Debt

6 Months Ended

Jun. 30, 2011

Debt

Debt

5.           DEBT

We currently utilize the following primary forms of debt financing: (1) a revolving secured line of credit with a commercial bank syndicate; (2) revolving secured warehouse facilities with institutional investors; (3) asset-backed secured financings ("Term ABS") with qualified institutional investors; and (4) 9.125% First Priority Senior Secured Notes due 2017 ("Senior Notes").  General information for each of our financing transactions in place as of June 30, 2011 is as follows:

(Dollars in thousands)
Financings	Wholly-owned Subsidiary	Issue Number		Close Date	Maturity Date	Financing Amount		Interest Rate as of June 30, 2011
Revolving Secured Line of Credit	n/a		n/a	June 17, 2011	June 22, 2014	$	205,000	At our option, either the LIBOR rate plus 225 basis points or the prime rate plus 125 basis points
Revolving Secured Warehouse Facility (1)	CAC Warehouse Funding Corp. II		2003-2	June 17, 2011	June 17, 2014 (2)	$	325,000	Commercial paper rate plus 275 basis points or LIBOR plus 375 basis points (4) (5)
Revolving Secured Warehouse Facility (1)	CAC Warehouse Funding III, LLC		2008-2	September 10, 2010	September 10, 2013 (6)	$	75,000	Commercial paper rate plus 160 basis points or LIBOR plus 160 basis points (3) (4) (5)
Term ABS 2009-1 (1)	Credit Acceptance Funding LLC 2009-1		2009-1	December 3, 2009	May 15, 2011 (2)	$	110,500	Fixed rate
Term ABS 2010-1 (1)	Credit Acceptance Funding LLC 2010-1		2010-1	November 4, 2010	October 15, 2012 (2)	$	100,500	Fixed rate
Senior Notes	n/a		n/a	(7)	February 1, 2017	$	350,000	Fixed rate

(1)   Financing made available only to a specified subsidiary of the Company.

(2)   Represents the revolving maturity date.  The outstanding balance will amortize after the maturity date based on the cash flows of the pledged assets.

(3)   A portion of the outstanding balance is a floating rate obligation that has been converted to a fixed rate obligation via an interest rate swap.

(4)   The LIBOR rate is used if funding is not available from the commercial paper market.

(5)   Interest rate cap agreements are in place to limit the exposure to increasing interest rates.

(6)   Represents the revolving maturity date.  The outstanding balance will amortize after the revolving maturity date and any amounts remaining on September 10, 2014 will be due.

(7)   The close dates associated with the issuance of $250.0 million and $100.0 million of the Senior Notes were on February 1, 2010 and March 3, 2011, respectively.  

Additional information related to the amounts outstanding on each facility is as follows:

(In thousands)	For the Three Months Ended June 30,				For the Six Months Ended  June 30,
	2011		2010		2011		2010
Revolving Secured Line of Credit
Maximum outstanding balance	$	152,500	$	67,300	$	152,500	$	107,900
Average outstanding balance		124,858		30,332		105,804		37,393
Revolving Secured Warehouse Facility (2003-2)
Maximum outstanding balance	$	240,600	$	66,000	$	240,600	$	152,600
Average outstanding balance		211,519		31,736		168,316		42,603
Revolving Secured Warehouse Facility (2008-2)
Maximum outstanding balance	$	75,000	$	75,000	$	75,000	$	75,000
Average outstanding balance		32,813		74,945		34,144		74,972

(Dollars in thousands)	As of
	June 30, 2011			December 31, 2010
Revolving Secured Line of Credit
Balance outstanding	$	127,200		$	136,700
Letter of credit		500			500
Amount available for borrowing (1)		77,300			32,800
Interest rate		2.52	%		3.03	%
Revolving Secured Warehouse Facility (2003-2)
Balance outstanding	$	185,000		$	49,100
Amount available for borrowing  (1)		140,000			275,900
Loans pledged as collateral		349,154			83,692
Restricted cash and cash equivalents pledged as collateral		7,873			4,037
Interest rate		2.96	%		3.82	%
Revolving Secured Warehouse Facility (2008-2)
Balance outstanding	$	70,000		$	40,000
Amount available for borrowing (1)		5,000			35,000
Loans pledged as collateral		98,760			70,639
Restricted cash and cash equivalents pledged as collateral		4,279			2,409
Interest rate		2.20	%		3.94	%
Term ABS 2009-1
Balance outstanding	$	97,165		$	110,500
Loans pledged as collateral		134,290			138,090
Restricted cash and cash equivalents pledged as collateral		17,362			15,554
Interest rate		4.46	%		4.40	%
Term ABS 2010-1
Balance outstanding	$	100,500		$	100,500
Loans pledged as collateral		122,987			125,161
Restricted cash and cash equivalents pledged as collateral		15,412			13,160
Interest rate		2.36	%		2.36	%
Senior Notes
Balance outstanding (2)	$	350,427		$	244,344
Interest rate		9.13	%		9.13	%

(1)Availability may be limited by the amount of assets pledged as collateral.

