Cazoo, a UK-based online used-car retailer, has recently announced a debt restructuring plan that has left shareholders with only an 8% stake in the company. Under the deal, bondholders will swap $630 million of convertible notes for $200 million of fresh debt and a significant portion of equity. This move comes as Cazoo’s valuation has plummeted from $7 billion to just $38 million since its listing in 2021 through a special purpose acquisition company (SPAC).
The debt restructuring may offer some relief, but it does little to address the underlying issues plaguing Cazoo. The company, which had £195 million in cash at the end of June, has been burning through over £50 million in the last six months. Moreover, Cazoo expects its revenue to decline by nearly 40% this year as customers, burdened by high interest rates, tighten their budgets. While the company’s cash reserves should last until 2025, when it is projected to break even, its gross debt of $307 million, including bank loans, still amounts to 15 times the estimated EBITDA of $20 million, according to LSEG estimates.
This debt restructuring puts significant pressure on Cazoo’s new owners. Despite their efforts to salvage the business, they will need to navigate the challenges of a highly competitive market and a customer base facing financial constraints. However, it is worth noting that Cazoo operates in a promising sector, as the used-car market has seen an increase in demand in recent years.
The impact of the debt restructuring on Cazoo’s employees and customers remains unclear. It is hoped that the company’s new owners will find a way to stabilize operations and ensure the continuity of services. The broader used-car industry will also be watching closely, as Cazoo’s struggles highlight the risks associated with companies relying heavily on debt financing.
Cazoo’s story serves as a reminder that even successful startups can face significant challenges. The company’s rapid growth and subsequent valuation decline underscore the unpredictable nature of the business world. As Cazoo embarks on this new chapter, only time will tell whether it can revitalize its operations and regain investor confidence.
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More detail via Reuters here… ( Image via Reuters )