In the throes of frantic market uncertainty, traders using Robinhood Markets Inc. faced the ultimate frustration: Their accounts kept malfunctioning. Behind the scenes, the online brokerage was already bracing for financial strains.
Robinhood drew its entire $200 million credit facility from Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co., according to people familiar with the matter. It made the move just as fears of the coronavirus set off more than two weeks of violent market swings and heavy volume, during which Robinhood’s trading platform suffered three significant outages.
“Our capital position remains strong,” the Menlo Park, California-based firm said in an emailed statement, saying the decision to borrow predated and was entirely unrelated to the outages. “We determined it was prudent to draw on our credit line during the week of Feb. 24 in light of market volatility. That capital was returned in full last week.”
After Bloomberg’s report on the draw-down and repayment, a spokesperson for the closely held company disclosed it has other facilities, too. “Similar to most broker dealers we have multiple revolving credit lines,” the spokesperson said in a statement. “We have additional larger credit lines that remained fully unused last week.”
Robinhood said it’s also not unusual for companies to take precautionary measures during such market conditions.
“Companies don’t tap their credit line unless they need to,” said David Ritter, an analyst at Bloomberg Intelligence, who spoke generally about the issue without commenting directly on Robinhood. When companies do, it’s “perhaps not a good signal with regard to their cash burn, which could make creditors nervous.”
Repeated Outages
In the days since it tapped the line of credit, Robinhood’s platform has repeatedly gone dark for more than an hour at a time, including an outage March 2 that spanned an entire U.S. trading session, in which the S&P 500 surged 4.6%.
Robinhood said last week that a confluence of factors -- record account sign-ups along with highly volatile and historic market conditions -- led to unprecedented stress on the firm’s infrastructure.
That heavy load caused the so-called Domain Name System, or DNS, to fail. The system is essentially the phone book that computers use to turn a domain name into an IP address, and it’s how users access websites around the world.
On Monday, Robinhood faced a fresh breakdown as U.S. stocks plunged. Stocks tumbled so hard they set off a market-wide trading halt minutes after the open. And by day’s end, the S&P 500 was down 7.6%, the worst performance since the depths of 2008’s financial crisis.