Exclusive: Robinhood explores rising debt to meet Reddit-fueled ordering frenzy – sources

(Reuters) – Robinhood, the U.S. online brokerage that has become a gateway for amateur traders defying Wall Street hedge funds, has held talks with banks about raising $ 1 billion in debt so it can continue to honor orders for heavily short-circuited stocks, according to people familiar with the matter.

The raised capital would be separate from the $ 3.4 billion funding that Robinhood announced on Monday it had secured from its investors since January 29. This reflects the financial pressure that the Reddit frenzy fueled last week in actions like GameStop Corp put on the company. , encouraging it to restrict certain trades.

Robinhood needs money to support the trades its clients place as its clearinghouse has requested more collateral due to the increased volatility. Robinhood CEO Vlad Tenev said on Sunday that the trading app decided to limit certain trades because the clearinghouse requested $ 3 billion in guarantees.

Robinhood has started negotiations with the banks to extend its lines of credit or arrange a new one after it ran out of its revolving debt facility during the frenzied swaps last week, one of the sources said. It is not clear how much debt Robinhood will be able to obtain.

The sources requested anonymity as the matter is confidential. Robinhood declined to comment.

Robinhood, which has become popular with young investors for its easy-to-use interface, is at the heart of a fad that started last week following calls from the Reddit thread WallStreetBets to trade some stocks heavily bypassed by hedges. funds.

The online brokerage has been criticized by some of its users for placing restrictions on transactions. His problems have raised doubts as to whether his plans to launch an initial public offering by April will remain on track.

The Menlo Park, California-based company was founded in 2013 by Baiju Bhatt and Tenev, with the goal of democratizing finance. Its platform allows users to perform unlimited commission-free transactions in stocks, exchange-traded funds, options, and cryptocurrencies.

Robinhood said on Monday its latest equity financing was led by Ribbit Capital, with participation from existing investors including ICONIQ Capital, Andreessen Horowitz, Sequoia, Index Ventures and NEA.