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AutoTrader: Dividends for us, not for you

June 18, 2012: 3:28 PM ET

AutoTrader adds $400 million in debt just before filing to go public.

FORTUNE -- AutoTrader today filed for a $300 million IPO, making it the first Internet company to submit an S-1 since Facebook went public last month.

Not too many financial details yet, except that prospective shareholders shouldn't expect a dividend "for the foreseeable future." AutoTrader blames its pending lack of generosity on creditor agreements that "significantly restrict" the Atlanta-based company from paying out dividends.

Seems reasonable, until you realize that AutoTrader hasn't always been such a slave to its creditor agreements. Less than three months ago, the company actually amended its credit facilities to permit a $400 million dividend for existing shareholders Cox Enterprises, Providence Equity Partners and Kleiner Perkins Caufield & Byers. Moreover, the dividend didn't come from earnings. Instead, the Atlanta-based company increased its long-term debt from around $884 million to nearly $1.3 billion.

In other words: Public shareholders will have to wait for possible dividends, all of which would come from company cash. Unclear just where the threshold is, since AutoTrader is a profitable company with more than $1 billion in annual revenue.

Private shareholders, on the other hand, already got a big payout by adding more debt onto the company's balance sheet. No wonder certain public market investors have begun taking a much more skeptical look at private equity-backed IPOs...

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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