Bed Bath & Beyond's $1 billion surprise equity deal has worried lenders

Bed Bath & Beyond, a struggling retailer of home goods, announced plans for a public offering on Monday. With this action, the company hopes to pay off its debts and avoid bankruptcy. After a disappointing holiday season, Bed Bath & Beyond issued a warning to investors at the beginning of the month that bankruptcy was a possibility. It stated that its Black Friday sales were three times higher than in 2021.

Monday, the retailer announced that it planned to repay outstanding loans with $100 million from its credit line and a little more than $1 billion from equity offerings. A person who is familiar with the situation stated that it already has investor commitment to purchase those funds. According to the person, the move is anticipated to be sufficient for Bed Bath & Beyond to pay off its debt and fund its business operations without having to file for bankruptcy immediately. The retailer's ability to do so was questionable at times over the past few weeks.

About 32,000 people worked for Bed Bath & Beyond in February of last year. Since then, it has had a number of rounds of layoffs. The business made an aggressive restructuring plan known in August, stating that it would close 150 stores and cut more jobs.

In August, Bed Bath & Beyond obtained $500 million in new financing, which included a $375 million loan from the investment firm Sixth Street and an expanded debt facility supervised by JPMorgan Chase. Last month, the retailer said that Bed Bath & Beyond had told JPMorgan that it had defaulted on its debt.

At the same time, meme stock traders, retail investors who bid up shares of undervalued businesses, have made the retailer a favorite. Its stock went up nearly 100% on Monday, giving it a market value of approximately $690 million. Traders bet on the company's future, and as a result, its stock has swung wildly over the past few weeks.

Securities experts stated that the equity offering, which has been attempted by AMC Theaters and other ailing meme stock favorites, is legal. According to Reena Aggarwal, a professor of finance at Georgetown University, the possibility exists that, by the time Bed Bath & Beyond issues its shares—which could take days—its stock could have further fallen. As a result, the company might be required to issue additional shares, which would further dilute its existing shareholders. However, shareholders, who are the last to be compensated in any bankruptcy, may still see that option as a positive alternative to bankruptcy.

Even though Bed Bath & Beyond's stock price is not, by any traditional measure, justified by current business fundamentals, some experts argued that it was the company's duty to profit from the frantic trading.

Bed Bath & Beyond's ability to devise a plan to revitalize its core business remains uncertain even with borrowed time. Bed Bath & Beyond had more than 1,500 stores and a market value of approximately $17 billion at its height in 2013. There are now less than 800 stores there. Its home goods stores, which sold towels and kitchen supplies at a discount thanks to the big blue coupon, were beacons that kept customers coming back.

DataWeave, a research company, found that by the end of December, Bed Bath & Beyond's inventory had decreased to less than half. This indicates that the brands that sell to the store have been pulling back because they are concerned that they may never receive payment for the products they had sent.