Carvana stock plummets on bankruptcy risk fears

Carvana shares are getting crushed on Wednesday because of concerns that the used car retailer may have to file for bankruptcy.

The stock fell more than 30% after Wedbush analyst Seth Basham said bankruptcy risk is rising, noting a decline in the company's bonds.

The CEO Ernie Garcia didn't provide a 2023 forecast and outlined the challenges facing the company, including lower demand, auto depreciation, the pressure to cut expenses and rapidly rising interest rates, during the earnings conference call last month.

Interest rates have risen rapidly since the two-year treasury, with the two-year treasury as a good benchmark for automotive loans, rising 3.9% over the last year and 2.6% since 2019. Credit spreads have risen by about 1% in the last year. The moves into your current yields plus the credit spreads of last year are equivalent to the impact on the customer's monthly payment of about a $3,000 price increase. For customers using financing, the quarter ended at the most unaffordable point in the history of the car, despite the fact that retail prices have dropped about 10% this year. Earlier in the week, Bloomberg reported that Apollo and Pimco agreed to work together if a restructuring is necessary.