Carvana Co. (NYSE:CVNA)’s shares drove higher after the ailing used car retailer said it had reached agreement to sell up to $4 billion of auto loans.
The group, which has seen its shares plummet in the last year, said Ally Bank and Ally Financial will buy the loans, giving it a fresh source of funding as it tries to restructure its operations.
The company, once dubbed the “Amazon of used cars” also said it has adopted a "poison pill" to limit shareholders from raising their stakes.
READ: Carvana shares take another wrong turn as creditor pact sparks further uncertainty
Carvana said this will help safeguard its "significant" US federal net operating loss (NOLs) that could be available to offset its future taxable income.
The company's ability to use the NOLs would be substantially limited if its 5%-shareholders increased their ownership, Carvana said.
Companies with large NOLs often adopt poison pills to enable them to cut their tax bill while they are also used to ward off hostile takeovers.
"This type of move does suggest a more defensive stance by Carvana’s board of directors, and likely eliminates any potential future institutions from gaining ownership control," analysts at Raymond James (NYSE:RJF) said in a note.
The company was an investor darling during the pandemic as consumers bought everything online and used car prices soared as car manufacturers’ struggled to meet demand.
Lately, though, the Arizona-based group has seen its shares plunge nearly 99% in the last 16 months since they closed at a record high of $370.10, wiping around $60 billion off its market value as rising interest rates, supply chain problems and the economic slowdown all hit the company hard.
But today shares have been marked 7.2% higher at $7.34 as trading heads to the close.
Contact the author at jeremy@proactiveinvestors.com