KAR raises $550M to help it emerge from pandemic shutdown

Carmel-based KAR Auction Services Inc. announced Tuesday that it has raised $550 million through a preferred stock placement that it plans to use to help it resume operations that have been on hold during the pandemic.

The investment was led by funds advised by London-based Apax Partners, a global private equity advisory firm, with participation by New York City-based Periphas Capital L.P.

KAR Auction shares rose more than 9% in early Tuesday trading, to $13.66 per share.

The company, a leading provider of automobile auction services in North America, went into near-shutdown mode when the pandemic struck. It furloughed about 11,000 of its 15,300 employees in April and reduced pay for all employees making more than $80,000 per year.

The company ceased physical auctions, but did resume virtual sales at auction sites in early April.

“KAR took early and decisive steps in response to COVID-19 to protect the safety of our employees and customers, preserve our capital position and keep our operations moving forward,” KAR Chairman and CEO Jim Hallett said in written remarks. “This transaction will help us continue to support our global customers and further accelerate our digital transformation.”

Kar said the “proceeds of the transaction will be utilized to expedite the resumption of operations to meet market demand, sustain the company’s technology platforms and development pipeline, and navigate the industry and economic recovery.”

The company said the placement of $550 million in perpetual convertible preferred stock of KAR Global has a 7% dividend that shall be paid in-kind for the eight quarters following closing, and thereafter in cash or in-kind at KAR’s option.

The initial conversion price of $17.75 per share represents an approximately 42% premium to KAR’s closing price of $12.52 per share on Friday.

KAR on May 7 reported first quarter revenue of $645.5 million, down 6% from the same period a year earlier.

Profit from continuing operations for the first quarter of 2020 decreased 82%, to $2.8 million, or 2 cents per share. The company said it took a $35 million hit through April 3 alone because of pandemic-related shutdowns.

“Apax is the right strategic partner for our company, employees and stockholders, and their investment reinforces the strength of our brands, market position and long-term strategy for growth and expansion,” Hallett said.