Carvana’s share price took a nosedive, falling more than 40 percent after news of the creditor deal on Wednesday. First reported by Bloomberg, the agreement includes Carvana’s largest creditors, including Pacific Investment Management Company and Apollo Global Management. Combined, these companies hold about 70 percent of Carvana’s unsecured debt.
This type of agreement is typically used to restructure debt or secure additional financing for cash-strapped companies. In addition, they help prevent creditor fights in the middle of a bankruptcy negotiation, forcing lenders to cooperate and ensuring faster and smoother debt settlement.
2022 is proving to be a very tough year for Carvana. In addition to seeing its share price drop more than 97 percent, there have been problems with certification and registration and lost a license to sell cars in Illinois. The events follow massive layoffs in May when companies eliminated 2,500 jobs.
In a statement to CNBC late Wednesday, Carvana denied being involved in the cooperation agreement with its creditors and stated that it would not answer any questions regarding the actions taken with its bondholders. They also re-emphasized their focus on returning to profitability and implementing the plans outlined in their Q3 Shareholder Letter.
Following news of a potential creditor deal, JPMorgan indicated that while Carvana may have entered debt restructuring negotiations, the probability of Chapter 11 bankruptcy appears low at this time. Industry insiders believe the company has sufficient cash reserves to get through 2023, but a severe recession or additional operating challenges could significantly reduce that time.
Trading in Carvana’s stock was briefly halted Wednesday after the stock plunged below $5 per share. After trading resumed, the share price continued to fall, closing at $3.83 per share, down 43 percent from the previous day. Since the start of the year, Carvana shares have fallen 97 percent after trading as high as $376 per share in August 2021.
