Peloton clinched a critical $1bn loan on Thursday, allowing the maker of home fitness equipment to shore up its finances, said people briefed on the matter.
The company was at one point was valued at nearly $50bn as consumers clamoured for its stationary bicycles during the depths of the pandemic. But it has faltered as consumers emerged from the pandemic, with Americans choosing to return to gyms and fitness studios in person, crimping demand for its products.
Earlier this month chief executive Barry McCarthy stepped down and the company announced it would cut 15 per cent of its workforce as its sales softened.
The $1bn five-year loan will allow it to refinance debts that mature in the next few years, including repurchasing part of a convertible bond that matures in 2026.
The new financing has been considered integral to giving management time to execute a turnaround plan since Peloton had burnt through capital and faced the 2026 maturing convertible debt.
It had a unique challenge tied to the $1bn convertible bond that required it to refinance most of its debts over the coming year. The company’s existing $750mn term loans included a provision that required it to pay off the debt immediately if more than $200mn of the convertible bond was outstanding in November 2025, as opposed to in 2027 when the loan was otherwise set to mature.
The new loan Peloton secured on Thursday yielded roughly 12 per cent, which, while at the lower end of a range initially marketed to investors, nonetheless underscored the stress it faces. The interest rate on the loan was set 6 percentage points above the floating interest rate benchmark, which sits at about 5.3 per cent. A discount on the loan sweetened the yield to about 12 per cent for lenders. Unusually, the debt was not graded by the major US credit rating agencies.
By contrast, bonds from risky single B-rated borrowers are trading with a yield below 8 per cent, while triple C and lower-rated debt — among the lowest grades assigned by credit rating agencies — traded hands this week at about 13.9 per cent, according to data from ICE Data Services.
The new loan, along with a $300mn convertible bond Peloton issued on Wednesday and a new $100mn revolving credit line, will remove near-term financing issues for the company.
The timing of the offering was particularly opportune for Peloton as investors have bid up the prices of risky corporate bonds and loans, clamouring for high-yielding debt. Banks led by JPMorgan Chase and Goldman Sachs were ultimately able to reduce the interest rate Peloton paid on the new loan given the demand.
Peloton did not immediately respond to a request for comment.