Bed Bath & Beyond Belief: Shares Collapse After 'Last Gasp' Billion-Dollar Capital Raise Plan
Update (0910ET): Bed Bath & Beyond is said to have lined up enough investors to cover the share sale we reported on overnight (in hope of averting a bankruptcy filing).
Bloomberg reports the firm has gathered orders from enough investors to cover the full offering, according to people with knowledge of the matter
“We see these capital-raising transactions as a ‘last gasp’ to survive before filing for bankruptcy protection where the common equity would likely be worthless,” Wedbush analyst Seth Basham writes
“In the event the transactions are successful, BBBY common shares could rise as they are trading like options on the company’s survival, but the ultimate value would be undermined by this highly dilutive offering of preferred stock that would have priority over the common shares”
BBBY shares are down 45% in the pre-market, erasing all of yesterday's explosive gains...
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As we detailed overnight, after soaring 130% at its highs of the day, bankrupt-ish Bed Bath & Beyond (having already missed interest payments on its bonds) just pulled a Hertz, announcing its plan to offer series A convertible preferred stock and warrants, raising over $1 billion.
Bed Bath & Beyond Inc. today announced a proposed underwritten public offering (the "Offering") of (i) shares of the Company's Series A convertible preferred stock (the "Series A Convertible Preferred Stock"), (ii) warrants to purchase shares of Series A Convertible Preferred Stock and (iii) warrants to purchase the Company's common stock. The Offering is subject to market and other conditions, and there can be no assurance as to whether or when the Offering may be completed or as to the actual size or terms of the Offering.
The Company expects to raise approximately $225 million of gross proceeds in the Offering together with an additional approximately $800 million of gross proceeds through the issuance of securities requiring the holder thereof to exercise warrants to purchase shares of Series A Preferred Stock in future installments assuming certain condition are met.
And this is our favorite part - in case you thought this could be an effort to stave off bankruptcy and create any value for the equity...
The Company cannot give any assurances that it will receive any or all of the proceeds of the Offering.
The Company intends to use the net proceeds from the initial closing of the Offering, along with $100 million to be drawn under its amended and upsized FILO Facility, to repay outstanding revolving loans under its ABL Facility in accordance with the terms of an amendment to the Company's Credit Agreement waiving existing defaults thereunder (the "Amendment") to be entered concurrently with the initial closing of the Offering.
Under the Amendment, the Company will be required to use availability under its credit facilities to make the missed interest payment on its senior notes by March 3, 2023.
Outstanding revolving loans repaid using net proceeds of the Offering may be reborrowed, subject to availability under the ABL Facility, and the Company expects to use those borrowings for general corporate purposes, including, but not limited to, rebalancing the Company's assortment and building back the Company's inventory.
In addition, proceeds from the conversion of warrants to purchase shares of Series A Convertible Preferred Stock will be used to further repay outstanding amounts under the ABL Facility with 50% of such conversion amounts being applied against the borrowing base of the ABL Facility. Such repaid amounts may be reborrowed subject to availability under the ABL Facility.
Who could have seen that coming?
Maybe BBBY can sell some stonk and reverse its bankruptcy— zerohedge (@zerohedge) February 6, 2023
The market cap of the company at the close today was $687.5 million, according to Bloomberg data.
BBBY share price plunged 25% after hours... but then - of course - it ripped back higher...before sliding back towards reality once again...
One thing of note, while we are fully aware that it's comparing apples to carrots, the equity price briefly traded above its 2024 Bond price today...
Ironically, the timing of this issuance occurs as a new look into Bed, Bath and Beyond by Bloomberg this week claims that the company only has itself to blame for its dire financial straits. The company, which has now missed bond payments, is on the verge of bankruptcy.
"Executives were mired in minutiae as the chain barreled toward bankruptcy," the report says, citing former employees. For example, last summer the company's executives urged white collar workers to return to the office four days a week despite the fact that many were already coming in.
Interim Chief Executive Officer Sue Gove was even told by a former employee that an extra day in the office wouldn't be the solution to help the ailing company.
The article laid out how every solution the company tried only led them further into financial ruin. Even firing 20% of its workforce and shuttering 150 of its 770 stores before securing new financing didn't help the business.
Arthur Stark, Bed Bath & Beyond’s longtime president who left in 2018, told Bloomberg that the company started in 1971 with the focus solely on the customer: “Everything that we did was for the customer. If it meant carrying too much inventory in the store, it was OK. If customers made the commitment to come to our store, we would have it in stock.”
But the company failed to properly deal with the shift to online shopping and keep up with e-commerce. It continued to focus on its brick and mortar plans while companies like Amazon gained traction in retail. The company was reluctant to change due to its past successes, Bloomberg wrote.
In 2017, same store sales started to plunge. The company's age-old tactic of sending 20% off coupons to households started to nibble away at the company's bottom line. The company had difficulty generating business without the coupons, however.
Stark said: “Like any form of promotion, it becomes a drug. Once you’re addicted to it and your customer is addicted to it, it’s a very difficult thing to wean them off of.”
Activist investors came in 2019, urging "asset sales, more investment in private-label brands and online commerce, and more buybacks." The activists board urged for more private label products and doubling down on well-known brands. But pandemic supply problems and a lack of cash made it difficult for the company to stock its stores with such items.
By 2021 there was a push for six new private label product lines. When they arrived in stores they "failed to resonate" with the company's legacy shoppers. Financial problems were then exacerbated by additional share repurchases.
Dennis Cantalupo, CEO of Pulse Ratings, a credit-rating and consulting firm, told Bloomberg: “Rather than take that money and put it in the bank and assume that the tailwinds to the industry are going to subside or normalize, they initiated the buyback campaign.”
The company's financial position is so stretched that the idea of liquidation instead of a reorganization is also on the table, Bloomberg reported: "If the company restructures in bankruptcy by closing more stores, it could emerge as a smaller version of its former self. However, Bed Bath & Beyond’s financial situation is so dire it’s also possible the retailer sells its assets and ceases to operate, Bloomberg News has previously reported."