Key Takeaways:
Carvana shares climbed as much as 9.3% Wednesday after a report showed billionaire Mark Walter's stake is pledged to Citigroup, easing fears of a forced sale that had driven a two-day, 14% slide.
"The recent decline in the company's stock price was due to a supply issue, not a fundamental one," and the report "relieves those concerns for now," Matt Maley, chief market strategist at Miller Tabak + Co., said.
Walter, chief executive of Guggenheim Partners and TWG Global, holds about 4% of Carvana through CVAN Holdings — 30 million Class A and 30 million Class B shares worth roughly $2 billion. Delaware filings show nearly all of those shares are pledged to Citigroup Global Markets as collateral for derivative positions and margin loans, meaning Walter cannot freely sell them unless the obligations are paid off or the lender releases the collateral, according to Hunterbrook Media, which first reported the arrangement Tuesday.
The disclosure triggered short covering that helped fuel the rebound, Michael O'Rourke, a strategist at JonesTrading, told Bloomberg. About 10% of Carvana's freely traded shares are sold short, according to S3 Partners data.
Walter is reshaping his holdings as he contends with a federal probe of his investment empire. The Wall Street Journal reported Monday that the investigation, led by the Securities and Exchange Commission and the U.S. Attorney's Office in Manhattan, is focused on entities that served as intermediaries between insurance companies owned by Walter that made loans to businesses he controls. Walter agreed last week to sell the Los Angeles Lakers, and Reuters reported he offered to pledge his stake in Guggenheim Partners as part of a plan to raise billions of dollars for insurance businesses facing scrutiny. Neither Walter nor his businesses have been charged with any crimes or found liable for any civil penalties.
"We have always acted in good faith, and insinuations that we have in any way attempted to circumvent our obligations is simply false," a TWG Global spokesman told the Journal.
The collateral arrangement does not remove every risk. Hunterbrook noted the filings do not reveal key loan details, such as how much collateral must be maintained, so a sharp decline in Carvana shares could prompt Citigroup to demand additional collateral or take action under the agreements.
Carvana reported July 29 that second-quarter retail units sold rose 38% year over year to 197,000, with net income of $513 million and adjusted EBITDA of $769 million — records for the quarter — during a period when the industry was down about 4 points year over year. The company also completed an upsized $1.66 billion senior secured term loan refinancing that cut annual interest expenses by $45 million.
Wall Street remains bullish. Analysts rate Carvana a Strong Buy, with 13 buys, four holds and no sells in the past three months, and the average price target of $85.21 implies about 20% upside from Wednesday's close of $70.44, according to TipRanks data. The stock remains about 25% below its year-to-date peak and down more than 15% for 2026.
This article is for informational purposes only and does not constitute investment advice.
