The “Amazon of used cars” has a plan to restructure its debt that its bondholders refuse to accept.
Carvana, the troubled used car company, is trying to reduce its debt levels and restructure the company’s finances as it burns through cash.
Bondholders oppose the company’s plan to restructure its debt through a debt swap.
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Carvana’s restructuring plan was rejected by a group of funds holding $5 billion in bonds, the sources said. Bloomberg. Bondholders are led by Apollo Global Management Inc. and Pacific Investment Management Co.
The used car retailer said it was looking to exchange $1 billion of its unsecured bonds at discount prices. Carvana wants to delay its payment terms.
Bondholders reject restructuring strategy
In 2022, the bondholders negotiated together with Carvana and will not agree with the company’s strategy, Bloomberg reported.
Investors currently hold more than 80% of the company’s debt and could halt Carvana’s restructuring plans.
During the last quarter, Carvana used $1.8 billion in cash when its revenue fell 23%. The company lost about $7,400 on each unit it sold, and Carvana’s gross profit per vehicle fell to $2,219, less than half what it was in the prior-year period.
The company had just $434 million in cash at the end of 2022. Its debt stands at $7 billion, including leases.
Another number to note: Last year, Carvana posted a net loss of $1.59 billion, more than cumulative losses of $610 million from 2014 to 2021. During this period, Carvana’s largest annual loss was $171 million for 2020.
Carvana shares (CVNA) – Get a free reportjumped 6.31% on Wednesday as the company estimates its loss will be smaller for the first quarter. The stock has fallen 16.37% over the past month after plunging 94.03% over the past year.
Amazon used car dealer Carvana reported an adjusted Ebitda loss of between $50 million and $100 million, compared with an adjusted loss of $348 million in 2022.
The smaller loss is “primarily driven by lower selling, general and administrative expenses and higher total gross profit per unit, partially offset by lower retail units sold,” Carvana said in a securities filing.
The company said it expects total net sales and operating income of between $2.4 billion and $2.6 billion for the quarter ending March 31, down from $3.5 billion a year ago.
Analysts surveyed by FactSet had estimated $2.825 billion.
The company said it plans to sell between 76,000 and 79,000 vehicles in the first quarter, a big drop from selling 105,185 a year ago. Analysts estimated that Carvana would sell 83,000 vehicles.
Carvana estimates non-GAAP gross profit of between $310 million and $350 million for the first quarter, compared with $314 million a year ago.
Transfer of the auction business to a subsidiary without restrictions
The company also said that Adesa, its auto auction business, was moved to an unrestricted subsidiary. This strategy could allow the company to issue more debt linked to the auction business. But Adesa will not be used as collateral for the new bonds, Carvana said.
The once-prosperous company had navigated sky-high used-vehicle prices caused by both the Covid-19 pandemic and disruptions to automakers’ supply chains.
In particular, Carvana had bought many cars in the hope of reselling them at much higher prices. But conditions in the auto market normalized and the Federal Reserve raised interest rates sharply, hammering the used car market as loan rates rose and buyers stayed away as payments increased. monthly.
