SAH » Topics » Risks Related to Our Indebtedness

This excerpt taken from the SAH 10-K filed Feb 29, 2008.

Risks Related to Our Indebtedness

STYLE="margin-top:12px;margin-bottom:0px">Our significant indebtedness could materially adversely affect our financial health, limit our ability to finance future acquisitions and capital expenditures and
prevent us from fulfilling our financial obligations.

As of December 31, 2007, our total outstanding indebtedness was $1,876.3
million, including the following:

 







  

$70.0 million under the 2006 Revolving Credit Sub-Facility (as defined below);

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$1,174.3 million under the secured new and used inventory floor plan facilities, including $48.6 million classified as liabilities associated with assets held for
sale;

 







  

$129.2 million in 5.25% convertible senior subordinated notes due 2009 (the “5.25% Convertibles”) representing $130.1 million in aggregate principal
amount outstanding less unamortized discount of approximately $0.9 million;

 







  

$157.6 million in 4.25% convertible senior subordinated notes due 2015, redeemable on or after November 30, 2010, (the “4.25% Convertibles”)
representing $160.0 million in aggregate principal amount outstanding less unamortized discount of approximately $2.4 million;

 







  

$272.8 million in 8.625% senior subordinated notes due 2013 (the “8.625% Notes”) representing $275.0 million in aggregate principal amount outstanding
less unamortized net discount of approximately $2.2 million; and

 







  

$72.4 million of other secured debt, representing $67.7 million in aggregate principal amount plus unamortized premium of approximately $4.0 million and plus $0.7
million for the fair value of fixed to variable interest rate swaps.

As of December 31, 2007, we had $205.2 million
available for additional borrowings under the 2006 Revolving Credit Sub-Facility. We also have significant additional capacity under new and used floor plan facilities. In addition, the indentures relating to our 8.625% Notes, 5.25% Convertibles,
4.25% Convertibles and our other debt instruments allow us to incur additional indebtedness, including secured indebtedness. We refer to the $350 million of availability under a revolving credit facility (“2006 Revolving Credit
Sub-Facility”), up to $700 million in borrowing availability for new vehicle inventory floor plan financing and up to $150 million in borrowing availability for used vehicle inventory floor plan financing collectively as our “2006 Credit
Facility”.

In addition, the majority of our dealership properties are leased under long-term operating lease arrangements that
generally have initial terms of fifteen to twenty years with one or two five-year renewal options. These operating leases require monthly payments of rent that may fluctuate based on interest rates and local consumer price indices. The total future
minimum lease payments related to these operating leases and certain equipment leases are significant and are disclosed in the notes to our financial statements under the heading “Commitments and Contingencies” in this Annual Report on
Form 10-K.

The degree to which we are leveraged could have important consequences to the holders of our securities, including the
following:

 







  

our ability to obtain additional financing for acquisitions, capital expenditures, working capital or general corporate purposes may be impaired in the future;

 







  

a substantial portion of our current cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the
funds available to us for our operations and other purposes;

 







  

some of our borrowings and facility leases are and will continue to be at variable rates of interest, which exposes us to the risk of increasing interest rates;

 







  

the indebtedness outstanding under our 2006 Credit Facility and other floor plan facilities are secured by a pledge of substantially all the assets of our
dealerships; and

 







  

we may be substantially more leveraged than some of our competitors, which may place us at a relative competitive disadvantage and make us more vulnerable to
changing market conditions and regulations.

In addition, our debt agreements contain numerous covenants that limit our
discretion with respect to business matters, including mergers or acquisitions, paying dividends, incurring additional debt, making capital expenditures or disposing of assets.

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