Airbnb will pay more than 10% interest on the $1 billion it just borrowed from investors, a sign of the travel startup’s desperation amid the coronavirus pandemic.
The San Francisco-based firm also promised to strengthen its leadership in return for the cash, reports the Wall Street Journal, citing sources familiar with the matter.
Airbnb announced Monday that major tech-focused hedge funds Sixth Street Partners and Silver Lake would contribute the funds, as government-imposed lockdown measures around the world had gutted its business model and brought the travel industry to a screeching halt.
In March, Airbnb revealed that bookings had dropped up to 40% in cities across Europe and China. This led to a postponement of its planned initial public offering. At the time, the Financial Times reported the startup sat on some $3 billion in cash, according to its sources.
This might help Airbnb pay out its refunds
Airbnb’s billion-dollar Hail Mary comes after it pledged to pay $250 million to hosts disadvantaged by the coronavirus pandemic.
In the spirit of easing these tensions, the billion-dollar loan includes $5 million which Airbnb will add to its relief fund for “Superhosts.” This awards grants to larger operations struggling to pay their rental overheads or mortgages due to a lack of business.
But the deal also reportedly comes with additional conditions: Sixth Street and Silver Lake will receive “warrants” that can be exchanged for shares valued as if the company was worth $18 billion — effectively cutting Airbnb‘s previous $31 billion valuation by almost half.
It also demands the company significantly reduce its fixed costs. A verbal agreement made in addition to the deal requests at least one new exec be added to the company, said WSJ’s sources. However, both investors have since reportedly denied that particular claim in a joint statement.
There’s no doubt that paying 10% interest on a billion dollars is a kick to the guts. It’s especially so considering that’s higher than the 9.41% average interest rate for a personal loan in the US. Ouch.