British used car dealer Cazoo has confirmed in a statement to the NYSE that it is in talks with bond holders to restructure its $630 million of debt.
The decision comes after Cazoo outlined its concerns last week about its ability to continue trading as a going concern in a filing from Cazoo Holdings to the U.K. Companies House. The company outlined that it may have to repurchase these notes if its shares stop being listed on the NYSE. They are currently trading at $1.25. If the value falls below $1, under NYSE rules, they may not be able to retain their position on the exchange.
The announcement by Cazoo said it was “in discussions with a majority of the holders of its Convertible Notes on a potential debt restructuring.”
Cazoo issued the bonds in February after shareholders agreed a reverse stock split. The funding was led by Viking Global Investors. This meant every 20 Class A ordinary shares issued and outstanding as of the effective date was automatically combined into one Class A share, thus consolidating the number of existing shares of stock into fewer, but higher-priced, shares. It is a method to boost the value of a company when it is struggling.
However, because Cazoo’s share price has continued to fall, the company may become liable to repurchase these notes. Last week, its share price was $1.25. In the last five days it has dropped further to $1.209, valuing the company at just $37 million.
Currently Cazoo would be unable to repurchase the $630 million of convertible notes without further funding. It has said that it wants to become self-funding but last week admitted it may need to raise further funds in the second half of 2024 but may have difficulty in doing so.
In its latest announcement Cazoo said talks with bond holders about a potential restructuring of its debt are in the early stages and there are as yet “no assurances” they will progress “or result in any agreement.”
The announcement said: “The company continues to explore possible strategic transactions to drive scale and accelerate its path to profitability and is in discussions with a majority of the holders of its convertible notes on a potential debt restructuring with a view to ensuring a more robust capital structure going forward, including a reduction in debt, the issuance of additional equity and a lower aggregate interest cost per annum.
“Unless the company and noteholders reach an agreement in principle, or as otherwise required by law, the company does not intend to provide any updates on these discussions.”
The latest development follows almost 12 months of cost cutting measures as part of its realignment plan to save $250 million in the 18 months to the end of 2023. It has closed all its European businesses, sold back premises and customer care centers and made thousands of staff redundant as it focuses on building a profitable U.K. business.
There was some bright news in its latest update. Its cash reserves on its balance sheet show it still has £215 million of cash available, though this will reduce if losses continue. The company reiterated its guidance for 2023 and expects 50,000-60,000 total unit sales, of which 40,000-50,000 will be retail units and to reach a full-year GPU of £1,200 per vehicle and for this figure to be approaching £1,500 by the end of 2023.
For Q2 2023, Cazoo said it expected GPU to exceed £1,200, an increase on the £980 per unit it achieved in Q1 and almost four times the £309 it achieved in Q2 2022, “giving us confidence in our ability to maintain sustainable retail GPU improvement through the remainder of the year and beyond,” said Cazoo CEO Paul Whitehead.