On Wednesday, shares of Carvana (CVNA) went down like a rock after it was said that the online car retailer’s biggest creditors had signed an agreement to work together in possible restructuring talks. The company is facing a growing risk of going bankrupt, so this was a big deal.
People who know about the situation told Bloomberg News on Tuesday that Carvana’s 10 biggest lenders, who hold about $4 billion of the company’s unsecured debt, have made a three-month agreement to work together if the company needs to restructure. In the report, the names of creditors like Apollo Global Management and PIMCO are listed. Apollo Global Management is the owner of Yahoo.)
On Wednesday, the stock of the company fell by almost 43%.
In a statement to Yahoo Finance, a Carvana representative said, “Carvana is not part of any agreement between bondholders to work together, and we will not answer any questions that come up because of what these bondholders do.” “Our message to our customers, shareholders, employees, and other stakeholders stays the same: we are solely focused on executing the plan to profitability outlined in our Q3 Shareholder Letter, and we have a lot of money to get there. The news from today doesn’t change that plan at all.”
PIMCO and Apollo both refused to say anything.
Wedbush analyst Seth Basham downgraded the stock to Underperform and cut his price target for it from $9 to $1 after hearing about the agreement. He did this because the company’s risk of going bankrupt was rising.
Basham wrote in a note, “This move by creditors will help avoid the fights between lenders that have happened in recent restructurings.” “We think these changes show that debt restructuring is more likely, which could make the equity worthless if the company goes bankrupt.”
Basham also said that Carvana’s purchase of Adesa’s physical auction business in May was an “ill-timed” deal that “has an albatross around its neck” because it will cost the company an extra $336 million in interest each year and give it more reconditioning capacity than it needs.
Shares of the struggling online car dealer Carvana fell below $4 on Wednesday. This is the first time since the company went public in 2017 that Carvana’s stock price has been less than $5. The stock of Carvana is down more than 98% so far this year.
Wedbush cut its rating on the stock on Wednesday. This comes after a lot of Wall Street analysts cut their ratings on the stock in recent months.
Bank of America downgraded Carvana to “neutral” last month because they were worried about liquidity and cash burn. Nat Schindler and Vincent Huebner of BofA said in a November 30 note, “We now think that without a cash infusion, Carvana is likely to run out of cash by the end of 2023.”