What happened
Shares of connected fitness-equipment maker Peloton Interactive (PTON 5.42%) are closing out the week on a high note, up 4.9% at 2:25 p.m. EST on Friday. That's a big change from earlier in the week, when Peloton's share price slipped in response to news that the company was borrowing $600 million at an undisclosed rate. Now we know what that rate will be.
Image source: Getty Images.
So what
Four days ago, Peloton announced the private placement of convertible senior notes due in 2026 to raise $600 million in cash. Seeing plenty of demand for its debt (convertible into stock), the company quickly upsized that offering to $875 million and gave its underwriters the option of acquiring $125 million more -- and advised that it would be paying 0% interest on the notes.
Yesterday, just before the closing bell, it was announced that Peloton got all the money it asked for (and more) despite basically asking its creditors to lend it money for free. Creditors took on the entire $1 billion in convertible debt, and Peloton won't pay a penny in interest until the notes mature on Feb. 15, 2026.
Now what
The notes are convertible into common stock that Peloton would issue to the creditors at the exchange rate of one share per $239.23 in debt -- 55% above where the stock trades today. Alternatively, Peloton can just use the cash, interest-free, for the next five years.
Management says it intends to use the bulk of the funds raised "for general corporate purposes, which may include working capital, capital expenditures, including for the construction or expansion of facilities, and investments in and acquisitions of other companies, products or technologies that Peloton may identify in the future."
It sounds like a pretty sweet deal for Peloton, and investors are rightly pleased by it.
