Herbalife (HLF 1.51%) is going to the well for a pile of new debt financing, and investors aren't very happy about it. Following the company's announcement that it is floating hundreds of millions of dollars of new debt securities, they aggressively sold out of the shares, to the point where they fell by more than 9% in price on Monday. That was a far higher number than the 0.2% decline posted by the S&P 500 index on market close.
That morning, Herbalife disclosed that a pair of its fully owned subsidiaries were together floating a $700 million issue of senior secured notes. These mature in 2029, and the company did not specify at what interest rate those notes would pay investors.
The company added that it would use its portion of the proceeds to retire existing debt, pay associated fees and expenses, and for unspecified "general corporate purposes."
Regarding those current borrowings on its balance sheet, it specifically mentioned its senior secured credit facility and a portion of its senior notes maturing in 2025. The interest rate on those notes is just under 7.88%.
Cheaper in the past, cheaper in the future
Herbalife is a believer in borrowing; its long-term debt tally has hovered between $2.4 billion and over $2.9 billion at the end of each of the past four years. Investors might be concerned that now is not an ideal time for tapping into the debt barrel, however, as interest rates remain relatively high and many folks -- and officials from the Federal Reserve -- are anticipating that rate cuts are coming before the end of this year.
