By Sam Boughedda
William Blair analysts believes Carvana Co.'s (NYSE:CVNA) private exchange offer for existing notes could mitigate its near-term cash interest burden.
Carvana launched a private exchange offer for existing notes, offering up to $1 billion of new 9% secured second lien notes due 2028, including a minimum of $500 million tendered, the analyst explained.
"Priority (in order) will be given to $500 million of 5.625% notes due 2025, $3.275 billion of 10.25% notes due 2030, $600 million of 5.5% notes due 2027, $600 million of 5.875% notes due 2028, and $750 million 4.875% notes due 2029," wrote the analysts, who have a Market Perform rating on Carvana shares.
"While the new notes are likely to have a higher interest rate than the blended rate of notes tendered, a successful tender could push out the 2025 maturity while mitigating the company's near-term cash interest burden as Carvana has the option for the first 6 payments (3 years) to pay the interest in the form of increased principal or, in limited circumstances, by issuing new notes at a rate of 12%," the analysts added.
As a result, they estimate Carvana's interest cash savings could approach $80M per year over the next 3 years and effectively extend the company's liquidity runway. However, they note it does not fully alleviate concerns.
William Blair estimates Carvana will "need upwards of $400 million more of liquidity this year, which could occur via monetizing real estate assets."