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.