Carvana to issue new HY bond for Adesa acquisition
Online used car retailer Carvana is expected to hit the high-yield bond market next week to help finance its US$2.2bn acquisition of auto auction house Adesa.
Carvana is planning to raise US$2.275bn in senior unsecured notes due 2030. The high-yield bonds will join a US$2bn two-part equity and preferred stock sale being run by bookrunners JP Morgan and Citigroup.
In February, Carvana announced it would acquire Adesa for US$2.2bn from user car dealer company KAR Global. The deal is expected to close in May.
The new debt and equity raises come after Carvana reported disappointing first quarter 2022 earnings. The company reported a negative Ebitda of US$405m for the first quarter, compared with negative US$93m the quarter prior, while its total revenues dropped as well to US$3.49bn from US$3.75bn.
Carvana said its first quarter was challenging, with reconditioning and logistics network disruptions directly impacting its financial results along with used car prices and higher interest rates.
In its shareholder letter, the company said its target of generating positive Ebitda would be delayed for "a few quarters" after previously anticipating it would breakeven from the start of this year.
Last month, Moody's placed Carvana's ratings of B3 on review for downgrade after announcement of the Adesa acquisition and the issue of new debt.
Given the company's lack of profitability, Moody's said an upgrade in the near term is unlikely and it could be downgraded if "operating performance levels do not continue to progress such that profitability is sustained on a quarterly basis or liquidity weakens for any reason."
S&P Global Ratings has not reviewed its CCC+ rating on Carvana since May 2021.
