Carvana Stock Surges After Used Car Dealer Announces Deal to Cut Debt

Carvana stock surged more than 40% Wednesday after the flashy used car dealer announced a restructuring agreement that will reduce its debt by $1.2 billion.

The Tempe, Arizona-based company also said in a regulatory filing that it will sell up to $1 billion in new shares to build capital and restructure its money-losing operations.

Carvana piled up billions in debt during a dizzying growth spree since its 2012 founding that included massive advertising campaigns and its trademark auto vending machines, which stand several stories high.

It all hit a wall during the pandemic. Shares hit a record high of $377 in August 2021 but plummeted to $3.55 in December. On Wednesday, Carvana stock closed at $55.80, buoyed by news of the agreement with its debtors.

Carvana said it is exchanging senior unsecured bonds with debt secured by the company's assets. The agreement covers about $5.2 billion in unsecured debt and includes its largest bondholder, Apollo Global Management, as well as PIMCO and Ares Management, an alternative investment firm.

“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 CFO Mark Jenkins said in a statement.

Carvana moved up its reporting date for second-quarter earnings to enable the transaction. It said it sold 76,530 cars in the quarter, a 35% decline over the same period last year.

The company also reported that it narrowed its losses to $105 million in this year's second quarter from $439 million during the same quarter last year.