Why Virgin Galactic Stock Crashed Today
Key Points
Virgin Galactic plans to sell cash, roll over its debt -- and issue a whole lot of warrants.
The goal: to cut its debt load and stay out of bankruptcy.
Virgin Galactic (NYSE: SPCE), the space IPO that promised to commercialize space tourism -- then abruptly halted operations in 2024 to develop a new spaceplane -- tumbled to Earth Tuesday, closing the day down 16.5%. And why?
Virgin just announced a "capital realignment" to reduce its debt to manageable levels.
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Virgin's grand plan
Virgin Galactic is not in a good place right now. The company's spending $460 million annually in cash burn to develop a new spaceplane. But with no current plane to give rocketship rides to the hundreds of customers on its waitlist, revenue has slumped below $2 million in the last 12 months.
Virgin's cash is vanishing fast. The company had less than $394 million in cash at last report, against long-term debt of $478 million.
To rectify this, Virgin announced today it will:
- Sell $46 million worth of new stock (that's about 12.1 million shares at the current share price), with attached warrants to buy stock.
- Place $203 million worth of "first lien notes" due 2028 and paying 9.8% interest.
- And sweeten the deal on the debt placement by awarding lenders even more warrants to purchase stock "at an exercise price of 155% of the purchase price of the Shares."
Is Virgin Galactic stock a sell?
Virgin Galactic will then use the cash from the above activities to pay off "approximately $355 million in aggregate principal amount of its Existing Convertible Notes," to reduce its total debt load to about $152 million.
That's good news as far as it goes. What worries me is that it's not 100% clear precisely how much stock dilution will result from this "capital realignment," and especially from the multiple warrants being issued.
Until that becomes clear, Virgin Galactic stock remains a sell.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.