Carvana's high-yield bonds are rallying along with stock after surprise profit

By Ciara Linnane

Investors were snapping up Carvana's outstanding bonds on Thursday

As Carvana Co.'s stock soared 35% on Thursday after the used-car retailer swung to a surprise profit, investors were also snapping up the company's high-yield bonds, which were seeing net buying after the news.

As the chart below from data-solutions company BondCliQ Media Solutions shows, the company's outstanding short-dated bonds were up by about 5 points, continuing a rally that started ahead of the release of earnings late Wednesday.

The company (CVNA), which seemed to be on the brink of bankruptcy in 2022, surprised with a return to profit and growth in a "difficult environment that has challenged unit economics and volume for many across the industry," Chief Executive Ernie Garcia said in prepared remarks.

Carvana earned $49 million, or 23 cents a share, in the first quarter, swinging from a loss of $286 million, or $1.51 a share, in the year-ago quarter. Revenue rose 17% to $3.1 billion.

Analysts polled by FactSet expected Carvana to report a loss of 64 cents a share on revenue of $2.7 billion.

The company's 14% notes that mature in June 2031 were showing the biggest gain on the week, of 8.539 points to $108.872.

The movement in price has sent yields down sharply, as the following chart shows.

Carvana cheered up investors last July when it announced an agreement with bondholders that would reduce its debt by $1.2 billion.

Now read: Carvana's debt restructuring is good news, but its losses are 'hardly in the growth stock handbook,' analyst says

But the company still has more than $6 billion in debt, according to FactSet data. Of that total, more than $4 billion is in the form of bonds.

Most of that debt comes due in 2031, although the company will need to refinance more than $1 billion worth in 2028.

That series has seen strong buying in the year to date, along with the 5.625% notes that mature in 2025, the 12% notes that mature in 2028 and the 13% notes that mature in 2030.

The stock, meanwhile, has been on a tear and has gained more than 1,555% in the last 12 months.

High-yield bonds outperformed other financial assets in April, showing surprising resilience despite a sharp spike in volatility in benchmark borrowing rates.

For more: What junk? High-yield bonds outperform in a turbulent April

-Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-02-24 1142ET

Copyright (c) 2024 Dow Jones & Company, Inc.