Carvana Claims “Best Quarter In Company History” Amid Debt Restructuring Deal

Carvana (NYSE: CVNA), the struggling used-car retailer, made an announcement on Wednesday regarding its successful debt restructuring agreement with a majority of its bondholders. The goal of this agreement is to reduce interest payments for a minimum of two years and stabilize the company’s financial position, potentially resulting in a reduction of over $1.2 billion in its total outstanding debt.

During the pandemic, Carvana experienced significant growth as the demand for cars skyrocketed and customers were willing to purchase vehicles without physically inspecting them. However, the company encountered difficulties due to high levels of debt, and unexpected declines in used car prices combined with rising interest rates.

Carvana revealed that the debt restructuring agreement covers over $5 billion of senior, unsecured bonds, with Apollo Global Management, its largest bondholder, also participating. As per the terms of the deal, creditors will receive new secured notes.

The interest on the newly acquired debt will be paid in kind over the next two years, resulting in an increase in principal owed by Carvana. However, the company will be exempt from making cash interest payments of approximately $430 million. Furthermore, the maturity date of the new debt will be extended beyond that of the old notes.

Mark Jenkins, the chief financial officer of Carvana, stated in a press release, “This transaction significantly enhances our financial flexibility by reducing our total debt, extending maturities, and lowering near-term cash interest expenses. It aligns with our strategy of achieving substantial profitability and returning to growth.”

Before the agreement, Carvana’s debt stood at around $8.5 billion, with unsecured notes accounting for $5.7 billion, or 74.5% of the total debt, according to FactSet data.

The announcement of the agreement coincided with the release of Carvana’s second-quarter earnings report, which the retailer labeled “best quarter in company history”, but for adjusted EBITDA and gross profit per unit (GPU).

Carvana’s GPU, a closely monitored metric for investors, reached $6,520 during the second quarter, reflecting a 94% increase compared to the previous year and surpassing the company’s previous record quarter by 27%.

The adjusted EBITDA margin experienced a notable improvement of 10.8% compared to the second quarter of 2022, reaching 5.2%. This surpasses the company’s previous record quarter by 1.6%.

In addition, Carvana reported a loss of $105 million in the second quarter, marking an improvement compared to the $439 million loss incurred during the same period the previous year. The company’s retail sales of used vehicles decreased by 35 percent, with 76,350 cars and trucks sold. Carvana has successfully reduced costs by over $1 billion since the start of 2022.

The stock price of Carvana, which was approximately $4 per share in December, has experienced a recent rally due to positive indications of the company’s recovery and optimism surrounding the debt restructuring negotiations. On Tuesday, the stock closed at $39.80, a significant decline from its peak of over $300 per share in the summer of 2021.

The debt restructuring agreement encompasses more than 90% of Carvana’s $5.7 billion in unsecured notes. Holders of around $5.2 billion of these notes have agreed to the terms, which entitle them to receive $324 million in cash and new notes backed by real estate and other assets. The remaining creditors holding the old notes will also be given the opportunity to join the debt restructuring deal.

After a two-year period, the new bonds will yield a cash coupon of 9%. The new notes will mature in 2028, while the old notes are due in 2025 and 2027.

John Zito, the deputy chief investment officer of credit at Apollo, expressed his satisfaction with the debt exchange agreement, stating, “Apollo is pleased to support this debt exchange agreement, which stands to significantly strengthen Carvana’s financial position while providing creditors with new first lien debt.”

As Carvana faced mounting financial challenges in late 2022, the value of the old bonds plummeted to just 40 cents on the dollar, reflecting widespread investor concerns regarding the possibility of default.

Concurrently, Carvana will issue approximately $350 million in new stock. The two largest shareholders of the company, CEO Ernie Garcia III and his father Ernie Garcia II, have committed to purchasing up to $126 million worth of these new shares.


Information for this briefing was found via The New York Times, CNBC, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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