Financing Agreement

3 Months Ended

Mar. 31, 2020

Financing Agreements

The carrying value of debt, finance lease obligations, and notes payable and the average related interest rates were as follows (in millions):



	Average interest rate at March 31, 2020	Maturity	March 31, 2020			December 31, 2019
Revolving loan facility	1.67%	July 2023	$	561.6		$	75.1
Term loan facility	2.24%	July 2023	985.0			1,000.0
Senior notes—fixed rate	4.60%	May 2021	75.0			75.0
Senior notes—fixed rate	3.13%	December 2020	100.0			100.0
Senior notes—fixed rate	4.23%	July 2028	350.0			350.0
Finance lease obligations	5.15%	Various through 2029	15.6			16.1
Notes payable and other	4.24%	Various through 2030	80.2			81.4
Debt issuance costs			(3.9		)	(4.1		)
Total debt, finance lease obligations, and notes payable			$	2,163.5		$	1,693.5
Less: current maturities			166.7			166.7
Total long-term debt, finance lease obligations, and notes payable			$	1,996.8		$	1,526.8

In December 2010, the Company entered into a Master Note Purchase Agreement to issue $75 million of unsecured senior notes due May 2021 (collectively, the “Senior Notes”). The Senior Notes were issued in May 2011. In December 2013, the Company entered into a First Supplement to Master Note Purchase Agreement, under which the Company issued $100 million of unsecured senior notes due December 2020. In July 2018, the Company entered into a Master Note Purchase Agreement to issue $350 million of unsecured senior notes due July 2028.

In July 2018, Polaris amended its unsecured revolving loan facility to increase the facility to $700 million and increase its term loan facility to $1,180 million, of which $985 million is outstanding as of March 31, 2020. The expiration date of the facility was extended to July 2023, and interest will continue to be charged at rates based on a LIBOR or “prime” base rate. Under the facility, the Company is required to make principal payments totaling $59 million over the next 12 months, which are classified as current maturities in the consolidated balance sheets.

The unsecured revolving loan facility and the amended Master Note Purchase Agreement contain covenants that require Polaris to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. The agreements require the Company to maintain an interest coverage ratio of not less than 3.00 to 1.00 and a leverage ratio of not more than 3.50 to 1.00 on a rolling four quarter basis. Polaris was in compliance with all such covenants at March 31, 2020.

On April 9, 2020, the Company amended the revolving loan facility to provide a new incremental 364-day term loan in the amount of $300 million. The new incremental term loan, which was fully drawn on closing, is unsecured and matures on April 8, 2021 and can be extended for an additional 364-day term upon request of Polaris and consent by the lenders. Applicable margins under the incremental term loan range from 0.50% to 1.25% for base advances and from 1.50% to 2.25% for eurocurrency advances, depending on leverage ratio. There are no required principal payments prior to the maturity date. The amended credit facility prohibits share repurchases until the 2020 incremental term loans have been repaid, but did not change the required financial covenant ratios and continues to contain standard covenants with regards to mergers and consolidations, asset sales, and is subject to acceleration upon various events of default.

Debt issuance costs are recognized as a reduction in the carrying value of the related long-term debt in the consolidated balance sheets and are being amortized to interest expense in the consolidated statements of income over the expected remaining terms of the related debt.

As a component of the Boat Holdings merger agreement, Polaris has committed to make a series of deferred payments to the former owners following the closing date of the merger through July 2030. The original discounted payable was for $76.7 million, of which $71.7 million is outstanding as of March 31, 2020. The outstanding balance is included in long-term debt and current portion of long-term debt in the consolidated balance sheets.

The Company has a mortgage note payable agreement for land, on which Polaris built the Huntsville, Alabama manufacturing facility in 2016. The original mortgage note payable was for $14.5 million, of which $8.5 million is outstanding as of March 31, 2020. The outstanding balance is included in Notes payable and other. The payment of principal and interest for the note payable is forgivable if the Company satisfies certain job commitments over the term of the note. The Company has met the required commitments to date.