Raising Arizona (bailout debt) | FinancialTimes

A four-mile radius in the Phoenix area is now the epicenter of the easy money ending.

Carvana and Nikola were once pandemic darlings, each ostensibly game changers in the automotive industry.

Based in Tempe, just on the banks of the Salt River, Carvana allows Americans to buy used cars over the internet or even from a vending machine. Just a 10-minute drive away, slightly within the Phoenix border, was Nikola, billed by its founder as the Tesla of commercial hydrogen trucks.

The two upstarts have reached market capitalizations of around $30 billion during the pandemic. And today, the two came crashing back to earth.

In the case of Nikola, its founder Trevor Milton was caught driving trucks downhill to allegedly simulate the readiness of his technology. He was indicted by the feds and Nikola slapped with a $125 million fine from the SEC for misleading investors (SEC rules do not include an admission or denial of guilt).

The company hopes to start marketing its trucks in 2022, but until then it needs cash to keep the lights on. On Monday, Nikola sold $200 million worth of convertible bonds to a hedge fund called Antara Capital. Here are the brutal conditions which include a huge coupon AND a cheap conversion price (emphasis ours):

“The funds advised by Antara Capital LP have agreed to purchase an aggregate amount of $200 million of 8.00%/11.00% Convertible Senior Notes due 2026 (the “Notes”). The Notes will bear interest at a rate of 8.00% if paid in cash, or at a rate of 11.00% by issuing additional banknotesat the option of the Company.

The Notes will be convertible at an initial conversion price to be determined prior to Closing. The initial conversion price will represent a 30% premium to the lower of Nikola’s volume-weighted average price over a pre-determined period of time between such announcement and the closing of the Notes and the closing price of Nikola’s common stock. the last trading day before the date of this announcement, but will not be less than 110% of this closing price. »

As for Carvana, the company already sells cars, but not enough at a high enough price. The music now seemed to stop for the perennial target of short sellers.

Last week, Carvana was able to complete a $3.275 billion junk bond deal. But according to many the newswhich required a 10% coupon and Apollo Global Management removing much of the offer to cross the finish line.

Here are, via S&P LCD, the terms for nosebleed:

According to TRACE prices on Monday, these bonds had already fallen below 98 cents on the dollar.

Phoenix, Arizona: Home of FT veterans Peter Spiegel and Sujeet Indap, triple-digit Fahrenheit temperatures and double-digit bond yields (Ed’s note: and the chimichanga).

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