- Goldman Sachs is in talks with Peloton founder John Foley about personal loans secured by Peloton stock, a person briefed on the matter said.
- Foley has pledged more than 20% of the stock he owns in the fitness company as collateral for personal loans.
- Peloton’s stock has fallen more than 80% from its pandemic high.
Goldman Sachs and Peloton founder John Foley are in talks about restructuring personal loans backed by his stock in the connected fitness company, according to a person briefed on the matter.
Foley, who resigned as CEO of Peloton in February, is under pressure to provide more collateral for the loans as Peloton’s share price has cratered more than 80% in the past twelve months. Foley pledged 3.5 million shares, or about 20% of the more than 17 million Class B shares of Peloton he owns, to back loans he took out for personal benefit, a filing shows. of Platoon.
The drop in Peloton’s stock price has been so steep that Goldman is discussing with Foley whether to put more stock and cash or offer another option that gives him more time to repay, the person said. Goldman Sachs is Foley’s lender, the source said. A Goldman Sachs representative declined to comment for this story.
James Finch, an associate professor of finance at New York University’s business school, said Foley’s loan gives the lender the right to sell the stock and raise cash if it fails to a deal.
“The last thing you want to happen is for the stock to drop significantly and then you have a lender seizing the stock and then dumping it,” Finch said, adding that such a sale “ would cause further downward pressure on the share price.”
Last week, the New York Post reported that Foley and his wife were quietly trying to sell their 6,100 square foot beachfront home in the Hamptons, just months after buying it for $55 million in cash, according to property records. The Foleys, who paid $2.5 million asking to buy the property in December, are looking to sell it at a loss, the Post reported. Foley also sold about $50 million worth of Peloton stock to an investment firm backed by tech entrepreneur Michael Dell last week, according to a regulatory filing.
It is unclear whether the moves are related to the loan restructuring with Goldman Sachs. A Peloton representative declined to comment.
While many public companies do not allow executives to use their company’s stock as collateral, Peloton’s policy allows insiders to use up to 40% of their acquired stock as collateral, provided it is approved by the directors of the company’s insider trading policy. William Lynch, who recently resigned as chairman of Peloton, has pledged 20% of his stock as collateral for personal loans, as have several other Peloton insiders, according to regulatory filings.
For executives who have much of their compensation tied to equity, these loans offer an attractive way to access cash without selling their stake in the business or incurring tax consequences. The downside is that if the value of the secured stock drops precipitously, as has happened with the shares of Peloton, a lender might decide it needs more collateral or ask the borrower to repay part of the ready.
Blackwells Capital, an activist investor who has pushed for leadership changes at Peloton and an outright sale of the company, cited the pawning of Peloton shares by insiders as a red flag.
“Pledging is problematic because it can lead to forced stock sales in the event of a margin call and accelerate a downward spiral in stock price,” Blackwells wrote in a presentation published last month.
It is not known when Foley pledged his shares as collateral for the loan, or what the stock price was at the time they were pledged. The 2019 prospectus for Peloton’s IPO makes no mention of Foley’s stock pledging, although it is disclosed in Peloton’s October 2020 annual proxy filing.
Peloton valued its stock at $29 a share when it went public in September 2019. The shares traded as high as $171 in January 2021, but have been steadily declining since. The stock price is now $22.61.
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