8-KFinancial Events

O REILLY AUTOMOTIVE INC 8-K Report, Financial Obligation (Jan 25, 2010)

Filed January 25, 2010For Securities:ORLY

Summary

O'Reilly Automotive, Inc. (ORLY) filed an 8-K on January 25, 2010, to report on a financial derivative transaction entered into on January 21, 2010. The company executed an interest rate swap transaction with Barclays Capital to hedge against interest rate fluctuations on $50 million of its outstanding floating-rate debt. This transaction aims to mitigate the risk associated with the company's Credit Facility, which is administered by Bank of America, N.A. The swap effectively converts a portion of the company's variable-rate debt to a fixed rate, providing greater certainty regarding future interest expenses. This move is a proactive step to manage financial risk and improve the predictability of its cost of debt. Investors should view this as a prudent financial management strategy designed to stabilize the company's financial performance, particularly in an uncertain interest rate environment.

Key Highlights

  • 1O'Reilly Automotive entered into an interest rate swap transaction on January 21, 2010.
  • 2The swap is designed to mitigate interest rate risk on $50 million of the company's outstanding floating-rate debt.
  • 3The counterparty for the swap transaction is Barclays Capital.
  • 4The swap has an effective date of January 22, 2010, and a maturity date of January 31, 2011.
  • 5Under the swap, O'Reilly will make fixed payments at 0.525% on a notional amount of $50 million.
  • 6Barclays Capital will make floating rate payments to O'Reilly based on LIBOR on the same notional amount.
  • 7This transaction effectively fixes the interest rate on $50 million of debt under the Credit Facility at 0.525% plus applicable margin.

Frequently Asked Questions

The interest rate swap transaction was entered into to mitigate the interest rate risk on $50 million of O'Reilly Automotive's outstanding floating-rate debt. It effectively converts a portion of variable-rate debt to a fixed rate, providing more predictable interest expenses.

The notional amount of the swap is $50 million. The swap has an effective date of January 22, 2010, and a maturity date of January 31, 2011, making its duration approximately one year.

The counterparty in this interest rate swap agreement is Barclays Capital.

No, the company remains ultimately obligated for all amounts due and payable under its Credit Facility. The swap is a derivative instrument to manage the interest rate component of that debt, not to change the principal obligation.