Item 1.01 Entry into a Material Definitive Agreement.
On April 20, 2023, we entered into the Tenth Amendment (the “Amendment”) to our U.S. credit agreement with Mercedes-Benz Financial Services USA LLC and Toyota Motor Credit Corporation (as amended, the “U.S. Credit Agreement”) principally to increase the facility borrowing capacity from $800 million to $1.2 billion, add an additional lender, Daimler Truck Financial Services USA LLC, and provide us with additional flexibility in regard to the operating covenants discussed below.
As amended, the U.S. Credit Agreement provides for up to $1.2 billion in revolving loans for working capital, acquisitions, capital expenditures, investments and other general corporate purposes, and provides up to an additional $75.0 million of letters of credit. The U.S. Credit Agreement now provides for a maximum of $400.0 million of borrowings for foreign acquisitions and expires on September 30, 2025. The interest rate on revolving loans has transitioned from LIBOR based loans to Secured Overnight Financing Rate based loans (SOFR) but the interest rate is expected to be unchanged from the previous rates of LIBOR plus 1.50%, subject to an incremental 1.50% for uncollateralized borrowings in excess of a defined borrowing base.
The U.S. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by substantially all of our U.S. subsidiaries and contains a number of significant operating covenants that, among other things, restrict our ability to dispose of assets, incur additional indebtedness, repay certain other indebtedness, pay dividends, create liens on assets, make investments or acquisitions, and engage in mergers or consolidations. We are also required to comply with specified financial and other tests and ratios, each as defined in the U.S. Credit Agreement, including a ratio of current assets to current liabilities, a fixed charge coverage ratio, a ratio of debt to stockholders’ equity, and a ratio of debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”). A breach of these requirements would give rise to certain remedies under the U.S. Credit Agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed.
The U.S. Credit Agreement also contains typical events of default, including change of control, non-payment of obligations, and cross-defaults to our other material indebtedness. Substantially all of our U.S. assets are subject to security interests granted to the lenders under the U.S. Credit Agreement. We purchase motor vehicles from affiliates of Mercedes-Benz Financial Services USA LLC, Daimler Truck Financial Services USA LLC and Toyota Motor Credit Corporation for sale at certain of our dealerships. The lenders also provide us and certain of our dealerships with mortgage, “floor-plan”, and consumer financing.
The foregoing description of the Amendment is qualified in its entirety by references to the Amendment, a copy of which is filed as an exhibit and incorporated by reference herein.