UK online car retailer Cazoo has entered into is a restructuring agreement as it looks to “deleverage” its capital structure and further improve its “financial flexibility”.
It was revealed on Wednesday that the company has agreed a debt-for-equity swap on nearly $630m (£509m) of debt.
The UK-based firm, which is listed in the US, announced the debt will be swapped with lenders for $200m of new debt and equity stakes.
The firm did not outline which lenders were involved, but Sky News reported the swap would leave US-based fund Viking Global Investors as its biggest shareholder.
News of the arrangement sent shares of the beleaguered car seller tumbling, with shares down 23 per cent in afternoon trading, taking them to under one per cent of their IPO value in 2020.
Although the debt-maturity profile has not changed, the debt level has still been “significantly reduced,” the announcement said.
It is the latest bad news for Cazoo shareholders.
The firm was previously 17 per cent owned by Daily Mail General Trust (DMGT) which used those shares, alongside cash, to buy-out its own shareholders as part of a successful delisting effort in 2021.
Many of those who took Cazoo shares – which have fallen in value by more than 95 per cent – are now facing a grim loss.
The debt for equity swap announced yesterday will further dilute the value of those shares.
Cazoo said yesterday this “major milestone” agreement should help various important business components, including securing its US market foothold.
“Deleveraging will reduce the company’s current debt overhang, is expected to improve the company’s financial flexibility to support its return to growth, should improve the company’s ability to meet the NYSE continued listing standards and should facilitate progress on various strategic options,” Cazoo said.
Since its IPO in 2021, Cazoo has faced multiple challenges including supply chain issues, rising inflation and interest rates, pushing its share price down over 99.5 per cent since its floatation.
“Today’s agreement represents an opportunity to significantly deleverage Cazoo’s capital structure and enhance the financial flexibility Cazoo needs in order to achieve profitable growth,” Alex Chesterman, founder and executive chairman of Cazoo, said.
Chesterman said Cazoo is making “good progress” on unit economics improvement and fixed cost reduction, further allowing the company to meet its “objective of achieving profitable growth and capturing a higher share of the significant UK used car market.”
“Cazoo’s stronger balance sheet, if the transactions are implemented, is expected to strengthen our ability to raise additional finance and the deleveraged capital structure will enable us to explore potential strategic initiatives to complement the Cazoo business model and brand,” he added.