Some of Carvana’s largest creditors sign pact to avoid nasty debt fights

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Some of Carvana’s largest creditors sign pact to avoid nasty debt fights

Some of the largest creditors of Carvana Co., including Apollo Global Management Inc. and Pacific Investment Management Co., have signed a pact that binds them in negotiations with the company, a move meant to prevent the kind of nasty creditor fights that have complicated other debt restructurings in recent years.

People with knowledge of the matter who asked not to be named because they were not authorized to speak publicly, a group of funds holding around $4 billion of Carvana's unsecured debt, or about 70% of the total outstanding, have signed the cooperation agreement, which will last a minimum of three months.

The agreement aims to prevent the kind of splintering among lenders that troubled companies such as Envision Healthcare Corp. have used in recent years to secure more favorable terms in complex debt deals. Such infighting is an outcome of an era of easy money that has weakened lender protections and left creditors with few options but to turn against each other for a better spot in the repayment line.

Read more: Credit-Market Clashes Are Getting Uglier, Dirtier, More Common.

BlackRock Inc. Ares Management Corp. and Knighthead Capital Management are also part of the group, which is advised by White Case LLP and PJT Partners Inc. and has fewer than ten lenders in total, according to one of the people.

Representatives for each of the lenders and Carvana didn't immediately make a statement.

The group wants to present a united front in negotiations about new financing or debt restructuring for Carvana, a one-time hedge fund darling that has seen its stock plunge 97% this year because of investor concerns about its long-term prospects.

The company's bonds have been lagging below 50 cents on the dollar, indicating that investors believe that the company is at a high risk of default. One person said that bonds held by the group will be held separately from those held by the non-participating creditors and any new buyers will be bound by the terms of the cooperation agreement.

In an effort to reduce costs and slow down its cash bleed, the company has cut thousands of jobs this year.

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