Long-Term Debt

3 Months Ended

Mar. 31, 2013

Long-Term Debt [Abstract]

Long-Term Debt

6. Long-Term Debt

Long-term debt consists of the following:

(In thousands)	March 31, 2013			December 31, 2012
2011 Revolving Credit Facility (1)	$	—		$	6,176
9.0% Senior Subordinated Notes due 2018 (the “9.0% Notes”)		210,000			210,000
7.0% Senior Subordinated Notes due 2022 (the “7.0% Notes”)		200,000			200,000
Notes payable to a finance company bearing interest from 9.52% to 10.52% (with a weighted average of 10.19%)		9,861			10,572
Mortgage notes to finance companies-fixed rate, bearing interest from 4.07% to 7.03%		136,328			137,791
Mortgage notes to finance companies-variable rate, bearing interest at 1.25 to 3.50 percentage points above one-month LIBOR		80,574			62,229
Net debt discount and premium (2)		(2,812	)		(2,814	)
Other		5,346			5,431
Total debt	$	639,297		$	629,385
Less current maturities		(19,555	)		(18,587	)
Long-term debt	$	619,742		$	610,798

(1) The interest rate on the revolving credit facility was 2.00% above LIBOR at March 31, 2013 and 2.25% above LIBOR at December 31, 2012.

(2) March 31, 2013 includes $1.0 million discount associated with the 9.0% Notes, $1.7 million discount associated with the 7.0% Notes, $0.6 million premium associated with notes payable to a finance company and $0.7 million discount associated with mortgage notes payable. December 31, 2012 includes $1.1 million discount associated with the 9.0% Notes, $1.7 million discount associated with the 7.0% Notes, $0.7 million premium associated with notes payable to a finance company and $0.7 million discount associated with mortgage notes payable.

2011 Credit Facilities

Sonic has a syndicated revolving credit agreement (the “2011 Revolving Credit Facility”) and a syndicated floor plan credit facility (the “2011 Floor Plan Facilities”). The 2011 Revolving Credit Facility and 2011 Floor Plan Facilities (collectively the “2011 Credit Facilities”) are scheduled to mature on August 15, 2016. On March 14, 2013, Sonic finalized an amendment to its 2011 Credit Facilities that, among other things, removed the pledge of 5,000,000 shares of common stock of Speedway Motorsports, Inc. (“SMI”) that were previously pledged as collateral to the 2011 Credit Facilities.

Availability under the 2011 Revolving Credit Facility is 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 Revolving Credit Facility may be increased at Sonic’s option to $225.0 million upon satisfaction of certain conditions.

Based on balances as of March 31, 2013, the 2011 Revolving Borrowing Base was approximately $133.9 million and Sonic had approximately $32.3 million in outstanding letters of credit resulting in total borrowing availability of approximately $101.6 million under the 2011 Revolving Credit Facility.

Covenants

Sonic was in compliance with the covenants under the 2011 Credit Facilities as of March 31, 2013. Financial covenants include required specified ratios (as each is defined in the 2011 Credit Facilities) 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		5.50
March 31, 2013 actual		1.12		1.68		3.90

The 2011 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 2011 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 2011 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 March 31, 2013, the ratio was 3.24 to 1.00.

7.0% Senior Subordinated Notes

The 7.0% Notes are unsecured senior subordinated obligations of Sonic that mature on July 15, 2022 and are guaranteed by Sonic’s domestic operating subsidiaries. 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. On or before July 15, 2017, Sonic may redeem all or a part of the aggregate principal amount of the 7.0% Notes at a redemption price equal to 100% of the principal amount of the 7.0% 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 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 March 31, 2013.

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.

