Online car retailer Carvana (NYSE:CVNA) just revealed that it’s making changes that will affect the company’s noteholders. Now, shareholders are paying attention as they surely want to know how the company’s debt restructuring strategy may impact CVNA stock. So far, financial traders seem to be pleased with the announcement.
Here’s the scoop. Carvana is now allowing noteholders “to exchange their unsecured notes at a premium to current trading prices and receive new secured notes.” According to the press release, this would provide “exchanging noteholders with collateral.” At the same time, it would reduce the company’s “cash interest expense” and maintain “significant flexibility” for Carvana.
In other words, Carvana claims that this will be a win-win scenario for the company and its noteholders. 5.625% unsecured notes due 2025 can be swapped for new secured notes due 2028 that pay 9%. Additionally, 10.25% unsecured notes due 2030 can be exchanged for secured notes due 2028 that yield 12%.
It’s easy to see how the noteholders would benefit from these higher yields. At the same time, Carvana would benefit as it’s offering the new notes at below-par prices. The notes can be exchanged at prices “between 61.25 cents on the dollar and 80.875 cents on the dollar.”
What’s Happening With CVNA Stock?
CVNA stock surged 25% soon after the opening bell rang on Wall Street. However, shares pulled back somewhat after that. Still, shares are up more than 16% as of this writing.
Carvana also included a second piece of news in its press release. Specifically, the company has designated ADESA US Auction, LLC as an unrestricted subsidiary. As Bloomberg clarifies, this maneuver could “lay the groundwork for future debt issuance tied to that brand.”
For folks who’d like to swap their current debt notes for the new, higher-yielding ones, the early deadline is April 4 at 5:00 p.m. Eastern. It will be interesting to find out how many noteholders take advantage of this opportunity.
There is a bigger issue here, however. CVNA stock investors will also want to see whether Carvana’s latest attempt at debt restructuring benefits the company in the long term.
On the date of publication, David Moadel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.