Carvana Co.’s bondholders could run against a “tough combination” of rising interest rates and double-digit financing costs, leading some consumers to tap the brakes on buying a used car.
Carvana CVNA, +0.69% in July reached an agreement with its bondholders to reduce its debt load, and the stock has skyrocketed more than 700% so far this year on the expectation the online used-car retailer has staved off bankruptcy. In comparison, the S&P 500 index SPX has advanced around 14% year to date.
The bondholder group “clearly sees value in the asset mix and franchise,” Reynolds said. “They also saw a company that was not financially viable. They in effect see a floor scenario and can plan on the other side if the company execution or markets preclude the upside outcome.”