What happened

Toy maker Mattel (MAT 0.67%) has a lot of debt. That shouldn't come as a surprise to anyone who has owned the stock for a while. Years of stock buybacks, followed by two years of negative free cash flow from its business, have burdened Mattel with a balance sheet carrying $2.8 billion in debt, against less than $200 million in cash.

To help service that debt, Mattel announced last week that it would try to sell $250 million worth of "6.00% senior notes" due in 2027 with which to refinance a bunch of 4.35% senior notes due in 2020. But last night, that plan blew up -- and today, Mattel stock is down 11.4% (as of 10:15 a.m. EDT) as a result.

One kid building a pile of blocks and another kid kicking over a pile of blocks.

Image source: Getty Images.

So what

So what exactly happened to blow up the debt deal? That's a very good question.

In a filing with the SEC last night, Mattel advised only that on August 6, it was "made aware of an anonymous whistleblower letter" -- full stop. No further details.

Mattel management needs time "to investigate the matters set forth in the letter" -- whatever they may be. And while it's doing that, it's suspending the debt offering, which means that the debt that's coming due next year is still coming due. And Mattel may not have the cash to pay it.

Now what

Judging from the falling stock price, this news has investors worried -- and rightly so -- but I wouldn't overreact.

Mattel is a big company, with $4.5 billion in annual sales and a nearly 75-year history in business behind it. If push comes to shove and it's a choice between doing the debt offering or filing for bankruptcy, I'd be surprised to learn that management can't "walk and chew gum at the same time," i.e., investigate a whistle-blower's claims at the same time as it conducts a debt offering.

More worrying to me is the fact that Mattel isn't doing that right now, which suggests that the real story here may be that the company is having trouble finding someone to extend it the money it needs at a rate it wants to pay and using the whistle-blower claim as an excuse to suspend the debt offering and play for time.

But time may be running out for Mattel.