In a last-ditch effort to avoid bankruptcy, Bed Bath & Beyond Inc (BBBY.O) announced on Monday that it planned to raise around $1 billion through an offer of preferred shares and warrants.
The home goods business stated in securities papers that it would probably seek bankruptcy protection if it couldn’t execute the intricate acquisition.
Concerns regarding the chain’s future were raised recently when it claimed that it had defaulted on a debt and might not be able to continue operating.
According to two people with knowledge of the situation, Bed, Bath & Beyond has recently initiated discussions with an investment company to underwrite a sizeable chunk of the planned offering.
Shares of the store fell 33.5% in prolonged trading following the announcement of the potential offering, after closing up 92.1% at $5.86 in a wild session.
With shares of Bed Bath & Beyond rising as high as 400% last year after activist shareholder and chairman of Gamestop Corp (GME.N), Ryan Cohen, acquired a stake and demanded adjustments, the company has been associated with the meme stock phenomenon.
Bed Bath announced that it intended to raise little over $1 billion via the sale of preferred shares, warrants, and securities upon the exercise of the warrants.
If the proposed offering is successful, Bed Bath will be exempt from its most recent bank default, the business claimed.
The troubled store stated that it would use the offering’s proceeds to pay off outstanding revolving loans, after which it would use them to cover a bond interest payment that was due on February 1 but was not made.
Additionally, it intends to borrow an extra $100 million via a loan from investment company Sixth Street which has priority for payback in the event of bankruptcy.
The deal’s lone book runner, Los Angeles-based investment firm B. Riley Securities, will get a max fee of $10 million.
In addition, Bed Bath & Beyond employed interim director of finance and expert Holly Etlin, who is a bankruptcy specialist.
The Union, New Jersey-based home goods business, which soared to fame in the 1990s as a go-to store for couples building wedding registries or planning for new babies, has noticed a decline in demand in recent years as its marketing strategy to market more store-branded goods failed.
Just months after announcing more than $500 million in new funding, employment layoffs, and the closing of 150 stores, the firm expressed concerns in January about its capacity to operate as a going concern.
In addition to the 250 store closings already announced by Bed Bath, the company stated on Monday that it planned to close another 150 stores.
In January, Bed Bath & Beyond proclaimed that it had missed a reimbursement on a credit from JPMorgan Chase Bank N.A. This company’s efforts to locate a buyer, according to Bloomberg News, have also failed.
Rental car company Hertz Global Holdings (HTZ.O) tried to sell fresh shares after filing for bankruptcy protection but halted the sale after the U.S. Securities and Exchange Commission (SEC) expressed concerns without going into further detail.
Lynn LoPucki, a professor from the University of Florida, believed it is comparable to a situation where a severely insolvent corporation is trying to sell securities.
The same factors are at play in both circumstances. Regarding SEC regulation, it would make little difference whether one company is insolvent or not.
Unless a last-minute buyer shows up, sources claim that Bed Bath & Beyond has trustees lined up to close other shops.
Given the worsening COVID situation in major hotspots, there is also the worry that businesses may suffer.
However, if the right community actions are taken, these powerhouse enterprises may be able to survive the fiscal year.