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Carvana Surges After Announcing Restructuring Which Would Shrink Debt By $1.3 Billion, Slash Interest By $100 Million

Carvana Surges After Announcing Restructuring Which Would Shrink Debt By $1.3 Billion, Slash Interest By $100 Million

Carvana, one of the…



Carvana Surges After Announcing Restructuring Which Would Shrink Debt By $1.3 Billion, Slash Interest By $100 Million

Carvana, one of the high-flying stocks during the post-covid lockdowns which came crashing down to earth almost as fast at is soared, is surging this morning, rising as much as 30% after the FT first reported, and the company then confirmed, that it was offering to exchange billions of bond principal at below-par prices as the struggling online car seller works to restructure its debt load.

The company is offering to swap five series of bonds, including its 5.625% unsecured notes due 2025 and 10.25% unsecured notes due 2030 for new secured notes due 2028 that pay 9% in cash or 12% in-kind, according to a statement Wednesday. The company would swap the existing bonds maturing between 2025 and 2030 for between 61.25 cents on the dollar and 80.875 cents on the dollar, depending on when they submit the notes. The early deadline for the swap, which offers the best terms for investors, is 5 p.m. on April 4 in New York. The bondholders would have a second priority claim, behind lender Ally Financial, on vehicle inventory and intellectual property including Carvana’s brand.

If successful, the company will restructure a substantial portion of its $9BN debt load as it attempts to stay afloat at a time of declining vehicle sales. If the offering is fully subscribed, the exchange offer to existing creditors would reduce the face value of its outstanding $5.7bn of unsecured bond debt by $1.3bn and its annual cash interest bill by roughly $100 million.

The exchange comes as Carvana deals with deeply distressed debt and plunging shares. The company’s stock soared during the pandemic as a chip shortage sent used car prices soaring, but Carvana’s outlook has since crashed, losing over 94% of its value since peaking in August 2021. It also posted a bigger-than-expected loss in February following its lowest retail unit sales in two years.

Carvana’s 10.25% bond due 2030 last changed hands at 53 cents on the dollar, according to Trace.

The Financial Times has previously reported that at least six prominent credit investment firms have joined forces to negotiate with Carvana. According to a person familiar with the situation, there has not been much interaction between the company and its bondholders. One prominent member of the group, Apollo Global Management, which had bought $800mn in bonds issued by Carvana in 2022 at par, would take a significant loss should it decide to participate in the restructuring.

Participation is voluntary and Carvana says that for the deal to close, at least $500mn of new debt will have to be issued. The kind of restructuring the company is proposing can often serve as a prelude to the renegotiation terms or an entirely different agreement.

Carvana released preliminary first-quarter results alongside the terms of the exchange, which showed that a cost-cutting plan — including a reduction in headcount from 21,000 to 17,000 over the past year — is starting to bear fruit as the company's massive cash burn is starting to shrink, with EBITDA expected to come between ($50MM) and ($100MM), an improvement to the ($348MM) EBITDA one year ago. Some more details:

  • For the three months ending March 31, 2023, we expect retail units sold to be between 76,000 and 79,000 units, compared to 105,185 retail units sold for the three months ended March 31, 2022. This reduction in retail units sold is primarily driven by higher interest rates, lower inventory size, lower advertising expense, and our focus on profitability initiatives.
  • For the three months ending March 31, 2023, we expect total net sales and operating revenues to be between $2.4 billion and $2.6 billion, compared to total net sales and operating revenues of $3.5 billion for the three months ended March 31, 2022. The decrease in total net sales and operating revenues is primarily driven by the reduction in retail units sold.
  • For the three months ending March 31, 2023, we expect gross profit, non-GAAP to be between $310 million and $350 million, compared to gross profit, non-GAAP of $314 million for the three months ended March 31, 2022. The change in gross profit, non-GAAP is primarily driven by higher total gross profit per retail unit sold offset by lower retail units sold.
  • For the three months ending March 31, 2023, we expect total gross profit per unit, non-GAAP to be between $4,100 and $4,400, compared to total gross profit per unit, non-GAAP of $2,985 for the three months ended March 31, 2022. The increase in total gross profit per unit is due to higher retail gross profit per unit, primarily driven by the benefit of a lower inventory allowance adjustment, higher wholesale gross profit, primarily driven by strong wholesale market demand and price appreciation, and higher other gross profit, primarily driven by higher finance receivable, principal sold.
  • For the three months ending March 31, 2023, we expect SG&A, non-GAAP to be between $400 million and $440 million, which excludes approximately $55 million of depreciation and amortization expense and $15 million of share-based compensation expense, compared to SG&A, non-GAAP of $662 million, which excludes $37 million of depreciation and amortization expense and $28 million of share-based compensation expense, for the three months ended March 31, 2022. The reduction in SG&A, non-GAAP is primarily driven by our continued focus on operating efficiency and reduced advertising spend.

For the three months ending March 31, 2023, we expect Adjusted EBITDA to be between $(50) million and $(100) million, compared to Adjusted EBITDA of $(348) million for the three months ended March 31, 2022. The improvement in Adjusted EBITDA is primarily driven by reduced selling, general, and administrative expenses and higher total gross profit per unit, partially offset by lower retail units sold.

Carvana’s market capitalization soared to nearly $50bn in 2021 after customers flush with stimulus cash flocked to its website and vending machines when a global chip shortage and supply chain problems had resulted in a dearth of new vehicles. It sold 425,000 cars that year, up from 245,000 in 2020.

The stock jumped as much as 30% this morning following news of the proposed exchange offer.

Tyler Durden Wed, 03/22/2023 - 09:38

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…



By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.



Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250

Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  


3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 

From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:


In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…



Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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