Carvana's Bumpy Ride: Company Facing Increased Risk of Bankruptcy

By Luis Miguel Tejada It’s been a bumpy ride during the last few weeks for used car retailer, Carvana. Using SOLVE’s observable market data we can identify a downward trend in the prices of bonds for the under sieged company. Within the company’s credit curve, we highlight the bonds maturing in 2030 and 2025 with coupons of 10.25% and 5.625% respectively. These two were being quoted around the $70.00 price range at the end of September, since then the average bid for both has dropped more than 40% through December 8th. (Figure 1)

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Speculation of a possible bankruptcy agreement for this company has also affected the quoted levels of its credit default swap (CDS), with these levels rising as the risk premium becomes more expensive. This metric measured by the increment in basis points paid upfront on the CDS value has almost doubled dating back to the end of September, with a 92% upturn to date (Figure 2). This confirms the market pressure faced by Carvana also extends to its fixed income instruments.

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