Inventories, net and Notes Payable - Floor Plan, net

6 Months Ended

Jun. 30, 2020

Inventories, net and Notes Payable - Floor Plan, net

Inventories, net and Notes Payable - Floor Plan, net

3. Inventories and Floor Plan Payable

Inventories consisted of the following (in thousands):

	June 30,		December 31,
	2020		2019
Good Sam services and plans	$	14	$	590
New RVs		711,164		966,134
Used RVs		126,687		165,927
Products, parts, accessories and other		214,357		225,888
	$	1,052,222	$	1,358,539

New RV inventory, included in the RV and Outdoor Retail segment, is primarily financed by a floor plan credit agreement with a syndication of banks. The borrowings under the floor plan credit agreement are collateralized by substantially all of the assets of FreedomRoads, LLC (“FR”), a wholly owned subsidiary of FreedomRoads, which operates the RV dealerships, and bear interest at one-month LIBOR plus 2.05% as of June 30, 2020 and 2.15% as of December 31, 2019. LIBOR was 0.17% at June 30, 2020 and 1.71% as of December 31, 2019. The floor plan borrowings are tied to specific vehicles and principal is due upon the sale of the related vehicle or upon reaching certain aging criteria.

As of June 30, 2020 and December 31, 2019, FR maintained floor plan financing through the Seventh Amended and Restated Credit Agreement (“Floor Plan Facility”). On October 8, 2019, FR entered into a Second Amendment to the Seventh Amended and Restated Credit Agreement (the “Second Amendment”). The applicable borrowing rate margin on LIBOR and base rate loans ranges from 2.05% to 2.50% and 0.55% and 1.00%, respectively, based on the consolidated current ratio at FR. The Floor Plan Facility at June 30, 2020 allowed FR to borrow (a) up to $1.38 billion under a floor plan facility, (b) up to $15.0 million under a letter of credit facility and (c) up to a maximum amount outstanding of $54.0 million under the revolving line of credit, which maximum amount outstanding further decreases by $3.0 million on the last day of each fiscal quarter. The maturity date of the Floor Plan Facility is March 15, 2023.

On May 12, 2020, FR entered into a Third Amendment to the Seventh Amended and Restated Credit Agreement (“Third Amendment”) that provides FR with a one-time option to request a temporary four-month

reduction (“Current Ratio Reduction Period”) of the minimum consolidated current ratio at any time during 2020 and the first seven days of 2021. FR has not yet exercised that option. During the Current Ratio Reduction Period, the applicable borrowing rate margin on LIBOR and base rate loans ranges from 2.05% to 3.00% and 0.55% and 1.50%, respectively, based on the Consolidated Current Ratio at FR. Effective May 12, 2020 through July 31, 2020, FR is not allowed to draw further Revolving Credit Loans (as defined in the Floor Plan Facility).

The Floor Plan Facility includes a flooring line aggregate interest reduction (“FLAIR”) offset account that allows the Company to transfer cash as an offset to the payable under the Floor Plan Facility. These transfers reduce the amount of liability outstanding under the floor plan notes payable that would otherwise accrue interest, while retaining the ability to transfer amounts from the FLAIR offset account into the Company’s operating cash accounts. As a result of using the FLAIR offset account, the Company experiences a reduction in floor plan interest expense in its consolidated statements of operations. As of June 30, 2020 and December 31, 2019, FR had $216.9 million and $87.0 million, respectively, in the FLAIR offset account. The Third Amendment raised the Applicable FLAIR Maximum Percentage (as defined in the Floor Plan Facility) from 20% to 30% for the period of May 12, 2020 through August 31, 2020.

Management has determined that the credit agreement governing the Floor Plan Facility includes subjective acceleration clauses which could impact debt classification. Management has determined that no events have occurred at June 30, 2020 that would trigger a subjective acceleration clause. Additionally, the credit agreement governing the Floor Plan Facility contains certain financial covenants. FR was in compliance with all debt covenants at June 30, 2020 and December 31, 2019. On June 29, 2020, FR made a voluntary $20.0 million principal payment on the revolving line of credit.

The following table details the outstanding amounts and available borrowings under the Floor Plan Facility as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30,		December 31,
	2020		2019
Floor Plan Facility
Notes payable - floor plan:
Total commitment	$	1,379,750	$	1,379,750
Less: borrowings, net		(470,871)		(848,027)
Less: flooring line aggregate interest reduction account		(216,850)		(87,016)
Additional borrowing capacity		692,029		444,707
Less: accounts payable for sold inventory		(88,556)		(27,892)
Less: purchase commitments		(31,993)		(8,006)
Unencumbered borrowing capacity	$	571,480	$	408,809
Revolving line of credit:	$	54,000	$	60,000
Less: borrowings		(20,885)		(40,885)
Less: temporary limitation on borrowing through July 31, 2020		(33,115)		—
Additional borrowing capacity	$	—	$	19,115
Letters of credit:
Total commitment	$	15,000	$	15,000
Less: outstanding letters of credit		(11,175)		(11,175)
Additional letters of credit capacity	$	3,825	$	3,825