Carvana originations taper amid debt restructure

Carvana ’s loan sales in the second quarter outpaced origination volume and drove up finance gross profit per unit as the automotive retailer restructured its unsecured debt to its largest bond holders. Originations clocked in at $1.5 billion, <a class="fui-Link ___1idfs5o f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh ftqa4ok f2hkw1w fhgqx19 f1olyrje f1p93eir f1h8hb77 f1x7u7e9 f10aw75t fsle3fq f17ae5zn" title="https://www.autofinancenews.net/allposts/earnings/carvana-q2-originations-grow-6-1-yoy/" href="https://www.autofinancenews.net/allposts/earnings/carvana-q2-originations-grow-6-1-yoy/" target="_blank" rel="noreferrer noopener" aria-label="Link down 24.2% YoY">down 24.2% YoY but <a class="fui-Link ___1idfs5o f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh ftqa4ok f2hkw1w fhgqx19 f1olyrje f1p93eir f1h8hb77 f1x7u7e9 f10aw75t fsle3fq f17ae5zn" title="https://www.autofinancenews.net/allposts/earnings/carvana-holds-off-on-loan-sales/" href="https://www.autofinancenews.net/allposts/earnings/carvana-holds-off-on-loan-sales/" target="_blank" rel="noreferrer noopener" aria-label="Link up 7% on a sequential basis">up 7% on a sequential basis , according to the company’s letter to shareholders. Principal loan sales during the quarter came in at $1.93 billion, Chief Financial Officer Mark Jenkins said on the company’s earnings call today. About $902.5 million of that was <a class="fui-Link ___1idfs5o f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh ftqa4ok f2hkw1w fhgqx19 f1olyrje f1p93eir f1h8hb77 f1x7u7e9 f10aw75t fsle3fq f17ae5zn" title="https://www.autofinancenews.net/allposts/capital-funding/carvana-to-issue-first-subprime-abs-deal-since-2022/" href="https://www.autofinancenews.net/allposts/capital-funding/carvana-to-issue-first-subprime-abs-deal-since-2022/" target="_blank" rel="noreferrer noopener" aria-label="Link securitized on the asset-backed securities market">securitized on the asset-backed securities market over two deals backed by prime and nonprime receivables, according to Finsight , which monitors securities. Still, Carvana continued to hold a higher amount of loans for sale on its balance sheet than normal, Jenkins said. Finance receivables held for sale came in at $1.1 billion, down from $1.6 billion in Q1 but up from $393 million in Q2 2022. “That $1.1 billion is certainly still higher than normal,” Jenkins said. “We continue to have additional loans that we can sell over the coming quarters that would yield additional non-recurring revenue.” The uptick in loan sales pushed up other retail gross profit per unit (GPU), Jenkins said. Other GPU clocked in at $3,005, up from $2,032 in Q1 and $1,854 a year ago, according to the shareholder letter. “We estimate that a higher than normalized volume of loans held and sold in Q2 increased other GPU by approximately $650, other things being equal,” Jenkins said. “Sequential changes in other GPU were also driven by higher origination interest rates relative to benchmark interest rates and higher average loan size.” Carvana’s retail units sold fell 3% sequentially and 35% YoY to 76,530 amid a strategic reduction in supply of 12% quarter over quarter and 55% YoY, higher interest rates and a focus on profitability, according to the letter. The retailer increased its advertising spend by 2% sequentially after slashing spend in Q1, but advertising expense remained down 56% YoY. “We’ve been pushing that down to align our inventory size with sales volumes,” Chief Executive Ernie Garcia said during the earnings call, noting that the retailer is aiming for “faster turn times and therefore less depreciation.” Debt restructure Meanwhile, Carvana finalized a debt swap with its major creditors that will allow payment-in-kind (PIK) interest for two years and push out maturities due in 2025 and 2027 to 2028, Jenkins said. PIK allows interest to be paid to investors in equity or additional securities instead of cash. The restructuring represents about 90% of the principal balance owed and should reduce the company’s debt by $1.2 billion, according to a Carvana statement. Carvana will swap its existing debt for new, senior, unsecured debt broken down into three tranches, according to a filing with the U.S. Securities and Exchange Commission . One tranche of up to $1 billion comes due in December 2028 and bears a 9% cash coupon or 12% PIK, while the second tranche of up $1.5 billion matures in June 2030 and bears an interest of 11% cash or 13% PIK. The last tranche of up to $1.8 billion matures in June 2031 and bears a 9% cash coupon or 14% PIK. The extended maturities come at the expense of interest. Carvana’s previous notes, which matured between 2025 and 2030, had an interest rate between 5.625% and 10.25%, according to the filing. “The exchange is basically just exchanging existing senior unsecured notes for three tranches of new senior secured notes,” Jenkins said. “Some of the benefits of those senior secured notes is the option to pay PIK interest for two years,” he said. “We’re essentially largely eliminating 2025 and 2027 maturities. After completing this exchange, we don’t have a meaningful note maturity until December 2028.” Carvana also plans to raise $350 million in new issuances of Class A common stock, $125 million of which will come from the CEO Ernie Garcia III and his father, Ernie Garcia II, the company’s largest shareholder, Jenkins said. Shares of Carvana [<a class="fui-Link ___1idfs5o f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh ftqa4ok f2hkw1w fhgqx19 f1olyrje f1p93eir f1h8hb77 f1x7u7e9 f10aw75t fsle3fq f17ae5zn" title="https://www.autofinancenews.net/automotive-finance-and-powersports-stocks/" href="https://www.autofinancenews.net/automotive-finance-and-powersports-stocks/" target="_blank" rel="noreferrer noopener" aria-label="Link NYSE: CVNA">NYSE: CVNA ] were trading at $55.80 at market close today, up 40.18% since market open. The company has a market capitalization of $10.55 billion. Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas. To learn more about the 2023 event and register, visit <a class="fui-Link ___1idfs5o f3rmtva f1ewtqcl fyind8e f1k6fduh f1w7gpdv fk6fouc fjoy568 figsok6 f1hu3pq6 f11qmguv f19f4twv f1tyq0we f1g0x7ka fhxju0i f1qch9an f1cnd47f fqv5qza f1vmzxwi f1o700av f13mvf36 f1cmlufx f9n3di6 f1ids18y f1tx3yz7 f1deo86v f1eh06m1 f1iescvh ftqa4ok f2hkw1w fhgqx19 f1olyrje f1p93eir f1h8hb77 f1x7u7e9 f10aw75t fsle3fq f17ae5zn" title="https://autofinance.live/afs/" href="https://autofinance.live/afs/" target="_blank" rel="noreferrer noopener" aria-label="Link autofinance.live/afs/"> autofinance.live/afs/ .

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