Carvana shares fell more than 40% during trading Wednesday after the embattled online used car retailer’s largest creditors agreed to work together in negotiations with the company.
According to Bloomberg, the agreement includes creditors such as Apollo Global Management and Pacific Investment Management, which hold approximately $4 billion of Carvana’s unsecured debt, roughly 70% of the total outstanding. The agreement will be in effect for at least three months. Creditor agreements like this are a way to streamline negotiations for new financing or debt restructuring. They have helped to avoid creditor battles, which have complicated other debt restructurings in recent years.
A person who knew the situation was not authorised to speak publicly about it confirmed the deal’s details to the news on Wednesday.
They downplayed the agreement as a sign of increased bankruptcy risk, citing the company’s significant liquidity runway.
Following the creditor agreement, Wedbush analyst Seth Basham stated that Carvana’s bankruptcy is becoming more likely, downgrading its stock to underperform from neutral and lowering its price target to $1 from $9 per share.”
Our message to customers, shareholders, employees, and other stakeholders remains consistent: we are solely focused on executing the plan to profitability outlined in our Q3 Shareholder Letter, and we have ample liquidity to do so. Today’s news has no bearing on that strategy.” According to JPMorgan, the creditor agreement indicates that Carvana “may have initiated debt restructuring negotiations with bondholders,” but the “possibility of an imminent Ch. 11 filing appears low.”
“We believe CVNA has enough cushion through short-term revolvers to last until the end of 2023, and a severe recession could accelerate this by 1-2 quarters,” Rajat Gupta wrote in an investor note.
Both Pimco and Apollo have declined to comment.