Mexican Used-car Startup Kavak Lands $810 Million In Debt Financing

Mexican used-car platform Kavak on Tuesday said it had secured $675 million in financing from HSBC to back the company's car loan offerings, adding to other recent credit lines agreed with Goldman Sachs and Santander totaling $135 million.

The deal will put more drivers on the streets in Latin America, where only 1.5 of every 10 residents have a car, according to Kavak, which operates in Brazil, Colombia, Argentina, Chile and Peru as well as Mexico.

The HSBC financing comes in the form of a forward flow agreement, Kavak said, in which the bank will buy collection rights for a set of Kavak's used car loans.

"My understanding is that this had never been done with a portfolio like this, for cars," Chief Financial Officer Moises Flores told Reuters.

The funding will also be used to lower barriers to access car loans in general, Kavak said, as a large swathe of Latin Americans lack formal bank accounts or credit options.

The HSBC deal adds to recently agreed asset-back credit lines for $100 million from Goldman Sachs Group Inc and $35 million from Spain's Santander, according to the company.

"The risk of lending to Kavak is low," Flores said. "They're also looking at our portfolio, our financing, and they say, 'Looks good.'"

Kavak, which calls itself the largest pre-owned car operation in the world, was Mexico's first "unicorn," a startup worth more than $1 billion.

At the moment, SoftBank-backed Kavak claims to be worth more than $8.7 billion.

The forward flow agreement allows Kavak to expand its lending without risking its valuation. Carvana Co, a listed U.S. company with a similar business model, has seen its market value crater to $6.3 billion from a high of $58 billion last July.

Taking Tuesday's agreements into account, the company could be on track to raise $1.2 billion in debt by the end of the year, Flores said, also hinting at potential expansion into additonal markets to come.

The startup for the first time expanded outside of Latin America, launching operations in Turkey, in July.

"We've financed ourselves pretty cheaply. Our debt is cheap, even under a AAA bond on the Mexican stock exchange," he said.