Carvana (CVNA) stock tumbled by as much as 46% at one point early Wednesday amid rising worries that the online used-car retailer could be headed for bankruptcy protection.
A related analyst downgrade of Carvana stock to the equivalent of Sell also weighed on shares.
The bigger blow to Carvana stock, however, was a media report late Tuesday that the used-car dealer's largest creditors signed a cooperation agreement to present a united front in restructuring negotiations.
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A group of approximately 10 funds, including Apollo Global Management and Pacific Investment Management, pledged to work together in negotiations with Carvana, Bloomberg reported. The funds hold roughly $4 billion of Carvana’s unsecured debt, or around 70% of the total outstanding.
The move, which is intended to avoid the sort of infighting among lenders that has hampered other recent debt restructurings, raises suspicions that the company and its creditors could be working out a prepackaged bankruptcy plan.
At the very least, it underscores Carvana's extremely serious cash crunch.
In another, and related, knock to Carvana stock, Wedbush analyst Seth Basham downgraded CVNA to Underperform (the equivalent of Sell) from Neutral (Hold).
"We note that CVNA's director of investor relations, Mike Levin, recently left the company," Basham writes. "Combined with the fact that many CVNA bonds have been trading at about 50 cents on the dollar, indicating investors see a high probability of default, we view this news negatively for the CVNA shares."
The analyst adds that the latest developments point to a "higher likelihood of debt restructuring that could leave the equity worthless in a bankruptcy scenario (pre-packaged or otherwise), or highly diluted in a best case."
JPMorgan analyst Rajat Gupta said in a client note Wednesday that although Carvana "may have initiated debt restructuring negotiations with bond holders," the "possibility of imminent Chapter 11 filing seems low."
Last month Carvana announced a second round of layoffs, sacking 1,500 employees, or about 8% of its workforce. The company has laid off almost one-in-five of its workers this year in a bid to conserve cash.
Carvana was a darling of the pandemic-era stock market – shares appreciated 160% in 2020, alone – but it has since collapsed. CVNA stock is off 98% for the year-to-date, trading at less than $5 a share.
Carvana stock hit an all-time closing high of $370.10 on Aug. 10, 2021.
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