Virgin Galactic Tanks on Fear Convertible Debt Will Dilute Equity By

© Reuters

By Dhirendra Tripathi

– Virgin Galactic stock (NYSE:SPCE) plunged 16% Thursday on concerns about possible equity dilution connected to the $500 million of convertible debt the company is raising.

Debtors usually convert their debt into equity when the prevailing market price is above the conversion price.

The company said it will raise $425 million through a convertible note due 2027, and may take on another $75 million of debt under certain conditions.

The interest on the debt will be payable semi-annually on Feb. 1 and Aug. 1 of each year, beginning this August.

The space company said it will use the capital to “fund working capital, general and administrative matters and capital expenditures to accelerate the development of its spacecraft fleet in order to facilitate high-volume commercial service.”

The stock slid even as the company attempted to cushion the impact of any dilution by entering into a deal for capped call transactions. The company said it may use part of the proceeds to fund that purpose.

Capped call transactions will come to offset any potential payment the company may have to make in excess of the principal of converted notes.

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