Carvana Holders May Score Bigger in Bankruptcy Versus Debt Swap

Carvana Co.’s biggest bondholders may wind up better off if the beleaguered online car seller ends up in a position companies usually try to avoid: bankruptcy.

A quick bankruptcy filing that exchanges debt for equity could preserve the business and provide an initial recovery of around 50% for bondholders, with the potential for those investors to nearly be made whole by 2026, according to Joel Levington, Bloomberg Intelligence’s director of credit research.

Dragging the company through a controversial debt exchange amid the backdrop of a plummeting share price is a painful alternative. And major bondholders — including the ...