By guest authors Alexander Gladstone, Soma Biswas and Suzanne Kapner from the Wall Street Journal
February 6, 2023
Bed Bath & Beyond Inc. has secured investor backing for a more than $1 billion capital raise to stave off bankruptcy and try to turn around its flagging business, people familiar with the matter said.
The offering of convertible stock and warrants, coupled with a $100 million additional credit line from one of its lenders, is expected to save the troubled retailer from the near-term chapter 11 filing it has warned about for weeks. Bed Bath & Beyond has received investor commitments to raise USD 225 million of equity capital initially and the rest of the more than USD 1 billion offering over time, according to people familiar with the matter.
The company, which has seen its share price rally in recent weeks despite its dire outlook, warned Monday that if it fails to complete the planned fundraising, it would likely file for bankruptcy and its assets would be liquidated.
A company representative didn’t immediately respond to a request for further comment Monday.
Bed Bath & Beyond isn’t the first distressed company to seek to sell equity with its back against the ropes. In 2020, movie-theatre chain AMC Entertainment Holdings Inc. began selling shares to individual investors even while it prepared for a potential bankruptcy, which it avoided after selling more than USD 2 billion in stock.
But Bed Bath & Beyond is teetering even closer to bankruptcy than AMC was at the height of the pandemic. The retailer’s revenue has plunged in recent quarters and it has racked up losses after a turnaround plan failed to revive its business performance. Earlier this year, Bed Bath & Beyond said it might not be able to continue operating as a going concern.
Nonetheless, the company’s shares were up 92 % Monday before it announced the equity offering, driven by traders’ bets that the company might be able to defy the odds against it, but were down 37 % after hours.
Even if it secures the new financing, Bed Bath & Beyond would have to stem losses in its operations, which have been burning through its cash reserves. In a securities filing Monday, the company said comparable sales were expected to fall between 30 % and 40 % in its fiscal first quarter.
The equity securities being offered for sale by bookrunner B. Riley Securities, as well as Bed Bath & Beyond’s existing common stock, would rank below the company’s debt and would likely be wiped out if the company later restructures.
Bed Bath & Beyond expects to raise USD 225 million by selling convertible preferred shares and an additional $800 million by issuing warrants that will require holders to purchase more preferred shares in the future. Convertible stock can help investors limit losses by offering a guaranteed return and a chance for an upside once they are converted into regular stock. The issuance of the new securities would also dilute Bed Bath & Beyond’s existing shareholders.
The company missed interest payments due to its bondholders last week after previously saying its credit lines were frozen because it breached its debt agreements. Bed Bath & Beyond has been shutting stores and preparing for a possible bankruptcy filing while also searching for buyers for its assets or an equity infusion.
Bed Bath & Beyond shares have rallied in recent days, from below USD 2 in January to nearly USD 6 a share on Monday, despite the company’s warnings that it could have to file for bankruptcy.
The company plans to use proceeds of the proposed equity offering to pay down amounts drawn under its bank credit lines. The company has about USD 1.5 billion in credit lines with banks and lenders, according to a filing Monday, February 6, 2023.
Under the terms of a recent agreement with its lenders, Bed Bath & Beyond must pay the missed bond payments by March 3.
As part of the planned transactions, lender Sixth Street Partners has agreed to expand its credit lines with the company by USD 100 million, Bed Bath & Beyond said. Sixth Street had given the company a USD 375 million financial lifeline last year.
On Monday Bed Bath & Beyond also disclosed it had hired Holly Etlin as its interim chief financial officer. Ms. Etlin has been a partner at AlixPartners, a restructuring firm that has been advising the company. She replaces Laura Crossen, who stepped into the role in September after her predecessor died and who will continue as chief accounting officer.
Appeared in the February 7, 2023, print edition as ‘Bed Bath Investors Back Bid To Raise USD 1 Billion.’