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Long-Term Debt | 9 Months Ended
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Sep. 30, 2014
Debt Disclosure [Abstract] |
Long-Term Debt | 6. Long-Term Debt Long-term debt consists of the following:
|  |  | September 30, 2014 |  |  | December 31, 2013 |  |
|  |  | (In thousands) |  |
| 2011 Revolving Credit Facility (1) |  | $ | - |  |  | $ | - |  |
| 2014 Revolving Credit Facility (2) |  |  | 9,779 |  |  |  | - |  |
| 7.0% Senior Subordinated Notes due 2022 (the "7.0% Notes") |  |  | 200,000 |  |  |  | 200,000 |  |
| 5.0% Senior Subordinated Notes due 2023 (the "5.0% Notes") |  |  | 300,000 |  |  |  | 300,000 |  |
| Notes payable to a finance company bearing interest from 9.52% to 10.52% (with |  |  |  |  |  |  |  |  |
| a weighted average of 10.19%) |  |  | 5,214 |  |  |  | 7,629 |  |
| Mortgage notes to finance companies-fixed rate, bearing interest from 3.51% to 7.03% |  |  | 149,364 |  |  |  | 157,571 |  |
| Mortgage notes to finance companies-variable rate, bearing interest |  |  |  |  |  |  |  |  |
| at 1.25 to 3.50 percentage points above one-month LIBOR |  |  | 115,990 |  |  |  | 79,893 |  |
| Net debt discount and premium (3) |  |  | (1,785 | ) |  |  | (1,800 | ) |
| Other |  |  | 4,919 |  |  |  | 5,080 |  |
| Total debt |  | $ | 783,481 |  |  | $ | 748,373 |  |
| Less current maturities |  |  | (24,018 | ) |  |  | (18,216 | ) |
| Long-term debt |  | $ | 759,463 |  |  | $ | 730,157 |  |
| (1) The interest rate on the 2011 Revolving Credit Facility was 2.00% above LIBOR at December 31, 2013. |  |
| (2) The interest rate on the 2014 Revolving Credit Facility was 2.25% above LIBOR at September 30, 2014. |  |
| (3) September 30, 2014 includes $1.5 million discount associated with the 7.0% Notes, $0.2 million premium associated with |  |
| notes payable to a finance company and $0.5 million discount associated with mortgage notes payable. |  |
| December 31, 2013 includes $1.6 million discount associated with the 7.0% Notes, $0.4 million premium associated with |  |
| the notes payable to a finance company and $0.6 million discount associated with mortgage notes payable. |  |
2011 Credit Facilities Prior to July 23, 2014, Sonic had a syndicated revolving credit agreement (the “2011 Revolving Credit Facility”) and syndicated new and used vehicle floor plan credit facilities (the “2011 Floor Plan Facilities” and, together with the 2011 Revolving Credit Facility, the “2011 Credit Facilities”), which were scheduled to mature on August 15, 2016. On July 23, 2014, Sonic entered into an amendment to the 2011 Credit Facilities, which among other things, extended the maturity to August 15, 2019. See the heading “2014 Credit Facilities” below for additional information. Availability under the 2011 Revolving Credit Facility was calculated as the lesser of $175.0 million or a borrowing base calculated based on certain eligible assets, less the aggregate face amount of any outstanding letters of credit under the 2011 Revolving Credit Facility (the “2011 Revolving Borrowing Base”). The 2011 Floor Plan Facilities were comprised of a new vehicle revolving floor plan facility (the “2011 New Vehicle Floor Plan Facility”) and a used vehicle revolving floor plan facility (the “2011 Used Vehicle Floor Plan Facility”), subject to a borrowing base, in a combined amount up to $605.0 million. Outstanding obligations under the 2011 Floor Plan Facilities were guaranteed by Sonic and certain of its subsidiaries and were secured by a pledge of substantially all of the assets of Sonic and its subsidiaries. 