Why Virgin Galactic Stock crashed on Tuesday

What happened

Capitalize on its good stock market performance last week, pioneer of space tourism Galactic Virgo (NYSE: SPCE) announced on Friday – at the start of a three-day hiatus in stock trading – that it will raise $ 1 billion in new capital through the issuance of approximately 2.7 million new common shares.

On Tuesday, the first day investors reacted to the news, they immediately did so by selling Virgin Galactic stock, which is now down 6.3% at 11:40 a.m. EDT.

Image source: Getty Images.

So what

The announcement of Virgin Galactic’s capital increase took the form of an S-3 filing with the SEC on Friday night. According to the document, Virgin Galactic has not set a final price for the shares it will offer, nor has it made a precise decision on how many shares it will need to issue to raise the billion dollars of desired gross proceeds – a figure that she chose “only. for the purpose of calculating the registration fee” that she must pay to the SEC.

So while $ 1 billion divided by 2.7 million shares results in a price of $ 375 per share, it probably won’t work that way.

Now what

Rather, the main conclusion from Virgin Galactic’s S-3 filing should be:

  • First, the company wants to raise $ 1 billion.
  • Second, it could do so by selling “an indefinite number of additional shares” of ordinary shares.
  • But third, it could also collect the funds it needs by issuing “preferred stock, “Debt”, “custodian shares”, “warrants”, “purchase contracts” and / or “units” – or any combination thereof – in addition to the 2.7 million common shares.

Everything is on hold at this point, and Virgin Galactic is simply warning investors: it needs a lot of money, and he lays the foundation to raise it one way or another.

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Rich smith has no position in any of the listed securities. The Motley Fool owns shares and recommends Virgin Galactic Holdings Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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