Carvana Plunges as Apollo-Pimco Creditor Truce Creates Stock Doubts

(Bloomberg) – Carvana Co. plunged on Wednesday as Wall Street pessimism spilled over its shares after the online car dealership’s biggest creditors signed an agreement to act together in negotiations with the company.

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Its shares fell a record 45%, triggering at least a halt in volatility, after Wedbush analyst Seth Basham cut his 12-month forecast for the stock by 89% to $1 and demoted her for underperforming. The move comes a day after Bloomberg News reported that Carvana’s major creditors, including Apollo Global Management Inc. and Pacific Investment Management Co., had signed a pact to prevent creditor fights that have complicated further debt restructurings. these last years.

“These developments indicate a higher likelihood of debt restructuring that could leave equity worthless in a bankruptcy scenario, or heavily diluted in the best-case scenario,” Basham wrote in a note to clients.

The company’s bonds have fallen below 50 cents on the dollar in recent weeks, indicating traders believe there is a high likelihood they will default. Carvana’s $3.3 billion bond due in 2030 is trading at about 42 cents, down from 79 cents at the start of the year.

This is the second time in about two months that Basham has lowered his rating on Carvana. In October, he downgraded the company to neutral and lowered his price target to $15 from the $50 he had previously set. As recently as January, his 12-month price target for the stock was $300 per share.

Nor is Basham completely alone on his last call for the stock. About a month ago, Morgan Stanley analyst Adam Jonas withdrew his rating from Carvana after it missed its earnings and said it could be worth as little as $1. Analysts’ 12-month average price target for the company has fallen 95% this year and now stands at just over $17, down from over $361 at the start of January. Still, that’s around 350% above its current price.

Wednesday’s drop adds to what has been a painful turnaround for investors. Shares of the company jumped more than 160% in 2020 as it benefited from a boom in demand for used cars in the early months of the pandemic. But as supply chains have normalized, prices have fallen, and so have Carvana’s margins. This, combined with a slowing economy, tighter monetary policy and continued consumption of cash, quickly sent investors plummeting.

The Arizona-based company has seen its shares fall almost 99% in the 16 months since closing at an all-time high of $370.10. The decline wiped out about $60 billion in market value and leaves Carvana the second-best performing U.S. stock, worth at least $500 million over that period.

For investors, the $1 price target is a stark reminder that despite the massive declines, further declines are still possible. Shares of Carvana are expected to fall a further 85% from Tuesday’s close to hit that $1 level.

(Updates the stock price movement.)

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