The Walls Are Closing in on Carvana

The company's biggest creditors have signed an agreement not to fight in negotiations with Carvana, according to a new report.

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Carvana tower
Photo: Joe Raedle / Staff (Getty Images)

Once again, things are not looking good for Carvana. After losing half a billion dollars in Q3, losing its license to sell cars in Michigan, and laying off thousands of employees, creditors appear to believe bankruptcy is a real possibility. According to a report from Bloomberg, Carvana’s largest creditors have already signed a cooperation agreement to avoid a fight over who might get paid.

The group of creditors, which includes Apollo Global Management Inc. and Pacific Investment Management Co., currently holds about $4 billion in unsecured Carvana debt, which works out to about 70 percent of the company’s total. The agreement will last at least three months, but depending on how long it takes for Carvana to file for bankruptcy, it could last for a lot longer than that, according to Bloomberg.

That said, it doesn’t sound like these companies think Carvana is going to simply close up the shop and go away overnight. According to the article, “The aim of the group is to present a united front in negotiations around new financing or a debt restructuring for Carvana.” We’re skeptical that Carvana can be saved, but if you’re one of the companies that it owes money to, it makes sense to hold out hope that a restructuring will get you more of your money back.

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But as the article points out, Carvana’s “bonds have been languishing below 50 cents on the dollar, indicating that investors believe the company is at a high probability of default. Bonds held by the group will trade separately from those held by the non-participating creditors and any new buyers will be bound by the terms of the cooperation agreement.”

A screenshot of Carvana's year-to-date stock price falling dramatically
Screenshot: Google
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Investors are also fleeing, with the company’s stock price dropping more than 98 percent over the course of the year. At the beginning of the year, Carvana shares were trading at $239. At the time of writing, they’re now down to a mere $3.78 each. You don’t have to be a financial analyst to understand that’s not a good sign. Incidentally, investment firm Wedbush Securities downgraded Carvana today, lowering its target price from $9 to $1.

At this point, it’s hard to see how the once-high-flying company makes a comeback.