Bed Bath & Beyond Inc. (NASDAQ:BBBY) plummeted over -31% in pre trading session on Tuesday after huge surged of around 93% in previous session after according to people familiar with the situation, the firm has lined up investors for an 11th-hour cash infusion that would allow it to avoid bankruptcy.
The retailer, which has been preparing for a Chapter 11 filing after lenders declared it in default last month, said in a statement Monday that it plans to issue convertible preferred securities and warrants in a deal that could raise more than $1 billion.
According to the people who asked not to be identified because the details are private, the company has received orders from institutional investors covering the entire offering. According to one of the people who declined to be identified, a significant portion of the orders are coming from one anchor investor.
The company would immediately raise $225 million by selling convertible preferred shares and common equity warrants. The additional funds would allow the company to repay an asset-based loan and make overdue debt payments that it missed this month.
Through the execution of the warrants it issues, the company could raise an additional $800 million over time. In a statement, a Bed Bath & Beyond spokeswoman said the company “provided a detailed disclosure earlier today and will not be commenting further due to regulatory requirements. ”
“This buys them time, but it doesn’t solve the fundamental problems of the business,” said Joel Bines, who recently retired as AlixPartners’ global head of retail and now runs his own firm, Spruce Advisory.
Bed Bath & Beyond’s cash reserves have been dwindling, and revenue has been falling in the double digits year over year for several quarters. “I guess it’s Bed Bath & Beyond’s fiduciary duty to sell that equity if there are buyers for equity that’s very likely to eventually be worthless,” he added.
Even if the offering is completed, the company warned in a securities filing on Monday that it may have to file for bankruptcy protection. “Trading in our securities is highly speculative,” according to the company. It also warned that it “may not be successful in implementing our transformative plan, which includes rebuilding inventory and increasing customer sales, and we have historically underperformed in implementing management plans.”
Many customers have already abandoned the home goods industry, and it will be difficult to entice them back, according to suppliers and analysts. It can also be costly to renovate tired-looking stores and to invest in marketing to notify shoppers when stores restock. Meanwhile, suppliers are likely to be wary of shipping their goods to the struggling retailer.