On Wednesday, Cazoo Group Ltd (NYSE: CZOO), the UK's largest independent online car retailer, declared that it had reached an agreement to significantly restructure its debt. The company plans to issue new shares and overhaul its board as part of the deal.
The company has entered into a transaction support agreement with noteholders representing more than 75% of its $630 million aggregate principal amount of 2.00% Convertible Senior Notes due 2027 and shareholders representing over 25% of its outstanding shares. The proposed transactions are expected to substantially reduce the company's debt, thereby improving its financial flexibility. The transactions are anticipated to close in the fourth quarter of 2023.
As part of the agreement, Cazoo's lenders have consented to cancel $630 million of convertible notes in exchange for $200 million of new senior secured debt and newly issued stock. This newly issued stock will represent a 92% stake in Cazoo once the deal is finalized.
While these transactions will dilute the existing Cazoo shareholders, they provide potential future upside through the equity retained by existing shareholders and the issuance of new warrants to existing shareholders. Following the deal, current Cazoo shareholders will retain an 8% stake in the company and will receive new warrants offering an opportunity to buy more shares, contingent on achieving certain valuation milestones.
In addition to these financial changes, Cazoo plans to effect a reverse stock split and reduce its board size to seven members, six of whom will be selected by lenders.
Alex Chesterman, Founder and Executive Chairman of Cazoo, stated that this agreement represents a significant opportunity to deleverage Cazoo's capital structure and enhance the financial flexibility required for achieving profitable growth. He emphasized that this agreement is a major milestone for Cazoo and recommended that shareholders vote in favor of the proposals.
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