Carvana gets $1.6 billion junk bond offer from Apollo to help finance ADESA deal

Apollo Global Management Inc. tossed a lifeline to Carvana Co. by offering to buy roughly half of a struggling junk-bond sale that will help the used-car retailer fund an acquisition and make new investments.

The firm submitted a $1.6 billion order anchoring Carvana’s offering of eight-year bonds at a yield of 10.25 percent, according to people with knowledge of the matter who asked not to be identified because they’re not authorized to speak publicly.

Carvana raised $3.275 billion through the sale, which priced Wednesday afternoon at par to yield 10.25 percent and will finance its acquisition of Adesa Inc.'s U.S. car-auction business and improvements across 56 of its sites. The deal was revamped after Carvana’s bankers at JPMorgan Chase & Co. struggled to find enough buyers for the original structure, which included a $2.275 billion junk bond and $1 billion of preferred equity.

Representatives for Apollo, Carvana and JPMorgan declined to comment.

The Wall Street Journal first reported about Apollo’s offer earlier Wednesday.

Apollo’s move fueled angst among some of Carvana’s existing creditors and potential buyers of the new debt since it came at a lower yield than the 10.5 percent to 11 percent some funds had offered. Shifting $1 billion of the financing from preferred equity -- which would have paid interest in kind -- to bonds will also put further strain on the company’s cash position.

The financing package could add more than $225 million of annual interest expense, roughly doubling what Carvana paid over the previous 12 months, according to Bloomberg Intelligence.

The new structure also includes a bankruptcy make-whole provision, a safeguard that pays creditors a fee should the company refinance while in Chapter 11. One investor said the provision was seen as a sweetener for other money managers to get on board at the lower yield, in addition to other changes such as a longer “non-call” period.    

Carvana’s shares  have plunged more than 70 percent this year amid a deepening cash burn, fueled in part by surging used-vehicle prices and capital spending. The shares fell 6.7 percent to $65.74 on Wednesday.