6. DEBT

We currently utilize the following primary forms of debt financing: (1) a revolving secured line of credit; (2) revolving secured warehouse (“Warehouse”) facilities; (3) asset-backed secured financings (“Term ABS”) 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 March 31, 2013 is as follows:

(Dollars in millions)

Financings

Wholly-owned Subsidiary

Close Date

Maturity Date

Financing Amount

Interest Rate as of

March 31, 2013

Revolving Secured Line of Credit

n/a

06/15/2012

06/22/2015

235.0

At our option, either LIBOR plus 187.5 basis points or the prime rate plus 87.5 basis points

Warehouse Facility II (1)

CAC Warehouse Funding Corp. II

12/27/2012

12/27/2015

(2)

325.0

Commercial paper rate or LIBOR plus 200 basis points (3)

Warehouse Facility III (1)

CAC Warehouse Funding III, LLC

06/29/2012

09/10/2015

(4)

75.0

LIBOR plus 160 basis points (3)

Warehouse Facility IV (1)

CAC Warehouse Funding LLC IV

08/19/2011

02/19/2014

(2)

75.0

LIBOR plus 275 basis points (3)

Term ABS 2010-1 (1)

Credit Acceptance Funding LLC 2010-1

11/04/2010

10/15/2012

(2)

100.5

Fixed rate

Term ABS 2011-1 (1)

Credit Acceptance Funding LLC 2011-1

10/06/2011

09/16/2013

(2)

200.5

Fixed rate

Term ABS 2012-1 (1)

Credit Acceptance Funding LLC 2012-1

03/29/2012

03/17/2014

(2)

201.3

Fixed rate

Term ABS 2012-2 (1)

Credit Acceptance Funding LLC 2012-2

09/20/2012

09/15/2014

(2)

252.0

Fixed rate

Senior Notes

n/a

(5)

02/01/2017

350.0

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

(4) Represents the revolving maturity date. The outstanding balance will amortize after the revolving maturity date and any amounts remaining on September 10, 2017 will be due.

(5) 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 millions)	For the Three Months Ended March 31,
	2013		2012
Revolving Secured Line of Credit
Maximum outstanding balance	$	179.3	$	185.5
Average outstanding balance		73.3		102.7

Warehouse Facility II
Maximum outstanding balance	$	153.6	$	177.2
Average outstanding balance		90.0		158.9

Warehouse Facility III
Maximum outstanding balance	$	–	$	73.0
Average outstanding balance		–		67.3

Warehouse Facility IV
Maximum outstanding balance	$	39.6	$	39.6
Average outstanding balance		37.7		37.9


(Dollars in millions)	As of
	March 31, 2013			December 31, 2012
Revolving Secured Line of Credit
Balance outstanding	$	115.9		$	43.5
Amount available for borrowing (1)		119.1			191.5
Interest rate		2.23	%		2.08	%

Warehouse Facility II
Balance outstanding	$	142.1		$	81.3
Amount available for borrowing (1)		182.9			243.7
Loans pledged as collateral		217.2			105.2
Restricted cash and cash equivalents pledged as collateral		4.3			3.0
Interest rate		2.20	%		2.22	%

Warehouse Facility III
Balance outstanding	$	–		$	–
Amount available for borrowing (1)		75.0			75.0
Loans pledged as collateral		–			–
Restricted cash and cash equivalents pledged as collateral		0.3			0.4
Interest rate		1.80	%		1.82	%

Warehouse Facility IV
Balance outstanding	$	37.6		$	37.6
Amount available for borrowing (1)		37.4			37.4
Loans pledged as collateral		48.3			47.7
Restricted cash and cash equivalents pledged as collateral		3.4			2.5
Interest rate		2.95	%		2.96	%

Term ABS 2010-1
Balance outstanding	$	52.3		$	80.3
Loans pledged as collateral		96.5			111.6
Restricted cash and cash equivalents pledged as collateral		14.5			12.5
Interest rate		2.64	%		2.44	%

Term ABS 2011-1
Balance outstanding	$	200.5		$	200.5
Loans pledged as collateral		243.4			243.8
Restricted cash and cash equivalents pledged as collateral		30.4			23.5
Interest rate		2.90	%		2.90	%

Term ABS 2012-1
Balance outstanding	$	201.3		$	201.3
Loans pledged as collateral		244.0			244.7
Restricted cash and cash equivalents pledged as collateral		28.8			22.3
Interest rate		2.38	%		2.38	%

Term ABS 2012-2
Balance outstanding	$	252.0		$	252.0
Loans pledged as collateral		310.2			311.9
Restricted cash and cash equivalents pledged as collateral		32.1			26.0
Interest rate		1.63	%		1.63	%

Senior Notes
Balance outstanding (2)	$	350.3		$	350.3
Interest rate		9.13	%		9.13	%

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

(2) As of March 31, 2013 and December 31, 2012, the outstanding balance presented for the Senior Notes includes a net unamortized debt premium of $0.3 million.

Revolving Secured Line of Credit Facility

We have a $235.0 million revolving secured line of credit facility with a commercial bank syndicate.

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.

Warehouse Facilities

We have three Warehouse facilities with total borrowing capacity of $475.0 million. Each of the facilities are with different institutional investors, and the facility limit is $325.0 million for Warehouse Facility II and $75.0 million for both Warehouse Facility III and IV.

Under each Warehouse facility, 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.

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 Dealers, 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 2010, 2011 and 2012, four of our wholly-owned subsidiaries (the “Funding LLCs”), completed secured financing transactions with qualified institutional investors. 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, 2011-1, 2012-1 and 2012-2 transactions each consist of three classes of notes. The Class A and Class B Notes for each Term ABS financing bear interest. The Class C Notes for each Term ABS financing do not bear interest 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 Dealers, 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 millions)
Term ABS Financings	Close Date	Net Book Value of Loans Contributed at Closing		Revolving Period
Term ABS 2010-1	November 4, 2010	$	126.8	24 months (Through October 15, 2012)
Term ABS 2011-1	October 6, 2011	$	250.8	24 months (Through September 16, 2013)
Term ABS 2012-1	March 29, 2012	$	251.7	24 months (Through March 17, 2014)
Term ABS 2012-2	September 20, 2012	$	315.1	24 months (Through September 15, 2014)

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. 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 Warehouse facilities and Term ABS financings 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.

Debt Covenants

As of March 31, 2013, 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 Warehouse facilities and Term ABS financings also contain covenants that measure the performance of the contributed assets. As of March 31, 2013, 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.