(Bloomberg) --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%, 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% and will finance its acquisition of Adesa Inc.’s U.S. car-auction business and improvements across 56 of its sites. The deal was
Representatives for Apollo, Carvana and JPMorgan declined to comment.
The Wall Street Journal first reported about Apollo’s offer earlier Wednesday.
Creditor Angst
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% to 11% 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.
(Updates the first and third paragraphs with final pricing details.)
--With assistance from Claire Boston, Gowri Gurumurthy and Allison McNeely.
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