), net in the accompanying consolidated statements of operations.
4.625% Notes
On October 27, 2021, we issued $650.0 million in aggregate principal amount of 4.625% Notes, which will mature on November 15, 2029. Sonic used the net proceeds from the issuance of the 4.625% Notes to fund the RFJ Acquisition and repay existing debt.
The 4.625% Notes were issued under an Indenture, dated as of October 28, 2021 (the “2029 Indenture”), by and among the Company, certain subsidiary guarantors named therein (collectively, the "Guarantors") and U.S. Bank National Association, as trustee (the “trustee”). The 4.625% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company's operating domestic subsidiaries. The parent company has no independent
assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered minor. The 2029 Indenture provides that interest on the 4.625% Notes will be payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2029 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature.
The 4.625% Notes will be redeemable at the Company's option, in whole or in part, at any time on or after November 15, 2024 at the redemption prices (expressed as percentages of the principal amount thereof) set forth below, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date, if redeemed during the 12-month period beginning on November 15 of the years set forth below:
Redemption Price
2024 102.313  %
2025 101.156  %
2026 100.000  %
Before November 15, 2024, the Company may redeem all or a part of the 4.625% Notes, subject to payment of a make-whole premium. In addition, the Company may redeem on or before November 15, 2024 up to an aggregate of 35% of the aggregate principal of the 4.625% Notes at a price equal to 104.625% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, with the net cash proceeds from certain equity offerings.
4.875% Notes
On October 27, 2021, we issued $500.0 million in aggregate principal amount of 4.875% Notes, which will mature on November 15, 2031. The 4.875% Notes were issued at a price of 100% of the principal amount thereof. Sonic used the net proceeds from the issuance of the 4.875% Notes to fund the purchase price for the RFJ Acquisition and repay existing debt.
The 4.875% Notes were issued under an Indenture, dated as of October 28, 2021 (the “2031 Indenture”), by and among the Company, the Guarantors and the trustee. The 4.875% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company's operating domestic subsidiaries. The parent company has no independent assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered minor. The 2031 Indenture provides that interest on the 4.875% Notes will be payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2031 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature.
The 4.875% Notes will be redeemable at the Company's option, in whole or in part, at any time on or after November 15, 2026 at the redemption prices (expressed as percentages of the principal amount thereof) set forth below, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date, if redeemed during the 12-month period beginning on November 15 of the years set forth below:
Year Redemption Price
2026 102.438  %
2027 101.625  %
2028 100.813  %
2029 100.000  %
Before November 15, 2026, the Company may redeem all or a part of the 4.875% Notes, subject to payment of a make-whole premium. In addition, the Company may redeem on or before November 15, 2024 up to an aggregate of 35% of the aggregate principal of the 4.875% Notes at a price equal to 104.875% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, with the net cash proceeds from certain equity offerings.
2019 Mortgage Facility
On November 22, 2019, we entered into a delayed draw-term loan credit agreement, which is scheduled to mature on November 22, 2024 (the “2019 Mortgage Facility”). On October 11, 2021, we entered into an amendment of the 2019 Mortgage Facility to permit the issuance of the 4.625% Notes and the 4.875% Notes.
Under the 2019 Mortgage Facility, Sonic has a maximum borrowing limit of $112.2 million, which varies based on the appraised value of the collateral underlying the 2019 Mortgage Facility. The amount available for borrowing under the 2019
Mortgage Facility is subject to compliance with a borrowing base. The borrowing base is calculated based on 75% of the appraised value of certain eligible real estate designated by Sonic and owned by certain of our subsidiaries. Based on balances as of December 31, 2021, we had approximately $90.0 million of outstanding borrowings under the 2019 Mortgage Facility, resulting in total remaining borrowing availability of approximately $22.2 million under the 2019 Mortgage Facility.
Amounts outstanding under the 2019 Mortgage Facility bear interest at (1) a specified rate above LIBOR (as defined in the 2019 Mortgage Facility), ranging from 1.50% to 2.75% per annum according to a performance-based pricing grid determined by the Company’s Consolidated Total Lease Adjusted Leverage Ratio (as defined in the 2019 Mortgage Facility) as of the last day of the immediately preceding fiscal quarter (the “Performance Grid”); or (2) a specified rate above the Base Rate (as defined in the 2019 Mortgage Facility), ranging from 0.50% to 1.75% per annum according to the Performance Grid. Interest on the 2019 Mortgage Facility is paid monthly in arrears calculated using the Base Rate plus the Applicable Rate (as defined in the 2019 Mortgage Facility) according to the Performance Grid. Repayment of principal is paid quarterly commencing on March 31, 2020 through September 30, 2024 at a rate of 2.50% of the aggregate initial principal amount. A balloon payment of the remaining balance will be due at the November 22, 2024 maturity date. Prior to the November 22, 2024 maturity date, the Company reserves the right to prepay the principal amount outstanding at any time without premium or penalty provided the prepayment amount exceeds $0.5 million.
