Peloton creditors start to spin

2 minute read

A Peloton exercise bike is seen after the ringing of the opening bell for the company's IPO at the Nasdaq Market site in New York City, New York, U.S., September 26, 2019. REUTERS/Shannon Stapleton

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NEW YORK, May 18 (Reuters Breakingviews) - Peloton Interactive (PTON.O) needs cash. The virtual workout company is seeking $750 million from debt investors like Blackstone (BX.N) and Apollo Global Management (APO.N), who are more than willing to lend to it, according to a story on Wednesday in the Financial Times. An investment might work out better for them if the company fails rather than succeeds.

Shares of the firm run by Barry McCarthy have fallen more than 84% in the past year, bringing its market capitalization to a paltry $5 billion. Peloton had about $850 million of debt as of the end of its most recent quarter – and about as much cash. But it’s burning through its coffers at a breakneck speed. The current debt deal would only cover half of its operating cash burn over the last nine months.

That suggests its balance sheet could keep ballooning if it needs to continue to raise money, and its equity value would dwindle as it was replaced with debt. It’s the sort of spiral that can quickly topple a company into bankruptcy, leaving creditors in a prime spot to swap their debt for equity, and get into the saddle for real. (By Lauren Silva Laughlin)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his / her own.)

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