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Item 1.01.
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Entry Into a Material Definitive Agreement.
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Indenture and 4.375% Senior Notes due 2031
On October 9, 2020, Lithia Motors, Inc. (the “Company”) completed a private offering of $550 million aggregate principal amount of its 4.375% Senior Notes due 2031 (the “Senior Notes”) that was exempt from the registration requirements of the Securities Act of 1933, as amended.
The Senior Notes were issued pursuant to an indenture dated as of October 9, 2020 (the “Indenture”), among the Company, U.S. Bank National Association, as trustee (the “Trustee”), and the subsidiary guarantors named therein (the “Guarantors”). The Senior Notes will be unconditionally guaranteed on a senior unsecured basis by each of the Company’s existing and future restricted subsidiaries that is a borrower under or that guarantees obligations under the Company’s credit facility or certain other capital markets indebtedness of the Company or any subsidiary guarantor.
The Senior Notes will be the Company’s senior unsecured obligations, will rank equally in right of payment with all of the Company’s existing and future senior debt, be effectively subordinated to any of the Company’s existing and future secured debt to the extent of the value of the assets securing such debt, rank senior in right of payment to all of the Company’s existing and future subordinated debt and be structurally subordinated to all of the existing and future liabilities of each of the Company’s subsidiaries that do not guarantee the Senior Notes.
The Senior Notes will bear interest from October 9, 2020 at an annual rate of 4.375%, payable semi-annually on each January 15 and July 15 during which the Senior Notes are outstanding, commencing on January 15, 2021. The Senior Notes will mature on January 15, 2031. The Company may redeem the Senior Notes in whole or in part, on or after October 15, 2025, at the redemption prices set forth in the Indenture. Prior to October 15, 2025, the Company may redeem the Senior Notes, in whole or in part, at a price equal to 100% of the principal amount thereof plus a “make-whole” premium set forth in the Indenture. In addition, prior to October 15, 2023, the Company may redeem up to 40% of the Senior Notes with funds in an aggregate amount up to the net proceeds of certain equity offerings. Upon certain change of control events (as set forth in the Indenture), the holders of the Senior Notes may require the Company to repurchase all or a portion of the Senior Notes at a purchase price of 101% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase.
The terms of the Indenture, among other things, limit the ability of the Company and its restricted subsidiaries to (i) incur additional indebtedness and guarantee indebtedness, (ii) pay dividends or make other distributions or repurchase or redeem capital stock, (iii) prepay, redeem or repurchase certain debt, (iv) issue certain preferred stock or similar equity securities, (v) make loans and investments, (vi) sell assets, (vii) incur liens, (viii) enter into transactions with affiliates, (ix) enter into agreements restricting the Company’s non-guarantor subsidiaries’ ability to pay dividends and (x) consolidate, merge or sell all or substantially all of the Company’s assets. These covenants are subject to a number of important exceptions and qualifications. The Indenture provides for customary events of default which include, among other things, (subject in certain cases to customary grace and cure periods) defaults based on: (i) the failure to make payments under the Indenture when due, (ii) breach of covenants, (iii) acceleration of other material indebtedness, (iv) bankruptcy or insolvency events and (v) material judgments. Generally, if an event of default occurs, the trustee or the holders of at least 30% in principal amount of the then outstanding Senior Notes may declare all of the Senior Notes to be due and payable, or, in certain circumstances, the Senior Notes automatically will become due and payable immediately.
The Trustee and its affiliates maintain relationships in the ordinary course of business with the Company and its subsidiaries, including the provision of commercial banking, investment banking, trustee and/or other financial services.
A copy of the Indenture is set forth as Exhibit 4.1 to this Current Report on Form 8-K, and is incorporated herein by reference. The descriptions of the Indenture and the Senior Notes (a form of which is attached as an exhibit to the Indenture) in this report are only summaries and are qualified in their entirety by reference to the actual terms of the Indenture and the Senior Notes, respectively.