Rent the Runway to swap debt for equity in revival effort

Rent the Runway Inc. will hand over a controlling stake in the company as part of a plan to cut debt and grow, after residual effects of the Covid-19 pandemic pushed the firm to the brink of bankruptcy. 

The deal, with lender Aranda Principal Strategies and other partners, will wipe more than $240 million of debt from Rent the Runway’s balance sheet, according to an emailed statement. The company, which allows subscribers to rent clothing for the office and events, will have several more years to repay $120 million in remaining borrowings.

Private equity firms Story3 Capital Partners and Nexus Capital Management, along with Aranda, will also inject $20 million into the company as part of the transaction. Aranda was spun off from Singapore’s Temasek Holdings Pte. as a private credit platform earlier this year.

The three investors will receive a majority ownership stake in the company, representatives for Rent the Runway said in an interview — about 86% before accounting for a management incentive plan and a rights offering set to give existing stockholders the opportunity to purchase as much as $12 million of shares. 

The offering will be at $4.08 a share, according to the statement. The stock closed Wednesday at $4.485, up from a record low of $3.77 in April. Shares have dropped by two-thirds over the past year. “I’m viewing this as an IPO 2.0 for the company,” Chief Executive Officer Jennifer Hyman said in an interview.

Rent the Runway’s operations and trajectory over the past 18 months encouraged lenders to agree to the plan, which allows management and current owners to retain stakes in the firm, according to Hyman. 

“Every single financial metric has substantially improved over last several years, and we were able to do that with shackles on,” Hyman said, referring to the company’s debt load. She acknowledged alternatives included potentially filing for bankruptcy. 

Its debt burden grew larger as it started paying interest in kind, which allows borrowers to defer paying interest in cash but tack it on as additional debt due at maturity. The decision was made in light of financial pressures stemming from the pandemic, when people stopped wearing chic work-wear in office and turned to pyjamas at home.

Hyman co-founded Rent the Runway with her business partner Jenny Fleiss in 2009, introducing people to the option of renting clothing for events. The company then started offering a subscription: members can borrow merchandise for a monthly fee. 

The firm was valued at $1 billion in 2019, a figure that dropped to $750 million after the pandemic hit in March 2020. Rent the Runway went public in 2021, betting in-person events such as weddings would return, and had more than 147,000 subscribers as of the end of the first quarter.

The company has struggled to revive its business since its public listing amid a subscriber slump. Management executed a reverse stock split in 2024 remain on the Nasdaq. Revenue fell 7.2% in its most recent quarter.

Hyman has been working to revamp Rent the Runway’s operating model. The service has begun sharing revenue with brand partners — made possible in part by its shift to an “asset-light” model. 

While Rent the Runway previously owned the inventory on its platform, it more recently shifted to a model that allow brands to put their items on the platform for free and receive a portion of the revenue generated when the goods are rented out. Hyman plans to hone in on that strategy after the recapitalisation and find more companies to work with.

“My primary action post this deal clothing is doing even more deals with brand partners around the world,” said Hyman. “It allows us to invest in even more inventory.”

More merchandise is critical to the company’s revival effort, and management hopes that a larger assortment of items will lure more subscribers. Rent the Runway has added 1,000 new styles and expects to accelerate that process.