Space-tourism play Virgin Galactic (NYSE:SPCE) stock have been butchered at the stock market in the past year. Over the last 12 months, its stock has shed more than 80% of its value.

With such a massive pull back in price and the huge potential of the space tourism sector, you’d probably think about buying the dip. However, SPCE stock remains more speculative than anything.

Investors expected SPCE stock to take off after its historic space flight last year. However, the opposite has transpired amidst delays and some regulatory troubles.

Moreover, Amazon (NASDAQ:AMZN) founder Jeff Bezos has been hot on its heels with his own space company in Blue Origin. So far, Blue Origin’s track record has been smooth sailing with hardly any hiccups. On the flip side, Virgin has left its investors scared stiff for its future.

Though it plans to start commercial operations this year, I don’t have much hope over SPCE stock making a comeback.

The Issue of Convertible Loan Notes

Virgin Galactic recently announced it was adding close to $500 million in new debt. It priced its $425 million offering of 2.50% convertible loan notes due in 2027 via a private offering. Moreover, initial purchasers can have an additional $75 million notes. The net proceeds of over $410 million will be used for funding working capital and meet operational expenses.

A convertible loan note offers the upside of an equity investment while protecting investors from the downside of a debt instrument. Moreover, it carries lower interest rates than a conventional debt instrument. The issuer also reserves the right to redeem the note as it approaches its conversion price. Moreover, companies would want to call a note to reduce cash payouts to the noteholders. However, it is imperative to communicate with other parties when calling a note in such a situation.

Additionally, a convertible note offering effectively delays the dilution of the company shares. With the SPCE stock’s current performance, the issue of new shares would’ve seriously dented investor confidence. Nevertheless, the stock slid over 15% since the announcement.

Some would the convertible notes a masterstroke, while others would be skeptical and see it as delaying the inevitable. It’s clear that the company has a financing issue, and solving it would come at the expense of its shareholders.

Recent Hiccups 

Unfortunately for Virgin, it has encountered several problems to kickstart commercial operations. Even with its successful human spaceflight, it was under investigation with the FAA for deviating from its designated airspace. It later assured the regulators that it would communicate if any issues arose.

It was permitted to fly again in September, where the company deferred its space mission with the Italian Air Force. The delay was mainly due to a manufacturing defect in its aircraft’s control systems. A month later, the company announced it would begin operations during the fourth quarter this year. The delay was again due to an issue with the company’s spacecraft.

With such a patchy track record, it’s tough for investors to invest in Virgin Galactic for the long haul. It continues to exhibit weakness in terms of decision-making and its product which doesn’t bode well for the proponents of its bull case.

Final Word on SPCE Stock

Virgin Galactic was at one time a fascinating play in the fast-growing space sector. However, its patchy performance in the past year points to a tumultuous time ahead for the company.

Moreover, its recent convertible debt offering is concerning and is essentially delaying the inevitable shareholder dilution. It’s best to avoid SPCE stock at this time.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines