Carvana (NYSE:CVNA), which operates an online portal where people buy and sell used vehicles, is in the spotlight on Wall Street. However, the buzz isn’t positive as Carvana’s biggest creditors are reportedly working together toward a possible restructuring arrangement. The thought of bankruptcy, plus one analyst’s downgrade and ultra-low price target, sent CVNA stock reeling yesterday, although shares seem to be recovering somewhat today.
Suffice it to say that Carvana hasn’t had a great 2022. Inflation and high interest rates have discouraged consumers from making automobile purchases. Could Carvana be headed for bankruptcy amid this challenging economic backdrop?
That’s the question on some traders’ minds lately, it seems. Fueling the sense of gloom and doom is a report that Carvana’s biggest creditors have agreed to cooperate in “potential restructuring negotiations,” according to Reuters.
Carvana’s 10 biggest lenders, including Apollo Global Management and PIMCO, hold roughly $4 billion of Carvana’s unsecured debt. Reuters stated that these lenders have “made a three-month pact to act together” in the case of Carvana’s restructuring.
What’s Happening With CVNA Stock?
The thought that Carvana might end up in restructuring and/or bankruptcy proceedings caused great anxiety among financial traders yesterday. This helps explain why CVNA stock dropped 43% during the previous trading session.
Today, however, shares are recovering somewhat. In fact, they are up 20% this morning from yesterday’s close. Still, Carvana investors have suffered staggering losses over the past couple of days.
Adding to the sense of anxiety is Wedbush analyst Seth Basham, who downgraded CVNA stock to “underperform.” Not only that, but Basham drastically reduced his price target from $9 to $1. “We believe these developments indicate a higher likelihood of debt restructuring that could leave the equity worthless in a bankruptcy scenario,” Basham warned.
That warning and downgrade may have contributed to the selloff in Carvana shares yesterday. There appears to be some relief for investors today, though, as Carvana’s ongoing story continues to unfold.
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On the date of publication, David Moadel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
