(Reuters) – Robinhood, the U.S. online brokerage that has emerged as a gateway for amateur traders who challenge Wall Street hedge funds, has held talks with banks about raising $ 1 billion in debt so it can continue to fulfill orders for heavily shorted shares, according to people familiar with the matter.
The capital raised would be separated from the $ 3.4 billion in financing that Robinhood announced on Monday that it had obtained from its investors since January 29. This reflects the financial pressure that the frenzy fueled by Reddit last week on shares like GameStop Corp put on the company, leading it to restrict some deals.
Robinhood needs the money to sustain the negotiations that its clients carry out, because its clearinghouse asked for more guarantees due to the high volatility. Robinhood CEO Vlad Tenev said on Sunday that the trading app decided to restrict some transactions because the clearinghouse asked for $ 3 billion in guarantee.
Robinhood started negotiations with banks to expand its credit lines or get a new one after draining its revolving debt line during last week’s frantic negotiations, one of the sources said. It is unclear how much debt Robinhood will be able to guarantee.
The sources requested anonymity because the matter is confidential. Robinhood declined to comment.
Robinhood, who became popular with young investors for his easy-to-use interface, is at the center of a craze that started last week after calls from Reddit’s WallStreetBets to trade certain stocks that were being shorted by hedge funds.
The online brokerage faced criticism from some of its users for placing restrictions on transactions. His problems have raised doubts about whether his plans to launch an initial public offering by April will remain on track.
The California-based Menlo Park company was founded in 2013 by Baiju Bhatt and Tenev, with the aim of democratizing finance. Its platform allows users to make unlimited transactions without commissions on shares, exchange-traded funds, options and cryptocurrencies.
Robinhood said on Monday that his most recent equity financing was led by Ribbit Capital, with the participation of existing investors, including ICONIQ Capital, Andreessen Horowitz, Sequoia, Index Ventures and NEA.
Reporting by Sumeet Chatterjee in Hong Kong, Anirban Sen in Bengaluru and David French in New York; Editing by Lisa Shumaker