Bed Bath & Beyond Inc (NASDAQ:BBBY) announced on Monday that it intends to raise around $1 billion through the sale of preferred stock and warrants in an attempt to avoid bankruptcy.
If the retailer cannot complete the difficult transaction, it will "likely apply for bankruptcy protection," according to regulatory documents. In recent weeks, the company disclosed that it has defaulted on a loan and may not be able to continue operations, prompting questions about its future.
Bed, Bath & Beyond held discussions in recent days with an investment firm to underwrite a substantial chunk of the potential offering, according to two people with knowledge of the situation.
In a volatile session, the retailer's shares rose 92.1% to $5.86 before closing down 33.5% to $3.35 in extended trade on news of the proposed offering.
Bed Bath & Beyond has been a part of the meme stock craze, with shares increasing by up to 400% last year when activist investor and Gamestop Corp chairman Ryan Cohen acquired a stake and sought improvements.
Bed Bath stated that it planned to raise little over $1 billion through the sale of preferred shares, warrants, and securities upon the exercise of the warrants.
Bed Bath will be excused from its recent bank default if the proposed offering is successful, the business said.
The troubled retailer said it will use the cash to settle outstanding revolving loans and then make interest payments on bonds for which it was late on February 1. It also intends to withdraw an additional $100 million from a first-in, last-out loan from Sixth Street, which would be repaid first in the event of bankruptcy.
The sole book runner on the sale is the Los Angeles-based investment bank B. Riley Securities, which will earn a maximum fee of $10 million.
Additionally, Bed Bath & Beyond appointed bankruptcy expert Holly Etlin as acting chief financial officer.
The Union, New Jersey-based home goods retailer, which rose to prominence in the 1990s as a destination for couples creating wedding registries and preparing for new babies, has experienced a decline in demand in recent years due to the failure of its merchandising strategy to sell more store-branded items.
The company raised worries about its capacity to continue as a going concern in January, just months after announcing more than $500 million in additional funding, employment layoffs, and the closure of 150 stores.
Monday, Bed Bath announced plans to close an additional 150 stores, in addition to the previously announced closure of 250 stores.
Bed Bath & Beyond disclosed in January that the company had defaulted on a JPMorgan Chase (NYSE:JPM) Bank N.A. loan. According to Bloomberg News, the company's efforts to locate a buyer have also stopped.
After filing for bankruptcy, Hertz Global Holdings (OTC:HTZGQ) attempted to sell fresh shares but withdrew the offering after the U.S. Securities and Exchange Commission (SEC) expressed unspecified concerns.
Lynn LoPucki, a professor at the University of Florida, remarked, "It is a similar circumstance in which a corporation in severe financial difficulties is attempting to sell securities." "In both instances, the same factors must be considered. In terms of SEC regulation, the fact that one is in bankruptcy and the other is not would make no difference."
According to sources cited by Reuters, Bed Bath & Beyond has lined up liquidators to close other stores, barring the appearance of a last-minute buyer.
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