Financing Agreement

12 Months Ended

Dec. 31, 2020

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 December 31, 2020	Maturity	December 31, 2020		December 31, 2019
Revolving loan facility	—	July 2023	$	—	$	75.1
Term loan facility	1.40%	July 2023	940.0		1,000.0
Senior notes—fixed rate	4.60%	May 2021	75.0		75.0
Senior notes—fixed rate	—	December 2020	—		100.0
Senior notes—fixed rate	4.23%	July 2028	350.0		350.0
Finance lease obligations	5.20%	Various through 2029	16.2		16.1
Notes payable and other	4.24%	Various through 2030	75.0		81.4
Debt issuance costs			(5.5)		(4.1)
Total debt, finance lease obligations, and notes payable			$	1,450.7	$	1,693.5
Less: current maturities			142.1		166.7
Total long-term debt, finance lease obligations, and notes payable			$	1,308.6	$	1,526.8

Bank financing. In December 2010, the Company entered into a Master Note Purchase Agreement to issue $75 million of unsecured senior notes due May 2021 (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. There are $75 million of the senior notes classified as current maturities in the consolidated balance sheet as of December 31, 2020.

In July 2018, the Company amended its unsecured credit agreement to increase its revolving loan facility (the “revolving loan facility”) to $700 million and increase its term loan facility (the “term loan facility”) to $1,180 million. The expiration date of the facility was extended to July 2023, and interest is charged at rates based on a LIBOR or “prime” base rate. The Company is required to make principal payments under the term loan facility of $59.0 million over the next 12 months. These payments are classified as current maturities in the consolidated balance sheets.

On April 9, 2020, the Company amended the credit agreement to provide a new incremental 364-day term loan (the “incremental term loan”) in the amount of $300 million. The new incremental term loan, which was fully drawn on closing, was unsecured and set to mature on April 8, 2021, however, the incremental term loan was repaid in full in December 2020.

The credit agreement 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. On May 26, 2020, the Company further amended the credit agreement and amended Master Note Purchase Agreement to temporarily decrease its minimum interest coverage ratio from not less than 3.00x to not less than 2.25x and temporarily increase its maximum leverage ratio from 3.50x to 4.75x on a rolling four quarter basis until March 31, 2021. Polaris was in compliance with all such covenants as of December 31, 2020. On January 15, 2021 the Company further amended the credit agreement and amended Master Note Purchase Agreement to revert the financial covenants to those in place prior to the 2020 amendments.

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 in 2018, the Company 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 $66.5 million is outstanding as of December 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. The original mortgage note payable, due in 2027, was for $14.5 million, of which $8.5 million is outstanding as of December 31, 2020. The outstanding balance is included in long-term debt and current portion of long-term debt in the consolidated balance sheets. 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.

The following summarizes activity under Polaris’ credit arrangements (in millions):


	2020		2019		2018
Total borrowings at December 31	$	1,365.0	$	1,600.1	$	1,862.6
Average outstanding borrowings during year	$	1,879.7	$	1,912.0	$	1,474.5
Maximum outstanding borrowings during year	$	2,370.6	$	2,127.9	$	1,999.7
Weighted-average interest rate at December 31	2.30%		3.29%		3.64%

Letters of credit. At December 31, 2020, Polaris had open letters of credit totaling $30.7 million. The amounts are primarily related to inventory purchases and are reduced as the purchases are received.

Dealer financing programs. Certain finance companies, including Polaris Acceptance, an affiliate, and TCF Financial Corporation (see Note 10), provide floor plan financing to dealers on the purchase of Polaris products. The amount financed by worldwide dealers under these arrangements at December 31, 2020, was approximately $1,064.0 million. Polaris has agreed to repurchase products repossessed by the finance companies up to an annual maximum of no more than 15 percent of the average month end balances outstanding during the prior calendar year for Polaris Acceptance, and 100 percent of the balances outstanding for TCF Financial Corporation. At December 31, 2020, the potential aggregate repurchase obligation was approximately $198.3 million and $135.7 million for Polaris Acceptance and TCF Financial

Corporation, respectively. The Company’s financial exposure under these arrangements is limited to the difference between the amount paid to the finance companies for repurchases and the amount received on the resale of the repossessed products. No material losses have been incurred under these agreements during the periods presented. As a part of its marketing program, the Company contributes to the cost of dealer financing up to certain limits and subject to certain conditions. Such expenditures are presented as a reduction of sales in the accompanying consolidated statements of income.