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  • Used car retailer fails to lure enough investor participation
  • Key debtholder group has opposed the debt exchange offer

Carvana Co. canceled a $1 billion debt swap after a group of creditors refused to exchange their notes, posing a challenge as the used car retailer attempts to rein in its debt load.

The online automobile seller failed to convince holders of at least $500 million of notes to participate in the exchange offer before the deal expired, according to a statement Friday. 

The swap’s cancellation marks the latest blow for the Tempe, Arizona-based company, which had sweetened the deal terms and repeatedly extended the timeline in a bid to lure investor participation. 

A group of debt holders, including Apollo Global Management Inc. and Pacific Investment Management Co., came together last year in an effort to negotiate with Carvana in preparation for a restructuring. The cohort opposed the debt exchange when Carvana first launched it in March, with some lenders proposing alternative deals

The company’s shares fell as much as 8% on Friday before paring losses to trade 2.8% lower as of 10:35 a.m. in New York. The 5.625% notes due 2025 last changed hands at 78 cents on the dollar Thursday, according to Trace bond data.

Money managers remain focused on trouble as Carvana’s $8.7 billion debt load drags on profits. While the firm reported narrower-than-expected losses in the first quarter, Carvana still lost more than $4,000 on every car the company sold. 

Half of the per-car loss is in interest payments, which means that even management’s plan to slash costs can only go so far to stanch red ink.

Carvana had attempted to swap several series of its notes, including a 5.625% bond due 2025, for new senior-secured second-lien debt due 2028 that carried 9% cash payments or 12% payment-in-kind.

Written by:  and  @Bloomberg.com