Why Sphere Entertainment's Stock Dropped 20% Today

Shares of Sphere Entertainment (NYSE:SPHR), owner of the Sphere in Las Vegas, dropped as much as 19.6% in trading on Tuesday after the company announced a new debt offering. The stock recovered by midday and was down 10.7% at 12:45 p.m. ET.

Sphere's new debt ask

This morning, Sphere Entertainment announced it intends to offer $225 million in convertible senior notes due 2028 with the buyers getting the option to buy an additional $33.75 million. Details of the sale like yield and convert price weren't released and are subject to market conditions.

Management said the money would be used in part to buy capped calls, reducing any potential dilution from the conversion of debt into equity. Funds would also be used for general corporate purposes "including capital for Sphere-related growth initiatives."

What's the money for?

The biggest question investors are asking is what the money will be used for. General corporate purposes and growth initiatives are vague and this is a company with only a few months of operating history, so there are a lot of unknowns.

Sphere Entertainment had $452 million in cash on the balance sheet on Sept. 30, and had just $103.1 million in debt due over the next year.

Management did disclose in a filing with the Securities and Exchange Commission (SEC) that revenue from U2 concerts and The Sphere Experience was $75.2 million through Nov. 30. But that opens more questions about why the company needs more cash to operate, which the company may not answer until the next quarterly earnings release.

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Travis Hoium 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.