The Robinhood app, a Jay-Z-backed financial trading platform, is bracing for financial strain after it burned through the entire $200 million credit facility it raised from a number of lenders, according to a Bloomberg report.
Roc Nation, the full-service entertainment management company created by the music impresario Jay-Z, made an investment in the free-to-trade investment platform in February 2018 through its venture capital arm Arrive.
Robinhood, which has more than 6 million people trading on its platform, withdrew the credit facility from Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co. amidst the throes of violent market swings and large volumes as the coronavirus pandemic resulted in market uncertainty.
A spokesperson at Robinhood, however, denied that they could face a cash crisis due to the draw-down as the company had “multiple revolving credit lines” that were still unused.
“Companies don’t tap their credit line unless they need to,” said David Ritter, an analyst at Bloomberg Intelligence, in a general statement about how companies tap their credit lines.
“Perhaps not a good signal with regard to their cash burn, which could make creditors nervous,” Ritter told Bloomberg.
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Robinhood makes its money by sending small frequent customer orders to high-frequency traders in exchange for cash – a controversial but legal practice in the brokerage industry called payment for order flow.
The company was estimated to have a valuation of about $7.6 billion in 2019, up from about $1.3 billion when Roc Nation invested in it. It has other celebrity investors including Snoop Dogg and Nas, among its big-time backers.
