July 19 (UPI) — Carvana announced on Wednesday a debt restructuring agreement that is expected to reduce the company’s debt by more than $1.2 billion.
The agreement, termed as a “transaction support agreement,” with Apollo will result in over $430 million in interest expenses being cut, along with the elimination of more than 83% of its 2025 and 2027 unsecured note maturities.
“This transaction significantly enhances our financial flexibility by reducing total debt, extending maturities, and reducing near-term cash interest expenses as we continue to execute our plan of driving significant profitability and returning to growth,” said Carvana CEO Mark Jenkins.
In addition to the debt restructuring, Carvana also reported second-quarter financial results, showcasing a remarkable 94% increase in profits, reaching $6,520 per unit sold. The company referred to this quarter as its most successful in history.
During the COVID-19 pandemic, Carvana experienced a surge in sales as customers gravitated towards its “car vending machine” sales model, which proved to be an ideal solution for purchasing cars while practicing social distancing. However, this surge in demand also led to a shortage of vehicles. To address this issue, Carvana acquired ADESA, an online car retailer, and purchased a substantial number of vehicles at inflated prices.
As the demand subsided and interest rates rose, Carvana’s stock price plummeted by 97%. Consequently, the company was forced to lay off 3,500 workers in 2022. Nevertheless, Carvana has witnessed an improvement in its business throughout this year, paving the way for the debt restructuring.
Jenkins remarked, “The strong performance of our business in 2023 presented an opportunity for an impactful and mutually beneficial transaction for Carvana and its senior unsecured note-holders.”
The restructuring deal involves issuing new notes secured by Carvana and ADESA assets. Apollo’s Deputy CIO of Credit, John Zito, expressed satisfaction in supporting this debt exchange agreement, which aims to significantly bolster Carvana’s financial position while providing creditors with new first lien debt.
According to Carvana’s second-quarter financial report, the company generated $2.968 billion in revenue and sold 76,530 retail vehicles, representing declines of 35% and 24% respectively compared to the second quarter of the previous year. However, the adjusted profit margin saw improvement, reaching 5.2%, representing a year-on-year increase of 10.8%.
Contributing to the improved profit margin was a reduction of over $1.1 billion in annualized costs, as reported by Carvana. The company also anticipates positive profit margin results for the third quarter of 2023.
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