Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
We are exposed to market risk from changes in interest rates. This market risk arises in the normal course of business, as we do not engage in speculative trading activities. The following analysis provides quantitative information regarding this risk.
Interest Rate Risk
Our operating results are subject to risk from interest rate fluctuations on our Senior Secured Credit Facilities, our Floor Plan Facility, and our Real Estate Facilities, which carry variable interest rates. Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Because our Senior Secured Credit Facilities, Floor Plan Facility, and Real Estate Facilities bear interest at variable rates, we are exposed to market risks relating to changes in interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control.
Based on December 31, 2022 debt levels (see Liquidity and Capital Resources — Description of Credit Facilities, Other Long-Term Debt, and Finance Lease Arrangements in Part II, Item 7 of this Form 10-K), an increase or decrease of 100 basis points in the effective interest rate would cause an increase or decrease in interest expense:
• under our Term Loan Facility of $14.0 million over the next 12 months;
• under our Floor Plan Facility of approximately $13.4 million over the next 12 months;
•
under our Floor Plan Facility revolving line of credit of approximately $0.2 million over the next 12 months;
• under our Real Estate Facilities of approximately $1.5 million over the next 12 months; and
• under our Other Long-Term Debt would be immaterial.
See “Results of Operations” in Part II, Item 7 of this Form 10-K for a discussion of interest expense for the year ended December 31, 2022 compared to the year ended December 31, 2021.
We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future.
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