Carvana stock rallies 8% after car retailer updates outlook

By Ciara Linnane and Claudia Assis

'Intriguing' debt swap reportedly faces opposition

Carvana Co.'s stock jumped 8% Wednesday after the car retailer updated its fiscal first-quarter guidance and launched a bond swap to stave off its cash burn.

The debt exchange proposal, however, reportedly is garnering opposition from most bondholders.

Carvana (CVNA) said it now expects sales and operating revenue to range from $2.4 billion to $2.6 billion in the first quarter, down from $3.5 billion in the year-earlier period. The FactSet consensus is for sales of $2.8 billion.

"The decrease in total net sales and operating revenues is primarily driven by the reduction in retail units sold," the company said in a regulatory filing.

Carvana's early first-quarter call shows "a step in the right direction," analysts at Wells Fargo said in a note Wednesday.

"After a (fourth quarter) featuring a bevy of disappointments ... today's Q1 pre-announcement comes as a nice surprise," they said.

Carvana said it expects to sell between 76,000 and 79,000 retail units in the first quarter, down from 105,185 a year ago. The FactSet consensus is for sales of 83,000 retail units. It expects non-GAAP gross profit of $310 million to $350 million, compared with $314 million a year ago.

The first-quarter retail units numbers "are set to come in light," the Well Fargo analysts said, but "it's clear (Carvana) is on better footing."

The debt restructuring seeks to exchange as much as $1 billion of unsecured bonds at a premium for bondholders, which would receive secured notes. It would allow the company to reduce interest expenses and keep "significant flexibility," Carvana said.

Citing people familiar with the matter, The Wall Street Journal reported Wednesday that the deal lacked support from a majority of bondholders.

Bloomberg also reported opposition to the plan earlier Wednesday, saying that a group of bondholders holding more than 80% of the company's debt sees the proposal "as a nonstarter." The Bloomberg report also cited people with knowledge of the situation.

The debt exchange is "intriguing," the Well Fargo analysts said.

It looks positive as it reduces cash burn and suggests that Carvana is willing to negotiate to preserve long-term viability, they said.

Moreover, considering the possibility of lower interest rates ahead, "we see opportunity for similar transactions at potentially more favorable terms," the Wells Fargo analysts said.

Shares of Carvana have lost 94% in the past 12 months, compared with losses of around 13% for the S&P 500 index.

-Ciara Linnane

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03-22-23 1423ET

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