The billionaires-led space tourism industry is off to a bumpy start to 2022. Richard Branson’s Virgin Galactic (SPCE), the only publicly traded space tourism company in the market, has seen its stock tumble 28 percent since the beginning of the year. Much of the loss was logged in the past two days, after the company announced plans to raise up to $500 million in debt, sending a chilling signal to investors that the company might be running dry on cash.
Virgin Galactic said Thursday it will issue $425 million or more of convertible senior notes in a private offering. Convertible notes are a type of debt instrument that can be converted to a predefined amount of equity. A senior convertible note has priority over all other debt securities issued by the same organization. Convertible notes are a common fundraising tool used by both startups and established companies. But the downside is an increased risk of bankruptcy as the company may end up carrying excessive debt.
Virgin Galactic investors seem to have interpreted the move as a warning about the company’s cash situation. Shares are currently trading at $9.77, below its initial offering price in October 2019 and a far cry from its all-time high of $62.80 in early 2021.
In a statement, Virgin Galactic said it plans to “use the net proceeds from the offering 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 company successfully launched its founder Branson, along with three Virgin employees, into suborbital space in a test flight in July 2021. But its commercial service has been delayed multiple times. Following Branson’s highly publicized flight, the Federal Aviation Administration launched a safety investigation into Virgin Galactic’s VSS Unity SpaceShipTwo spaceplane, which caused temporary grounding of all flights. The investigation concluded in September 2021, giving Virgin Galactic permission to resume flight.
But in October 2021, the company delayed commercial service again, citing unrelated technology upgrades. It’s now targeting October this year to fly the first paying customer.