Lithia Motors (LAD) 8-KEntry into a Material Definitive Agreement

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On August 30, 2021, Lithia Master LP Company, LP (“Lithia Master LP”), as the master borrower, and certain other Canadian subsidiaries of Lithia Motors, Inc. (collectively, the “Borrowers”) entered into a Commitment Letter (the “Credit Agreement”) with The Bank of Nova Scotia, as lender (the “Lender”). The Credit Agreement follows Lithia Motors, Inc.’s announcement of its expansion into Canada through a new partnership with Toronto-based Pfaff Automotive Partners through Lithia Master LP.

The Credit Agreement makes available to the Borrowers three primary lines of credit (collectively, the “Credit Facilities”) subject to the terms and conditions of the Credit Agreement, including a working capital revolving credit facility of up to $50 million CAD for general operating requirements, including for funding capital expenditures and financing certain permitted acquisitions of Lithia Master LP and each of the other Borrowers that have satisfied certain conditions of the Lender; up to $300 million CAD floor plan financing for new and used vehicles; and up to $350 million CAD to provide wholesale lease financing, including for new and used vehicles and rentals. The Credit Facilities accrue interest at rates equal to the Lender’s prime lending rate or the Canadian Dollar Offered Rate plus, in each case, a spread, with the spreads ranging from 0.25% per annum to 1.50% per annum.

The Credit Facilities are secured by all of the personal property of the applicable Canadian Borrowers as well as collateral specific to each Credit Facility, as described in the Credit Agreement.

The Credit Agreement includes financial and restrictive covenants typical of such agreements, conditions to the Lender’s obligations to make advances under the Credit Agreement, including borrowing base requirements, and representations and warranties by the Borrowers. Financial covenants include the requirements that Borrowers on a consolidated basis maintain a fixed charge coverage ratio is of not less than 1.20:1 and a leverage ratio of not more than 5.75:1. The covenants restrict each of the Borrowers from, among other things, incurring additional indebtedness, incurring liens, completing certain fundamental corporate transactions, and exporting certain financed vehicles outside of Canada. In addition, the Credit Agreement imposes conditions on Lithia Master LP’s ability to make certain distributions and redemptions, among other things.

All indebtedness and liability of the Borrowers to the Lender become, at the Lender’s option, on demand and otherwise immediately due and payable upon the occurrence of certain customary events set forth in the Credit Agreement, including payment defaults, breaches of the Credit Agreement and other related agreements, events of insolvency, adverse change occurs in the financial condition of any Borrower or any adverse change occurs in the environmental condition of any Borrower or its property.

A copy of the Credit Agreement is set forth as Exhibit 10.1 to this Current Report on Form 8-K, and is incorporated herein by reference.

The description of the Credit Agreement in this report is only a summary and is qualified in its entirety by reference to the actual terms of the Credit Agreement.

* Certain confidential and immaterial terms redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.