NEW YORK - Vroom , Inc. (NASDAQ:VRM), a prominent automotive finance company, announced it has entered a Restructuring Support Agreement (RSA) with the majority of its debt holders and its principal stockholder. The agreement will restructure approximately $290 million of its unsecured convertible senior notes due in 2026 into equity. The move is part of a prepackaged Chapter 11 bankruptcy filing planned for the Southern District of Texas.
The restructuring will not affect Vroom's subsidiaries, including United Auto Credit Corporation, CarStory, and Vroom Automotive, which will continue normal operations. Vroom anticipates emerging from Chapter 11 by early 2025.
Under the RSA, existing common stockholders will exchange shares for new stock and a warrant with a $12.19 strike price. Following the restructuring, they will hold about 7.06% of the new common stock, subject to dilution. Note holders will receive new shares representing 75% of their notes' face value, assuming a $9.14 per share valuation, and will own approximately 92.94% of the new common stock post-transaction.
Trade creditors and general unsecured creditors are expected to be paid in full, and no other creditors should be affected besides the note holders. Vroom aims to utilize its $1.5 billion in federal tax net operating losses post-restructuring.
CEO Tom Shortt expressed confidence that eliminating unsecured notes would strengthen Vroom's balance sheet, allowing the company to emerge debt-free, while subsidiaries like UACC would continue their obligations related to asset-backed securitizations.
Jason Mudrick of Mudrick Capital Management, a key investor since 2022, endorsed Vroom's leadership and the restructuring plan.
Upon court approval, Vroom plans to relist its new common stock on a major exchange like Nasdaq or the New York Stock Exchange. Legal and financial advisors have been appointed to support the restructuring process.
This announcement comes after Vroom discontinued its ecommerce operations earlier in the year as part of a Value Maximization Plan. The company cautions that forward-looking statements in the press release involve risks and uncertainties, and actual outcomes may differ materially.
The information in this article is based on a press release statement.
In other recent news, Vroom, Inc. has unveiled a significant shift in its business strategy, focusing on strategic growth following the discontinuation of its ecommerce operations and used vehicle dealership. The company recently detailed a long-term plan to leverage its remaining assets, which include the ownership and operation of United Auto Credit Corporation (UACC) and the development of CarStory, a firm specializing in AI-powered analytics for automotive retail. This strategic redirection, part of Vroom's Value Maximization Plan announced earlier this year, represents a pivot from direct vehicle sales to providing financial services and data analytics to the auto industry.
In addition to this major business shift, Vroom has also reported a change in its legal department leadership. Patricia Moran, the former Chief Legal Officer, General Counsel, and Secretary, is stepping down and will be replaced by Anna-Lisa Corrales, the former Chief Compliance Officer. This transition will be effective from late August this year. Moran has agreed to a separation and consulting agreement with Vroom, which includes severance pay and a consultancy fee for up to a year. These recent developments highlight Vroom's commitment to long-term growth, profitability, and continuity in its operations.
InvestingPro Insights
As Vroom (NASDAQ:VRM) navigates its restructuring process, InvestingPro data and tips provide additional context to the company's financial situation. The company's market capitalization stands at a modest $16.02 million, reflecting the significant challenges it faces.
An InvestingPro Tip highlights that Vroom "operates with a significant debt burden," which aligns with the company's decision to restructure $290 million of its unsecured convertible senior notes. This move is crucial for Vroom's attempt to emerge debt-free from the Chapter 11 process.
Another relevant InvestingPro Tip notes that the company has been "quickly burning through cash," underscoring the urgency of the restructuring plan. This cash burn rate likely contributed to the need for the prepackaged bankruptcy filing.
Despite these challenges, InvestingPro data shows that Vroom's revenue for the last twelve months as of Q2 2024 was $900.45 million, with a revenue growth of 37.99% over the same period. This growth, coupled with the restructuring plan, could potentially position Vroom for a stronger financial future if it can successfully navigate its current difficulties.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for Vroom, providing a deeper understanding of the company's financial health and market position.
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