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Why Peloton Shares Dropped Today
Actions of Peloton Interactive (NASDAQ:PTON) were plunging today after the high-end exercise bike maker announced a global refinancing that could include borrowing at an interest rate above 11%.
As a result, shares ended the day down 16.4%.
Image source: Peloton.
Peloton needs help
Just a few weeks ago, Peloton reported another disappointing earnings report, complete with a decline in revenue and another big loss.
On Monday, after hours, the company announced plans for a global refinancing, which includes $275 million in convertible senior notes due 2029, a $1 billion five-year term loan facility and a of US$100 million revolving credit with a five-year term.
The company plans to use the proceeds to repurchase $800 million in convertible notes due 2026 and to refinance its existing term loan and revolving credit lines.
It is not clear what interest rate Peloton will have to pay, but it could reach 11.5%, according to Bloomberg. The move is the latest sign that Peloton may be in real financial trouble, as the company is also reportedly seeking an acquisition from private equity firms, although the company has not confirmed this.
Can Peloton Survive?
It’s been a difficult few years for Peloton since the height of the pandemic, and it’s still unclear whether the company will be able to find a sustainable business model.
Peloton has managed to reduce its cash flow losses, but it still has work to do to achieve profitability. What is most worrying is that its balance sheet is weak, as it has $3 billion in liabilities and $2.4 billion in assets, meaning it could not pay off its debt if necessary.
An 11% interest rate on a $1 billion loan could make it even harder for the company to stay afloat and become profitable. While Peloton’s financial problems are not dire yet, without a business recovery and positive free cash flow, bankruptcy is a real possibility in the future.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Peloton Interactive. The motley fool has a disclosure policy.
Why Peloton Shares Dropped Today was originally published by The Motley Fool