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Carvana stock collapses amid bankruptcy fears after creditor pact and another $1 price target

Carvana (CVNA) shares spiraled Wednesday after the online car retailer’s biggest creditors reportedly signed an agreement to cooperate in potential restructuring negotiations as the company faces growing bankruptcy risk.

The company's stock plunged nearly 43% on Wednesday.

Bloomberg News, citing people familiar with the matter, reported Tuesday that a group of Carvana’s 10 biggest lenders holding around $4 billion of the company's unsecured debt have made a three-month pact to act together in the case of restructuring. Creditors' names in the report include Apollo Global Management and PIMCO. (Disclosure: Apollo Global Management owns Yahoo.)

"Carvana is not involved in any cooperative agreement amongst bondholders and we will not be addressing any questions that arise from actions taken by such bondholders," a spokesperson from Carvana said in a statement to Yahoo Finance. "Our message to our customers, shareholders, employees and other stakeholders remains clear: we are singularly focused on executing on the plan to profitability outlined in our Q3 Shareholder Letter and we have substantial liquidity to get us there. In no way does today’s news change that strategy."

PIMCO and Apollo declined to comment.

Wednesday's collapse in Carvana's share price also comes as Wedbush analyst Seth Basham downgraded the stock to Underperform and slashed his price target to $1 from $9 following news of the agreement, citing rising bankruptcy risk for the company.

“This move [from creditors] will help avoid the infighting among lenders that has occurred in other restructurings recently,” Basham wrote in a note. “We believe these developments indicate a higher likelihood of debt restructuring that could leave the equity worthless in a bankruptcy scenario.”

Basham also called Carvana's acquisition of Adesa's physical auction business back in May an "ill-timed" deal that, "has an albatross around its neck, not only adding $336m of incremental annual interest expense due but also saddling the company with additional reconditioning capacity that it does not need."

MIAMI, FLORIDA - MAY 11: A Carvana used car
A Carvana used car "vending machine" on May 11, 2022 in Miami, Florida. (Photo by Joe Raedle/Getty Images)

Shares of the beleaguered online car dealer plunged below $4 on Wednesday, the first time Carvana’s stock price has fallen under $5 since the company went public in 2017. Carvana’s stock is down more than 98% year-to-date.

Wednesday’s downgrade from Wedbush comes as droves of Wall Street analysts have slashed their rating on the stock in recent months.

Last month, Bank of America downgraded Carvana to Neutral on concerns over liquidity and cash burn. “We now believe that without a cash infusion, Carvana is likely to run out of cash by the end of 2023,” BofA’s Nat Schindler and Vincent Huebner said in a November 30 note.

Earlier in November, Morgan Stanley analysts said shares could be worth $1 per share amid what they saw as a deterioration in the company's fundamentals.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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