Used-car salesmen can make good money from polishing up bangers. That’s not the fate of shareholders in UK-based and U.S.-listed Cazoo (CZOO.N), which has just announced a brutal debt restructuring. Under the deal announced on Wednesday, bondholders will swap $630 million of convertible notes for $200 million of fresh debt and a large slug of the equity. Existing shareholders are left with an 8% stake in the business, currently worth just $38 million. It’s a long way down from the $7 billion valuation when Cazoo was listed in 2021 via a special purpose acquisition company (SPAC).
The debt cut will do little to fix Cazoo’s rickety engine. Although the company had 195 million pounds of cash at the end of June, it burnt through over 50 million pounds in the previous six months. And revenue this year is expected to fall nearly 40%, as customers racked by high interest rates tighten their belts. The cash pile should see Cazoo through to 2025, when it is expected to break even, but gross debt of $307 million, including bank loans, would still be equivalent to 15 times forecast EBITDA of $20 million, according to LSEG estimates. Cazoo’s new owners should buckle up. (By Aimee Donnellan)
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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)
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