Cazoo’s debt fix points to bumpy ride

Cazoo

20/09/2023 15:58

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
       LONDON, Sept 20 (Reuters Breakingviews) - 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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 (Editing by Neil Unmack and Oliver Taslic)
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