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Carvana stock collapses on fear of bankruptcy

Carvana stock collapses on fear of bankruptcy
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caravan (resume) shares soared early Wednesday after the online auto retailer’s biggest creditors signed an agreement to cooperate in potential restructuring negotiations as the company faces increased risk of bankruptcy.

Carvana’s shares fell as much as 40% earlier in the trading session.

Bloomberg News, citing people familiar with the matter, reported on Tuesday A group of 10 of the largest lenders, which Carvana holds about $4 billion of the company’s unsecured debt, entered into a three-month agreement to act together in the case of a restructuring. Names of creditors in the report include Apollo Global Management and PIMCO. (Disclosure: Apollo Global Management owns Yahoo.)

PIMCO and Apollo declined to comment. Carvana did not immediately respond to Yahoo Finance’s request for more information.

Wednesday’s drop in Carvana’s share price came after Wedbush analyst Seth Basham cut the stock to Under-Performance and lowered its price target from $9 to $1, citing increased bankruptcy risk for the company following news of the deal.

“This move [from creditors] “We believe these developments indicate a higher probability of debt restructuring that could render equity worthless in a bankruptcy scenario,” Basham said in a note.

Basham also named Carvana. Acquisition of Adesa’s physical auction business A “mis-timed” deal in May, “has an albatross on its neck, not only adds $336 million in incremental annual interest expense due but also burdens the company with additional replacement capacity it doesn’t need.”

Miami, Florida - May 11: A Carvana used car

A Carvana used car “vending machine” on May 11, 2022, in Miami, Florida. (Photo: Joe Raedle/Getty Images)

Shares of the online car dealer under siege fell below $4 on Wednesday; This marks the first time Carvana’s stock price has dropped below $5 since the company went public in 2017. Carvana’s stock has dropped more than 98% since the start of the year.

Wednesday’s Wedbush downgrade came as Wall Street analysts downgraded its stock ratings in recent months.

Last month, Bank of America downgraded Carvana to Neutral due to liquidity and cash burn concerns. “We believe Carvana will run out of cash by the end of 2023 if there is no more cash inflow,” BofA’s Nat Schindler and Vincent Huebner said in a note dated November 30.

In early November, Morgan Stanley analysts said In the midst of what they see as a deterioration in the fundamentals of the company, the shares could be worth $1 per share.

Alexandra Semenova is a reporter for Yahoo Finance. follow him on twitter @alexandraandnyc

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