Shares of Virgin Galactic fell by 19% after the announcement of an increase in debt by 500 million dollars

13 January Virgin Galactic announces $500 million convertible bond issue, and its shares during the day fell by 19%, to 10 $.

The company will offer bonds to institutional investors for 425 million, and additional option for 75 million dollars. The maturity date of the bonds is February 2027.

Content:

What are convertible bonds and why is it Virgin Galactic

Convertible bonds are a type of debt securities. Typically, convertible bonds have lower interest rates., than the usual. But they also have their advantages.:

In case of bankruptcy of the issuer, the holder of convertible bonds has priority over the shareholder. If the company has to sell off its assets, borrowers will be the first to return their share, and then the shareholders.
After a certain time, the borrower has the right to exchange convertible bonds for a predetermined number of shares. If the share price rises, then the borrower will receive additional profit.

Most often, convertible bonds are issued by young startups.. This is how they attract money to a promising business in exchange for a share in the company.. Virgin Galactic can hardly be called a young startup, especially since it is already traded on the stock exchange. The company's shares fell so much, because with the issuance of convertible bonds, Virgin potentially dilutes the stake of current shareholders. As the number of shares increases, earnings per share will also decrease..

Virgin Galactic says, The company will use the money raised to address administrative issues and build new ships.. According to Yahoo, Virgin Galactic now has zero debt, and the volume of liquid money is 732 million dollars.

What about stocks

Since the end of June 2021, Virgin Galactic has already fallen by 82%. After the flight with the participation of founder Richard Branson, the company held an additional issue, and later postponed all testing until the second half of 2022.

Now Virgin Galactic shares are worth 10 $. This is the price of SPAC - shell companies, with which Virgin merged at the end of 2019 to go public.