Carvana, Used Car Dealer, Reaches Deal to Restructure Debt

Carvana, the troubled used car retailer, announced on Wednesday that it had reached a debt restructuring agreement with most of its bondholders in an effort to lower interest payments over at least the next two years and put its business on more solid financial footing.

The once fast-growing company, which sells cars online and at see-through parking garages scattered around the country, thrived during the pandemic, when demand for cars surged and many people were willing to buy them sight unseen. But Carvana took on a lot of debt, made a big acquisition and was unprepared for falling used car prices and rising interest rates.

Carvana said its restructuring agreement covered more than $5 billion of senior, unsecured bonds and included the participation of Apollo Global Management, its largest bondholder. Under the deal, creditors will get new secured notes.

The hefty interest on that new debt, higher than the company currently pays, will be paid in kind for the next two years, meaning the principal that Carvana owes will increase but the company won’t have to make about $430 million in interest payments in cash. Some of the new debt will also come due later than the old notes.

This style of debt is typically used by companies in deep trouble, allowing them to defer immediate costs. Lenders hope it will stabilize the company in the near term while providing investors with a lot more interest income later, making up for the significant loss on the value of the old bonds.

“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 company’s chief financial officer, Mark Jenkins, said in a statement.