Carvana nets $3.275B debt financing commitment to back ADESA deal

J.P. Morgan and Citi have committed to provide up to $3.275 billion of debt financing to Carvana Co. to back the company's acquisition of ADESA's U.S. physical auction business from KAR Auction Services Inc. for $2.2 billion in cash.

ADESA provides wholesale vehicle auctions with 56 sites in the U.S. The company generated EBITDA of over $100 million in 2021 on revenue of $800 million. Carvana, an online car retailer, will continue to operate the auction business and related services under the ADESA brand. Closing of the acquisition is expected in the second quarter.

In addition to funding the acquisition, proceeds from the financing will be used for an additional $1 billion in improvements at the acquired facilities.

Carvana's existing debt includes $2.45 billion of senior unsecured notes, $500 million of 5.625% notes due October 2025, $600 million of 5.50% notes due April 2027, $600 million of 5.875% notes due October 2028, and $750 million of 4.875% notes due September 2029.

Rating agencies have not yet weighed in with comments about the proposed acquisition, but current corporate ratings for Carvana are CCC+/B3, with positive and stable outlooks.

As for KAR, the company expects to receive about $1.65 billion in net proceeds from the deal and plans to reduce debt. Specifically, $950 million of proceeds will be used to redeem its 5.125% senior notes due June 2025, and roughly $700 million will be applied toward term loan repayment. As of Dec. 31, 2021, there was $929 million outstanding of its term loan B-6 due September 2026 (L+225, 0% Libor floor). This would represent de-levering to approximately 0.2x net leverage, according to the company.