Securities & Exchange Commission paperwork not only divulged AutoTrader Group’s intentions to become a publicly traded company, the necessary filing revealed what the newly formed entity that includes AutoTrader.com, Kelley Blue Book, vAuto and VinSolutions intends to do with proceeds from the selling of shares.

Company executives are looking to generate $300 million through a proposed initial public offering of its common stock. In documents posted late last Friday afternoon, the number of shares to be offered and the price range for the offering have not yet been determined.

Auto Remarketing and SubPrime Auto Finance News attempted to reach company executives for comments and reaction to the developments, but company spokesperson Lou Laste said SEC regulations prevent any further dialogue beyond what’s contained in federal paperwork.

Why an IPO?

The IPO announcement continues a string of significant moves made by AutoTrader during the past couple of years, a span that included the acquisitions of KBB and vAuto.

Officials said in SEC paperwork that they intend to use the net proceeds from the IPO to repay a to-be-determined amount of indebtedness under their credit facilities as well as other general corporate purposes.

AutoTrader explained its credit facilities consist of two tranches of term A loans, a term B loan facility and a revolving credit facility.

The company said one term A loan tranche and a revolver mature in 2015 while the other term A loan tranche matures in 2017 but is subject to certain conditions. Its term B loan facility matures in 2016.

As of March 31, the weighted average interest rate under AutoTrader’s credit facilities was 2.99 percent.

“On April 30, we amended our credit facilities to, among other things, provide for $400 million of additional borrowing capacity, and we drew down the additional capacity to pay a $400 million dividend to the then-existing common stockholders of ATC,” officials explained.

“We may also use a portion of the net proceeds for acquisitions of technologies, products or companies that complement our business, although we have no current understandings, commitments or agreements to do so,” they continued.

“This expected use of net proceeds from this offering represents our current intentions based upon our present plans and business conditions,” AutoTrader officials went on to say. “The amounts and timing of our actual expenditures depend on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

“Certain affiliates of the underwriters are lenders under our credit facilities and are expected to receive a portion of the net proceeds from this offering in connection with our repayment of indebtedness under our credit facilities,” they added.

Formation of New Company

According to federal documents, CEI and Providence Funds formed AutoTrader Group, Inc., in May. CEI encompasses major operating subsidiaries Cox Communications, Manheim and Cox Media Group while Providence Equity Partners obtained a 25-percent stake in CEI two years ago.

AutoTrader Group is divided into two distinct business segments. One is Digital Media, which includes AutoTrader.com and KBB, and the other is Software Solutions, which includes CDMdata, vAuto, HomeNet Automotive and VinSolutions.

The board of this new entity includes:

—Chip Perry, president, chief executive officer and director
—Dallas Clement, executive vice president and chief financial officer
—James Franchi, executive vice president and chief operating officer, AutoTrader.com
—Edward Smith, chief technology officer
—Clark Wood, chief marketing officer
—Steven Smith, senior vice president of dealer sales, AutoTrader.com
—Matthew McKenna, senior vice president of national account sales, AutoTrader.com
—David Amundsen, vice president of finance, AutoTrader.com
—Peter Cassat, vice president and general counsel
—Jared Rowe, president,  Kelley Blue Book.
—Keith Jezek, president, vAuto and president, VinSolutions.
—Dale Pollak, founder, vAuto
—Jimmy Hayes, chairman of the board and director
—Albert Dobron, director
—Michael Dominguez, director
—John Dyer, director
—James Kennedy Jr., director
—John Olin, director
—Sandy Schwartz, director
—Alexander Taylor, director

“Upon the completion of this offering, representatives of CEI and Providence Equity Partners will occupy a majority of the seats on our board,” AutoTrader Group officials explained.

“CEI may compete with us directly or invest in entities that directly or indirectly compete with us. In addition, Providence Equity Partners could invest in entities that directly or indirectly compete with us, and entities in which Providence Equity Partners is invested may compete with us in the future,” they continued.

“As a result, when conflicts arise between the interests of CEI or Providence Equity Partners and the interests of our other stockholders, these directors may not be disinterested. The representatives of CEI or Providence Equity Partners on our board, by the terms of our amended and restated certificate of incorporation, are not required to offer us any corporate opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is expressly offered to them solely in their capacity as our directors,” officials went on to say.

Recap of Acquisitions and Debt Levels

AutoTrader recapped how it procured the various segments that constitute its two business divisions.

In October of 2010 the company acquired vAuto, a provider of advanced software tools for used-vehicle management, pricing and inventory optimization, for $192.8 million in cash.

In addition, officials mentioned the purchase agreement provided for maximum additional consideration of up to $34.5 million in the form of an earn-out payable in 2012 and was based upon the achievement of certain cumulative financial targets for 2010 and 2011.

The company indicated that last June’s acquisition of VinSolutions triggered certain provisions of the vAuto purchase agreement that accelerated the vesting of the earn-out, resulting in a full payment of $34.5 million last July.

AutoTrader said it ended up paying $134.6 million in cash for VinSolutions, a provider of an end-to-end solution platform for dealers including CRM and Internet lead management, inventory management tools, dealer websites, sales management and desking tools, and social media and direct targeted marketing campaign tools.

In addition, the VinSolutions purchase agreement provided for additional consideration of up to $15.0 million in the form of an earn-out payable in 2012 and based upon the achievement of certain financial targets for 2011.

This year, officials noted they paid $13.0 million in two installments in settlement of the earn-out.

While the vAuto and VinSolutions were tied together, AutoTrader made two other separate transactions in December 2010.

The company used a cash consideration of $61.6 million to acquire certain assets of HomeNet. AutoTrader noted the $2.2 million remaining unamortized option value as of the acquisition date was accounted for as additional purchase price of the acquired assets.

Furthermore, AutoTrader secured Kelley Blue Book as well as its affiliate, CDMdata, for $532.4 million in cash.

All of those activities plus AutoTrader’s other business dealings left the company with more than $1 billion of debt.

On Dec. 15, 2010, AutoTrader said it entered into credit facilities with Wells Fargo Bank and other agents and lenders, which initially provided for a revolving credit facility in an aggregate principal amount of up to $200 million and two term loan facilities in an aggregate principal amount of $750 million.

Last June 14, the company amended its credit facilities to increase the aggregate term loan commitments by $100 million to finance the acquisition of VinSolutions.

Then on April 30, AutoTrader again amended our credit facilities to increase the aggregate term loan commitments by $200 million and increase the aggregate revolving credit commitments by $200 million in order to finance a dividend to the company’s then-existing stockholders.

“As of March 31, total outstanding indebtedness under our credit facilities after giving effect to the amendment on April 30 was $1.2844 billion, and we had additional availability under our credit facilities of $136.5 million,” officials explained.

“The obligations under our credit facilities are unconditional and are guaranteed by substantially all of AutoTrader’s existing and future domestic subsidiaries,” they continued. “Our credit facilities and related guarantees are secured on a first-priority basis by security interests (subject to liens permitted under the credit agreement governing our credit facilities) in substantially all tangible and intangible assets owned by ATC, the obligors under our credit facilities, and each of ATC’s other domestic subsidiaries, subject to certain exceptions, including limiting pledges of voting stock of foreign subsidiaries to 65 percent of such voting stock.”