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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.
Source: kirkland.com/-/media/public…
Source: kirkland.com/-/media/public…
"This chapter 11 process creates an opportunity for a private equity fund to employ capital and to use the target company balance sheet as leverage..."
"...because many of today's distressed companies have no equity value, the control play is through the target company's debt."
"...because many of today's distressed companies have no equity value, the control play is through the target company's debt."
"...to purchase the debt of a distressed company and then convert that debt to equity in connection with the restructuring process."
"The winners in this scenario will be the distressed company itself and the investors who own equity of the restructured distressed company."
"The winners in this scenario will be the distressed company itself and the investors who own equity of the restructured distressed company."
"Specifically, chapter 11 provides distressed companies with a breathing spell from their creditors. And, chapter 11 allows distressed companies to:
1. right size their balance sheets and
2. emerge from bankruptcy stronger and leaner."
1. right size their balance sheets and
2. emerge from bankruptcy stronger and leaner."
"For a class of claims to approve a plan, more than 50 percent in number and at least two-thirds in dollar amount of voting creditors must vote in favor of the plan."
"A plan sponsor invests "new money" in conjunction with a plan of reorganization. And, the new money is distributed to certain creditors in exchange for (1) their claims and (2) an affirmative vote on the plan."
This post from last week details the current creditor relationship between JP Morgan Chase and Bed Bath & Beyond, which may well have forced the company into Ch. 11 proceedings and negotiations of a Plan Sponsored Transaction for control of the company.
https://twitter.com/pirateportfo/status/1650459736868016128?s=20
If you follow the leveraged buyout schematic, you know this entire story has been told with the company's bondholders since the debt exchange offering last year.
This Nov deal is a direct example of institutional investors converting debt to equity.
This Nov deal is a direct example of institutional investors converting debt to equity.
https://twitter.com/pirateportfo/status/1643574321401716736?s=20
There have been several days of large volume in Bed Bath bonds, indicating an investor may have been further positioning themselves for an LBO, or now a Plan Sponsored Transaction w two-thirds dollar amount vote.
Including here on Feb 1st.
Including here on Feb 1st.
https://twitter.com/pirateportfo/status/1622261799361081346?s=20
And this example again on Apr 12th.
https://twitter.com/Malone_Wealth/status/1646153963945828356?s=20
It appears as if a flurry of bonds traded yesterday, May 1st as well. Reminder, quarterly payment on these bonds are due May 3rd.
And finally, Bed Bath & Beyond, "appointed Holly Etlin to serve as the Chief Restructuring Officer ("CRO") of the Company..." on Apr 22nd, the day before filing for Chapter 11 bankruptcy.
A role and job she's done before.
In this 2017 interview with the American Bankruptcy Institute, Etlin details her role with BCBGMaxAriza and an $85 million DIP loan put up by the owner which bridged that company to a successful sale.
In this 2017 interview with the American Bankruptcy Institute, Etlin details her role with BCBGMaxAriza and an $85 million DIP loan put up by the owner which bridged that company to a successful sale.
https://twitter.com/pirateportfo/status/1646129432615354369?s=20
On Apr 23rd, Bed Bath themselves entered into a DIP loan agreement with Sixth Street and TAO Talents, "in an aggregate principal amount of $240 million..."
The company also received financing before Chapter 11 as well, raising $360 million from their Feb securities offering.
The company also received financing before Chapter 11 as well, raising $360 million from their Feb securities offering.
Admittedly, I thought I found more to share about the company's $1b Apr securities deal with B. Riley which has now been canceled. My argument could not be supported with primary sources so I decided to remove this piece. David Kastin is the securities expert, I'm just a fan.
Regardless, this $600m in financing will allow Bed Bath to continue operations and bridge to a buyout in Chapter 11. Evidence suggests the board and executives have been scheming a leveraged buyout since last summer and soon the Plan Sponsor Transaction may be approved by courts.
Positions pinned as always (+600 shares) 🏴☠️🏴☠️
https://twitter.com/pirateportfo/status/1650573695935709184?s=20
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