What happened

Shares of Herbalife (HLF 4.36%) were tumbling after the company announced a new convertible debt offering, threatening to dilute investors by as much as 20%.

The stock closed down 25.4% as a result.

So what

In a press release last night, the nutritional supplement company said it is offering $250 million in convertible notes due 2028.

The company did not have a conversion price or an interest rate yet, saying those would be determined at the time of its pricing. Herbalife also said that the notes would not be convertible until June 15, 2026, and that the proceeds would be used to redeem 2.625% convertible senior notes in a private transaction and for general corporate purposes.

With interest rates on the rise and Herbalife's revenue slumping, investors seem fearful that the company may have to pay a much higher interest for the new debt. Herbalife's credit rating was also recently downgraded as the company is already struggling after pulling its guidance and announcing the surprise departure of its CEO.

Now what

Herbalife reported a 9.5% decline in revenue in its most recent quarter, and profits fell significantly, which, in addition to pulling its guidance, shows the company is struggling in the current macroeconomic environment.

The company currently has $2.75 billion in debt, so $250 million won't make that big of a difference on its balance sheet, especially as it's repaying some of its debt, but investors seem to fear that Herbalife could have to take on much higher interest rates in the new round.

We should learn more in the coming weeks once the notes are priced.