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GPU and adjusted EBITDA are Carvana's 2 favorite KPIs, both have reached its historical high in the 2nd quarter of 2023. New Debt Agreement (10-Q filing) Under the Hood of 2Q23 ER That probably explains why 90% of bondholder interests are behind the new agreement. In other words, any existing bondholder that is resistant to joining the new debt will be at risk of being pushed down the credit stack. There is a subtle point here - the new debts sit above the existing debts on the credit stack. Unlike existing unsecured debts, new debts are secured by Carvana and ADESA assets. A portion of it will be repurchased via the company cash tender offer at 96.25% of its face value (as a result of the equity raise). In other words, the exchange offer is not an entire exchange from existing debt to new debt. However, note the following:Ĭoncurrently with, but separate from the Exchange Offers, the commencement by the Company of a cash tender offer to purchase certain 2025 Notes Does it mean the bondholder waived over $1B debts outstanding? As I went through its sec 8k, I don't believe it was specifically talked about. I believe that is what it refers to $1.3B saving. Its current total debt is $5.66Bn, the proposed new debt is up to $4.38Bn. It is like a credit card's minimum monthly payment feature, except for the first 2 years, the minimum monthly payment is zero, and all unpaid interest will be added to the principal. That's achieved via the debt's PIK feature: instead of paying interest, it adds back to the debt.

Saving $430Mn/year interest for 2 Years - No, this interest doesn't go away.

Let's highlight how the deal achieves the headline fairy tale. With less than $1Bn cash and equivalent on the balance sheet, that interest payment alone will deplete its cash by Y2024. Not to mention its ~$500Mn/year interest payments (prior to debt restructuring). The challenge is, with the marketing/sales expense cut, and inventory reduction, its current level of sales/GPU margin is still not sustainable (despite already a 30%+ YoY volume decline) With its cut-to-the-bone $400Mn to $450Mn a quarter OpEx, napkin math shows a near operation break even (70k+ retail units sold, with normalized $6k total GPU).

It aggressively cut operating expenses to the bone (OpEx ~$400-450Mn/qtr), and even managed to generate some positive cashflow this quarter (thanks to inventories reduction) Its operation has burnt over $5Bn cash since 2020, and together with its $2.2Bn acquisition of ADESA in Y2022, It added nearly $7Bn liability (long-term debt, short-term borrowing, payable) on its balance sheet since 2020.Ĭarvana has embarked on a business turnaround plan since early this year. Carvana's ChallengesĬarvana has been a cash-burning machine. To make sense of the whole situation, it is important to take a detour first to talk about Carvana's acute challenges. In this article, I examined under the hood and discussed what's behind 2Q23 ER and debt restructuring headlines and what it all means. When I noticed that Apollo led the debt restructuring on the opposite of the table, I was obliged to dig deeper beyond the headline as I ask myself when was the last time Apollo took a nap, and let anyone steal their lunch? It sure was making a convincing case that Carvana hit a home run. Eliminated 83% of Y25/Y27 note maturities.

Reduced interest expense by $430Mn/year for 2 years.On its debt restructuring, the headline says it: Highest GPU (GAAP: $6520) in the company's history.Highest adjusted EBITDA ($150Mn) in the company's history.On earnings, 2 KPI charts look promising: If we take a look at the headlines, it is impressive. Its 8x YTD stock performance left its peers AutoNation ( AN) and CarMax ( KMX ) in the dust.ĭata by YCharts 2Q23 Earnings/Debt Restructuring After its 2Q23 earning release and debt restructuring announcement on July 19, Carvana ( NYSE: CVNA)'s stock skyrocketed 50%+ and closed above $55/share.