(Bloomberg) — The financial lifeline that Bed Bath & Beyond Inc. from the brink of bankruptcy last month is already at risk from the retailer’s falling stock price.
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The equity financing, led by hedge fund Hudson Bay Capital, provided the company with $225 million upfront, with the promise of an additional $800 million over the next eight months. Bed Bath & Beyond Chief Executive Officer Sue Gove proclaimed it on Feb. 7 as a “transformative transaction” that would give the company time to turn around.
But the extra money comes with obligations. Among them: Future injections are contingent on maintaining a weighted average share price of Bed Bath & Beyond of at least $1.25 or $1.50, depending on timing, according to a regulatory filing. The deal terms allow Hudson Bay to waive those terms if it chooses.
But keeping the stock price above those thresholds may not be easy. It is already down more than 70% since Feb. 6, closing at just $1.41 on Tuesday. The stock closed at $1.56 on Thursday.
A Hudson Bay representative declined to comment. A Bed Bath & Beyond representative did not respond to requests for comment.
The pressure on the stock is partly due to the bailout itself. The first leg gave Hudson Bay the right to convert its initial investment into common stock at a discount to the trading price, giving it the ability to make a quick profit by selling the stock.
Investors quickly recognized the risk that the funding would flood the market with equities, driving down the value of outstanding shares. As a result, the price plummeted steadily after the deal was announced.
The February deal wasn’t the first time Bed Bath & Beyond raised bailout funding to stave off bankruptcy.
In August, the company pledged its assets to credit fund Sixth Street Partners to secure a $375 million loan. The retailer suffered a net loss of $393 million in the three months ending November. In January that money had run out and Bed Bath & Beyond had gone bankrupt.
This time, Sixth Street provided another $100 million in connection with the Hudson Bay stock deal. But given the size of its quarterly losses, Bed Bath & Beyond’s future may depend on the promise of the next $800 million, potentially leaving the company’s fate at the mercy of the stock price.
–With assistance from Bailey Lipschultz and Jeannette Neumann.
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