Peloton Pedaling for Dollars

In a filing Monday morning, Peloton Interactive Inc. (NASDAQ: PTON) announced a $600 million convertible debt offering in a private placement “to persons reasonably believed to be qualified institutional buyers” according to SEC rules. The initial purchasers of the notes also will receive a 13-day option to purchase up to $90 million of additional notes.

Pricing has not been announced, but the company did say that the notes will be senior, unsecured obligations and bear interest payable every six months and will be convertible into cash, common stock or some combination of the two at Peloton’s discretion.

The issuance seems a bit backward. Typically, when a company’s stock jumps following hard news (or wild optimism) about its prospects, the company will issue more common stock to take advantage of the suddenly higher share price.

In Peloton’s case, the stock fell nearly 9% after the company reported outstanding fiscal second-quarter results last week. The report also caused one investment firm to drop its rating on the stock from Outperform to Market Perform. But eight others lifted their price targets, and two others reiterated their ratings (one Buy and one Underperform).

Peloton said that it intends to enter privately negotiated capped call transactions with one or more of its initial purchasers that will add anti-dilution adjustments to the number of shares Class A shares the company can issue in the offering. As part of hedging arrangements on the capped call transaction, the option counterparties are expected to purchase shares of Peloton’s Class A stock or set up other derivative transactions with the stock.

The company said it expects to use a portion of the proceeds to pay the cost of the capped call transactions. If initial purchasers exercise the options to purchase additional notes, the company plans to use the proceeds to enter into further capped call transactions. Other uses of the proceeds include working capital, capital spending and other general corporate purposes.

Shares of Peloton stock dipped by about 2.6% Monday morning to trade at around $144.50, in a 52-week range of $17.70 to $171.09. The consensus price target on the stock is $162.62, with a high target of $200 from JPMorgan.

Peloton stock jumped more than 400% in 2020 and added more than 10% before reporting quarterly earnings last week. For the year to date, the stock trades down about 5%.

ALSO READ: 4 Business Development Stocks to Buy Now That Pay Massive Dividends

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Source: Read Full Article