Auto parts retailer AutoZone, Inc. (NYSE: AZO) has strengthened its financial position by amending its revolving credit agreement to boost growth and pay off debt. The company has increased its credit agreement from $2.0 billion to $2.25 billion, with the option to increase it to $3.25 billion at its discretion and the approval of its lenders. The termination date of the amended agreement has been extended by one year to November 15, 2027, with the option for AutoZone to request an additional one-year extension.
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The amended Revolving Credit Agreement
The amended Revolving Credit Agreement includes a $75 million sublimit for swingline loans, a $50 million individual issuer letter of credit sublimit, and a $250 million aggregate sublimit for all letters of credit. As of May 6, 2023, AutoZone had no outstanding borrowings and $1.8 million of outstanding letters of credit under its Revolving Credit Agreement.
In addition to the committed facilities, the company also maintains a letter of credit facility allowing it to request participating banks to issue letters of credit up to an aggregate amount of $25 million on its behalf. This facility expires in June 2025 and is separate from the letters of credit that can be issued under the Revolving Credit Agreement. As of May 6, 2023, AutoZone had $25.0 million in letters of credit outstanding under this facility, as well as $107.2 million in letters of credit outstanding on an uncommitted basis.
Debt management and refinancing
Furthermore, the company has successfully managed its debt profile by refinancing and paying off its existing obligations. As of May 6, 2023, AutoZone had $1.1 billion in commercial paper borrowings and $800 million in senior notes ($500 million due July 2023 and $300 million due April 2024) classified as long-term in its consolidated balance sheets. This was made possible by utilizing the available capacity under its Revolving Credit Agreement, which had $2.2 billion of availability without factoring in commercial paper borrowings.
During this period, AutoZone repaid its outstanding $300 million 2.875% senior notes due January 2023 and issued new senior notes – $450 million in 4.500% notes due February 2028 and $550 million in 4.750% notes due February 2033 – to repay a portion of its outstanding commercial paper borrowings and for other general corporate purposes.
Financial position and debt ratios
AutoZone’s robust financial position is reflected in its debt ratios, which have remained stable over the last year. The company’s adjusted debt to earnings before interest, taxes, depreciation, amortization, rent, and share-based compensation expense (EBITDAR) ratio was 2.3:1 as of May 6, 2023, compared to 2.1:1 as of May 7, 2022. AutoZone aims to maintain its investment-grade credit ratings by targeting its debt levels to a ratio of adjusted debt to EBITDAR.
Going forward, the company expects its adjusted debt-to-EBITDAR ratio to return to pre-pandemic levels, which would imply increasing its debt levels. Once the target ratio is achieved, AutoZone’s debt levels could rise or fall depending on EBITDAR fluctuations.
Stock repurchases and shareholder value
Apart from addressing its debt position, AutoZone continues to focus on stock repurchases as part of its ongoing share repurchase program, which has grown to $33.7 billion following the Board’s authorization of an additional $2.5 billion of common stock repurchase. Between January 1, 1998, and May 6, 2023, the company has repurchased 153.6 million shares of its common stock at a total cost of $32.8 billion. By May 6, 2023, AutoZone had $843.6 million remaining under its Board’s authorization to repurchase common stock.
In conclusion, AutoZone’s amended Revolving Credit Agreement and proactive debt management efforts set the stage for the company to further boost growth and maintain a solid financial foundation in the coming years, improving its chances of outperforming the market and enhancing shareholder value.
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