2014 Credit Facilities On July 23, 2014, Sonic entered into an amendment to the 2011 Credit Facilities, which among other things, extended the maturity to August 15, 2019. The amended and extended syndicated revolving credit agreement (the “2014 Revolving Credit Facility”) and syndicated new and used vehicle floor plan credit facilities (the “2014 Floor Plan Facilities” and, together with the 2014 Revolving Credit Facility, the “2014 Credit Facilities”), are scheduled to mature on August 15, 2019. Availability under the 2014 Revolving Credit Facility is calculated as the lesser of $225.0 million or a borrowing base calculated based on certain eligible assets, less the aggregate face amount of any outstanding letters of credit under the 2014 Revolving Credit Facility (the “2014 Revolving Borrowing Base”). The 2014 Revolving Credit Facility may be increased at Sonic’s option up to $275.0 million upon satisfaction of certain conditions. Based on balances as of September 30, 2014, the 2014 Revolving Borrowing Base was approximately $144.2 million. Sonic had approximately $9.8 million of outstanding borrowings as of September 30, 2014 and $29.2 million in outstanding letters of credit under the 2014 Revolving Credit Facility, resulting in total borrowing availability of $105.2 million under the 2014 Revolving Credit Facility. The 2014 Floor Plan Facilities are comprised of a new vehicle revolving floor plan facility (the “2014 New Vehicle Floor Plan Facility”) and a used vehicle revolving floor plan facility (the “2014 Used Vehicle Floor Plan Facility”), subject to a borrowing base, in a combined amount up to $800.0 million. Sonic may, under certain conditions, request an increase in the 2014 Floor Plan Facilities of up to $1.0 billion, which shall be allocated between the 2014 New Vehicle Floor Plan Facility and the 2014 Used Vehicle Floor Plan Facility as Sonic requests, with no more than 20% of the aggregate commitments allocated to the commitments under the 2014 Used Vehicle Floor Plan Facility. Outstanding obligations under the 2014 Floor Plan Facilities are guaranteed by Sonic and certain of its subsidiaries and are secured by a pledge of substantially all of the assets of Sonic and its subsidiaries. The amounts outstanding under the 2014 Credit Facilities bear interest at variable rates based on specified percentages above LIBOR. 7.0% Senior Subordinated Notes On July 2, 2012, Sonic issued $200.0 million in aggregate principal amount of unsecured senior subordinated 7.0% Notes which mature on July 15, 2022. The 7.0% Notes were issued at a price of 99.11% of the principal amount thereof, resulting in a yield to maturity of 7.125%. Interest is payable semi-annually in arrears on January 15 and July 15 of each year. Sonic may redeem the 7.0% Notes in whole or in part at any time after July 15, 2017 at the following redemption prices, which are expressed as percentages of the principal amount:
|  |  | Redemption Price |  |
| Beginning on July 15, 2017 |  |  | 103.500 | % |
| Beginning on July 15, 2018 |  |  | 102.333 | % |
| Beginning on July 15, 2019 |  |  | 101.167 | % |
| Beginning on July 15, 2020 and thereafter |  |  | 100.000 | % |
In addition, on or before July 15, 2015, Sonic may redeem up to 35% of the aggregate principal amount of the 7.0% Notes at 107% of the par value of the 7.0% Notes plus accrued and unpaid interest with proceeds from certain equity offerings. The indenture also provides that holders of the 7.0% Notes may require Sonic to repurchase the 7.0% Notes at 101% of the par value of the 7.0% Notes, plus accrued and unpaid interest, if Sonic undergoes a Change of Control (as defined in the indenture). The indenture governing the 7.0% Notes contains certain specified restrictive covenants. Sonic has agreed not to pledge any assets to any third party lender of senior subordinated debt except under certain limited circumstances. Sonic also has agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, guarantees, liens, certain types of investments, certain transactions with affiliates, mergers, consolidations, issuance of preferred stock, cash dividends to stockholders, distributions, redemptions and the sale, assignment, lease, conveyance or disposal of certain assets. Specifically, the indenture governing Sonic’s 7.0% Notes limits Sonic’s ability to pay quarterly cash dividends on Sonic’s Class A and B Common Stock in excess of $0.10 per share. Sonic may only pay quarterly cash dividends on Sonic’s Class A and B Common Stock if Sonic complies with the terms of the indenture governing the 7.0% Notes. Sonic was