9.0% Senior Subordinated Notes

The 9.0% Notes are unsecured senior subordinated obligations of Sonic that mature on March 15, 2018 and are guaranteed by Sonic’s domestic operating subsidiaries. Interest is payable semi-annually on March 15 and September 15 each year. Sonic may redeem the 9.0% Notes in whole or in part at any time after March 15, 2014 at the following redemption prices, which are expressed as percentages of the principal amount:

	Redemption Price
Beginning on March 15, 2014		104.50	%
Beginning on March 15, 2015		102.25	%
Beginning on March 15, 2016 and thereafter		100.00	%

In addition, on or before March 15, 2014, Sonic may redeem all or a part of the aggregate principal amount of the 9.0% Notes at a redemption price equal to 100% of the principal amount of the 9.0% 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 9.0% Notes may require Sonic to repurchase the 9.0% Notes at 101% of the par value of the 9.0% Notes, plus accrued interest if Sonic undergoes a change of control, as defined in the Indenture.

The Indenture governing the 9.0% 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, capital stock, guarantees, asset sales, investments, cash dividends to stockholders, distributions and redemptions. Specifically, the indenture governing Sonic’s 9.0% 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 9.0% Notes. Sonic was in compliance with all restrictive covenants as of March 31, 2013.

Sonic’s obligations under the 9.0% Notes may be accelerated by the holders of 25% of the outstanding principal amount of the 9.0% 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 9.0% Notes; and (3) certain defaults under other agreements under which Sonic or its subsidiaries have outstanding indebtedness in excess of $35.0 million.

Mortgage Notes

Sonic has mortgage financing totaling approximately $216.9 million in aggregate, related to 22 of its dealership properties. These mortgage notes require monthly payments of principal and interest through maturity and are secured by the underlying properties. Maturity dates range between June 2013 and March 2031. The weighted average interest rate was 4.37% at March 31, 2013.

Derivative Instruments and Hedging Activities

Sonic has interest rate cash flow swap agreements (the “Cash Flow Swaps”) to effectively convert a portion of its LIBOR-based variable rate debt to a fixed rate. The fair value of these swap positions at March 31, 2013 was a liability of approximately $31.2 million, with $11.9 million included in other accrued liabilities and $19.3 million included in other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets. The fair value of these swap positions at December 31, 2012 was a liability of approximately $34.3 million, with $12.1 million included in other accrued liabilities and $22.2 million included in other long-term liabilities 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)
$	3.1			7.100	%	one-month LIBOR + 1.50%	July 10, 2017
$	9.8			4.655	%	one-month LIBOR	December 10, 2017
$	8.0	(2)		6.860	%	one-month LIBOR + 1.25%	August 1, 2017
$	6.0			4.330	%	one-month LIBOR	July 1, 2013
$	100.0			3.280	%	one-month LIBOR	July 1, 2015
$	100.0			3.300	%	one-month LIBOR	July 1, 2015
$	6.8	(2)		6.410	%	one-month LIBOR + 1.25%	September 12, 2017
$	50.0			2.767	%	one-month LIBOR	July 1, 2014
$	50.0			3.240	%	one-month LIBOR	July 1, 2015
$	50.0			2.610	%	one-month LIBOR	July 1, 2014
$	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

(1) The one-month LIBOR rate was 0.204% at March 31, 2013.

(2) Changes in fair value are recorded through earnings.

(3) The effective date of these forward-starting swaps is July 1, 2015.

For the Cash Flow Swaps not designated as hedges (changes in the fair value are recognized through earnings), certain benefits were included in interest expense, other, net, in the accompanying Unaudited Condensed Consolidated Statements of Income.

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 $2.9 million and $4.4 million in the first quarters ended March 31, 2013 and 2012, respectively, and is included in interest expense, other, net, in the accompanying Unaudited Condensed Consolidated Statements of Income. The estimated expense (net of tax) expected to be reclassified out of accumulated other comprehensive income (loss) into results of operations during the next twelve months is approximately $7.4 million. See Note 10, “Accumulated Other Comprehensive Income (Loss),” for further discussion of the impact of the Cash Flow Swaps on accumulated other comprehensive income (loss).