virgin orbit

Virgin Orbit (NYSE: VORB) stock is crashing in US premarket price action today after the company announced that it is pausing its operations for a week and has reportedly furloughed most of its employees.

In its SEC filing, Virgin Orbit said, it is pausing operations until March 21 “in order to conserve capital while the Company conducts discussions with potential funding sources and explores strategic opportunities.”

The stock, which closed just above $1 yesterday is down over 40% in US premarket price action today.

The stock had crashed in January when its mission from Spaceport Cornwall ended in failure. If successful, the mission would have made Britain the first European country to put satellites into orbit.

Virgin Orbit’s next mission, this time for a commercial customer, was going to be launched from Mojave Air and Space Port in California.

The company went public through a SPAC reverse merger, just like Sir Richard Branson’s space travel company Virgin Galactic.

Virgin Orbit went public in 2021 where it raised $228 million in cash of which $160 million came from PIPE (private investment in public equity) while the remaining $68 million came from the SPAC trust.

Virgin Orbit Pauses Operations to Preserve Cash

As part of the merger, Virgin Orbit was supposed to get $483 million in cash of which only $100 million was through PIPE and the remaining from the NextGen Acquisition Corp. II SPAC trust.

However, like many SPAC mergers, there were large-scale redemptions in NextGen Acquisition Corp. II. Additional PIPE investments from Virgin Group and UAE’s sovereign wealth fund Mubadala Investment Company helped increase the PIPE funds to $160 million.

However, the cash pile gradually came down given the perennial cash burn. At the end of October, the company had only $71.2 million of cash and cash equivalents on its balance sheet.

It raised funds through debt from an investment arm of Branson’s Virgin group. The company has raised $55 million in a mix of secured and unsecured convertible notes from Virgin Group which gives it the “first priority” over Virgin Orbit’s assets.

SPACs Face the Heat amid Economic Turmoil

Many companies that went public through SPAC reverse merger over the last two years are facing the heat amid the economic turmoil. Earlier this month, Embark which went public through a SPAC reverse merger in November 2021 (a month before Virgin Orbit), said that it is exploring liquidation and asset sales as strategic alternatives.

Over half a dozen companies that went public through SPAC reverse merger including Enjoy Technology, Starry Group Holdings Inc, and Quanergy Systems Inc have filed for bankruptcy.

The performance of de-SPACs was terrible last year and the AXS de-SPAC ETF lost around three-fourths of its value in 2022.

The ETF has since liquidated which is reflective of the trouble that de-SPACs have faced over the last year.

Companies that went public through traditional IPOs fared no better and the Renaissance IPO ETF, which invests in a portfolio of newly-listed companies and is overweight in the tech sector, fell 57% in 2022.

Many de-SPACs, including Paysafe, did reverse stock splits to meet the minimum exchange listing requirements. SPACs usually IPO at $10 and given the current macro environment many fell over 90% and plunged below $1.

What’s Next for Virgin Orbit?

In its SEC filing, Virgin Orbit said that it is exploring funding. Reuters reported that a source who attended CEO Dan Hart’s staff meeting said that the furlough would help the company buy some time to finalize an investment plan to rescue it from the current financial woes.

Meanwhile, in its SEC filing while Virgin Orbit said that while it explores additional funding, “there can be no assurance that these discussions will result in any transaction.”

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