Vroom, Inc., a leader in automotive finance and digital services, has entered a Restructuring Support Agreement (RSA) with most of its debt holders and its primary stockholder to tackle its debt challenges. This RSA will transform Vroom’s $290 million in unsecured convertible senior notes, due in 2026, into equity, reshaping the company’s financial foundation. As a holding company, Vroom, Inc. oversees several subsidiaries, including United Auto Credit Corporation (UACC) and CarStory, though it does not engage directly in operations.
Vroom plans to initiate a prepackaged Chapter 11 reorganization under U.S. bankruptcy law, expecting the process to conclude by late 2024 or early 2025. This filing will apply only to Vroom, Inc., leaving its operating subsidiaries like UACC and CarStory unaffected. These subsidiaries are expected to function as usual during the reorganization process. The RSA outlines a series of agreements for debt restructuring, prioritizing a smooth transition for the company.
Under the RSA, Vroom will issue new shares of common stock (New Common Stock) to replace its existing shares. Current stockholders will exchange each of their shares for one New Common Stock share and a warrant allowing them to purchase more stock over the next five years. Post-restructuring, these shareholders will retain approximately 7.06% of the New Common Stock, though this stake may be diluted as the reorganization progresses.
For debt holders, each note will be converted into New Common Stock equivalent to 75% of the note’s face value, based on an estimated per-share value of $9.14. After restructuring, these debt holders will hold around 92.94% of the New Common Stock, with the potential for dilution. This approach is designed to grant significant equity to debt holders while restructuring Vroom’s debt without affecting other creditors or general unsecured creditors.
Existing holders of Vroom options or restricted stock units will receive equivalent new awards in the New Common Stock, ensuring they retain their rights and obligations under the same terms as before. Additionally, trade creditors, including those dealing with Vroom’s subsidiaries, are expected to be fully repaid without disruptions to the business.
The Chapter 11 reorganization is structured to help Vroom maintain access to $1.5 billion in federal tax net operating losses post-emergence, a strategic financial benefit. Vroom’s focus has shifted to maximizing asset value for stakeholders since it ceased its ecommerce automotive retail business earlier in 2024. By eliminating its unsecured debt, Vroom aims to strengthen its balance sheet significantly.
Tom Shortt, CEO of Vroom, emphasized that the restructuring aligns with the company’s Long-Term Strategic Plan, positioning Vroom to exit Chapter 11 with no long-term debt. UACC, Vroom’s subsidiary, will continue to manage its own debts tied to securitizations and trust-preferred securities. Jason Mudrick of Mudrick Capital Management, a major investor since 2022, expressed support for Vroom’s leadership and the restructuring path.
Once court approvals are secured, Vroom will seek to relist its New Common Stock on a national exchange, such as Nasdaq or the NYSE, completing the reorganization. Vroom has appointed Porter Hedges LLP as bankruptcy counsel, Latham & Watkins LLP as corporate counsel, Stout Risius Ross, LLC as financial advisor, and Verita Global as claims and noticing agent to assist with the restructuring process.
