Carvana Co. shares
were falling about 30% in morning trading Wednesday after Wedbush analyst Seth Basham downgraded the stock to underperform from neutral, writing of his view that the company’s bankruptcy risk is rising. He mentioned a Bloomberg report describing a pact between some of Carvana’s large creditors like Apollo Global Management and PIMCO that is meant to avoid brutal fighting among creditors in the event of a debt restructuring. He pointed to other factors as well, including that “many CVNA bonds have been trading at ~50 cents on the dollar.” In Basham’s view, recent developments indicate “a higher likelihood of debt restructuring that could leave the equity worthless in a bankruptcy scenario (pre-packaged or otherwise), or highly diluted in a best case.” He added that the company’s “ill-timed acquisition of Adesa’s U.S. physical auction business earlier this year has an albatross around its neck, not only adding $336m of incremental annual interest expense due but also saddling the company with additional reconditioning capacity that it does not need.” The shares have plunged 98% so far this year as the S&P 500
has lost 17%.