In order to get a substantial amount of fresh debt financing, Herbalife (NYSE: HLF) is going to the well, and investors are not particularly pleased about this development.
Following the news made by the company that it will be floating hundreds of millions of dollars of new debt securities, investors aggressively sold out of the shares, causing the price of the shares to drop by more than nine percent on Monday.
Compared to the 0.2% fall that the S&P 500 index reported at the end of the market day, that was a significantly bigger number.
In the morning of that day, Herbalife made public the fact that two of its wholly owned subsidiaries were jointly offering a senior secured note offering with a total capacity of 700 million dollars. Due to the fact that these notes are due to mature in 2029, the corporation did not define the interest rate that those notes would pay investors.
Additionally, the company stated that it will utilize its half of the profits to pay down existing debt, pay associated fees and expenditures, and for "general corporate purposes" that were not detailed.
The company notably noted its senior secured credit facility and a portion of its senior notes that are due to mature in 2025 when it was discussing the current borrowings that were included on its balance sheet. This particular note has an interest rate that is somewhat lower than 7.88%.
Less expensive in the past, and less expensive in the future The total amount of Herbalife's long-term debt has fluctuated between $2.4 billion and over $2.9 billion at the conclusion of each of the past four years, indicating that the company holds a strong belief in borrowing money.
Despite the fact that interest rates are still quite high and a large number of people, including officials from the Federal Reserve, are anticipating that rate cuts will occur before the end of this year, investors may be concerned that the current time is not the best time to tap into the debt barrel.
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