O'Reilly Auto approves restructured financial plan

In an effort to improve its capital structure, the board of directors of O'Reilly Automotive Inc. (Nasdaq: ORLY) has approved a multifaceted financial plan, which authorizes the company to repurchase up to $500 million worth of shares within three years and sell $500 million worth of senior notes to be paid back in 10 years.

"We are committed to utilizing the share repurchase program within the bounds of our historically disciplined capital structure to enhance shareholder returns while maintaining adequate liquidity to execute our growth and expansion plans," Greg Henslee, O'Reilly co-president and CEO, said in a Jan. 11 news release.

Co-President and Chief Operating Officer Ted Wise added the company intends to open 170 new locations this year, increasing its store count to more than 3,700 by the end of 2011.

In a phone interview, Mark Merz, director of investor relations, laid out details of the financial plan.

Merz said previous company policy allowed for one line of credit the company could borrow on to run the business. With the approval of the new financial plan, two avenues for borrowing have been opened.

The first extends $500 million in senior notes to the open market for purchase. The company will pay semiannual interest of 4.875 percent to the borrower and pay back the amount at the end of a 10-year period.

Bank of America Merrill Lynch and Barclays Capital Inc. are acting as joint book running mangers for the note offerings.

The sale of the senior notes will allow the company to pay its existing outstanding debts, Merz said.

The second avenue will open a $750 million line of credit from a group of banks, with Bank of America overseeing the fund. Merz declined to name the other banks involved.

The fund will allow O'Reilly to borrow up to $750 million if the company doesn't have the cash on-hand. The company will pay back any borrowings utilized from the fund, Merz said.

O'Reilly plans to regulate its EBITDAR - earnings before interest, taxes, depreciation, amortization and rent  - ratio. Increased borrowings will move the company's ratio from its current level of 1.6x to a range of 2.0x-2.25x, where it would like to be, Merz said.

"Debt is cheaper than equity," he said. "To not have any debt on your books means your doing all your financing through equity."

To finance primarily through equity, Merz said, is difficult on company investors.

O'Reilly Auto shares were trading at $57.37 as of 11 a.m., compared to a 52-week range of $37.47 to $63.05.[[In-content Ad]]