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Apollo Global Management rescues Carvana with a restructuring deal

In a remarkable turn of events, Apollo Global Management, a renowned private equity firm, has extended a lifeline to Carvana, the online used car retailer, by striking a crucial restructuring deal.

The deal comes as a much-needed rescue for Carvana, which faced a significant decline in market cap and mounting debt in recent times. Photo: Shutterstock

With the strategic support from Apollo Global Management, Carvana now stands a chance to recover from its financial struggles and regain its position in the market.

In 2021, Carvana reached a staggering market cap of $50 billion, cementing its place as one of the youngest companies in the Fortune 500 list. However, by the end of 2022, the company’s market cap plummeted to a mere $1 billion, signaling a major setback for the once-promising company.

The dramatic decline was primarily attributed to the company’s high debt burden and its lack of preparedness to face the changing economic climate, especially the sharp rise in interest rates that occurred over the last year.

Apollo Global Management, known for its expertise in private equity strategies, emerged as the savior for Carvana amid its financial struggles. The firm’s investment approach revolves around three principal transactions: buyouts, corporate carve-outs, and distressed investments.

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Over the years, Apollo has managed the funds of reputable companies such as University of Phoenix and Yahoo Inc.

The deal agreement between Apollo Global Management and Carvana has provided the latter with a much-needed respite from crippling interest payments in the near term. This relief allows Carvana to focus on addressing its financial situation and regaining stability.

For investors, the deal brings in new opportunities, as over 90% of holders of the previous unsecured notes will be entitled to newer notes that are backed by real estate and other assets.

Following the restructuring deal, Carvana’s stock experienced a remarkable rebound, surging from under $5 billion in 2022 to approximately $50 billion in 2023. The company’s efforts to cut costs, reducing expenses by over $300 million in the second quarter, have also been fruitful in stabilizing its financial position.

As a testament to the positive impact of the deal, Carvana’s shares witnessed a significant rise of around 40%.

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While the restructuring deal has brought renewed hope for Carvana, the company still faces challenges in achieving positive cash flow and avoiding further restructuring in the future. However, with the support of Apollo Global Management and strategic cost-cutting measures, Carvana is poised to rebuild its financial foundation and regain its standing in the market.

Apollo Global Management’s strategic partnership with Carvana through the restructuring deal has provided a lifeline to the struggling online used car retailer. Carvana’s journey to recovery is underway, as it seeks to overcome its financial setbacks and regain its former market glory.

The market’s positive response to the deal reflects the belief in Carvana’s potential, as well as the trust in Apollo Global Management’s ability to steer the company toward a brighter future. Investors and industry observers will be closely monitoring Carvana’s progress as it navigates through its recovery phase.

To get in contact with feedback on this article please email us at publishing@krugmaninsights.com 

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