in compliance with all restrictive covenants as of September 30, 2014. Balances outstanding under Sonic’s 7.0% Notes are guaranteed by all of Sonic’s operating domestic subsidiaries. These guarantees are full and unconditional and joint and several. The parent company has no independent assets or operations. The non-domestic and non-operating subsidiaries that are not guarantors are considered to be minor. Sonic’s obligations under the 7.0% Notes may be accelerated by the holders of 25% of the outstanding principal amount of the 7.0% Notes then outstanding if certain events of default occur, including: (1) defaults in the payment of principal or interest when due; (2) defaults in the performance, or breach, of Sonic’s covenants under the 7.0% Notes; and (3) certain defaults under other agreements under which Sonic or its subsidiaries have outstanding indebtedness in excess of $35.0 million. 5.0% Senior Subordinated Notes On May 9, 2013, Sonic issued $300.0 million in aggregate principal amount of unsecured senior subordinated 5.0% Notes which mature on May 15, 2023. The 5.0% Notes were issued at 100.0% of the principal amount thereof. Interest is payable semi-annually in arrears on May 15 and November 15 of each year. Sonic may redeem the 5.0% Notes in whole or in part at any time after May 15, 2018 at the following redemption prices, which are expressed as percentages of the principal amount:
|  |  | Redemption Price |  |
| Beginning on May 15, 2018 |  |  | 102.500 | % |
| Beginning on May 15, 2019 |  |  | 101.667 | % |
| Beginning on May 15, 2020 |  |  | 100.833 | % |
| Beginning on May 15, 2021 and thereafter |  |  | 100.000 | % |
In addition, on or before May 15, 2016, Sonic may redeem up to 35% of the aggregate principal amount of the 5.0% Notes at 105% of the par value of the 5.0% Notes plus accrued and unpaid interest with proceeds from certain equity offerings. On or before May 15, 2018, Sonic may redeem all or a part of the aggregate principal amount of the 5.0% Notes at a redemption price equal to 100% of the principal amount of the 5.0% Notes redeemed plus an applicable premium (as defined in the Indenture) and any accrued and unpaid interest as of the redemption date. The indenture also provides that holders of the 5.0% Notes may require Sonic to repurchase the 5.0% Notes at 101% of the par value of the 5.0% Notes, plus accrued and unpaid interest, if Sonic undergoes a Change of Control, as defined in the indenture. The indenture governing the 5.0% Notes contains certain specified restrictive covenants. Sonic has agreed not to pledge any assets to any third party lender of senior subordinated debt except under certain limited circumstances. Sonic also has agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, guarantees, liens, certain types of investments, certain transactions with affiliates, mergers, consolidations, issuance of preferred stock, cash dividends to stockholders, distributions, redemptions and the sale, assignment, lease, conveyance or disposal of certain assets. Specifically, the indenture governing Sonic’s 5.0% Notes limits Sonic’s ability to pay quarterly cash dividends on Sonic’s Class A and B Common Stock in excess of $0.10 per share. Sonic may only pay quarterly cash dividends on Sonic’s Class A and B Common Stock if Sonic complies with the terms of the indenture governing the 5.0% Notes. Sonic was in compliance with all restrictive covenants as of September 30, 2014. Balances outstanding under Sonic’s 5.0% Notes are guaranteed by all of Sonic’s operating domestic subsidiaries. These guarantees are full and unconditional and joint and several. The parent company has no independent assets or operations. The non-domestic and non-operating subsidiaries that are not guarantors are considered to be minor. Sonic’s obligations under the 5.0% Notes may be accelerated by the holders of 25% of the outstanding principal amount of the 5.0% Notes then outstanding if certain events of default occur, including: (1) defaults in the payment of principal or interest when due; (2) defaults in the performance, or breach, of