What happened 

Shares of Carvana (CVNA 39.73%) fell by as much as 11% in early trading on Thursday after the online used car dealer announced that it had finalized a debt deal. Shares recovered slightly as the session progressed, but were still down 8.4% as of 11:50 a.m. ET. 

So what 

On Monday, the company announced plans for a $2.275 billion debt offering and $1 billion preferred stock sale to fund its $2.2 billion acquisition of ADESA, which was announced in February. On Thursday, though, it announced that it had abandoned the preferred stock offering and increased the size of the debt sale to $3.275 billion. That debt ultimately sold with an interest rate of 10.25% after the market closed Wednesday.

Exchanging money for car.

Image source: Getty Images.

The shocking figure here is the interest rate. An interest rate over 10% is firmly in "junk bond" territory -- the level that bond buyers demand when they think there's a fairly high risk of default. If bond investors think Carvana is high risk, then maybe stock investors need to adjust their risk expectations for the stock as well. 

Now what 

Carvana is in a tough position, with the stock falling, debt costs rising, and losses accumulating. In the first quarter, the company lost $506 million and burned $593 million in cash from operations. That's unsustainable for the long term, and it's not clear how the company will turn its operations around. This isn't a stock I would jump into on this latest price cut. I'd need to see it generating positive cash from operations before I'd consider being a buyer.