Vroom: Holding-Company Prepack Equitizes $290M Convertible Notes

Vroom’s chapter 11 case is a clean example of a holding-company prepack built around a single objective: eliminate parent-level funded debt (convertible notes) without dragging operating subsidiaries into court. The filing came after Vroom shut down its direct-to-consumer used-car e-commerce model and pivoted to a smaller platform centered on auto finance (United Auto Credit Corporation) and automotive analytics (CarStory), while the public company faced a deteriorating equity value and delisting risk.

For restructuring professionals, the case is most useful as a template for (i) equitizing a single unsecured funded instrument, (ii) sequencing solicitation and confirmation on a compressed schedule, and (iii) documenting dilution mechanics (warrants and a management incentive plan) so the post-effective capitalization is implementable, not just conceptual.

Convertible Notes Equitization Prepack: Holding-Company Restructuring While Subsidiaries Stayed Out of Court

What Vroom was at filing. Vroom began as a direct-to-consumer used-car e-commerce platform that went public in 2020 amid strong investor demand for online retail models; its shares more than doubled on the first day of trading after an IPO that raised $467.5 million. By early 2024, the company had exited that model. Vroom announced it would cease its e-commerce vehicle sales business after failing to raise sufficient incremental capital to extend a key vehicle financing facility, and later reporting described the shutdown of vroom.com and the sale of substantially all used-vehicle inventory.

The company’s IPO-era story is relevant here because it frames the “boom-to-recap” arc that many venture- and public-market consumer platforms faced after 2021. Contemporary coverage described Vroom as a pandemic-era e-commerce disruptor and highlighted the surge in valuation on its first day of public trading. Vroom’s own investor communications from that period included an announcement describing the pricing of its initial public offering, and broader business coverage framed the company’s market debut as part of a June 2020 wave where IPOs returned after a COVID-driven pause.

The pivot away from used-car e-commerce: liquidity constraints and business model reset. The restructuring cannot be separated from the business-model pivot that preceded it. Reporting described Vroom ending online automotive sales and shifting focus to UACC and CarStory, including coverage stating Vroom ceased e-commerce automotive sales operations on January 22, 2024 and later reporting describing completion of the shutdown and inventory liquidation in April 2024. Vroom framed the decision in capital-markets terms, citing an inability to raise incremental funding in the then-current market.

The pivot also occurred alongside regulatory and customer-service related friction that can matter for capital markets confidence. Reporting on the filing noted that Vroom faced a Federal Trade Commission settlement in July 2024 related to allegations about customer deception and delivery performance, adding to the factual context for why the company would seek a fast parent-level recapitalization.

At the time of the prepack, Vroom positioned itself as a holding company with ongoing operating affiliates that were intended to remain outside bankruptcy—most notably United Auto Credit Corporation (UACC), a non-prime auto finance business funded through securitizations, and CarStory, an automotive analytics platform. Reporting on the filing emphasized that the chapter 11 case was targeted at the parent-company capital structure rather than an operating-company deleveraging and was designed so subsidiaries were not expected to follow Vroom into bankruptcy.

Keeping subsidiaries out of court is not just a public-relations line in a holding-company prepack; it can be the core value-preservation strategy. A finance subsidiary like UACC typically depends on structured financing and securitization markets, and the parent-company’s restructuring goal is to avoid triggering unnecessary cross-entity disruption. Vroom’s post-effective disclosures drew this line explicitly by describing elimination of parent-level funded debt while noting that UACC would continue to be obligated on its securitization-related debt and trust-preferred structures.

Filing drivers: delisting/default risk and the “single-instrument” problem. The prepack’s rationale was straightforward: Vroom had one primary parent-level funded debt instrument (unsecured convertible notes) and a collapsing equity value that threatened to trigger a technical event under the notes documentation. The company described the restructuring as an equity-for-debt recapitalization to address the debt overhang and preserve enterprise value in the remaining businesses. Coverage of the filing noted that a depressed stock price and Nasdaq delisting risk could have triggered a default under the unsecured notes indenture, accelerating repayment demands and creating a liquidity and governance cliff for a company that no longer had its former operating scale.

Bankruptcy-focused coverage of the filing also emphasized how “narrow” the case was in balance sheet terms. Reporting described a prepack that would wipe out over $290 million in note debt, allocate almost 93% of reorganized equity to noteholders, and leave the reorganized company with no funded debt at the parent level—consistent with the debtor’s objective of resolving a capital markets overhang rather than running a long operating case. Other reporting described the petition as listing tens of millions of dollars in assets against liabilities a little above $300 million, reinforcing that the filing was centered at the parent-company layer rather than the operating subsidiaries.

