TheRealReal, Inc.REAL
TheRealReal, Inc. Debt Disclosure
Non-convertible Notes, Net
2024 Note Exchange
On February 29, 2024, the Company entered into exchange agreements with certain holders of its 2025 Notes and 2028 Notes to exchange (i) $145.8 million in aggregate principal amount of the 2025 Notes and (ii) $6.5 million in aggregate principal amount of the 2028 Notes (together, the “2024 Exchanged Notes”) for $135.0 million in aggregate principal amount of the Company’s 2029 Notes, pursuant to an indenture (the “2024 Note Exchange”). The 2029 Notes bear interest at a rate of 13.00% per annum, consisting of cash interest at a rate of 8.75% per annum payable semi-annually in arrears and payment in-kind (“PIK”) interest at a rate of 4.25% per annum payable semi-annually. During the years ended December 31, 2025 and December 31, 2024, $5.9 million and $2.9 million was added to the principal amounts
outstanding due to accrued PIK interest, respectively. The 2029 Notes will mature on the earlier of (a) March 1, 2029 and (b) any date, if any, on or after December 1, 2027 on which (a) the aggregate principal amount of the 2028 Notes then outstanding is greater than $20 million and (b) the difference between (i) the amount of unrestricted cash and cash equivalents held by the Company and its subsidiaries (if any) as of such date of determination and (ii) the aggregate principal amount of 2028 Notes outstanding as of such date of determination is less than $75 million. In connection with the 2024 Note Exchange, the Company issued the Warrants (see Note 4 – Fair Value Measurement for further details on the terms of the Warrants). As a result of the 2024 Note Exchange, the Company’s principal debt balance decreased $17.2 million as of the closing date of the 2024 Note Exchange.
As the terms of the 2029 Notes were deemed to have substantially different terms from the 2024 Exchanged Notes, the 2024 Note Exchange was accounted for as an extinguishment of the 2024 Exchanged Notes. In connection with debt extinguishment accounting, the Company recorded a gain of $4.2 million as the difference between the carrying amount of the 2024 Exchanged Notes and the fair value of the 2029 Notes. Included in the recorded gain are unamortized debt discounts and issuance costs related to the 2024 Exchanged Notes and the fair value of the Warrants as they represent fees paid to certain holders of its 2025 Notes and 2028 Notes in connection with the 2024 Note Exchange.
The Company allocated issuance costs to the Warrants and the 2029 Notes based on relative fair value. The Company allocated $0.4 million of issuance costs to the Warrants with the balance being allocated to the 2029 Notes. Issuance costs related to the 2029 Notes are being amortized to interest expense through the expected maturity of the 2029 Notes at an effective interest rate of 13.35%.
The indenture governing the 2029 Notes (the "2029 Notes Indenture") contains certain covenants, which include (i) a covenant by the Company not to permit liquidity (calculated as the sum of (a) unused commitments then available to be drawn under any revolving credit facility, delayed draw term loan facility or qualified securitization financing permitted thereunder (after giving effect to any borrowing base or similar limitations), plus (b) the amount of unrestricted cash and cash equivalents held by the Company and its subsidiaries (if any)) to be less than $25 million as of the last day of any month, (ii) limitations on the Company’s and certain of its future subsidiaries’ (if any) ability to, among other things, (a) grant or incur liens securing indebtedness, (b) incur assume or guarantee additional indebtedness, (c) enter into transactions with affiliates, (d) sell or otherwise dispose of assets, including capital stock of subsidiaries, (e) make certain restricted payments or other investments, or (f) pay dividends or make other distributions (including loans and other advances and (iii) limitations, in the case of the Company and any future guarantor (if any), to consolidate, amalgamate or merge with or into, or sell all or substantially all of its assets to, another person. As of December 31, 2025 the Company was in compliance with such covenants.
The 2029 Notes Indenture sets forth certain events of default after which the 2029 Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company or its subsidiaries.
The 2029 Notes are guaranteed by certain of the Company’s future wholly-owned domestic subsidiaries (if any) on a senior secured basis. The 2029 Notes and the guarantees (if any), together with any future indebtedness secured on a pari passu basis with the 2029 Notes and the guarantees (if any), are secured by a first priority lien on substantially all of the assets of the Company and the guarantors (if any), subject to certain exceptions.
On or after March 1, 2025, the Company may redeem the 2029 Notes at its option, in whole at any time or in part from time to time, at the following redemption prices (expressed as percentages of principal amount) plus accrued and unpaid interest, to, but excluding, the applicable redemption date (subject to the right of holders of record of the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the following periods: March 1, 2025 to (but excluding) March 1, 2026 - 113.0%; March 1, 2026 to (but excluding) October 1, 2026 - 106.5%; and October 1, 2026 and thereafter - 100.0%.
A schedule of the Company's future maturities for the 2029 Notes with interest components included in principal, is as follows (in thousands):
Amount | ||||||||
| Fiscal Year | 2029 Notes | |||||||
2026 through 2028 | $ | — | ||||||
2029 | 166,631 | |||||||
Total expected payments at maturity | 166,631 | |||||||
Less unamortized debt issuance costs and debt premium, net | (2,844) | |||||||
Less amounts related to PIK interest | (22,807) | |||||||
Net carrying amount | $ | 140,980 | ||||||
About Debt Disclosures
Debt disclosures detail a company's borrowing structure — the types of instruments, interest rates, maturity schedule, and covenant restrictions that define its financial obligations and flexibility. This section is essential for assessing refinancing risk, interest rate exposure, and the margin of safety against financial distress.
Key signals: the maturity schedule reveals concentration risk — large maturities within 1-2 years during tight credit markets can force dilutive refinancing or asset sales. Compare the fair value of debt against carrying amount to gauge whether the market views the company's credit risk differently than the balance sheet suggests. Watch covenant compliance disclosures for tightening cushions, especially leverage and interest coverage ratios. Variable-rate debt exposure quantifies sensitivity to interest rate changes. Secured versus unsecured mix affects recovery rates and future borrowing capacity. Compare net debt-to-EBITDA against industry peers and covenant limits to assess financial health.