Shares of Carvana ( NYSE: CVNA ) slid sharply in premarket trading as Wedbush told clients that a new cooperation agreement between its largest creditors, including Apollo and PIMCO, should worry investors.
According to Bloomberg , the online auto retailer’s 10 largest creditors signed an agreement “to present a united front in restructuring negotiations” in order to avoid bickering amongst themselves in restructuring negotiations.
“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,” Wedbush analyst Seth Basham wrote on Wednesday. “We believe 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.”
As he no sees a messy restructuring process as “higher probability” at present, Basham cut his rating on the stock from Neutral to Underperform. He cut his price target to just $1 alongside the downgrade.
Shares of the Arizona-based online auto marketplace fell over 16% at premarket lows on Wednesday, implying an open at a new 52-week low. Carvana ( CVNA ) stock has declined a staggering 97.5% in the past year.
Read more on Bank of America’s recent downgrade of the stock .
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Carvana downgraded at Wedbush on rising bankruptcy risk