Carvana Shares Crash As Creditors Form Pact Amid Soaring Bankruptcy Risks

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by Tyler Durden
Wednesday, Dec 07, 2022 - 05:37 PM

Carvana Co. shares crashed to a record low Wednesday after Bloomberg reported a group of the company's creditors formed a cooperation pact to prevent creditor fights in the event of a restructuring. 

Apollo Global Management Inc. and Pacific Investment Management Co. were among some of the top creditors that signed a deal to act together in credit negotiations with the company. BlackRock Inc., Ares Management Corp., and Knighthead Capital Management are also part of the group, which is being advised by White & Case LLP and PJT Partners Inc. and includes less than ten lenders in total, according to people with direct knowledge of the situation. 

The people said that the group of creditors has approximately $4 billion of Carvana's unsecured debt, or 70% of the total outstanding. 

"These developments indicate a higher likelihood of debt restructuring that could leave the equity worthless in a bankruptcy scenario, or highly diluted in a best case," Wedbush analyst Seth Basham wrote in a note to clients. 

Basham slashed his equity price target to as low as $1 from $9. Shares crashed as much as 44% today and were halted at least once for volatility.  

The company's 2030 bonds trade at 41 cents on the dollar, indicating traders believe bankruptcy could be imminent and minimal recovery. The $3.3 billion bonds due at the end of this decade were trading near 90 cents on the dollar in August. 

About a month ago, Morgan Stanley analyst Adam Jonas pulled coverage on the company and said the stock may be worth "as little as $1."

The one-time hedge fund darling has plunged more than 98% this year over a worsening credit outlook, declining prices for used cars, soaring interest rates, waning consumer demand, and a heavy debt load.