A pedestrian walks by a Peloton store on May 08, 2024 in Palo Alto, California.
Justin Sullivan | Getty Images
Peloton shares plunged on Monday after the connected fitness company said it’s launching a “global refinancing,” as it looks to stave off a cash crunch amid falling sales.
The company is offering $275 million in convertible senior notes due 2029 in a private offering and plans to enter into a $1 billion five-year term loan and $100 million revolving credit facility.
Peloton plans to use the proceeds to buy back about $800 million of its 0% convertible senior notes, which are currently due in 2026, and refinance its existing term loan.
Shares fell more than 12% in extended trading after Peloton announced the refinancing, but later regained some ground.
Last month, Peloton announced that its CEO Barry McCarthy was stepping down and said it planned to lay off 15% of its workforce because it “simply had no other way to bring its spending in line with its revenue.”
The restructuring was designed to improve Peloton’s cash position as demand for its connected fitness products continues to fall. The company has been working to achieve positive free cash flow, which “makes Peloton a more attractive borrowers” and “is important as the company turns its attention to the necessary task of successfully refinancing its debt,” McCarthy said in a memo to staff prior to his departure.
In a letter to shareholders, the company said it is “mindful” of the timing of its debt maturities, which include convertible notes and a term loan. It said it is working closely with its lenders at JPMorgan and Goldman Sachs on a “refinancing strategy.”
“Overall, our refinancing goals are to deleverage and extend maturities at a reasonable blended cost of capital,” the company said. “We are encouraged by the support and inbound interest from our existing lenders and investors and we look forward to sharing more about this topic.”
Peloton, the popular connected fitness company, made waves on Monday with the announcement of a massive “global refinancing” plan. As the demand for its products declines and sales drop, Peloton is taking proactive steps to avoid a cash crunch.
The company is embarking on a $275 million private offering of convertible senior notes due in 2029, along with a $1 billion five-year term loan and a $100 million revolving credit facility. The goal is to repurchase approximately $800 million of its existing 0% convertible senior notes, which are set to mature in 2026, and to refinance its current term loan.
The news of this refinancing sent Peloton’s shares tumbling more than 12% during extended trading, although they did recover some ground later on. This comes on the heels of the recent departure of CEO Barry McCarthy and the announcement of a significant workforce reduction as part of a broader effort to align spending with revenue.
McCarthy emphasized the importance of achieving positive free cash flow, as it not only enhances Peloton’s attractiveness to potential lenders but also lays the groundwork for a successful debt refinancing. In a communication to staff, he highlighted the necessity of addressing the company’s cash position and ensuring financial stability.
Peloton is cognizant of its upcoming debt maturities, including convertible notes and a term loan, and is actively collaborating with its primary lenders, JPMorgan and Goldman Sachs, to develop a comprehensive refinancing strategy. The company aims to reduce its leverage, extend maturity dates, and secure favorable financing terms, all while maintaining a reasonable cost of capital.
Looking ahead, Peloton remains optimistic about its refinancing prospects, buoyed by the support of its existing lenders and investors. By prioritizing financial prudence and strategic planning, the company is poised to navigate the current challenges and emerge stronger in the competitive fitness landscape.
In conclusion, Peloton’s bold refinancing initiative underscores its commitment to long-term sustainability and resilience in the face of market fluctuations. As the company charts a new course towards financial stability, investors and fitness enthusiasts alike will be watching closely to see how Peloton’s strategic moves unfold in the coming months.