Item 1.01 Entry Into a
Material Definitive Agreement.
On September 29, 2020, Automotive Finance
Corporation (“AFC”), a subsidiary of KAR Auction Services, Inc. (the “Company”), and AFC Funding Corporation
(“AFC Funding”), a wholly owned, bankruptcy remote, consolidated, special purpose subsidiary of AFC, entered into
a Ninth Amended and Restated Receivables Purchase Agreement, dated as of September 29, 2020, by and among AFC, AFC Funding, Fairway
Finance Company, LLC (“Fairway Finance”), Fifth Third Bank, National Association (“Fifth Third”), Chariot
Funding LLC (“Chariot Funding”), PNC Bank, National Association (“PNC”), Thunder Bay Funding, LLC (“Thunder
Bay”), Truist Bank (“Truist”), BMO Capital Markets Corp., JPMorgan Chase Bank, N.A., Royal Bank of Canada and
Bank of Montreal (as amended and restated, the “Receivables Purchase Agreement”), pursuant to which AFC Funding sells
an undivided ownership interest in the receivables and related rights it purchases from AFC to Fairway Finance, Fifth Third, Chariot
Funding, Bank of Montreal, PNC, Thunder Bay and Truist (collectively, the “Purchasers”). The Purchasers’ investment
in the receivables and related rights, together with a return thereon, is paid from collections of the finance receivables held
by AFC Funding.
On September 30, 2020, Automotive Finance
Canada Inc. (“AFCI”), a subsidiary of the Company, and the Company entered into the Fifth Amended and Restated Receivables
Purchase Agreement (as amended, the “Canadian Receivables Purchase Agreement”), dated as of September 30, 2020, with
BNY Trust Company of Canada, in its capacity as trustee of Precision Trust, a Canadian multi-seller conduit administered by BMO
Nesbitt Burns Inc. (the “Trust”). Pursuant to the Canadian Receivables Purchase Agreement, AFCI sells undivided interests
in certain eligible Canadian-dollar denominated finance receivables to the Trust on a revolving basis.
The respective finance receivables sold
and a cash reserve serve as security for the obligations to the Purchasers under the Receivables Purchase Agreement and for the
obligations to the Trust under the Canadian Receivables Purchase Agreement. In each case, the amount of the cash reserve depends
on circumstances which are set forth in the respective agreements. After the occurrence of a termination event, as defined in the
Receivables Purchase Agreement, the Purchasers may, and could, cause the stock of AFC Funding to be transferred to the agent under
the Receivables Purchase Agreement for the benefit of the Purchasers, though as a practical matter the Purchasers would look to
the liquidation of the receivables under the transaction documents as their primary remedy. Upon the occurrence of a termination
event under the Canadian Receivables Purchase Agreement, the Trust has discretion to liquidate the receivables under the applicable
transaction documents as its primary remedy. Termination events, as defined in the Receivables Purchase Agreement, include,
among other things, breaches of representations and warranties; failures to perform covenants and other obligations as seller or
servicer; violations of financial covenants related to AFC, AFC Funding or the Company (including, among others, limits on the
amount of debt AFC can incur, minimum levels of tangible net worth of AFC and AFC Funding, and certain financial covenants contained
in the Company’s senior secured credit agreement); defaults in payment of other indebtedness of the Company, AFC or AFC Funding;
violation of certain covenants related to the performance of the receivables portfolio; the occurrence of a material adverse change
in the collectability of the receivables owned by AFC Funding or the business, operations, property or financial condition of AFC
or AFC Funding; certain changes in control of AFC or AFC Funding; and certain bankruptcy events with respect to AFC, AFC Funding
or the Company. The Canadian Receivables Purchase Agreement includes substantially similar termination events pertaining to AFCI,
AFC and the Company, as applicable.
The
following provides a brief description of the amendments effected by the Receivables Purchase Agreement and the Canadian
Receivables Purchase Agreement that are material to the Company. The
program limit under the Canadian Receivables Purchase Agreement of $175.0 million remained unchanged.
Receivables Purchase Agreement
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The aggregate maximum
commitment of the Purchasers was reduced from $1.70 billion to $1.60 billion;
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The Termination Date
was extended from January 28, 2022 to January 31, 2024;
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Provisions designed
to provide additional credit enhancement to the Purchasers upon the occurrence of certain events related to the payment rate and
net spread on the receivables portfolio were added;
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Certain portfolio performance metrics that could result in a requirement to increase the cash reserve
or constitute a termination event were amended to the benefit of AFC Funding;
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Certain provisions
that had been added by amendment to provide relief for the economic impact of the COVID-19 pandemic and to permit the implementation
of AFC’s Customer Relief Plan were removed; and
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Provisions providing
for a mechanism for determining an alternative rate of interest were added.
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Canadian
Receivables Purchase Agreement
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The Termination Date
was extended from January 28, 2022 to January 31, 2024;
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Provisions designed
to provide additional credit enhancement to the Purchasers upon the occurrence of certain events related to the payment rate and
net spread on the receivables portfolio were added;
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·
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Certain portfolio performance metrics that could result in a requirement to increase the cash reserve
or constitute a termination event were amended to the benefit of AFC Funding;
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Certain provisions
that had been added by amendment to provide relief for the economic impact of the COVID-19 pandemic and to permit the implementation
of AFC’s Customer Relief Plan were removed; and
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Provisions providing
for a mechanism for determining an alternative rate of interest were added.
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Certain of the Purchasers and agents and
their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and
investment banking, commercial banking and other services for the Company and its affiliates, for which they received or will
receive customary fees and expenses. JPMorgan Chase Bank, N.A. is the administrative agent and a lender and Fifth Third, PNC,
Truist, Royal Bank of Canada and BMO Harris Bank, N.A., an affiliate of Bank of Montreal, are lenders under a credit agreement
with the Company, the ultimate parent of AFC and AFC Funding.
In addition, BMO Nesbitt Burns Inc., or
certain of its affiliates (“BMO”), previously acted as agent for the Purchasers and currently acts as a purchasing
agent for Fairway Finance and Bank of Montreal under the Receivables Purchase Agreement, was an underwriter in the initial public
offering and secondary offerings of the Company’s common stock, and has, from time to time, performed, and may in the future
perform various commercial banking and other services for the Company and its affiliates.
The
above description of the amendments effected by the Receivables Purchase Agreement and the Canadian Receivables Purchase
Agreement is not complete and is qualified in its entirety by reference
to the full text of the Receivables Purchase Agreement and the Canadian Receivables Purchase Agreement,
copies of which will be filed as exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2020. The Company intends to claim confidential treatment for certain of the information included in the Receivables Purchase
Agreement and the Canadian Receivables Purchase Agreement.