Carvana, used car dealer, reaches agreement to restructure debt

Carvana, used car dealer, reaches agreement to restructure debt

Troubled used car retailer Carvana announced Wednesday that it reached a debt restructuring agreement with most of its bondholders in an effort to reduce interest payments over at least the next two years and put its business on a more solid financial footing. Is.

The once fast-growing company, which sold cars online and in transparent parking garages scattered across the country, flourished during the pandemic, when demand for cars soared and many people were willing to buy them without ever seeing them. But Caravana took on a lot of debt, made a big acquisition and was unprepared for falling used car prices and rising interest rates.

Caravana said its restructuring agreement includes more than $5 billion of senior, unsecured bonds and includes the participation of its largest bondholder, Apollo Global Management. Under the terms of the deal, creditors will receive new secured notes.

Interest on that new loan will be paid in kind for the next two years, meaning Carvana’s principal balance will increase, but the company won’t have to make interest payments of about $430 million in cash. The new loan will also come later than the old notes.

The company’s Chief Financial Officer, Mark Jenkins, said, “This transaction enhances our financial flexibility by reducing our total debt, extending maturity, and reducing near-term cash interest expense as we look to drive significant profitability and continue to execute on our plan to return to growth.” , said in a statement.

Caravana also reported on Wednesday that it lost $105 million in the second quarter, an improvement from $439 million in the same period a year ago. The company said retail sales of its used vehicles fell 35 percent to 76,350 cars and trucks. But average gross profit per vehicle nearly doubled to $6,520. Caravana said it has reduced costs by more than $1 billion through early 2022.

The company’s stock, which traded at about $4 a share in December, has soared in recent months on signs that its troubled business is doing better and on hopes that the company and its creditors can recover their debt without resorting to bankruptcy. Will restructure the loan. The stock closed Tuesday at $39.80, well below its $300-plus share price in the summer of 2021.

The debt restructuring covers more than 90 percent of Caravana’s $5.7 billion in unsecured notes. Holders of those notes worth about $5.2 billion have agreed to the deal, which gives them $324 million in cash and rights to new notes that are secured by real estate and other assets. The company said the remaining creditors holding old notes would be given a chance to join the debt restructuring deal.

After two years, a cash coupon of 9 per cent will have to be paid on the new bonds. The new notes will mature in 2028; The old notes will come in 2025 and 2027.

“Apollo is pleased to support this debt swap agreement, which will significantly strengthen Carvana’s financial position while providing new first lien debt to the creditors,” John Zito, deputy chief investment officer of credit at Apollo, said in a statement.

In late 2022, as Carvana’s financial woes escalated, the old bonds had fallen to just 40 cents on the dollar, indicating that many investors feared the company would default on the loan.

In conjunction with the bond transaction, Caravana will issue approximately $350 million in new stock. The company’s two largest shareholders — its chief executive, Ernie Garcia III, and his father, Ernie Garcia II — have agreed to buy up to $126 million of those new shares.

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