Debtor-level capital structure: one funded instrument. Unlike many chapter 11 cases that involve layered secured debt, intercreditor issues, and complex collateral packages, Vroom’s parent-level restructuring was built around a single impaired class: unsecured convertible notes. In its investor communications announcing the prepack, Vroom described approximately $290 million of unsecured convertible notes due 2026, and framed the transaction as a plan to equitize the notes and exit without long-term debt at the parent company.

The prepack mechanics: speed comes from certainty about classes and treatment. The case was structured to avoid a protracted operating case. The court’s solicitation procedures set a combined disclosure statement adequacy and confirmation hearing for January 8, 2025 and used a single deadline—December 30, 2024 at 4:00 p.m. (Central)—as both the voting deadline and the objection deadline. That calendar design is a hallmark of an efficient prepack: once the impaired class is identified and economic treatment is negotiated, the remaining variables are process variables (notice, voting mechanics, and release opt-outs), not operational turnarounds or sale execution.

Treatment economics: equitization with a small residual for existing equity. The plan’s core trade was a classic balance-sheet recapitalization: noteholders received essentially all of the reorganized equity, and legacy equity holders retained only a small stake plus warrants. Vroom disclosed that noteholders would receive equity valued at 75% of the note face value (using a disclosed pricing reference), and that noteholders would own about 92.94% of the new common stock, while existing shareholders would own about 7.06% of the new common stock (subject to dilution mechanics). The company also stated that trade creditors and general unsecured creditors were expected to be paid in full, positioning the filing as a parent-level capital markets fix rather than a trade-credit haircut.

Unimpaired classes: why they mattered beyond economics. Leaving general unsecured creditors unimpaired serves two purposes in a holding-company prepack. First, it simplifies solicitation and reduces contested issues over claims classification and feasibility (particularly where the debtor’s operating affiliates hold the revenue-generating business). Second, it helps preserve vendor and counterparty relationships for the non-debtor affiliates that the corporate group wants to keep stable. In Vroom’s case, public statements about unimpaired trade creditors were consistent with the broader strategy of insulating UACC and CarStory from a disruptive bankruptcy process at the operating level.

Equity mechanics after confirmation: cancellation, reverse split, warrants, and dilution controls. A recurring risk in equity-for-debt restructurings of public companies is that the “headline” ownership split obscures the actual post-effective capitalization once warrants and management equity are considered. Vroom’s disclosures and plan supplement materials show that the post-effective structure was built with explicit dilution components. Vroom’s emergence announcement described a 1-for-5 reverse stock split and warrant issuance with an exercise price that reflected the post-split capitalization; the plan supplement materials also reflected a warrant agreement with an initial exercise price of $60.95 per share and a scheduled expiration time on the fifth anniversary of the original issue date.

Management incentive plan: a material dilution layer. The MIP is not a footnote in this case; it is a deliberate governance and retention design choice. The MIP materials described a 15% fully diluted equity pool immediately after the effective date, split between restricted stock units and options. The structure was explicitly retention-oriented: RSUs were described as a four-year cliff vesting award (no vesting until year four), while options vested ratably over four years and included “premium” strike mechanics (with part of the option grant struck at a higher price point). In a prepack where the new owner group is largely former noteholders, that kind of MIP can be a practical compromise: it provides management and key employees a meaningful incentive without requiring the debt-to-equity conversion to leave a large residual stake with legacy equity holders.

Releases and opt-outs: translating “consensual” third-party releases into process mechanics. The confirmation order approved a release framework that included debtor releases, third-party releases, exculpation, and an injunction, and it framed the third-party release as consensual through an opt-out structure. Practically, the plan used two different “opt-out channels” depending on whether a party was in a voting class. Voting classes received ballots that included opt-out language, while holders in non-voting classes received a non-voting notice and opt-out form. This structure is common in prepacks: it attempts to create a record that the release is consensual (or at least procedurally opt-out) for parties who received adequate notice and an opportunity to decline.

