I've long felt KAR is mispriced hence my ownership of the shares.
In terms of the debt issue, it was stated very clearly what it was for. It was for repayment of the existing debt, but they were annoyed that the banks wouldn't give them the full $340m drawdown (only $274m) so they went looking for another source, but having access to the extra $66m, doesn't appear to be required when you look at the cash balances and the projected cash inflows in 2024. Any debt of a new acquisition can easily be sourced at the time of acquisition using a new RBL facility on the new assets.
Its practically certain that the old RBL will be extinguished, because security over the KAR subsidiaries has been provided to them, which is also the same security they would have provided for the RBL.
The only benefits of changing to bonds, was gaining an extra $66m in debt and removing the requirement to hedge which was a restriction of the RBL (only for circa 30% of production). The downside is that the interest rate was higher. The neutral position (as in, it can be taken as positive or negative) is that there is no repayment profile for the bonds (due at their expiry) whereas the RBL had repay provisions included to repay certain proportions on set dates. Positive as it retains the access to the cash for longer, negative in its retaining expensive debt without the ability to repay quicker so it prolongs the interest cycle.
KAR Price at posting:
$1.90 Sentiment: Hold Disclosure: Held
(20min delay)