The 2019 Mortgage Facility contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the 2019 Mortgage Facility permits quarterly cash dividends on our Class A and Class B Common Stock up to $0.25 per share so long as no Event of Default (as defined in the 2019 Mortgage Facility) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2019 Mortgage Facility.
Mortgage Notes to Finance Companies
As of December 31, 2021, the weighted-average interest rate of other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was 3.50% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately $346.2 million. These mortgage notes require monthly payments of principal and interest through their respective maturities, are secured by the underlying properties and contain certain cross-default provisions. Maturity dates for these mortgage notes range between 2022 to 2033.
2020 Line of Credit Facility
On June 23, 2020, we entered into a line of credit agreement with Ally Bank (the “2020 Line of Credit Facility”), which was scheduled to mature on June 19, 2022. On October 1, 2021, Sonic terminated the 2020 Line of Credit Facility.
Covenants
We have agreed under the 2021 Credit Facilities and the 2019 Mortgage Facility not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the 2021 Credit Facilities and the 2019 Mortgage Facility), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2021 Credit Facilities and the 2019 Mortgage Facility contain certain negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions.
We were in compliance with the financial covenants under the 2021 Credit Facilities and the 2019 Mortgage Facility as of December 31, 2021. Financial covenants include required specified ratios (as each is defined in the 2021 Credit Facilities and the 2019 Mortgage Facility) of:
Covenant
Minimum
Consolidated
Liquidity
Ratio
Minimum
Consolidated
Fixed Charge
Coverage
Ratio
Maximum
Consolidated
Total Lease
Adjusted Leverage
Ratio
Required ratio 1.05  1.20  5.75 
December 31, 2021 actual 1.26  2.69  2.46 
The 2021 Credit Facilities and the 2019 Mortgage Facility contain events of default, including cross defaults to other material indebtedness, change of control events and other events of default customary for syndicated commercial credit facilities. Upon the future occurrence of an event of default, we could be required to immediately repay all outstanding amounts under the 2021 Credit Facilities and the 2019 Mortgage Facility.
After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of December 31, 2021, we had approximately $399.8 million of net income and retained earnings free of such restrictions. We were in compliance with all restrictive covenants as of December 31, 2021.
In addition, many of our facility leases are governed by a guarantee agreement between the landlord and us that contains financial and operating covenants. The financial covenants under the guarantee agreement are identical to those under the 2021 Credit Facilities and the 2019 Mortgage Facility with the exception of one additional financial covenant related to the ratio of EBTDAR to Rent (as defined in the guarantee agreement) with a required ratio of no less than 1.50 to 1.00. As of December 31, 2021, the ratio was 12.05 to 1.00. 
Derivative Instruments and Hedging Activities
As of both December 31, 2021 and 2020, we had interest rate cap agreements designated as hedging instruments to limit our exposure to increases in LIBOR rates above certain levels. Under the terms of these interest rate cap agreements, interest rates reset monthly. The total unamortized premium amounts related to the outstanding interest rate caps were approximately $0.7 million and $2.2 million as of December 31, 2021 and 2020, respectively, and will be amortized into income as a reduction of interest expense, other, net in the accompanying consolidated statements of operations over the remaining term of the interest rate cap agreements. The fair value of the outstanding interest rate cap positions at December 31, 2021 and 2020 were not material to the accompanying consolidated balance sheets as of such dates. 
Notional Amount Cap Rate (1) Receive Rate (1) (2) Start Date Maturing Date
(In millions)
$ 225.0  3.000% one-month LIBOR July 1, 2020 June 30, 2021
$ 150.0  2.000% one-month LIBOR July 1, 2020 July 1, 2021
$ 250.0  3.000% one-month LIBOR July 1, 2021 July 1, 2022
(1)Under these interest rate caps, no payment from the counterparty will occur unless the stated receive rate exceeds the stated cap rate, in which case a net payment to us from the counterparty, based on the spread between the receive rate and the cap rate, will be recognized as a reduction of interest expense, other, net in the accompanying consolidated statements of operations.
(2)The one-month LIBOR rate was approximately 0.101% at December 31, 2021.
The interest rate caps are designated as cash flow hedges, and the changes in the fair value of these instruments are recorded in total other comprehensive income (loss) before taxes in the accompanying consolidated statements of comprehensive operations and are disclosed in the supplemental schedule of non-cash financing activities in the accompanying consolidated statements of cash flows. There was no incremental interest income (the excess of interest received over interest paid) related to the interest rate caps for 2021. There was no incremental interest income related to the interest rate caps for 2020 and approximately $1.2 million for 2019, and is included as a reduction of interest expense, other, net in the accompanying consolidated statements of operations, and the interest amount is disclosed in the supplemental disclosures of cash flow information in the accompanying consolidated statements of cash flows. There is no estimated net benefit expected to be reclassified out of accumulated other comprehensive income (loss) into results of operations during the next 12 months related to previously terminated interest rate swap financial instruments.