Why this was an SDTX prepack, not a Delaware case. Vroom is Houston-based and the case was filed in the Southern District of Texas, with coverage noting the venue and the local posture of the filing. In a prepack, venue selection often reflects a combination of corporate nexus, expected speed of process, and familiarity with local procedures for combined hearings and solicitation frameworks. The SDTX process here used a combined hearing schedule and a single consolidated deadline for voting and objections, consistent with a case designed to move from filing to confirmation and implementation without a long postpetition operating runway.

Post-emergence posture: recapitalized parent; subsidiaries continue. Vroom’s post-effective disclosure framed the outcome as eliminating parent-level funded debt and leaving Vroom, Inc. without long-term debt at the parent level, while confirming that UACC would continue to have debt related to its securitization and trust-preferred structures. The company also described corporate mechanics typical of public-company restructuring implementations: cancellation of old equity, issuance of new equity, a reverse split, and steps toward a relisting on Nasdaq after emergence.

Key professionals and administration. Court filings reflected a standard prepack professional stack oriented toward plan confirmation rather than a long operating case. Porter Hedges served as debtor counsel, and Stout Risius Ross was retained as financial advisor with a valuation/liquidation/feasibility-focused scope. Kurtzman Carson Consultants, LLC d/b/a Verita Global served as the claims, noticing, and solicitation agent, combining claims administration with solicitation/balloting support—an efficient pairing in a prepack where voting mechanics and release opt-outs are central.

Solicitation and combined hearing design: why it reduces execution risk. A prepack succeeds when it eliminates “calendar uncertainty.” The court’s solicitation schedule used a combined disclosure statement and confirmation hearing and paired it with a single deadline for objections and voting. For a public-company recapitalization where the main objective is to equitize one funded instrument, that design reduces three common sources of slippage: (i) separate disclosure statement and confirmation hearing sequencing, (ii) extended plan negotiation after filing, and (iii) delay-driven professional fee burn that can become disproportionate to the amount of value being administered in the debtor entity.

That combined-hearing approach also aligns with how the case was framed publicly: Vroom described a transaction that was effectively negotiated before the petition date and then implemented through a court-supervised process. Bankruptcy coverage described the case as a rapid prepack designed to wipe out the note debt and allocate nearly all reorganized equity to the noteholders in contemporaneous reporting on Vroom’s chapter 11 filing.

Competitive context and why the original Vroom model proved fragile. Vroom’s 2020 market enthusiasm was part of a broader used-car e-commerce narrative where investors compared online challengers to incumbents. Early IPO coverage explicitly framed the competitive landscape by referencing large traditional used-car sellers and internet-first peers like Carvana, and broader business coverage positioned Vroom as part of a June 2020 “boom” window for IPOs. The later pivot away from direct vehicle sales (and the shift toward finance and analytics) can be read as a response to the capital intensity of an inventory-heavy retail model: without a stable and extendable financing facility, a direct-to-consumer used-car platform can quickly lose the liquidity necessary to hold, recondition, market, and deliver inventory at scale. A non-court narrative summary of that shift (from selling cars to focusing on financing and dealer solutions) also appears in consumer-facing coverage describing the rise and fall of the Vroom retail model.

In that sense, Vroom’s prepack is a “capital structure resolution” of a business model decision already made earlier in 2024. Rather than using chapter 11 to reorganize the original operating platform, the case used chapter 11 to rationalize the parent-company balance sheet after the platform had been discontinued.

What the plan actually changed (and what it deliberately did not). The plan’s structural choices are important because they show what the case was not trying to do. This was not a DIP-financed operating case, a 363 sale, or a lease portfolio restructuring. It was a parent-company recapitalization aimed at removing a single funded debt instrument and resetting the equity. The “do not disturb” list—UACC and CarStory staying out of bankruptcy, and trade/general unsecured creditors described as unimpaired—was central to the strategy.

Equity and dilution mechanics: translating the headline split into a usable cap table. In a public-company prepack, the biggest “gotcha” for stakeholders is that the post-effective capitalization can deviate materially from the headline ownership percentages once warrants and equity incentive plans are included. Vroom’s disclosures were unusually explicit about this risk: noteholders’ ~92.94% allocation was described as subject to dilution by warrants and post-effective equity awards, and the MIP was described as a fixed percentage of fully diluted equity. The practical effect is that the “headline split” is a starting point, not an endpoint.

