Peloton staves off liquidity crunch in global refinance

Peloton no longer faces an imminent liquidity crunch after a massive debt refinancing, but the company still has a long road ahead to fix its business and get back to profitability.

In late May, the connected fitness company secured a new $1 billion term loan, raised $350 million in convertible senior notes and received a new $100 million line of credit from JP Morgan and Goldman Sachs. All of those are due in 2029. 

The refinance reduced Peloton’s debt from about $1.75 billion to around $1.55 billion and pushed off looming due dates on loans that it likely wouldn’t have had the cash to pay back.

Before the refinancing, Peloton would have needed to pay around $800 million toward its debt by November 2025. If it managed to pay that, about another $200 million still would have been due around three months later. The term loan would have been due in May 2027. 

For Peloton, which hasn’t turned a net profit since December 2020 and has seen sales fall for nine straight quarters, the debt pile posed an existential threat and fueled investor concerns about a possible bankruptcy.

Now that it has refinanced, Peloton has eased investor concerns about liquidity and has the breathing room it needs to try to turn around its business.

The fact that it was able to secure these loans signals investors believe in its ability to rightsize its business and eventually pay them back, restructuring experts told CNBC.

“This refinancing is now putting us in a much better position for sustainable, profitable growth and just a much stronger financial footing than where we were before, and our investors saw that,” finance chief Liz Coddington told CNBC in an interview. “I think they believe in the story. They believe in what we’re trying to do, as do we, and in the transformation of the business. And so it was just a great vote of confidence for Peloton’s future.”

While the refinance may have bought Peloton some time, it’s far from a panacea. Under the terms, Peloton will now be spending about $133 million annually in interest, up from around $89 million previously. It will make Peloton’s efforts to sustain positive free cash flow more difficult. 

Coddington acknowledged to CNBC that the higher interest expense is going to “impact” free cash flow, but said that’s partly why the company started to cut costs in early May. The plan is expected to reduce annual run-rate expenses by more than $200 million.

Even with the higher interest payments, Coddington expects the company will be able to sustain positive free cash flow without having the business “materially grow in the near term.” 

“The cost reduction plan made us much more comfortable with that,” said Coddington. 

While Peloton insists that investors bought into its refinance because they believe in its…