Sonic’s covenants under the 5.0% Notes; and (3) certain defaults under other agreements under which Sonic or its subsidiaries have outstanding indebtedness in excess of $50.0 million. Notes Payable to a Finance Company Three notes payable (due October 2015 and August 2016) were assumed in connection with an acquisition in 2004 (the “Assumed Notes”). Sonic recorded the Assumed Notes at fair value using an interest rate of 5.35%. The interest rate used to calculate the fair value was based on a quoted market price for notes with similar terms as of the date of assumption. As a result of calculating the fair value, a premium of $7.3 million was recorded that is being amortized over the lives of the Assumed Notes. At September 30, 2014, the outstanding principal balance on the Assumed Notes was approximately $5.2 million with a remaining unamortized premium balance of approximately $0.2 million. Mortgage Notes At September 30, 2014, Sonic had mortgage financing totaling approximately $265.4 million related to approximately 30% of its dealership properties. These mortgage notes require monthly payments of principal and interest through their respective maturities and are secured by the underlying properties. Maturity dates range between 2015 and 2033. The weighted average interest rate was 3.76% at September 30, 2014. Covenants Sonic was in compliance with the covenants under the 2014 Credit Facilities as of September 30, 2014. Financial covenants include required specified ratios (as each is defined in the 2014 Credit Facilities) of:
|  |  | Covenant |  |
|  |  |  |  |  |  | Minimum |  |  | Maximum |  |
|  |  | Minimum |  |  | Consolidated |  |  | Consolidated |  |
|  |  | Consolidated |  |  | Fixed Charge |  |  | Total Lease |  |
|  |  | Liquidity |  |  | Coverage |  |  | Adjusted Leverage |  |
|  |  | Ratio |  |  | Ratio |  |  | Ratio |  |
| Required ratio |  |  | 1.05 |  |  |  | 1.20 |  |  |  | 5.50 |  |
| September 30, 2014 actual |  |  | 1.22 |  |  |  | 1.74 |  |  |  | 4.14 |  |
The 2014 Credit Facilities contain events of default, including cross-defaults to other material indebtedness, change of control events and events of default customary for syndicated commercial credit facilities. Upon the future occurrence of an event of default, Sonic could be required to immediately repay all outstanding amounts under the 2014 Credit Facilities. In addition, many of Sonic’s facility leases are governed by a guarantee agreement between the landlord and Sonic that contains financial and operating covenants. The financial covenants are identical to those under the 2014 Credit Facilities with the exception of one financial covenant related to the ratio of EBTDAR to Rent (as defined in the lease agreements) with a required ratio of no less than 1.50 to 1.00. As of September 30, 2014, the ratio was 3.56 to 1.00. Derivative Instruments and Hedging Activities Sonic has interest rate cash flow swap agreements to effectively convert a portion of its LIBOR-based variable rate debt to a fixed rate. The fair value of these swap positions at September 30, 2014 was a net liability of approximately $10.6 million, with $9.3 million included in other accrued liabilities and $3.3 million included in other long-term liabilities, offset partially by an asset of approximately $2.0 million included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. The fair value of these swap positions at December 31, 2013 was a net liability of approximately $16.3 million, with $11.6 million included in other accrued liabilities and $8.4 million included in other long-term liabilities, offset partially by an asset of approximately $3.7 million included in other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. Under the terms of these cash flow swaps, Sonic will receive and pay interest based on the following:
| Notional Amount |  |  | Pay Rate |  |  | Receive Rate (1) |  | Maturing Date |
| (In millions) |  |  |  |  |  |  |  |  |  |
| $ | 2.8 |  |  |  | 7.100% |  |  | one-month LIBOR + 1.50% |  | July 10, 2017 |
| $ | 8.8 |  |  |  | 4.655% |  |  | one-month LIBOR |  | December 10, 2017 |
