Carvana (NYSE:CVNA) shares slid again on Friday after announcing a new credit agreement with Ally Financial after Thursday’s market close.
Per an 8-K filing detailing the agreement and its latest amendments, the restated credit agreement extends the duration of $2.2B credit line for a year and includes a $200M “participation” from Deutsche Bank’s New York branch. Additionally, a separate Inventory 18-month financing and security agreement to finance the Company’s used vehicle inventory was inked.
“The line of credit under the 18-Month Floor Plan Facility is up to $2B, which becomes available following the maturity and repayment of the 12-Month Floor Plan Facility, and its maturity date is March 22, 2024,” the filing explained.
The additional financing moves were viewed negatively by Wedbush, whose analysts considered the terms of the agreements as inhibiting growth.
“While we believe this line is sufficient credit to fund a significant portion of the company’s inventory, but restricts the company’s ability to grow its inventory further without additional capital,” the firm told clients on Friday.
The note assessing the deal also noted a higher than expected interest rate and ancillary clauses that are expected to “pinch Carvana’s (CVNA) overall liquidity by about $360M,” per Wedbush calculations.
To be sure, the terms were not entirely onerous. For example, Wedbush acknowledged relaxed terms in terms of “financing on vehicles for which they don’t have title and repaying up to 10 days after selling a vehicle without a retail financing contract through Ally’s “Forward Flow” agreement.”
Nonetheless, the overall view voiced by Wedbush on the deal is that it is an “incremental negative for Carvana (CVNA) shares.
“While it extends the duration of the financing agreement, it reduces liquidity that is prescient for the company at this point in time, and likely will require that the company raise additional capital in 2023, in our view,” the note concluded.
Shares fell 4.6% on Friday, bringing the year to date loss to about 90%.
Read SeekingAlpha contributor Michael Wiggins De Oliveira’s assessment of how he thinks analysts got it wrong on Carvana.
Image and article originally from seekingalpha.com. Read the original article here.