Why Peloton Stock Plunged Today

stock Peloton Interactive (PTON -16.37%) The luxury exercise bike manufacturer is taking the dive today after announcing a global refinancing that could include loans with interest rates of more than 11%.

As a result, the stock price closed the day with a 16.4% decline.

Image source: Peloton.

Peloton needs help

Just a few weeks ago, Peloton reported another disappointing earnings report that included declining sales and another large loss.

After business hours Monday, the company announced a global refinancing plan that includes $275 million of convertible senior notes due 2029, a $1 billion five-year loan facility and a $100 million five-year revolving credit facility.

The company plans to use the proceeds to repurchase $800 million of its convertible notes due 2026 and refinance its existing term loan and revolving credit facility.

It’s unclear what interest rate Peloton will have to pay, but it could be as high as 11.5%. bloomberg. The move is the latest sign that Peloton may be in real financial trouble, as the company is reportedly seeking an acquisition from a private equity firm, although the company has not confirmed this.

Can Peloton Survive?

It’s been a tough few years for Peloton since the height of the pandemic, and it’s still unclear whether the company can find a sustainable business model.

Peloton has been successful in reducing its cash flow losses, but it still has work to do to become profitable. What’s more problematic is that the company’s balance sheet is weak, with liabilities of $3 billion and assets of $2.4 billion. This means you won’t be able to afford to pay off your debt if you need to.

An 11% interest rate on a $1 billion loan could make it more difficult for the company to remain profitable. Peloton’s financial problems aren’t serious yet, but without a business recovery and positive free cash flow, bankruptcy is a real possibility.