Carvana’s mounting debt due with business ‘firmly in retreat’

Carvana is staring down rising interest payments each of the next three months with vehicle sales and earnings moving in the wrong direction.

The $7.61-a-share loss that the used-car retailer registered last quarter was more than triple the deficit analysts were expecting. Coming off its lowest retail unit sales in two years, Carvana forecast another drop in the first three months of this year, as it shrinks inventory and slashes marketing spending.

After making an illtimed acquisition just as sales and used-car prices took a turn, the once rapidly growing retailer is “firmly in retreat mode,” Kevin Tynan, a Bloomberg Intelligence auto analyst, said in a note.

The quarterly loss reported after the close Thursday caps a disastrous year in which Carvana’s stock plummeted 98%, erasing almost $37 billion of market capitalization. While the shares more than doubled this year through Thursday, Bloomberg Intelligence credit analyst Joel Levington cautioned ahead of the earnings that the move mirrored what occurred at Hertz before the car-rental company filed for bankruptcy in 2020.

Carvana’s biggest problem is its debt, which stands at more than $8 billion with $2.4 billion in cash burn projected over the next two years, according to Mr. Levington.

“They need to restructure their balance sheet,” he said in a phone interview. “They probably need to shave off 85% of their debt, otherwise they will be a vulnerable company for years.”

Carvana, which carries credit ratings in the CCC tier, faces a tough environment if it were to try to sell more corporate bonds. The company has more than $5 billion of debt that trades distressed, among the biggest piles of troubled securities in the world.

Some of Carvana’s largest creditors have banded together in an effort to secure more favorable terms ahead of a potential debt restructuring.