Robinhood Lenders Poised for 43% Windfall After Rescue
(Bloomberg) -- Robinhood Markets Inc. faced a crisis at the start of the year when hordes of its customers bid up volatile shares of companies including GameStop Corp., causing a jump in collateral requirements.
In response, the online trading platform raised about $3.5 billion from investors, including Ribbit Capital, Iconiq, New Enterprise Associates, Index Ventures and Andreessen Horowitz.
The cost of the rescue and potential rewards for the investment firms were revealed in Robinhood’s S-1 filing, released Thursday ahead of its planned initial public offering.
The notes will automatically convert into class A shares at a maximum of 70% of the firm’s public offering price. That means owners of the debt will realize a 43% gain on their investment once Robinhood’s share offering is completed. Depending on the eventual offering price, investor gains could be even higher.
The maximum conversion price is limited to $38.29 for $2.5 billion of the notes and $42.12 for the remaining $1 billion. They also accrue interest at 6%.
In addition, buyers of the $2.5 billion tranche of notes were issued warrants to purchase shares equal to 15% of the amount they invested. The notes convert at $38.29 or 70% of Robinhood’s offering price, whichever is lower.
Ribbit, New Enterprise and Index contributed $625 million of the total amount raised.
Recognition of a change in the fair value of the convertible notes and warrant liability cost Robinhood $1.49 billion in the first quarter, according to the filing, driving it to a $1.44 billion loss in the period, compared with a $53 million loss a year earlier.
The Menlo Park, California-based company could be worth as much as $40 billion in an IPO, based on trading in the secondary market, Bloomberg Intelligence analyst David Ritter said in March.
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