MULN - Can a New Debt Swap Save Arrival (ARVL) Stock?
2023-06-06 11:44:05 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Arrival (NASDAQ: ARVL ) isn’t off to a good start today, but the company is working hard to pull back into the electric vehicle (EV) race. The British EV producer is in the throws of a highly volatile week that has kept it trending downward. However, today it announced that it has agreed to a debt-for-equity exchange with hedge fund Antara Capital . The deal includes Arrival exchanging “$20M principal amount of 3.50% convertible notes due 2026 for 3.02M ordinary shares.” The news initially sent ARVL stock down, signaling that the market isn’t responding well.
However, it could signal the start of a key turnaround as Arrival struggles to convince investors not to write it off.
What should investors be watching for as the company continues its low pivot? Let’s take a closer look at Arrival and assess what its future looks like.
What’s Happening With ARVL Stock
Despite the debt-for-equity announcement, ARVL stock is struggling to gain momentum today. It fell more than 3% during premarket trading, and things have only gotten worse from there. As of this writing, it is down 8% for the day after displaying considerable volatility since markets opened. But for all its turbulence this week, ARVL is still up 30% for the month, even while delisting concerns have risen.
For a company like Arrival, a debt-for-equity deal makes sense. It is commonly employed by struggling companies that need to make it through a difficult time. Per Investopedia :
“A debt/equity swap is a refinancing deal in which a debt holder gets an equity position in exchange for the cancellation of the debt. The swap is generally done to help a struggling company continue to operate. The logic behind this is an insolvent company cannot pay its debts or improve its equity standing. However, sometimes a company may simply wish to take advantage of favorable market conditions. Covenants in the bond indenture may prevent a swap from happening without consent.”
As a means of continuing operations, this is a logical step for Arrival. By converting Antara’s $20 million loan to equity, the company is able to reduce its debt load and will theoretically be able to continue scaling production.
This comes not a moment too soon. Arrival has faced cash flow problems recently, compelling it to shift focus from production in the U.K. to the U.S. As Reuters reports, the recent EV tax credits resulting from the U.S. Inflation Reduction Act (IRA) may provide the subsidies that it needs to finally achieve mass production. According to the outlet, Arrival is centering its U.S. expansion around just one model, the Class 4 delivery van. This model makes sense, as it will net buyers an IRA subsidy worth $40,000 as opposed to the $7,500 available for smaller electric vans.
Why It Matters
Arrival is doing everything it can to show investors that it has no intention of folding just yet.
Unfortunately for the company, it is often placed in the same category as unstable EV stocks such as Nikola (NASDAQ: NKLA ) and Lordstown Motors (NASDAQ: RIDE ). Meanwhile, meme stock Mullen Automotive (NASDAQ: MULN ) continues to cast doubt over the future of small-cap EV stocks. This can make it difficult for some investors to trust Arrival’s growth prospects.
However, news like this should indicate that ARVL stock is a better buy than other EV penny stocks . This debt/equity swap can allow it to continue production as it gears up to gain a share of the lucrative U.S. market.
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On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.
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