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Bed Bath & Beyond Inc.’s move to issue preferred stock is a “last gasp” effort to survive before filing for bankruptcy, according to Wedbush analyst Seth Basham, who warns that the equity would eventually be wiped out.
“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,” he wrote, in a note released Tuesday.
Bed Bath & Beyond’s
BBBY,
stock plunged 45.4% Tuesday, pulling back from strong gains Monday that saw the stock of the troubled retailer gain 92% in a move that swept up other meme stocks.
The moves proposed by Bed Bath & Beyond aim to generate additional liquidity, satisfy the company’s defaulted loans and missed interest payments, and, most importantly, buy it more time, according to Basham.
Wedbush slashed its price target on the stock to zero from $1
Bed Bath & Beyond said after the bell Monday it plans to sell convertible preferred stock as well as warrants to purchase common shares and convertible preferred stock. The company expected to raise at least $225 million in the sale, but hoped for more than $1 billion, according to a regulatory filing.
Late Monday, the Wall Street Journal reported that the company had received investor commitments to raise $225 million of equity capital initially, with the rest of the more than $1 billion offering coming later, citing people familiar with the matter. The company has said it may have to file for bankruptcy and recently disclosed it was in default on loans that were called in.
In a filing with the Securities and Exchange Commission on Monday, Bed Bath & Beyond
BBBY,
disclosed that JPMorgan Chase & Co.
JPM,
and other creditors had agreed to work with the retailer if it could raise the money.
But Wedbush analysts led by Basham were underwhelmed by the company’s moves. “If successful, this series of transactions would buy the company more time,” he wrote.
“However, free cash flow was a whopping minus-$403 million in its fiscal third quarter while cash-on-hand stood at just $153 million at the
end of the period, and we expect minus-$170 million in free cash flow for the fourth quarter,” said Basham. “Closing an additional 141 stores (as of January 30, including all Harmon stores) could help stem the bleeding along with other cost cuts, but comps will need to stabilize and vendors will need to have clarity on liquidity (to accept more normal payment terms) for the company to survive.”
On Tuesday, a fresh regulatory filing by Bed Bath & Beyond noted that investing in the company’s securities “involves risks” that are disclosed in its 10-K for 2022.
“Our business is subject to the risks of inflation and any future financial recession,” said the filing. “As described in the Preliminary Prospectus Supplement, we may not have enough authorized common stock to satisfy the exercise of the warrants to purchase common stock and the conversion of the preferred stock,” it added.
That would also affect its ability to issue common stock in the future, for which it would need to amend its certificate of incorporation, said the filing.
“In connection with this offering, we have agreed not to issue additional equity securities (other than upon exercise and conversion of the securities offered hereby) for a period of 90 days,” it said.
The stock has fallen 80.7% in the last 12 months, while the S&P 500
SPX,
has fallen 9.3%.
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