"Online used-car retailer Carvana ( ) is arguably best-known for its car vending machines, but it has also been a rollercoaster ride that's left investors dizzy. Two years ago, the company appeared to teeter on the edge of bankruptcy. With $5 billion in debt and a stock price that had crashed 99% from its 2021 peak of $376 to below $5 per share, Carvana looked doomed."
"According to a recent Morningstar report on Carvana's receivables that offers a snapshot into an $851 million pool of subprime auto loans the used car retailer bundled and sold to investors, it paints a troubling portrait of what may be lurking beneath the hood. The report shows 28.7% of these loans to carbuyers with lower credit scores are delinquent by at least 30 days, but 12.7% of them are seriously overdue by more than 60 days."
Two years ago Carvana teetered on the brink of bankruptcy with $5 billion in debt and a stock price down 99% from its 2021 peak to under $5. The stock has surged to $392, up over 141% in 12 months and far above its level at the start of 2023. Retail investor enthusiasm on Reddit and X, combined with a recovery narrative from CEO Ernie Garcia III, has fueled the rally. A Morningstar report examining an $851 million pool of subprime loans finds 28.7% at least 30 days delinquent and 12.7% over 60 days past due. Repossession losses total $29.9 million, or 3% of the pool, and a 27.9% buffer partially cushions those losses. The rebound appears increasingly supported by fragile credit quality and risky debt.
Read at 24/7 Wall St.
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