(2)   The outstanding balance presented for the Senior Notes includes a net unamortized debt premium of $0.4 million as of June 30, 2011 and unamortized debt discount of $5.7 million as of December 31, 2010.  

Senior Notes

We have outstanding $350.0 million aggregate principal amount of our 9.125% First Priority Senior Secured Notes due 2017, $100.0 million of which we issued on March 3, 2011 and $250.0 million of which we issued on February 1, 2010.  The Senior Notes are governed by an indenture, dated as of February 1, 2010, as amended and supplemented (the "Indenture"), among us, as the issuer; our subsidiaries Buyers Vehicle Protection Plan, Inc. and Vehicle Remarketing Services, Inc., as guarantors (the "Guarantors"); and U.S. Bank National Association, as trustee.  The Senior Notes issued on March 3, 2011 have the same terms as the previously issued Senior Notes, other than issue price and issue date, and all of the Senior Notes are treated as a single class under the Indenture.

The Senior Notes mature on February 1, 2017 and bear interest at a rate of 9.125% per annum, computed on the basis of a 360-day year comprised of twelve 30-day months and payable semi-annually on February 1 and August 1 of each year, beginning on August 1, 2010.  The Senior Notes issued on March 3, 2011 were issued at a price of 106.0% of their aggregate principal amount, resulting in gross proceeds of $106.0 million, and a yield to maturity of 7.83% per annum.  The Senior Notes issued on February 1, 2010 were issued at a price of 97.495% of their aggregate principal amount, resulting in gross proceeds of $243.7 million, and a yield to maturity of 9.625% per annum.  The premium with respect to the Senior Notes issued on March 3, 2011 and the discount with respect to the Senior Notes issued on February 1, 2010 are being amortized over the life of the Senior Notes using the effective interest method.

The Senior Notes are guaranteed on a senior secured basis by the Guarantors, which are also guarantors of obligations under our revolving secured line of credit facility.  Other existing and future subsidiaries of ours may become guarantors of the Senior Notes.  The Senior Notes and the Guarantors' Senior Note guarantees are secured on a first-priority basis (subject to specified exceptions and permitted liens), together with all indebtedness outstanding from time to time under the revolving secured line of credit facility and, under certain circumstances, certain future indebtedness, by a security interest in substantially all of our assets and those of the Guarantors, subject to certain exceptions such as real property, cash (except to the extent it is deposited with the collateral agent), certain leases, and equity interests of our subsidiaries (other than those of specified subsidiaries including the Guarantors).  Our assets and those of the Guarantors securing the Senior Notes and the Senior Note guarantees will not include our assets transferred to special purpose subsidiaries in connection with securitization transactions and will generally be the same as the collateral securing indebtedness under the revolving secured line of credit facility and, under certain circumstances, certain future indebtedness, subject to certain limited exceptions as provided in the security and intercreditor agreements related to the revolving secured line of credit facility.

Revolving Secured Line of Credit Facility

During the second quarter of 2011, we extended the maturity of our revolving secured line of credit facility from June 22, 2012 to June 22, 2014.  Additionally, the amount of the facility was increased from $170.0 million to $205.0 million.  The interest rate on borrowings under the facility remains the same at the prime rate plus 1.25% or the LIBOR rate plus 2.25%, at our option.  The financial covenant that required us to maintain a minimum ratio of assets to debt and the floor on the LIBOR rate was eliminated.

Borrowings under the revolving secured line of credit facility, including any letters of credit issued under the facility, are subject to a borrowing-base limitation.  This limitation equals 80% of the net book value of Loans, less a hedging reserve (not exceeding $1.0 million), and the amount of other debt secured by the collateral which secures the revolving secured line of credit facility.  Borrowings under the revolving secured line of credit facility agreement are secured by a lien on most of our assets.  We must pay quarterly fees on the amount of the facility.

Revolving Secured Warehouse Facilities

We have two revolving secured warehouse facilities that are provided to our wholly-owned subsidiaries.  One is a $325.0 million facility with an institutional investor and the other is a $75.0 million facility with another institutional investor.

During the second quarter of 2011, we extended the date on which our $325.0 million revolving secured warehouse facility will cease to revolve from June 15, 2013 to June 17, 2014.  The interest rate on borrowings under the facility was decreased from the commercial paper rate plus 3.5% to the commercial paper rate plus 2.75%.

During the second quarter of 2011, we decreased the interest rate on our $75.0 million revolving secured warehouse facility from LIBOR plus 3.0% to LIBOR plus 1.6%.  