| $ | 7.5 |  | (2) |  | 6.860% |  |  | one-month LIBOR + 1.25% |  | August 1, 2017 |
| $ | 100.0 |  |  |  | 3.280% |  |  | one-month LIBOR |  | July 1, 2015 |
| $ | 100.0 |  |  |  | 3.300% |  |  | one-month LIBOR |  | July 1, 2015 |
| $ | 6.4 |  | (2) |  | 6.410% |  |  | one-month LIBOR + 1.25% |  | September 12, 2017 |
| $ | 50.0 |  |  |  | 3.240% |  |  | one-month LIBOR |  | July 1, 2015 |
| $ | 50.0 |  |  |  | 3.070% |  |  | one-month LIBOR |  | July 1, 2015 |
| $ | 100.0 |  | (3) |  | 2.065% |  |  | one-month LIBOR |  | June 30, 2017 |
| $ | 100.0 |  | (3) |  | 2.015% |  |  | one-month LIBOR |  | June 30, 2017 |
| $ | 200.0 |  | (3) |  | 0.788% |  |  | one-month LIBOR |  | July 1, 2016 |
| $ | 50.0 |  | (4) |  | 1.320% |  |  | one-month LIBOR |  | July 1, 2017 |
| $ | 250.0 |  | (5) |  | 1.887% |  |  | one-month LIBOR |  | June 30, 2018 |
| $ | 25.0 |  | (4) |  | 2.080% |  |  | one-month LIBOR |  | July 1, 2017 |
| $ | 100.0 |  | (3) |  | 1.560% |  |  | one-month LIBOR |  | July 1, 2017 |
| (1) The one-month LIBOR rate was 0.153% at September 30, 2014. |
| (2) Changes in fair value are recorded through earnings. |
| (3) The effective date of these forward-starting swaps is July 1, 2015. |
| (4) The effective date of these forward-starting swaps is July 1, 2016. |
| (5) The effective date of this forward-starting swap is July 3, 2017. |
During the second quarter ended June 30, 2014, Sonic entered into two forward-starting interest rate cash flow swap agreements with notional amounts of $25.0 million and $100.0 million. These swap agreements become effective in July 2016 and July 2015, respectively, and terminate in July 2017. These interest rate swaps have been designated and qualify as cash flow hedges and, as a result, changes in the fair value of these swaps are recorded in other comprehensive income (loss) before taxes in the accompanying Unaudited Condensed Consolidated Statements of Comprehensive Income. For the interest rate swaps not designated as cash flow hedges (changes in the fair value of these swaps are recognized through earnings) and amortization of amounts in accumulated other comprehensive income (loss) related to terminated cash flow swaps, certain benefits and charges were included in interest expense, other, net, in the accompanying Unaudited Condensed Consolidated Statements of Income. For the third quarter and nine-month periods ended September 30, 2014, these items were a benefit of approximately $0.2 million and $0.4 million, respectively, and for the third quarter and nine-month periods ended September 30, 2013, these items were a benefit of approximately $0.1 million and $0.7 million, respectively. For the cash flow swaps that qualify as cash flow hedges, the changes in the fair value of these swaps have been recorded in other comprehensive income (loss), net of related income taxes, in the accompanying Unaudited Condensed Consolidated Statements of Comprehensive Income and are disclosed in the supplemental schedule of non-cash financing activities in the accompanying Unaudited Condensed Consolidated Statements of Cash Flows. The incremental interest expense (the difference between interest paid and interest received) related to these cash flow swaps was approximately $2.4 million and $8.3 million in the third quarter and nine-month periods ended September 30, 2014, respectively, and $3.0 million and $8.8 million in the third quarter and nine-month periods ended September 30, 2013, respectively, and is included in interest expense, other, net, in the accompanying Unaudited Condensed Consolidated Statements of Income and the interest paid amount disclosed in the supplemental disclosures of cash flow information in the accompanying Unaudited Condensed Consolidated Statements of Cash Flows. The estimated net expense expected to be reclassified out of accumulated other comprehensive income (loss) into results of operations during the next twelve months is approximately $5.8 million.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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