Carvana shares jump more than 30% on deal to reduce debt by $1.2 billion

Carvana has reached a debt restructuring agreement that will reduce the used car retailer’s total debt outstanding by more than $1.2 billion, the company said Wednesday.

Carvana said the agreement will eliminate over 83% of its 2025 and 2027 unsecured note maturities and lower its required cash interest expense by more than $430 million per year for the next two years.

In a separate public filing Wednesday, the company said it will sell up to $1 billion in shares as it attempts to raise capital and restructure its operations.

Shares of the company jumped more than 30% in premarket trading Wednesday after being off roughly 7% before the announcement. Carvana stock this year has soared from roughly $4 per share to start the year to roughly $40 as of Tuesday’s close. That is still about 90% off from the stock’s all-time high of nearly $377 notched in August 2021. 

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

Carvana said its restructuring agreement covered roughly $5.2 billion of senior, unsecured bonds and included Apollo Global Management, its largest bondholder. Under the terms of the deal, creditors will get new secured notes. The new debt will also come due later than the old notes.

The company’s long-term debt to end the second quarter was $6.5 billion, slightly lower than nearly $6.6 billion to end last year.  That represented a majority of Carvana’s total liabilities of nearly $9.3 billion to end the second quarter, Carvana reported.

The company has been working on such a deal for more than a year as the stock went into freefall due to a heavy debt load and improper management during the coronavirus pandemic.

The agreement was announced in conjunction with the company’s second-quarter earnings. Here’s what Carvana reported.

• Loss per share: 55 cents vs. an expected loss of $1.15 per share, according to average analyst estimates compiled by Refinitiv.
• Revenue: $2.97 billion vs. $2.59 billion expected, according to Refinitiv.

The company reported a net loss of $105 million, or 55 cents per share. That’s an improvement from the net loss of $439 million, or $2.35 per share, it recorded in the year-ago period.

Revenue of $2.97 billion was down, however, from $3.88 billion a year ago.

The company’s total gross profit per unit, or GPU, which is closely watched by investors, was $6,520 during the second quarter, an increase of 94% compared with a year earlier and exceeding the company’s previous best quarter by 27%.

“Our strong execution has made the business fundamentally better, and combined with today’s agreement with noteholders that reduces our cash interest expense and total debt outstanding, gives us great confidence that we are on the right path to complete our three-step plan and return to growth,” Carvana CEO Ernie Garcia said in a statement.

Carvana reported adjusted earnings before interest, taxes, depreciation and amortization of $155 million compared with a loss of $216 million a year earlier.

Correction: This story has been updated to correct the characterization of Carvana’s debt load prior to its restructuring deal.