(Reuters) -Carvana’s shares soared 40% in premarket trading on Wednesday after the troubled used-car retailer struck a deal with most of its term bondholders to reduce its outstanding debt by more than $1 billion.
The agreement will eliminate more than 83% of Carvana’s unsecured notes maturing in 2025 and 2027 and lower required cash interest expense by over $430 million per year for the next two years.
“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,” John Zito, Apollo’s Deputy CIO of credit, said in a statement.
In December, Bloomberg News reported some of Carvana’s largest creditors including Apollo Global Management and Pacific Investment Management have signed a cooperation agreement to act together in any restructuring negotiations.
Carvana, which filed to sell as much $1 billion of its stock, also reported a smaller second-quarter loss and forecast another core profit in the third quarter.
The company’s business model became popular during the COVID-19 pandemic, as people opted for readily available used cars instead of newer vehicles whose supply was constrained due to semiconductor shortages.
But the company has been struggling to sell cars acquired at elevated prices as buyers hit by inflation and worried about a recession cut spending.
Carvana’s shares have lost 87% of its value in the past two years.
In order to strengthen its balance sheet and attain positive cash flow, the company has been trimming inventory and slashing advertising expenses.
Carvana’s second-quarter net loss narrowed to $58 million, or 55 cents per class A share, from $238 million, or $2.35 per class A share, a year earlier. Analysts on average expected the company to lose $1.15 per share.
The company also posted a core profit of $155 million, compared to a loss of $216 million in the year-ago quarter.
(Reporting by Nathan Gomes in Bengaluru; Editing by Shweta Agarwal and Sriraj Kalluvila)
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