Overview

• Carvana became a much-followed high yield name in April 2022 when it raised 10.25% notes, more than doubling its debt load. ​

• While the used car market was hot during the preceding years, growing inventory, a complex corporate structure, and heavy family ownership had investors paying close attention to the credit’s next moves

• Our team of analysts, lawyers, and journalists work together to provide our clients with the news and insights that can quickly change the valuation of names like Carvana. ​

• With the bonds having lost half their value in less than a year, investors needed to stay in the know – and heed our advice to sell early on – a key to following these hairy, CCC-rated credits.

Challenges

• Despite its rapid growth and market share gains, Carvana sits behind CarMax with its hybrid in-person/online sales platform while trailing other large auto dealership businesses along key profitability metrics

• Company has never achieved significant positive EBITDA and FCF and continues to consume a significant amount of cash, leaving it continually dependent on additional debt and equity raises

• High dependence on profits from loan sales leaves Company vulnerable to stability of ABS markets which have closed down from time to time, leaving CVNA exposed to potentially lower margin generation

• Company needs to deliver on its ambitious SG&A cost cutting plan in order to bridge to positive EBITDA and FCF