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May 17, 2022

Peloton gets multi-billion dollar endorsement from debt buyers

Peloton plunges to record low after hopes for comeback dim

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Peloton Interactive Inc. got a vote of confidence from investors, who piled into a $750 million loan sale for the struggling home fitness company in a bet that it will deliver on a turnaround -- or that they will be paid out in the event of a sale.

Investors placed US$2 billion of demand for the offering, which priced at a final yield of over eight per cent Tuesday, according to a person with knowledge of the matter, who asked not to be identified when discussing a private transaction. 

The loan, which was underwritten by JPMorgan Chase & Co. and Goldman Sachs Group Inc., was pitched as a stopgap to support the business plan outlined by new Chief Executive Officer Barry McCarthy to stem a cash bleed as soon as next year. The strategy includes a combination of cost cuts, higher reliance on subscription-based revenue and better supply chain management, the company has previously said. 

Representatives for JPMorgan, the lead arranger of the financing, and Peloton declined to comment.

The banks began offloading the loan just a week after they committed financing to the company in the wake of poor financial results that sent shares tumbling. The debt has a rare structure that makes it more expensive for Peloton to repay during the first two years, while handing investors a big payout if the firm is sold during that period. 

The loan made its way quickly through a market that has been battered in recent weeks, forcing other borrowers to put their financing plans on ice. The deal attracted strong demand even though it was marketed without credit ratings, which makes it hard for managers of collateralized loan obligations -- the biggest buyers of risky corporate loans -- to include in their portfolios. 

The banks priced the five-year loan, which pays interest of 6.5 percentage points over the Secured Overnight Financing Rate, at a discounted price of 95.5 cents on the dollar, the people said. The interest rate will increase by 50 basis points if the company fails to obtain ratings by either Moody’s Investors Service or S&P Global Ratings within six months.