: Carvana bonds rally off worst levels but cash crisis continues to spook Wall Street

by | Dec 9, 2022 | Stock Market

Carvana Co. bonds were rallying off their worst levels Friday but their deeply distressed levels 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.

Similar bonds traded at prices as low as $40 earlier in the week. 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. A look at the broader market for U.S. speculative-grade, or “junk,” bonds shows yields on debt rated CCC and lower were closer to 15% at last check, according to the ICE BofA index. Carvana
has been stoking increased concern given the company’s leverage and its cash needs. The company took on debt to finance the acquisition of Adesa’s U.S. physical-auction business earlier this year, a move that doesn’t sit well in the current climate, given less robust demand for used cars. “The deterioration in liquidity was precipitated by worsening unit economics and higher interest payments, following the $3.275B debt issuance in May 2022,” to finance that deal, according to Jefferies analyst John Colantuoni. At the same time, Carvana faces “continued softness in used car demand.” Bloomberg News reported Tuesday night that several of the company’s creditors, including big names like Apollo Global Management Inc. and Pacific Investment Management Co., have entered into a pact so that …

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