Carvana debt restructuring to save $1.2 billion as second-quarter profits grow
July 19 (UPI) -- Carvana announced a debt restructuring agreement Wednesday that it said would reduce the company's debt by more than $1.2 billion.
The "transaction support agreement" with Apollo cuts more than $430 million in interest expenses and eliminates more than 83% of its 2025 and 2027 unsecured note maturities.
"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 CEO Mark Jenkins said.
Carvana Wednesday also released second-quarter financial results reflecting a 94% increase in profits that hit $6,520 per unit sold, which the company said was its best quarter in history.
During the COVID-19 pandemic, Carvana sales skyrocketed as customers flocked to its "car vending machine" sales model that seemed a perfect fit for buying cars while isolating from the virus.
But it was a double-edged sword that left the company short of vehicles to meet the powerful demand. Moving to correct that, Carvana bought ADESA, an online car retailer, while also buying big numbers of vehicles at inflated prices.
When the demand surged receded as interest rates rose Carvana's stock prices plunged 97%, leading to the layoffs of 3,500 workers in 2022.
So far this year Carvana said business has improved, paving the way for the debt restructuring.
"The strong performance of our business in 2023 presented an opportunity for an impactful and win-win transaction for Carvana and its senior unsecured note-holders," Jenkins said.
The company said the new notes issued in the restructuring deal are secured by Carvana and ADESA assets.
"Apollo is pleased to support this debt exchange agreement, which stands to significantly strengthen Carvana's financial position while providing creditors with new first lien debt," Apollo Deputy CIO of Credit John Zito said in a statement.
Carvana's second-quarter financials showed revenue of $2.968 billion with 76,530 retail vehicles sold, declines from the second quarter of 35% and 24% respectively.
The adjusted profit margin, however, was 5.2%, an annual improvement of 10.8% compared to the second quarter of 2022.
Helping that profit margin was a reduction of more than $1.1 billion in annualized costs, according to Carvana.
The company said Wednesday it expects positive profit margin results in the third quarter of 2023 as well.
