CVNA - Carvana spins lower after S&P warns debt deal could be tantamount to default

2023-07-20 12:05:06 ET

S&P Global Ratings lowered its credit rating on Carvana ( NYSE: CVNA ) to CC from CCC after the company entered into a debt restructuring agreement for up to $4.3B worth of senior secured notes.

The ratings agency said it views the proposed transaction as distressed and said it would be tantamount to default if completed because lenders will receive less than originally promised. The negative outlook reflects S&P's expectation that it will lower the issuer credit rating to D (default level) upon completion of the proposed exchange. Shortly after the proposed restructuring, S&P said it would raise the ratings to a level that reflects the ongoing risk of a conventional default or future distressed restructurings.

The proposed transaction is expected to somewhat extend Carvana's ( CVNA ) maturities and offer significant cash interest cost savings due to the PIK option. However, the principal amount of the new securities offered is less than the original par amount, the new maturities extend beyond the original dates, and the timing of payments will be slower by adding a PIK feature.

"In addition, debtholders are essentially being primed by the senior position of the new notes. In our view, Carvana is pursuing this transaction because its capital structure is unsustainable and the company has limited options to reduce its debt burden and improve its cash flow organically."

Shares of Carvana ( CVNA ) fell 13.55% in mid-day trading on Thursday to cut into the huge gain piled up in earlier in the week.

More on Carvana:

• Carvana pares huge gain after filing to sell 35M shares
• Carvana skyrockets after Q2 results, striking deal to restructure debt
• Carvana reports Q2 results, expects to achieve positive adjusted EBITDA in Q3
• Seeking Alpha’s quant ratings on CVNA

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