Carvana Shares Skyrocket 40% Following $1.2 Billion Debt Reduction Deal

Carvana, the leading used car retailer, saw its shares surge by an astonishing 40% on Wednesday, following the announcement of a groundbreaking debt restructuring agreement. The company revealed that it had reached a deal with noteholders to slash its total debt outstanding by a staggering $1.2 billion, significantly bolstering its financial position.

As part of the agreement, Carvana is set to eliminate over 83% of its 2025 and 2027 unsecured note maturities, providing substantial relief from near-term financial burdens. The company estimates that this move will lead to a remarkable reduction of over $430 million per year in required cash interest expenses for the next two years.

In tandem with the debt restructuring news, Carvana disclosed plans to raise capital and restructure its operations through the sale of up to $1 billion in shares. This strategic move is aimed at further strengthening the company's financial flexibility and positioning it for sustainable growth.

Carvana's stock opened the day at an impressive 35% increase, reaching $53.99 per share – the highest opening price the company has experienced in over a year. By market close, shares were trading at $55.80 each, just shy of the stock's 52-week high recorded in August 2022.

Carvana CFO Mark Jenkins expressed enthusiasm for the transformative transaction, stating, "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."

The debt restructuring agreement encompasses roughly $5.2 billion of senior, unsecured bonds and includes Apollo Global Management, Carvana's largest bondholder. Under the terms of the deal, creditors will be granted new secured notes with extended maturity dates, fostering a more manageable debt structure for the company.

This landmark development comes after more than a year of negotiations and planning, as Carvana grappled with the impact of heavy debt burdens and management challenges brought on by the global pandemic.

In conjunction with the debt reduction announcement, Carvana also reported its second-quarter earnings:

- Loss per share: 55 cents, surpassing expectations of an estimated loss of $1.15 per share according to analysts.

- Revenue: $2.97 billion, outperforming the anticipated $2.59 billion, according to Refinitiv data.

Despite the net loss of $105 million, or 55 cents per share, Carvana showed significant improvement compared to the year-ago period, where it recorded a net loss of $439 million, or $2.35 per share. However, revenue during the second quarter declined from $3.88 billion in the previous year.

Investors were particularly encouraged by the company's total gross profit per unit (GPU), a key metric closely monitored in the industry. During the second quarter, Carvana achieved a remarkable GPU of $6,520, marking a 94% increase compared to the same period last year and surpassing previous quarterly records by 27%.

Carvana CEO Ernie Garcia expressed confidence in the company's future prospects, remarking, "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."

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the second quarter were reported at $155 million, in stark contrast to the $216 million loss experienced in the same period a year earlier. This data reflects the company's resilient efforts to navigate through challenging times and achieve positive financial momentum.

With this landmark deal to reduce its debt and the positive earnings report, Carvana appears to be setting the stage for a more robust and prosperous future, signaling renewed optimism among investors and stakeholders.