Warrants: prepack terms and post-split implementation. Vroom’s prepack announcement described warrants exercisable for five years with a strike price framed at $12.19 (in the prepack disclosure terms), while the post-effective disclosure described warrants with an exercise price of $60.95 after giving effect to the 1-for-5 reverse split. Those numbers are not inconsistent—they reflect the same instrument expressed across two different share-count regimes. For a reader, the key is to understand that the reverse split is effectively a translation layer: fewer shares outstanding at a higher per-share price, with the warrant strike adjusted to match.

Management incentive plan: retention-first design and why noteholders typically accept it. The MIP described in court filings used a split between RSUs (two-thirds) and options (one-third) with a retention-heavy vesting schedule: RSUs that cliff-vest at year four and options that vest ratably over four years. In a post-equitization company where the new controlling constituency is primarily former noteholders, this structure can serve as a governance compromise. Noteholders get control and a dominant equity stake, while management receives a meaningful long-term incentive that is explicitly designed to keep key personnel through a multi-year stabilization period.

This is also where the percentage sizing matters. A 15% fully diluted pool is a large, explicit dilution component, and it effectively “pre-prices” a retention budget into the cap table. For practitioners, this is a useful example of making dilution transparent rather than leaving it to post-effective board discretion, which can generate disputes between new owners and management after emergence.

Release opt-outs: why the record date matters. The plan’s third-party release opt-out mechanics were tied to eligibility and notice. The solicitation record date mattered because it determined who received which materials (ballots for voting classes versus non-voting notices and opt-out forms for non-voting classes). From a process-control perspective, setting a clear record date helps avoid later disputes about whether a holder had a meaningful chance to opt out or whether a transfer of securities should carry opt-out rights.

Post-emergence public-company mechanics: suspension, relisting, and narrative control. Vroom’s emergence disclosure described multiple public-company implementation steps: cancellation of old equity, issuance of new equity, and a reverse split. It also described Nasdaq suspension dynamics and the company’s path to relisting. Separately, reporting after emergence described Vroom preparing for stock relisting and framed the relisting as a late-stage completion of the recapitalization process rather than a new business expansion event, including coverage describing preparations for a return to Nasdaq trading.

NOL preservation as an explicit narrative choice. Vroom described a goal of preserving approximately $1.5 billion in federal net operating loss carryforwards in its prepack announcement. That matters because it signals the company’s intention to remain a going concern (at least at the holding-company level) and to preserve tax attributes for future taxable income generation. While NOL preservation is not guaranteed by framing alone, the inclusion of that objective provides a rationale for using a court-supervised plan process even for what is, economically, a relatively narrow recapitalization.

What this case illustrates (high-signal takeaways). Vroom’s case is smaller than the headline retail restructurings, but it provides a high-clarity reference for public-company prepacks:

Frequently Asked Questions

When did Vroom file for chapter 11 bankruptcy?

Vroom filed for bankruptcy on November 13, 2024.

Where was the Vroom chapter 11 case filed?

The case was filed in the Southern District of Texas.

Why did Vroom file chapter 11 if its operating subsidiaries were not filing?

Vroom described the case as a parent-level recapitalization designed to equitize its convertible notes while preserving operating affiliates, and it stated that subsidiaries such as UACC and CarStory were not expected to be impacted in the same way as the parent-company filing in its recapitalization announcement.

What was Vroom’s primary funded debt going into the case?

Vroom described approximately $290 million of unsecured convertible senior notes due 2026 in its plan announcement.

How did the plan allocate ownership between noteholders and existing shareholders?

Vroom disclosed that noteholders would receive approximately 92.94% of new common stock and existing shareholders would receive approximately 7.06% (subject to dilution) in its prepack disclosure.

Were trade creditors and general unsecured creditors impaired?

Vroom stated that trade creditors and general unsecured creditors were expected to be paid in full in its prepack announcement.

When was the plan confirmed and when did Vroom emerge from chapter 11?

Vroom stated that the court approved the plan on January 8, 2025 and that the recapitalization was completed on January 14, 2025 in its emergence announcement.

What were the major post-emergence equity mechanics (reverse split and warrants)?

Vroom described a 1-for-5 reverse stock split and warrant issuance with an exercise price of $60.95 in the official announcement describing completion of the recapitalization.

Who is the claims agent for Vroom?

Kurtzman Carson Consultants, LLC d/b/a Verita Global serves as the claims, noticing, and solicitation agent. The firm maintains the official claims register, distributes case notifications, and administered plan solicitation and voting.

For more chapter 11 case coverage, visit the ElevenFlo bankruptcy blog.