Carvana stock crashes over 40% amid rising bankruptcy risk (update)
Shares of Carvana (NYSE:CVNA) crashed over 40% on Wednesday as Wedbush told clients that a new cooperation agreement between its largest creditors, including Apollo and PIMCO, should worry investors.
According to Bloomberg, the online auto retailer’s 10 largest creditors signed an agreement “to present a united front in restructuring negotiations” in order to avoid bickering amongst themselves in restructuring negotiations.
“Combined with the fact that many CVNA bonds have been trading at ~50 cents on the dollar, indicating investors see a high probability of default, we view this news negatively for the CVNA shares,” Wedbush analyst Seth Basham wrote on Wednesday. “We believe these developments indicate a higher likelihood of debt restructuring that could leave the equity worthless in a bankruptcy scenario (pre-packaged or otherwise), or highly diluted in a best case.”
As he sees a messy restructuring process as “higher probability” at present, Basham cut his rating on the stock from Neutral to Underperform. He cut his price target to just $1 from a prior $9 alongside the downgrade.
Shares of the Arizona-based online auto marketplace fell over 47% at lows, being halted for volatility at about 11AM ET. The intraday nadir of $3.55 marked just before the pause was a new 52-week low. After closing down 42.88% on Wednesday, Carvana has (CVNA) declined a staggering 98.6% in the past year.
The company is said to be in talks with both bankers and lawyers to restructure its debt.
Read more on Bank of America’s recent downgrade of the stock.