Reported Carvana debt-for-equity swap could be a ‘potentially big lifeline,’ claims analyst

Carvana ‘s (NYSE:) creditors, who hold approximately 90% of the company’s bonds, have been suggesting ways for the struggling used-car company to reduce debt and improve liquidity, Bloomberg reported Monday, citing people with knowledge of the situation.

One of their proposals includes a debt-for-equity swap, the report states. It adds that the group, which includes Apollo Global Management and Pacific Investment Management, and is represented by White & Case and PJT Partners, recently proposed swapping a significant amount of unsecured notes for equity in Carvana.

Furthermore, the bondholders also stated they would let the company pay some of its interest with additional debt, in a feature known as payment-in-kind.

However, Bloomberg warns that the proposal isn’t final and terms may change, with Carvana not yet formally engaging with the group’s offers.

The report adds that bondholders previously signaled interest in moving their existing unsecured positions to new first-lien debt and permitting the company to pay interest in kind for two years, with the plan potentially saving Carvana over $1 billion in cash interest. They also proposed providing new money to Carvana and asked equity holders to inject approximately $1B into the business.

Members of the bondholder group, which came together last year to negotiate with Carvana in preparation for a restructuring, are also said to have agreed to extend a cooperation agreement to the end of November, with the ability to extend the pact to May 2024.

Reacting to the report, Oppenheimer analysts, who have a Perform rating on CVNA, said it is a “potentially big lifeline” for Carvana.

“While many ‘unknowns’ exist, we are hard-pressed to envision a successful, sizable debt-for-equity swap at Carvana not proving a significant positive for CVNA shares,” the analysts wrote. “Our conversations with clients suggest that the market is very concerned with debt and potential liquidity issues at the company.”

Carvana shares are up 2.88% at the time of writing.