Under both revolving secured warehouse facilities we can contribute Loans to our wholly-owned subsidiaries in return for cash and equity in each subsidiary.  In turn, each subsidiary pledges the Loans as collateral to institutional investors to secure financing that will fund the cash portion of the purchase price of the Loans.  The financing provided to each subsidiary under the applicable facility is limited to the lesser of 80% of the net book value of the contributed Loans plus the cash collected on such Loans or the facility limit.

The financings create indebtedness for which the subsidiaries are liable and which is secured by all the assets of each subsidiary.  Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the subsidiaries.  Because the subsidiaries are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors.

Interest on borrowings under the $325.0 million revolving secured warehouse facility has been limited through interest rate cap agreements to a maximum rate of 6.75% plus the spread over the LIBOR rate or the commercial paper rate, as applicable.  Interest on borrowings for a portion of the $75.0 million revolving secured warehouse facility has also been limited through interest rate cap agreements to a maximum rate of 6.75% plus the spread over the LIBOR rate or the commercial paper rate, as applicable.  We have also entered into an interest rate swap to convert $25.0 million of the $75.0 million revolving secured warehouse facility into fixed rate debt bearing an interest rate of 2.96%.  For additional information, see Note 6 of these consolidated financial statements.

The subsidiaries pay us a monthly servicing fee equal to 6% of the collections received with respect to the contributed Loans.  The fee is paid out of the collections.  Except for the servicing fee and holdback payments due to Dealer-Partners, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in full.  If a facility is not amortizing, the applicable subsidiary may be entitled to retain a portion of such collections provided that the borrowing base requirements of the facility are satisfied.

Term ABS Financings

In 2009 and 2010, two of our wholly-owned subsidiaries (the "Funding LLCs"), each completed a secured financing transaction.  In connection with these transactions, we contributed Loans on an arms-length basis to each Funding LLC for cash and the sole membership interest in that Funding LLC.  In turn, each Funding LLC contributed the Loans to a respective trust that issued notes to qualified institutional investors.  The Term ABS 2010-1 and 2009-1 transactions consist of three classes of notes.  The Class A Notes for each Term ABS financing were rated by S&P and DBRS, Inc. and the Class B Notes for each Term ABS financing were rated by S&P.  The Class C Notes for each Term ABS financing do not bear interest, were not rated and have been retained by us.

Each financing at the time of issuance has a specified revolving period during which we may be required, and are likely, to contribute additional Loans to each Funding LLC.  Each Funding LLC will then contribute the Loans to their respective trust.  At the end of the revolving period, the debt outstanding under each financing will begin to amortize.

The financings create indebtedness for which the trusts are liable and which is secured by all the assets of each trust.  Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the trusts and the Funding LLCs.  Because the Funding LLCs are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors.  We receive a monthly servicing fee on each financing equal to 6% of the collections received with respect to the contributed Loans.  The fee is paid out of the collections.  Except for the servicing fee and Dealer Holdback payments due to Dealer-Partners, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in full.  If a facility is not amortizing, the applicable subsidiary may be entitled to retain a portion of such collections provided that the borrowing base requirements of the facility are satisfied.  However, in our capacity as servicer of the  Loans, we do have a limited right to exercise a "clean-up call" option to purchase Loans from the Funding LLCs and/or the trusts under certain specified circumstances.  Alternatively, when a trust's underlying indebtedness is paid in full, either through collections or through a prepayment of the indebtedness, the trust is to pay any remaining collections over to its Funding LLC as the sole beneficiary of the trust.  The collections will then be available to be distributed to us as the sole member of the respective Funding LLC.

The table below sets forth certain additional details regarding the outstanding Term ABS Financings:

(Dollars in thousands)
Term ABS Financings	Issue Number		Close Date	Net Book Value of Dealer Loans Contributed at Closing		Revolving Period	Expected Annualized Rates (1)
Term ABS 2009-1		2009-1	December 3, 2009	$	142,301	18 months (Through May 15, 2011)		5.2	%
Term ABS 2010-1		2010-1	November 4, 2010	$	126,751	24 months (Through October 15, 2012)		3.1	%

(1)   Includes underwriter's fees and other costs.  

Debt Covenants

As of June 30, 2011, we were in compliance with all our debt covenants relating to the revolving secured line of credit facility, including those that require the maintenance of certain financial ratios and other financial conditions.  These covenants require a minimum ratio of our earnings before interest, taxes and non-cash expenses to fixed charges.  These covenants also limit the maximum ratio of our funded debt to tangible net worth.  Additionally, we must maintain consolidated net income of not less than $1 for the two most recently ended fiscal quarters.  Some of these debt covenants may indirectly limit the repurchase of common stock or payment of dividends on common stock.

Our revolving secured warehouse facilities and Term ABS financings also contain covenants that measure the performance of the contributed assets.  As of June 30, 2011, we were in compliance with all such covenants.  As of the end of the quarter, we were also in compliance with our covenants under the Indenture.  The Indenture includes covenants that limit the maximum ratio of our funded debt to tangible net worth and also require a minimum collateral coverage ratio.