Carvana Secures $4 Billion Loan Deal with Ally Financial
In a significant move, Carvana Co. has reestablished an agreement with Ally Financial Inc. to sell up to $4 billion in used-vehicle loan receivables over the next year. This development counters claims made by short seller Hindenburg Research that Ally was pulling back on its relationship with Carvana.
A Core Relationship Preserved
The deal, announced in a filing on Monday, will preserve a relationship that is crucial to Carvana’s business model. As an online used car retailer, Carvana originates loans to its customers and sells the receivables to other lenders. Ally has historically purchased enough receivables to fund 50% of Carvana’s new originations, according to a report from BNP Paribas.
Terms of the Deal
A Carvana spokeswoman confirmed that the terms of the loan deal are similar to past agreements. This news sent Carvana’s shares soaring 3.2% at 11:49 a.m. in New York on Monday.
Countering Hindenburg’s Claims
Hindenburg Research’s report, released on January 2, alleged that Carvana had lax lending standards and would not be able to sustain growth if lenders didn’t buy its loan receivables. The short seller also claimed that Ally was pulling back from Carvana, citing a decline in receivable purchases. However, with the amended arrangement in place, Carvana will be able to continue loan sales to Ally.
A Turbulent Past
Carvana’s rapid growth after its initial public offering in 2017 was followed by a sharp decline in used-vehicle prices, leading to significant debt and losses. The company lost $2.9 billion in 2022, and its stock fell to a low of $3.72 at the end of the year. However, after restructuring in 2023, Carvana has become profitable, started growing sales again, and its shares have surged.
Analysts Weigh In
Reacting to Hindenburg’s report, JP Morgan analyst Rajat Gupta noted that while there is room for Carvana to provide more disclosure and transparency around gain on sale economics at partners, the company’s earnings per unit sold did not appear inflated. With only two of 24 analysts covering the company having a “sell” rating, investors are optimistic that the worst is behind Carvana.
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