Why Virgin Galactic Stock Crashed Today

Virgin Galactic (NYSE: SPCE), the space IPO that promised to commercialize space tourism -- then abruptly halted operations in 2024 to develop a new spaceplane -- tumbled to Earth Tuesday, closing the day down 16.5%. And why?

Virgin just announced a "capital realignment" to reduce its debt to manageable levels.

Image source: Getty Images.

Virgin's grand plan

Virgin Galactic is not in a good place right now. The company's spending $460 million annually in cash burn to develop a new spaceplane. But with no current plane to give rocketship rides to the hundreds of customers on its waitlist, revenue has slumped below $2 million in the last 12 months.

Virgin's cash is vanishing fast. The company had less than $394 million in cash at last report, against long-term debt of $478 million.

To rectify this, Virgin announced today it will:

• Sell $46 million worth of new stock (that's about 12.1 million shares at the current share price), with attached warrants to buy stock.
• Place $203 million worth of "first lien notes" due 2028 and paying 9.8% interest.
• And sweeten the deal on the debt placement by awarding lenders even more warrants to purchase stock "at an exercise price of 155% of the purchase price of the Shares."

Is Virgin Galactic stock a sell?

Virgin Galactic will then use the cash from the above activities to pay off "approximately $355 million in aggregate principal amount of its Existing Convertible Notes," to reduce its total debt load to about $152 million.

That's good news as far as it goes. What worries me is that it's not 100% clear precisely how much stock dilution will result from this "capital realignment," and especially from the multiple warrants being issued.

Until that becomes clear, Virgin Galactic stock remains a sell.

Rich Smith 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.