Struggling used-car retailer Carvana on Wednesday reached a debt restructuring agreement with most bondholders to cut interest payments for at least the next two years and put the business on a stronger financial footing. announced.
The once burgeoning company sells cars online and in transparent parking lots scattered across the country, and demand for cars has skyrocketed, inspiring many to purchase cars without being seen. I grew up during the pandemic that showed. But Carvana was heavily indebted, had made major acquisitions, and was unprepared for falling used-car prices and rising interest rates.
Calvana said the restructuring agreement includes more than $5 billion in senior unsecured debentures and includes the participation of its largest debenture holder, Apollo Global Management. Under the terms of the transaction, the creditor will receive a new secured note.
Interest on this new debt will be paid in kind over the next two years, increasing the amount of principal owed by Carvana, but eliminating the need to pay approximately $430 million in interest in cash. The repayment date of the new debt will also be later than the old banknotes.
“This transaction will allow us to reduce total debt, extend maturities and provide short-term cash as we continue to execute on our plan to return to growth with significant profitability,” said Mark Jenkins, Chief Financial Officer of the company. The reduction in interest expense will significantly increase our financial flexibility.” said in a statement.
Carvana reported Wednesday that it posted a loss of $105 million in the second quarter, an improvement from a loss of $439 million in the same period last year. The company said used car retail sales fell 35% to 76,350 passenger cars and trucks. However, average gross profit per vehicle sold nearly doubled to $6,520. Carvana said it has cut costs by more than $1 billion since early 2022.
The company’s shares, which were trading at about $4 a share in December, are a sign of a turnaround for a struggling business and a sign that the company and its creditors will restructure their debt without resorting to bankruptcy. Expectations have risen in recent months. The stock closed at $39.80 on Tuesday, a far cry from the $300-plus summer 2021 stock price.
The debt restructuring will cover more than 90% of Carvana’s $5.7 billion unsecured corporate bonds. Holders of approximately $5.2 billion of these notes have agreed to the transaction, which entitles them to receive $324 million in cash and new notes backed by real estate and other assets. be done. The remaining creditors holding the old bonds will be offered the opportunity to participate in the debt restructuring agreement, the company said.
After two years, the new bond will pay a cash coupon of 9%. The new banknotes he will mature in 2028. The old banknotes will expire in 2025 and 2027.
“Apollo has entered into this debt exchange agreement that significantly strengthens Calvana’s financial position while providing new first lien obligations to its creditors,” said John Zito, deputy chief investment officer for credit at Apollo, in a statement. I am happy to support it,” he said.
At the end of 2022, as Carvana’s management crisis deepened, the old corporate bonds fell to $1 = 40 cents, suggesting that many investors were worried that the company would default on its debts. was done.
In conjunction with the bond deal, Carvana will issue approximately $350 million in new shares. The company’s two largest shareholders, CEO Ernie Garcia III and his father, Ernie Garcia II, have agreed to purchase these new shares for up to $126 million.