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Carvana’s Stock and Bonds Languish Amid Bankruptcy Quivers

The used car retailer that bought the ADESA auction group this year blames high used car prices and rising interest rates for sinking consumer demand.

December 12, 2022
Carvana’s Stock and Bonds Languish Amid Bankruptcy Quivers

Carvana founder and CEO Ernie Garcia detailed the used car retailer's plans for ADESA auctions during the International Automotive Remarketers Alliance conference in Nashville, Tennessee, on Aug. 17, 2022.

Photo: IARA

2 min to read


Carvana stock nosedived in early morning trading on Dec. 7 as the possibility of bankruptcy loomed over the online used-car retailer, Auto Dealer Today reported.

Its shares fell by more than 40% after Carvana’s biggest creditors signed an agreement requiring them to work together to negotiate with the company. The creditors hold about 70% of Carvana’s outstanding unsecured debt.

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As of Dec. 12, shares closed at $4.95, compared to a close of $239.63 per share on Jan. 3, 2022 and $264 per share on Dec. 13, 2021.

Carvana acquired the auction unit ADESA from parent company KAR Global on Feb. 24, completing the sale on May 10 in a deal valued at $2.2 billion. The sale includes all ADESA U.S. physical auction sites, operations, and staff at 56 ADESA vehicle logistics centers and exclusive use of the ADESA.com marketplace in the U.S. Carvana goes from operating facilities within 200 miles of 56% of the population to within 94% of the population.

Meanwhile, MarketWatch reported Dec. 12 that Carvana bonds were rallying off their worst levels Friday but their deeply distressed status continued to reflect steep concerns about a potential bankruptcy.

The used-car retailer’s most-active 10.25% coupon bonds coming due in May 2030 were trading at about a $45 price on Friday, or near 29% yield, according to BondCliQ. That compares with a price of almost $90 in June for the CCC-rated class of bonds and 12.3% yield, MarketWatch said. Bonds priced below $70 on the dollar are widely considered on Wall Street as distressed, or a default risk that could be costly for bondholders.

Agreements like the one among the some 10 Carvana creditors are intended to simplify negotiations on debt restructuring and new financing and to prevent creditor infighting during the process.

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One person with knowledge of the deal told CNBC confidentially that they downplayed the agreement indicating the possibility of bankruptcy due to Carvana’s liquidity, although at least one analyst said bankruptcy is more likely and downgraded Carvana’s stock to underperform. Another analyst said imminent bankruptcy potential appears slight.

Tempe, Ariz.-based Carvana’s third-quarter sales missed Wall Street expectations, falling 8% year-over-year. Gross profit dropped 31%. It blamed high used-car prices and rising interest rates for dampening consumer demand. Last year, used-car prices got a lift from inflated new-car prices due to decreased inventories.

Originally posted on Vehicle Remarketing

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