Peloton takes out $1 billion loan as it looks to shore up struggling finances

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Peloton took out a critical $1 billion loan on Thursday, allowing the home fitness equipment maker to shore up its finances, people briefed on the matter said.

The company was at one point valued at nearly $50 billion as consumers clamored for its exercise bikes during the worst of the pandemic. But it has faltered as consumers emerged from the pandemic, and Americans opted to return to in-person gyms and fitness studios, reducing demand for its products.

Earlier this month, CEO Barry McCarthy resigned and the company announced it would cut 15 percent of its workforce as its sales weakened.

The $1 billion five-year loan will allow it to refinance debts that come due in the coming years, including buying back part of a convertible bond that matures in 2026.

The new financing has been seen as integral to giving management time to execute a turnaround plan as Peloton had burned through capital and faced convertible debt due in 2026.

It had a unique challenge tied to the $1 billion convertible bond that required it to refinance most of its debts over the next year. The company’s existing $750 million term loans included a provision requiring it to pay off the debt immediately if more than $200 million of the convertible bond was outstanding in November 2025, as opposed to 2027, when the loan was due to mature. .

The new loan Peloton took out on Thursday yielded about 12 percent, which, while at the lower end of a range initially marketed to investors, underscores the stress it faces. The loan interest rate was set 6 percentage points above the benchmark floating interest rate, which stands at around 5.3 percent. A discount on the loan sweetened the yield to about 12 percent for lenders. Unusually, the debt was not rated by major US credit rating agencies.

By contrast, bonds from risky borrowers rated single B are trading at a yield below 8 percent, while triple C and lower-rated debt (among the lowest ratings assigned by credit rating agencies) traded this week at around 13.9 percent. according to data from ICE Data Services.

The new loan, along with a $300 million convertible bond issued by Peloton on Wednesday and a new $100 million revolving credit facility, will eliminate near-term financing issues for the company.

The timing of the offering was particularly opportune for Peloton, as investors have driven up prices for risky corporate bonds and loans, clamoring for high-yield 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.

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