KAR Auction Raises $340.9 Million through IPO, Less than Hoped

Carmel, Ind.-based KAR Auction Services Inc., an auctioneer of used and salvaged vehicles, made its trading debut Dec. 11, 2009, one day after the company raised less than it had hoped in its initial public offering (IPO), reported the Associated Press.

Although KAR has $300 million in borrowing capacity, the company owes creditors $2.5 billion dollars. It had hoped to raise $340.9 million through its IPO. According to Scott Sweet, senior managing partner at IPO Boutique, Wall Street does not look favorably to company with heavy debt loads.

With vehicle sales in the U.S. being at a historic low in 2009, KAR had $1.31 billion in revenue and made a profit of $17.9 million for the first nine months of 2009. On the other hand, the company had revenue of $1.77 billion in 2008, although it lost money during that time.

KAR initially planned to sell 23 million shares, priced between $15 and $17. However, on Dec. 10, 2009, the company decided to sell 25 million common shares at $12 each for total proceeds of $300 million, according to AP.

Underwriters, such as Goldman Sachs, Bank of America, Merrill Lynch, Credit Suisse and JP Morgan, had a 30-day option to purchase up to another 3.75 million shares. Originally, the company planned to sell 3.45 million shares.

If this option is implemented, KAR expects to bring in another $45 million.

With its earnings from its IPO, the company plans to shrink its debt. Standard & Poor’s credit ratings agency said that the plan calls for an upgrade in KAR’s credit rating if it cuts its debt as planned.

Furthermore, with Edmunds.com stating that it expects Americans to buy 11.5 million cars and light trucks in 2010, compared to the 10.3 million in 2009, vehicle sales in the U.S. are expected to rebound. In addition, the market for leased vehicles is also beginning to recover. Because of this, the supply of used vehicles entering the market should replenish.


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