Carvana Stock Up 40% After It Announced A Debt Reduction Deal— Rally Comes After Plummet Last Year

Topline

Carvana announced a deal to reduce its debt by more than $1.2 billion Wednesday, skyrocketing the company’s share price up 40%—a figure that marks a comeback from the used car dealer’s abysmal 2022 stock performance.

Key Facts

Carvana’s stock closed up more than 40% Wednesday at $55.80—a more than 1,000% increase from the company’s $4.63 share price at the start of the year.

$350 million in new stock will be raised by Carvana to pay down a portion of its debt, with around $125 million coming from billionaire co-founder Ernest Garcia III, the company’s CEO.

The company, which had $6.54 billion in long-term debt at the end of June, believes the deal will reduce the dealer’s total debt and lower cash interest expenses in the near-term, according to chief financial officer Mark Jenkins.

Forbes Valuation

The net worths of Garcia and his father, Ernest Garcia II, both jumped Wednesday, increasing by more than $1 billion cumulatively. We estimate Garcia III’s net worth at $1.4 billion (up $483 million). His father, who is also Carvana’s majority shareholder, now has an estimated net worth of $5.4 billion (up $846 million). Both of the billionaires saw their net worths decrease by at least $4 billion from 2021 to 2022.

Key Background

Carvana’s 2023 rebound comes after a tough 2022 that saw the company’s stock drop nearly 100%. In 2021, Carvana hit an all-time high stock price of $360.98, propelled by its streamlined car purchasing and financing platform that benefited from the Covid-19 pandemic, when supply chain issues slowed new car production while vehicle interest rates dipped. Since then, Carvana has dealt with debt troubles and legal battles that have led to a decreasing stock. Daniel Bustamente, a former Wall Street trader that scored big off shorting Carvana, said last year the company’s stock was “going to zero.”

Carvana CEO’s Net Worth Skids But His Dad, Who Controls Company, Is Worth Nearly $3 Billion (Forbes)

Carvana Stock Surges After Earnings. Here’s What’s Fueling the Rally. (Barron’s)

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