Online used car company Carvana (CVNA-US) plunged more than 40% on Wednesday (7th), the largest one-day drop in stock prices since the company went public. The company’s 10 largest creditors signed an agreement to form a united front in restructuring talks with the company.
The agreement includes creditors such as Apollo Global Management and Pacific Investment Management Company (PIMCO), which hold regarding $4 billion in Carvana’s unsecured debt, or regarding 70% of the total outstanding debt. The agreement will last at least three months.
Such creditor agreements are seen as a way to simplify negotiations for new financing or debt restructuring, a common practice in recent years to reduce creditor disputes that complicate debt restructuring.
Carvana crashed 42.92% on Wednesday to close at $3.83 per share, a drop that refreshed the 38.95% drop set on November 4, the biggest one-day drop since the stock went public in 2017. Carvana shares are down more than 98% so far this year, according to FactSet data.
People familiar with the matter confirmed the details of the agreement to the media, but did not respond in a low-key manner to whether the agreement implied that creditors were more worried regarding the company’s bankruptcy, arguing that the company had meaningful liquidity channels.
After the creditors signed the deal, Wedbush analyst Seth Basham said on Wednesday that Carvana’s bankruptcy was increasingly likely and downgraded its stock to underperform from neutral with a price target of $1 a share from $9.
JPMorgan analyst Rajat Gupta said Wednesday that the creditor agreement means “Carvana may have started debt restructuring talks with bondholders, but the chances of filing a Chapter 11 bankruptcy now appear to be low.”
Rajat Gupta believes that Carvana should be able to survive until the end of 2023 through short-term turnover, and a severe economic recession may accelerate by 1-2 quarters.
Carvana did not immediately respond to a request for comment. Pimco and Apollo declined to comment.
BofA analyst Nat Schindler downgraded Carvana’s stock to “neutral” from “buy” last month, one of several recent downgrades, citing the company’s continued cash burn.
“We now believe that without a cash injection, Carvana might run out of cash by the end of 2023,” Schindler wrote at the time.
Carvana is among the companies whose shares have rallied during the pandemic, as buyers flocked to used vehicles as disruptions in the supply chain for new cars occurred. However, soaring interest rates and borrowing to fuel rapid growth have spelled disaster for Carvana stock.
Competitor AutoNation (AN-US) is still up more than 2% so far this year.
