Bed, Bath and Beyond tries to avoid bankruptcy with $1bn financing plan

US retailer Bed, Bath & Beyond has proposed a $1.025bn financing to save it from bankruptcy in an eleventh-hour deal that will be used to restructure the company’s debt load outside of court.

The home goods retailer is set to initially raise $225mn though the sale of convertible preferred stock, warrants to purchase convertible preferred stock and warrants to purchase common stock. The remaining $800mn will come from issuing Bed, Bath and Beyond securities that require investors to purchase convertible preferred stock “in future instalments assuming certain conditions are met”, according to securities filings

Bed Bath & Beyond said it would also drawn down $100mn from an existing loan facility that had been provided last year by the private capital manager, Sixth Street Partners.

The new cash is to be used to repay existing debt that had come due. Bed Bath & Beyond disclosed last month that two loan facilities totalling nearly $1.5bn were in default. Last week, the company also failed to make a $25mn interest payment on $1bn of bonds outstanding.

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In the settlement struck with its lenders and bondholders, Bed Bath & Beyond is required to use the new cash towards paying its current debt.

The announcement came after a wild day of trading for Bed Bath & Beyond shares, which rocketed up to close almost 100 per cent higher, around $6 per share, implying a market capitalisation of $700mn, even as its bonds were trading below 15 cents on the dollar. Its shares subsequently fell 33 per cent in after-hours trading, after the proposal was released.

The company warned that current shareholders of its common stock “will be significantly diluted by the issuance of the securities in this offering”. It also said it would likely file for bankruptcy if the financing plan fell through.

Bed Bath & Beyond had struggled in recent years as it changed its strategy to focus on store brands rather than well-known national ones. The company on Monday said it will close as many as 400 stores while slashing $1bn in annual overhead costs. It said it would hit positive operating profit margins later in its fiscal 2023 year.

B Riley Securities is the book-running manager for the offering.

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