Peloton has secured a critical US$1bn five-year loan to shore up its finances.
The loan has repayment terms which are 600 basis points over the Secured Overnight Financing Rate, resulting in an interest rate of around 11.5 per cent.
In year one, if no repayments are made to reduce the total owed, a loan of this size and on these terms will require interest payments of around US$1.15 million.
The company was valued at US$50 billion during the pandemic, but has struggled recently as demand has fallen off, partly because of people returning to the gym. It has also battled with a series of recalls, lawsuits and pivots as it has sought to recapture its pandemic performance.
Peloton shares have lost about 97 per cent of their value since the start of 2021 and earlier this month, chief executive, Barry McCarthy, stepped down as the company announced it would cut 15 per cent of its workforce. De-listing was also considered.
Peloton has restructured its borrowings in partnership with a group of banks, including JP Morgan Chase and Goldman Sachs. The US$1bn loan will allow it to refinance debts that mature in the next few years and gives the management team time to figure out if a turnaround is possible.
At the end of Q1 this year, the company had US$1.7 billion of debt, made up of a US$692 million term loan and US$991 million in senior notes, which fall due in February 2026. It is aiming to reduce outgoings by US$200 million this year, which will also see cuts to marketing, research and development, IT and software.
The company is also selling senior convertible notes, which will be due in 2029 and are likely to dilute existing shareholders' stocks. It has established a new US$100 million revolving credit facility.
In spite of its financial woes, Peloton is a substantial company, generating revenues of US$717.7 million in its fiscal third quarter alone and with 3.06 million connected fitness subscribers, placing it among the biggest fitness businesses globally. It’s predicting sales of around US$2.68 billion for the current financial year and says it will have around 2.96 million subscribers at year-end due to seasonality.
Peloton bought Precor in 2021 for US$421 million. Having unsuccessfully relaunched it as Peloton Commercial, it reverted to the Precor name and is now working to increase trading in the business. It's thought that Precor will eventually be sold.
