Shares of Carvana Co (NYSE: CVNA) crashed as much as 45% this morning as growing concerns related to bankruptcy weighed on the stock price.
Carvana stock could eventually be ‘worthless’
On Wednesday, a Bloomberg report said Pacific Investment Management and Apollo Global Management – two of Carvana’s largest creditors have agreed to act together in case of negotiations around debt restructuring.
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This agreement, per the anonymous sources, is for a minimum of three months. Together, the two funds hold roughly $4.0 billion of its unsecured debt.
On top of that, Mike Levin – the Head of Investor Relations at Carvana has recently left the company as well. Reacting to these developments, Wedbush’s Seth Basham said in a note this morning:
These developments indicate a higher likelihood of debt restructuring that could leave the Carvana stock worthless in a bankruptcy scenario, or highly diluted in a best case.
For the year, Carvana stock is now down an alarming 98%.
Adesa deal is making things worse for CVNA
Carvana is a notable victim of higher costs and subsequently the lower demand this year. To that end, it revealed plans of lowering its headcount by 8.0% last month to minimise costs. But Basham reiterated:
Many of Carvana’s bonds have been trading at about 50 cents on the dollar, indicating investors see a high probability of default.
Earlier this year, the online used car retailer bought Adesa’s U.S. physical auction business that the Wedbush analyst dubbed “ill-timed” as the ensuing $336 million of incremental annual interest expense is adding meaningfully to its woes.
At the end of its third financial quarter, Carvana had about $4.40 billion of total liquidity.
