(Bloomberg) — Carvana Co. said it has reestablished an agreement with Ally Financial Inc. to sell the lender up to $4 billion in used-vehicle loan receivables over the next year, a move that counters one claim by short seller Hindenburg Research that the financier was pulling back on their relationship.
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The deal, announced in a filing Monday, will preserve a relationship that is core to Carvana’s business. The company sells used cars online, originates loans to its customers and sells the receivables to other lenders. Ally has historically bought enough receivables to fund 50% of Carvana’s new originations, according to a report from BNP Paribas.
A Carvana spokeswoman said terms of the loan deal are similar to past agreements.
Carvana’s shares rose 3.2% at 11:49 a.m. in New York Monday. The stock surged 284% last year as improving results increased optimism that the company was on the right track after worries about its debt load and losses. The stock fell 1.9% on Jan. 2 when the Hindenburg report came out and another 11% Jan. 3.
Hindenburg’s report, written after conducting research that included interviewing former employees, said Carvana had lax lending standards for borrowers and would not be able to sustain growth if lenders didn’t buy its loan receivables.
The short seller called Carvana recent turnaround “a mirage,” saying some of the results were propped up by opaque related party transactions with firms owned by Ernie Garcia, the father of Carvana Chief Executive Officer Ernest Garcia III.
In its report, Hindenburg said Ally was pulling back from Carvana. The lender bought $3.6 billion in receivables in 2023 and acquired $2.2 billion from January to September of last year, on pace for an annualized rate of just $2.9 billion. With the amended arrangement in place, Carvana will be able to continue loan sales to Ally.
Carvana grew rapidly after its initial public offering in 2017, with shares reaching a high of $370 in August 2021. But the company took on a lot of debt to fund growth just before used-vehicle prices fell. The company lost $2.9 billion in 2022 and its stock fell to a low of $3.72 at the end of the year amid speculation it could go insolvent. The elder Garcia sold $2.3 billion before the shares crashed and another $1.4 billion as the stock rose last year.
After restructuring in 2023, Carvana has become profitable, started growing sales again and the shares have soared. With only two of 24 analysts covering the company having a “sell” rating, investors think the worst is behind the company.
Reacting to Hindenburg, JP Morgan analyst Rajat Gupta said in a report on Jan. 3 that “there is room for Carvana to provide more disclosure and transparency around gain on sale economics at partners.” Gupta also wrote that despite the lack of transparency, Carvana’s earnings per unit sold did not appear inflated.
Carvana did not address Hindenburg’s allegations specifically, but said at the time of its release that the claims in the report were “intentionally misleading and inaccurate and have already been made numerous times by other short sellers seeking to benefit from a decline in our stock price.”
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