Shares of Sphere entertainment (SPHR -15.50%), owner of the Sphere in Las Vegas, fell as much as 19.6% in trading on Tuesday after the company announced a new debt offering. The stock recovered by midday, falling 10.7% as of 12:45 p.m. ET.
Sphere’s new debt question
This morning, Sphere Entertainment announced that it intends to offer $225 million of convertible senior notes due 2028, with buyers having the option to purchase an additional $33.75 million. Details of the sale such as yield and conversion price have not been disclosed and are subject to market conditions.
Management said the money will be used in part to purchase capped calls to reduce potential dilution from converting debt to equity. The funds would also be used for general corporate purposes, “including capital for growth initiatives related to Sphere.”
What is the money for?
The biggest question investors have is what the money will be used for. General company goals and growth initiatives are vague and, as this is a company with only a few months of operating history, there are many unknowns.
Sphere Entertainment had $452 million in cash on its balance sheet as of September 30 and just $103.1 million in debt due next year.
Management said in a filing with the Securities and Exchange Commission (SEC) that revenue from U2 concerts and The Sphere Experience was $75.2 million through November 30. However, this raises further questions about why the company needs more cash for operations, which the company may not answer until its next quarterly earnings release.
Travis Hoium 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.