9 Days to Bankruptcy: Jake Freeman announces ownership of 2024 notes and 6.21% equity stake in Bed Bath & Beyond on July 21st, proposing a bond issuance to raise cash while opposing a sale of the company or a significant amount its assets. #BBBY
"Freeman Capital advocates for a debt realignment that does not change or affect the control. BBBY's effective realignment is a top priority for Freeman Capital and is made in the context of a disinterested shareholder-"
"Freeman Capital does not advocate for a sale of BBBY to another company, Freeman Capital does not advocate for the sale of a significant amount of the issuer's assets, Freeman Capital does not advocate for the restructuring of the issuer..."
Jake Freeman: Please don't sell Bed Bath to @Carl_C_Icahn or buybuy Baby to @ryancohen
Sue Gove:
(nice to have you back Wiggins, good luck tonight)
The bond issuance Freeman proposed would have raised $1 billion in cash for the Bed Bath, coming with it favorable covenants for Freeman giving his group first lien ownership of buybuy Baby at a $350 million valuation, among other things.
An important detail to add,
Note: "Freeman Capital and its affiliates are owners of the 2024 Notes."
Bed Bath chose a different financing strategy, however. On Aug 31st,
"The Company announced it has secured financing commitments for more than $500 million of new financing, including its newly expanded $1.14 billion 'ABL facility' and a new $375 million 'FILO facility'."
And Bed Bath instead chose to offer a bond exchange of "Old Notes" for "New Second Lien" and "New Third Lien" notes in October, a move to reduce long term debt contradicting Freeman's proposal to expand debt with new a bond issuance.
Reminder: "Bed Bath & Beyond announced that it has entered into privately negotiated exchange agreements with ~~several existing institutional holders~~ of its Senior Unsecured Notes due 2024..." on Nov 14th, converting $123m of debt into 11.7m shares (10% ownership at the time).
It appears Bed Bath raised new financing from JPM and performed an exchange offer at the discretion of these institutional bondholders.
This might imply these bondholders have been involved since at least July, directly competing w Freeman over the direction of the company.
And Jake Freeman lost.
This USC student even went to Reddit to drum up support for his parents funds proposals and "buy-buy-time". The account has been inactive for six months now, probably thought I'd forget. Used a Gmail account to run his freshly created business, out of a shop in Wyoming no less.
Nope.
Friday's Discussion: 12 Days to Bankruptcy w WestPoint Home
This thread covers the company's default on Jan 13th with context from their credit agreements with JP Morgan, including a Jan 13th Pitchbook input of a leveraged buy-out of Bed Bath & Beyond.
April 5th, 2023: "Why Would Perella Weinberg Advise Bondholders to Exchange for Equity?"
This thread covers the company's debt-to-equity exchange deals in Nov2022, including a bankruptcy waterfall analysis and relevant experience from Perella Weinberg.
April 6th, 2023: "Why Didn't Bondholders Accept the Debt Exchange?"
This thread covers the company's cancelled debt exchange offering, questioning bondholders incentives to hold Unsecured Notes over Second/Third Lien Notes during Going-Concern operations.
WSJ reporter @GunjanJS writes, "When #BBBY filed for bankruptcy, it had a gaping hole in its financials: assets of $4.4b and liabilities of $5.2b," but are these numbers currently accurate?
This post looks into two strategies which create net-positive value for shareholders.
To begin, these figures were reported in FY22 Q3 earnings for the period ending Nov 26th. Much has changed in the six+ months since.
These figures will not include $360m in equity capital from the Feb securities offering, nor the assuredly negative cash flow from operations.
The first category to address is the company's net operating losses (NOLs).
From bankruptcy docket #10 filed on Apr 23rd, "As of the end of February 25, 2023, the Debtors estimate they had NOLs in the amount of approximately $1.6 billion..."
From the introduction to the book ‘King Icahn’ by Mark Stevens,
“Icahn had built a position in a company, then traded over-the-counter, to the point that he owned a substantial block of the outstanding stock.” #BBBY
“Convinced that he had made a forceful case for reconfiguring the business, Icahn paced like an expectant father, waiting for what he hoped would be a favorable response to his plan.”
“Investment banker: ‘You know, Carl, they don't like you at all.’”
“‘I don't want to threaten you but we are going to begin by smearing your name. We've got three PR firms. We've got the best three PR firms in New York. Starting tomorrow, we are going to start smearing your name...”
Debt is the New Equity: A look into Sponsored Buyouts in Chapter 11 and recent events surrounding Bed Bath & Beyond including volume in the company's bonds and the appointment of Holly Etlin to Chief Restructuring Officer. #BBBY
This six page Kirkland and Ellis paper (2009) details Sponsored Buyouts and the Plan Sponsor Transaction through Chapter 11 bankruptcy proceedings. The following quotes will summarize the paper, but it's worth a full read.
On Mar 30th, Bed Bath files $300m ATM offering to be completed Apr 26th or face bankruptcy. The funds would close the ABL w JP Morgan 3 years before maturity. Any acquisition requires JPM approval, except in chapter 11 proceedings. #BBBY
The $300m ATM offering Mar 30th states,
"Upon filing our annual report Form 10-K, which is due by April 26th, 2023, we will lose S-3 eligibility and therefore we expect all sales made pursuant to the sales agreement will cease by April 26th, 2023...
…If we do not receive the proceeds from the offering of securities covered by this prospectus supplement, we expect that we will likely file for bankruptcy protection."
5 Days to Bankruptcy: Cohen argues a multi-billion $$ valuation of BABY as the Ultimate Destination for Babies. He sells his Bed Bath position in Aug at the start of M&A negotiations. His letter suggests his willingness to hold the board accountable. #BBBY
"Given that BABY is estimated to reach $1.5 billion in sales in Fiscal Year 2023 with a double-digit growth profile and at least 50% digital penetration, we believe it is likely much more valuable than the Company's entire market capitalization today."
($1.6b at time of writing)
"We believe under the right circumstances, BABY could be valued on a revenue multiple, like other ecommerce-focused retailers, and justify a valuation of several billion dollars."
The math presented in the following tweet assumes 550m shares outstanding at Bed Bath.