John Foley, the co-founder and former CEO of Peloton Interactive (PTON), faced repeated margin calls on money he borrowed against his Peloton holdings before he left the fitness company’s board last month.
Citing people with knowledge of the matter, the Wall Street Journal reported late Tuesday that Foley was asked several times by Goldman Sachs Group (GS) to provide fresh funds or additional collateral for personal loans the bank had extended to him as Peloton’s share price tumbled.
The company’s stock price has fallen nearly 95% from its $160 peak in December 2020.
Resigning from the board gave Foley flexibility to sell or pledge more Peloton shares, the Journal said, though the margin calls themselves were not the reason he left the company.
“I didn’t resign from the board because I was underwater,” Foley told the Journal. “To the extent that I took on debt through Goldman, it was because I am bullish on Peloton and still am. It was and is a great company.”
From $300 Million to $30 Million
Foley’s seat on Peloton’s board limited his ability to raise additional funds because most public companies prohibit directors and executives from selling their shares during certain trading periods. What's more, Peloton’s policies limit pledges for margin loans by directors or executives to 40% of the value of an individual’s shares or vested options, the Journal reported.
The former chairman and CEO had pledged as collateral about 3.5 million Peloton shares as of the end of September 2021, or about 20% of his stake at the time, according to securities filings viewed by the Journal. The pledged shares were worth more than $300 million a year ago. At current prices, they are worth roughly $30 million.
Foley was able to secure private financing and avoid stock sales by Goldman, the Journal said.
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Foley’s decision to leave Peloton's board in mid-September followed a tumultuous period at the company he co-founded a decade ago, as well as a sharp decline in his personal wealth as Peloton’s sagging fortunes diminished the value of his holdings. His stake in the company, worth $1.5 billion a year ago, is currently worth less than $100 million.
Foley was replaced as CEO by Barry McCarthy earlier this year under pressure from disgruntled shareholders hoping to find a turnaround in the stock's post-pandemic fortunes. His role as executive chair will be filled by current board member Karen Boone.
A Pandemic-Era Poster Child
Peloton has become the poster child of a company that benefited during the pandemic and lockdowns that prompted people to turn to its Internet-connect bikes and corresponding live content for exercise, but have since shifted back to in-person training and exercise.
Peloton’s turnaround plans, which include a focus on technology and content and the simplification of its supply chains, took a hit last month after it posted a surprise fourth quarter loss, as well as a big slump in sales.
Peloton also cautioned the conditions in the connected fitness market would remain 'challenging' for the foreseeable future.
Group revenue, Peloton said, fell 26.6% from last year to $687.7 million, again missing analysts' estimates of a $718.1 million tally, while operating expenses surged 110% to $1.17 billion.
For its the first quarter of its 2023 fiscal year, Peloton is expecting revenue of between $625 million to $650 million, with connected fitness subscribers essentially unchanged from the prior period at 2.966 million.
