Carvana Tries Something New To Solve Its Problems

The "Amazon of used cars" has a plan to restructure its debt that its bondholders refuse to accept.

Carvana, the ailing used car company, is attempting to lower its debt levels and restructure the company's finances as it burns through cash.

Bondholders are opposed to the company's plan to restructure its debt by exchanging its debt.

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Carvana's restructuring plan was rejected by a group of funds that owns $5 billion in bonds, sources told Bloomberg. The bondholders are led by Apollo Global Management Inc. and Pacific Investment Management Co.

The used car retailer said it sought to exchange $1 billion of its unsecured bonds at discount prices. Carvana wants to push back its repayment deadlines.

Bondholders Reject Restructuring Strategy

In 2022, bondholders negotiated together with Carvana and will not agree to the strategy from the company, Bloomberg reported.

The investors currently own over 80% of the company's debt and could halt Carvana's restructuring plans.

During the last quarter, Carvana used up $1.8 billion in cash when its reveue dropped by 23%. The company lost about $7,400 on each unit it sold, and Carvana's gross profit per vehicle fell to $2,219, less than half what it was in the year-earlier period.

The firm had just $434 million cash on hand at the end of 2022. Its debt amounts to $7 billion including leases.

Another figure is noteworthy: For last year Carvana posted a net loss of $1.59 billion, more than the $610 million cumulative losses from 2014 to 2021. During this period, the largest annual loss Carvana recorded was $171 million for 2020.

Shares of Carvana  (CVNA) - Get Free Report jumped by 6.31% on Wednesday as the company estimates its loss will be less for the first quarter. The stock has fallen by 16.37% during the past month after it plummeted by a whopping 94.03% during the past year.

The Amazon of used cars, Carvana, reported an adjusted Ebitda loss of between $50 million and $100 million, compared with an adjusted loss of $348 million in 2022.

The smaller loss is “primarily driven by reduced selling, general, and administrative expenses and higher total gross profit per unit, partially offset by lower retail units sold,” Carvana said in a securities filing.

The company said it expects total net sales and operating revenue of between $2.4 billion and $2.6 billion for the quarter ending March 31, down from $3.5 billion recorded a year ago. 

Analysts surveyed by FactSet had estimated $2.825 billion.

The company said it plans to sell between 76,000 and 79,000 vehicles during the first quarter, a large drop after selling 105,185 a year ago. Analysts estimated Carvana would sell 83,000 vehicles.

Carvana estimates non-GAAP gross profit of between $310 million and $350 million for the first quarter, compared to $314 million a year ago.

Auction Business Move to Unrestricted Subsidiary

The company also said Adesa, its car auction business, was moved into an unrestricted subsidiary. This strategy could allow the company to issue more debt linked to the auction business. But Adesa will not be used as a security for the new bonds, Carvana said.

The company was once thriving since it had surfed on soaring used-vehicle prices caused by both the covid-19 pandemic and the disruptions to the supply chains of car manufacturers.

Carvana had notably bought many cars in hopes of reselling them at much higher prices. But conditions in the car market normalized and the Federal Reserve sharply raised interest rates, hammering the used-car market as loan rates increased and buyers stayed away as monthly payments rose.