Shares of Carvana (CVNA) soared early Wednesday after the online car retailer’s major creditors reportedly signed an agreement to cooperate in possible restructuring talks as the company faces growing bankruptcy risk.
Carvana’s stock plunged as much as 40% early in the trading session.
Bloomberg News, citing people familiar with the matter, reported on Tuesday that a group of Carvana’s 10 largest lenders holding about $4 billion of the company’s unsecured debt had entered into a three-month pact to act together in the event of 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 crash in Carvana’s share price also comes as Wedbush analyst Seth Basham downgraded the stock to Underperform and cut its price target to $1 from $9 following the announcement of the deal, citing a growing risk of bankruptcy for the company.
“This move [from creditors] will help avoid the infighting between lenders that has occurred recently in other restructurings,” Basham wrote in a note. “We believe these developments indicate a higher likelihood of debt restructuring which could leave equity worthless in a bankruptcy scenario.”
Basham also called Carvana’s acquisition of Adesa’s physical auction business in May an “untimely” deal that “has an albatross around its neck, not only adding $336 million in interest charges additional annuals owed, but also burdening the company with additional remanufacturing capacity it doesn’t need.”
Shares of the beleaguered online car dealership plunged below $4 on Wednesday, the first time Carvana’s share price has fallen below $5 since the company went public in 2017. The shares of Carvana have fallen by more than 98% since the beginning of the year.
Wedbush’s Wednesday downgrade comes as many Wall Street analysts have cut their rating on the stock in recent months.
Last month, Bank of America downgraded Carvana to Neutral over concerns about liquidity and cash burn. “We now believe that without a cash injection, Carvana risks running out of cash by the end of 2023,” BofA’s Nat Schindler and Vincent Huebner said in a Nov. 30 note.
Earlier in November, analysts at Morgan Stanley said shares could be worth $1 a share amid what they saw as deteriorating fundamentals for the company.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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