Shares Of Carvana Rise More Than 30% After $1.2 Billion Debt Reduction Deal

(CTN News) – According to Carvana, its total debt outstanding will be reduced by more than $1.2 billion as a result of a debt restructuring agreement.

In the next two years, Carvana will reduce its required cash interest expense by more than $430 million per year by eliminating over 83% of its unsecured note maturities in 2025 and 2027.

Separately, the company said it will sell up to $1 billion in shares in order to raise capital and restructure its operations.

Premarket trading Wednesday saw shares of the company jump more than 30% after being off roughly 7% before the announcement.

This year, Carvana stock has soared from $4 per share at the beginning of the year to approximately $40 at the close of business on Tuesday. The stock is still nearly 90% off its all-time high, notched in August 2021, of nearly $377.

Carvana CFO Mark Jenkins said in a statement, “This transaction significantly increases our financial flexibility by reducing our total debt, extending maturities, and lowering our near-term cash interest expense while we continue to execute our plan of driving significant profitability and regaining growth.”

In Carvana’s restructuring agreement, Apollo Global Management, the company’s largest bondholder, was included, covering roughly $5.2 billion of senior, unsecured bonds.

As part of the agreement, creditors will receive new secured notes. In addition, the new debt will be due later than the old debt.

The company’s long-term debt at the end of the second quarter was $6.5 billion, a slight decrease from nearly $6.6 billion at the end of last year.  Those liabilities accounted for nearly $9.3 billion of Carvana’s total liabilities at the end of the second quarter.

As a result of a heavy debt load and poor management during the Coronavirus pandemic, the company has been working on such a deal for more than a year.

In conjunction with the company’s earnings announcement for the second quarter, the agreement was announced.

The following is what Carvana reported.

• According to Refinitiv, the average analyst estimate for the loss per share is $1.15.

• Refinitiv estimates $2.97 billion in revenue compared to $2.59 billion expected.

In terms of net loss, the company reported a loss of $105 million, or 55 cents per share. As compared with a net loss of $439 million, or $2.35 per share, recorded a year ago, this represents a substantial improvement.

However, revenue decreased from $3.88 billion a year ago to $2.97 billion.

In the second quarter, the company’s total gross profit per unit, or GPU, which is closely monitored by investors, was $6,520, an increase of 94% from a year earlier and a 27% improvement from its previous best quarter.

In a statement released today, Carvana CEO Ernie Garcia said, “Our strong execution has improved the business fundamentally, and coupled with today’s agreement with noteholders that reduces our cash interest expense and total debt outstanding, we are on the right path to achieving our three-step plan and returning to growth”.

A year earlier, Carvana reported a loss of $216 million, whereas its adjusted earnings were $155 million.

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