Virgin Orbit (NASDAQ:VORB) stock is plummeting lower following an announcement that the space launch company is laying off 85% of its staff, equivalent to about 675 employees. The layoffs will affect all levels of the company and will incur charges of about $15 million due to factors like severance payments and employee benefits. Furthermore, the layoffs were attributed to reducing expenses due to the “Company’s inability to secure meaningful funding.”
Earlier this month, Virgin announced an operational pause until March 21. Based on the 85% employee reduction, its likely that this pause will remain in place for the time being. Virgin also disclosed that it had sold a 12% $10.9 million senior secured convertible note to Virgin Investments Limited (VIL). Upon default, and during continuance of a default, the note will pay 16% annual interest. The proceeds of the note will be used to pay off costs related to the 85% employee reduction.
Meanwhile, the cost to borrow (CTB) fee for VORB stock currently sits at a high 52.84%. That’s up more than 100% compared to the reading of 24.87% on March 20.
VORB Stock: CTB Fee Remains Elevated
The CTB fee reflects the amount that short sellers must pay to borrow stock. The fee rises when short seller demand is high and falls when demand is low. Additionally, a high CTB fee can also reflect a shortage of available short shares. Generally, the average stock carries a CTB of between 0.3% and 3%. Since Virgin has reported a slew of bad news this month, its rational that the fee is so high.
At the same time, an elevated CTB can also influence a short squeeze. Short sellers may sell out of their short position in an attempt to escape the high fee. They do this by buying shares of the underlying stock, which could result in an increase in share price. As of March 15, there were 910,500 shares of VORB stock sold short with a total value of about $920,000. That’s equivalent to a short interest as a percentage of float of 11.4%.
Short selling statistics are a factor to consider when making an investment decision. However, the primary thesis of an investment decision should center on company fundamentals. Based on recent news, its likely that shares of VORB will continue to make volatile, unpredictable moves.
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On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
