What happened
Shares of electric vehicle (EV) start-up Arrival (ARVL -35.90%) spiked more than 10% Tuesday morning after the company announced a plan to avoid running out of cash. The stock still held onto a gain of 6.5% as of 10:21 a.m. ET.
The bounce adds to a doubling in shares this year. But the troubled company's stock has still dropped more than 90% over the past year.
So what
The company plans to make electric buses and vans from small manufacturing facilities located near specific customer accounts. But it has struggled to begin production and announced it was cutting 50% of its workforce earlier this year as it pivots away from its U.K. bus plant to focus on van production in the U.S.
Today, the company said it has secured $50 million in additional capital, and reduced its debt load by 38% by converting that debt to equity. That move dilutes existing shareholders, but it gives the company a lifeline to begin producing and selling its products.
Image source: Arrival.
Now what
Arrival said it sold new common stock to Antara Capital Master Fund to raise the $50 million in new capital. It also agreed to exchange nearly $122 million in convertible debt that was held by Antara and due in 2026 for new equity. That reduced Arrival's debt by 38%.
The new shares were priced at $0.20 per share, however, compared to Friday's closing share price of $0.33 per share. Antara has agreed to hold 100 million of its shares for at least one year.
The move isn't friendly to existing shareholders, but it seems to be better than any alternative as Arrival struggles to achieve production and initial sales. That explains the bounce in the share price today. But investors should still view Arrival as a high-risk company that may, in fact, still fail to survive. Today's announcement is a lifeline for now, though.
