In recent days, Carvana has shared details on how it plans to finance its proposed $2.2 billion acquisition of ADESA’s U.S. auction business from KAR Global, a deal first announced in February that is expected to close in May.

The online retailer is offering $2.275 billion in senior unsecured notes due 2030 and $1 billion in Series A perpetual preferred stock, which will finance the purchase price and the future real estate improvements to the ADESA auction sites.

Carvana is also offering $1 billion in common equity for general corporate purposes.

On its investors relations website, Carvana breaks down the deal structure and costs, as follows (both metrics add up to $4.275 billion)

New issuance:
$2.275 billion Senior Unsecured Notes
$1 billion PIK Preferred Equity
$1 billion Common Equity
 

ADESA Purchase Price, Transactions, and Other Uses:
$2.2 billion Purchase Price
$1 billion for potential future ADESA U.S. real estate improvements over time, before related transaction fees and expenses
$142 million of Other Transaction Fees and Expenses
$1 billion for general corporate purposes, before related transaction fees and expenses

SOURCE: Carvana

“We feel really great about that transaction structure. I think it gives us a lot of flexibility to execute our plan,” Carvana chief executive officer Ernie Garcia said in last week’s quarterly earnings call. “We feel really great about the trajectory we’re on. We feel really great about joining forces with ADESA US and all the benefits that brings to our core business.”

During the Q&A portion of the call, Garcia said the additional capital Carvana is raising is designed to provide “maximum flexibility” and greater liquidity.

“There's some pretty neat things happening in the auto industry these days that I, at least, haven't seen in my career,” Garcia said. “And so we think that given the opportunity that we've got, the size of that opportunity, the strength at which our customers have responded to our offering over the last nine years, the market share that we've seen continually growing across our market, the continued market share growth that we've seen, the addition of ADESA and the ability for us to build into that opportunitiy, we just want to make sure that we position ourselves very well to ride out whatever storm may or may not come.

“And so I think that this structure gives us the ability to do that. It gives us the ability to continue to run our play, and that’s what we’re going to do, because we think the opportunity is absolutely massive.”

Garcia further emphasized that “nothing’s changed” in regards to the previously announced plans to invest $1 billion over several years in ADESA auction sites to increase annual reconditioning capacity from approximately 200,000 units to 2 million units at full staffing and utilization.

Again, with regards to the additional capital, he said, “the way we're thinking about that is, we have a very big opportunity as a company … we're extremely excited about the opportunity in front of us to take meaningful market share, to drive strong used economics, to take advantage of the ADESA acquisition, to get additional reconiditiong capacity, closer to more customers to improve customer expererience, and speed delivery times, take advantege of the logistics network benfefits that come from having a more broadly distributed footprint.

“We decided to raise that additional capital just to allow us to completely focus on that goal of building toward our long-term model and to stop having conversations about liquidity and what happens in a deep recession and a prolonged recession and all those sorts of things.”