8-KAcquisitions & DispositionsMaterial AgreementsFinancial Events+2

CARVANA CO. 8-K Report, Material Agreement (May 10, 2022)

Filed May 10, 2022For Securities:CVNA

Summary

Carvana Co. (CVNA) filed an 8-K on May 9, 2022, primarily to report on two significant events. First, on May 6, 2022, the company issued $3.275 billion of 10.2500% Senior Notes due 2030. The net proceeds from this issuance were initially placed in escrow to fund the acquisition of the U.S. physical auction business of ADESA, Inc. and for general corporate purposes. Second, on May 9, 2022, Carvana announced the successful completion of the ADESA U.S. Auction Acquisition for approximately $2.2 billion. This acquisition was funded by the aforementioned senior notes. The filing also details the guarantees, ranking, and restrictive covenants associated with the new senior notes, along with supplemental indentures executed to include the newly acquired ADESA entities as guarantors for existing and new debt.

Key Highlights

  • 1Carvana issued $3.275 billion in 10.2500% Senior Notes due 2030.
  • 2The proceeds from the notes issuance were used to finance the acquisition of ADESA's U.S. physical auction business.
  • 3The acquisition of ADESA's U.S. auction business was completed on May 9, 2022, for approximately $2.2 billion.
  • 4The new Senior Notes are guaranteed on a senior unsecured basis by certain domestic subsidiaries, including those acquired from ADESA.
  • 5The notes accrue interest at a high rate of 10.2500% per annum, payable semi-annually.
  • 6The Indenture for the notes includes restrictive covenants that limit certain actions by Carvana and its restricted subsidiaries, though some can be suspended if an investment grade rating is achieved.
  • 7Supplemental indentures were filed to add the acquired ADESA entities as guarantors to existing debt agreements.

Frequently Asked Questions

The primary purpose of the $3.275 billion in 10.2500% Senior Notes due 2030 was to fund Carvana's acquisition of the U.S. physical auction business of ADESA, Inc. The net proceeds were initially held in escrow for this acquisition and also allocated for general corporate purposes.

The acquisition significantly increases Carvana's debt load with the issuance of new senior notes. Furthermore, the acquired ADESA entities are now acting as guarantors for these new notes, as well as Carvana's existing senior notes, strengthening the collateral for those existing debt instruments.

The notes carry a high coupon rate of 10.2500%, reflecting their senior unsecured status and potential perceived risk. They mature in May 2030, and are subject to various redemption provisions, including redemption at par under a change of control event. Key risks include the fact that they are unsecured and rank junior to secured obligations, and are structurally junior to debt at non-guarantor subsidiaries. The restrictive covenants also limit the company's financial flexibility.

While not explicitly detailed in this 8-K, the acquisition of ADESA's U.S. physical auction business suggests a strategic move by Carvana to integrate offline remarketing capabilities into its online used car sales model, potentially creating a more vertically integrated business and expanding its market reach.