Shares of Carvana (NYSE: CVNA) tanked in pre-market trading on Wednesday after Wedbush analyst Seth Basham downgraded the stock to a Sell from a Hold and slashed the company’s price target to just $1 from $15 earlier.
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More worryingly, according to a Bloomberg report, a group of CVNA’s largest creditors including Apollo Global Management and Pacific Investment Management holding around $4 billion of the company’s unsecured debt have signed a pact to act together in negotiations with the company. This pact will last for a minimum of three months.
The report stated that this move aims to prevent any bickering among the creditors in the event of a debt restructuring for the company.
Analyst Basham commented, “Combined with the fact that many CVNA bonds have been trading at ~50 cents on the dollar, indicating investors see a high probability of default, we view this news negatively for the CVNA shares.”
The analyst believes that “these 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.”
Besides Basham, other Wall Street analysts are sidelined about the stock with a Hold consensus rating based on four Buys, 12 Holds, and one Sell.