- Carvana clinches a deal reducing its outstanding debt by $1.2 billion and lowering annual cash interest by over $430 million.
- The agreement sees 83% of the 2025 and 2027 unsecured note maturities eliminated, providing considerable financial leeway.
- Company's stock sees an 18% uptick in premarket trading, following the debt restructuring announcement.
Carvana, a major player in the pre-owned car retail market, announced on Wednesday that they have reached a significant agreement to restructure their debt. This deal will result in an impressive reduction of over $1.2 billion from their total outstanding debt.
The agreed terms promise to wipe out more than 83% of Carvana's unsecured note maturities slated for 2025 and 2027, effectively decreasing its annual cash interest expense by more than $430 million over the next couple of years. This announcement spurred an 18% surge in Carvana's stock during Wednesday's premarket trading. Earlier this year, the company's shares rose significantly from approximately $4 to $40, albeit still falling short of its 2021 peak of nearly $377.
Mark Jenkins, Carvana's CFO, stressed the importance of this agreement saying it markedly bolsters their financial agility. This is achieved through substantial debt reduction, extending maturities, and reducing the short-term cash interest expense. This sets the company on a path to substantial profitability and reviving growth.
This restructuring agreement, involving an approximate $5.2 billion of senior, unsecured bonds, has been backed by Apollo Global Management, Carvana's principal bondholder. In accordance with the agreement's terms, creditors will receive new secured notes, which will have a later due date compared to the old notes. Prior to the agreement, Carvana's debt stood at a hefty $8.5 billion, with unsecured notes making up over 74%.
This monumental agreement has been a year in the making, and the company hopes it will aid in recovering its stock from a steep plunge caused by significant debt and less than ideal management amid the COVID-19 crisis. The announcement coincided with the company's second-quarter earnings report, where they reported a 55 cents loss per share, which is significantly lower than the $1.15 per share loss expected by analysts.
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