Shares of Peloton Interactive (NASDAQ: PTON) were taking a dive today after the high-end maker of exercise bikes announced a global refinancing that could include borrowing at an interest rate above 11%.
As a result, the stock finished 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 wide loss.
On Monday after hours, the company announced plans for a global refinancing, which includes $275 million of convertible senior notes due in 2029, a $1 billion five-year term loan facility, and a $100 million five-year revolving credit facility.
The company plans to use the proceeds to repurchase $800 million of convertible notes due in 2026, and to refinance its existing term loan and revolving credit facilities.
It’s unclear what interest rate Peloton will have to pay, but it could be as high as 11.5%, according to Bloomberg. The move is the latest sign that Peloton could be in real financial trouble, as the company was also said to be seeking a buyout from private equity firms, though the company did not confirm that.
Can Peloton survive?
It’s been a rough few years for Peloton since the pandemic’s peak, and it’s still unclear if the company can find a sustainable business model.
Peloton has succeeded in narrowing its cash flow losses, but it still has work to do to get to profitability. More troublingly, its balance sheet is weak, as it has $3 billion in liabilities and $2.4 billion in assets, meaning it couldn’t afford to pay off its debt if it needed to.
An 11% interest rate on a $1 billion loan could make it even harder for the company to stay afloat and turn profitable. While Peloton’s financial problems aren’t dire just yet, without a recovery in the business and positive free cash flow, bankruptcy is a real possibility down the road.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Peloton Interactive. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
