What happened
Shares of Peloton Interactive (PTON +8.85%) are falling once again Wednesday morning after The Wall Street Journal reported that before he resigned, company founder and former executive chairman John Foley faced repeated margin calls on money he'd borrowed against Peloton stock.
The stock is down 7.1% at 11:04 a.m. ET at a time when the Dow Jones Industrial Average is up 142 points, or 1.4%, and the S&P 500 is essentially unchanged.
Image source: Peloton Interactive.
So what
According to the Journal, Foley had pledged Peloton about 3.5 million Peloton shares as collateral on loans from Goldman Sachs at the end of September 2021, which was equivalent to about 20% of his holdings at the time. The stock was worth around $300 million back then, but has fallen to a valuation of about $30 million today.
Foley's holdings at the time were worth $1.5 billion, but now amount to some $100 million. He wryly remarked that "This was not a fun personal balance-sheet reset," but he also insists the margin calls had nothing to do with his withdrawal from the company last month.
Now what
The Journal points out Foley was put in a difficult position by the margin calls because he sat on the board and most companies prohibit executives and directors from selling shares during certain periods, which limited his ability to raise cash to pay the loans. Foley reportedly secured private financing to avoid selling his Peloton stock.
Foley told the news outlet, "I didn't resign from the board because I was underwater. To the extent that I took on debt through Goldman, it was because I am bullish on Peloton and still am. It was and is a great company."
While the revelations have little bearing on the operations of the company today, Peloton warns in its SEC filings that stock sales by insiders could affect investors. It also marks yet another negative news cycle for the connected fitness equipment maker, which has seen its stock lose 92% of its value from its 52-week high.
