Following the announcement on Sunday that Lithia Motors will acquire DCH Auto Group, Lithia has said that the first component of funding for the transaction will come from a $600-million expansion of their existing credit facility.
In a conference call on Tuesday, Christopher Holzshu, Lithia’s chief financial officer and senior vice president, said the company anticipates funding the transaction through an increase in their syndicated credit facility, obtaining mortgage financing through their unencumbered real estate, and continued operational cash flow.
“Between now and the estimated closing in the 4th quarter, we’ll be working with our banks and captive partners to raise the required capital,” Holzshu said.
In 2012, Lithia entered into a five-year loan agreement with 14 different lenders. Most recently amended in December 2013 and extended to December 2018, that agreement could be further amended due to the latest acquisition. Lithia had not gotten back to Auto Finance News by press time.
David Whiston, analyst at Morningstar, said that with the addition of 27 new stores, the funding will have to come from somewhere, but without specifics from Lithia it is hard to say if a renegotiation will be initiated at this time. If proposed though, the amendment will most likely go smoothly.
“Lithia has really good relationships with their lenders, so I wouldn’t anticipate any problems there,” Whiston said.
But it is continued growth, rather than financing, that is the main priority for Lithia and DCH at this time, according to Holzshu.
“When we laid out our financing strategy, we commented that we still have plenty of liquidity left on the balance sheet at this point in time. We don’t anticipate any cash issues pending the financing on the transaction,” Holzshu said during Tuesday’s call. “Our strategy is to continue to grow and deploy cash first into acquisitions and internal investments.”
Lithia, Holzshu said, is also excited about moving forward and further exploring cost synergy opportunities as a result of the merger.
“Going to market with a $70 billion company is different than going to market with a $4.7 billion company,” Holzshu said.
The deal, which will give Lithia a total of 128 stores, is targeted to close in the 4th quarter of 2014.