The Car Dealer That Rewrote Its Own Debt

In December 2022, Carvana's bonds traded like the company had already filed for bankruptcy. A stock that hit $376.83 a year earlier had collapsed to $3.55, and the balance sheet carried $5.7 billion in unsecured debt against just $434 million in cash.

Eighteen months later, the same company posted an adjusted EBITDA margin no public car dealer in America had ever matched, built in part on the very acquisition Wall Street had blamed for nearly sinking it.

Carvana's adjusted EBITDA margin in the third quarter of 2024, an all-time best for any public automotive retailer, paired with record quarterly net income of $148 million

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For the whole pandemic, Carvana kept running the same playbook it had used for nine years. Sell more cars, grow revenue, and let margins wait. Then in May 2022, just weeks after used car prices topped out, the company closed a $2.2 billion all-cash acquisition of ADESA's U.S. physical auction business. To pay for it, Carvana issued $3.275 billion in new unsecured notes with a 10.25% coupon. The deal was supposed to be a play for scale. With prices already sliding, it became one of the riskiest moves the company could have made.

The timing could not have been worse. The Manheim Used Vehicle Value Index fell 14.9% over the course of 2022, the sharpest one-year decline in the index's history, as the pandemic-era used car boom unwound all at once. Carvana had just leveraged itself to expand into a market that was shrinking underneath it.

The losses piled up fast. Carvana posted a $506 million net loss in the first quarter of 2022, then $806 million in the fourth, closing the year with a $1.6 billion loss and total liabilities near $9 billion. Cash on hand fell to $434 million. The company laid off 2,500 employees in May and another 1,500 in November. Roughly 4,000 jobs were cut in a single year.

By December, Carvana's corporate bonds were trading at roughly 40 cents on the dollar, yields had blown past 30%, and Morgan Stanley's Adam Jonas said the stock could be worth as little as $1. Ten of Carvana's largest creditors, holding about 70% of its unsecured debt and including Apollo Global Management and PIMCO, signed a pact to negotiate as a bloc, the kind of move that typically precedes a bankruptcy filing. The stock fell to $3.55, and the market priced Carvana like it was already gone.

When a group of creditors lines up against you, the usual move is to call the bankruptcy lawyers. Carvana went to work on its numbers instead. Through the first half of 2023, gross profit per unit set a company record every quarter. SG&A dropped by $1 billion on an annualized basis, and management got there a full quarter ahead of its own deadline. That gave Carvana something it hadn't had in a while: a real position to negotiate from.

The deal came in July 2023. Carvana and Apollo agreed to swap roughly $5.2 billion of unsecured bonds for new secured notes, and holders of more than 90% of the outstanding debt signed on. The exchange wiped out over 83% of the 2025 and 2027 maturities. Through payment-in-kind terms, it also cut annual cash interest by more than $430 million for two years. Bondholders got something for taking that hit. Coupons went up to as high as 11%, from the old 4.875% to 5.875%, and in return they received a senior secured claim on Carvana's assets, ADESA's real estate included.

That last detail mattered more than the headline interest rates. The ADESA network, the same $2.2 billion deal Wall Street blamed for nearly sinking Carvana, was 56 sites and 6.5 million square feet of reconditioning capacity that one Wedbush analyst had called an albatross. Once pledged as collateral, it stopped being the liability that caused the crisis and became the asset creditors wanted to protect. Instead of selling off the property that triggered the panic, Carvana used it to convince bondholders that keeping the company alive was worth more than forcing it into court.

Carvana never stopped cutting costs, but it drew a clear line around what it protected. Headcount and marketing shrank while the reconditioning network and inspection centers, the physical infrastructure behind every dollar of gross profit per unit, stayed fully intact. Every dollar saved went toward proving the unit economics worked before the company chased volume again, a sequencing choice that shaped everything that followed.

The debt exchange only bought Carvana time. What it did with that time is what built the business. Full-year 2023 gave the company its first annual net income, $150 million, along with record Adjusted EBITDA of $339 million. Part of that was flattering, since a one-time $878 million gain on debt extinguishment padded the bottom line. But every quarter showed real operating improvement underneath it, and in about a year Carvana went from burning cash to generating it.

2024 is when it stopped being debatable. Third-quarter net income hit $148 million, and that was the third profitable quarter in a row. The Adjusted EBITDA margin reached 11.7%, which Carvana says is the best any public automotive retailer has ever put up. Then came the full year. Revenue hit $13.67 billion, up 27%, net income reached a record $404 million, and Adjusted EBITDA came in at $1.378 billion.

The margin is what matters here. CarMax, the country's largest used-car retailer, posted an Adjusted EBITDA margin of roughly 4% in its fiscal year ended February 2025, and Sonic Automotive finished calendar 2024 at about the same level. Carvana ran at more than twice that. Two years earlier, the market had priced this business as if it were headed for liquidation. Now it was the most profitable public automotive retailer in U.S. history as measured by adjusted EBITDA margin.

And Carvana still owns only a small slice of the fragmented U.S. used-car market, so there's plenty of room left to grow. It kept building on the same foundation through 2025 and by December that year had rebuilt enough market value to join the S&P 500. Getting in takes four straight profitable quarters and a market cap above $22.7 billion. Three years earlier, Carvana had $434 million in the bank and couldn't have pictured clearing that bar.

Key takeaways to consider…

$5.7 billion - Carvana's unsecured debt load at the end of 2022 

99% - Stock decline from August 2021 to December 2022 

$1.6 billion - Carvana’s net loss for full-year 2022 

$2.2 billion - ADESA U.S. auction acquisition

$1 billion - Annualized SG&A reduction achieved by Carvana 

$13.67 billion - Carvana's record full-year 2024 revenue