Carvana, the popular online used car retailer, has announced a significant debt reduction deal with noteholders, slashing its total debt outstanding by over $1.2 billion. The agreement was unveiled alongside the company’s second-quarter earnings report.
Following the announcement, Carvana’s shares experienced a notable surge in premarket trading, with a 30% increase after being initially down by approximately 7%. The positive response from investors reflected their confidence in the company’s improved financial position.
According to Carvana, this debt reduction agreement will eliminate more than 83% of its unsecured note maturities due in 2025 and 2027. Moreover, it will result in a significant reduction of the required cash interest expense, saving the company more than $430 million annually over the next two years.
Mark Jenkins, the Chief Financial Officer of Carvana, expressed his enthusiasm regarding the transaction, highlighting the increased financial flexibility it provides. He stated, “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’s restructuring agreement encompasses approximately $5.2 billion of senior, unsecured bonds and involves its largest bondholder, Apollo Global Management. Under the terms of the deal, creditors will receive new secured notes.
Prior to this agreement, Carvana’s overall debt stood at around $8.5 billion, with $5.7 billion (74.5%) in unsecured notes. The company has been actively working on this deal for over a year, seeking to address its heavy debt load and overcome management challenges during the COVID-19 pandemic.
As this is a developing story, Carvana has encouraged stakeholders to stay tuned for further updates.