Dive Brief:

• Bed Bath & Beyond on Monday said it's attempting to raise more than $1 billion by offering preferred stock, along with warrants to purchase shares of preferred stock and common stock. The company said it expects to initially raise about $225 million. Hudson Bay Capital Management is the main investor in the share sale, Bloomberg reported Tuesday, citing people with knowledge of the matter.
• In a securities filing, the company said the cash infusion is needed “to operate our business” and pay debts. Without it, Bed Bath & Beyond “will likely file for bankruptcy protection.” The company in January warned of the possibility of bankruptcy.
• The company also named Holly Etlin as its interim chief financial officer, replacing Laura Crossen, who held the role since September, following the death of CFO Gustavo Arnal. Etlin has 30 years of turnaround experience, including serving as the chief restructuring officer at Tailored Brands and as partner and managing director at AlixPartners.

Dive Insight:

In addition to the stock transaction, Bed Bath & Beyond said it plans to draw $100 million more from a first-in-last-out loan from investment firm Sixth Street. The company wants to use the latest loan to pay down debt. 

Last week, the company confirmed it missed a $28 million interest payment on more than $1 billion in bonds. A 30-day grace period to make the payment ends on March 3. But in light of the company’s operational and financial challenges over the last year, analysts are not optimistic about a turnaround.

“Unfortunately, we see a low probability that the company will be able to raise equity and view this as a ‘last gasp’ before filing for bankruptcy protection,” Wedbush analysts led by Seth Basham said in a Tuesday note.

The company on Monday also said it plans to close an additional 150 underperforming Bed Bath & Beyond stores, which comes on top of the closing of about 200 stores under that banner and about 50 stores under the Harmon banner.

Wedbush said the store closings, including its entire chain of Harmon beauty stores, may help stop the losses “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.” 

“We estimate that the additional capital provides the company with just a few more quarters of room to turn around its operations,” said Wedbush’s analysts. They also noted that a “weak” macroeconomic environment and a high execution risk of Bed Bath & Beyond’s inventory, assortment and cost savings initiatives under a new management team “further reduces the probability of success.”

Neil Saunders, managing director of GlobalData, echoed that sentiment.

“In our view, this is a last roll of the dice from a company that is desperate to raise cash to provide some financial headroom to pay down debts and keep operations going,” Saunders said in emailed comments. “With this move, it is clear that Bed Bath & Beyond has, so far, failed to find either a lender willing to inject liquidity or a prospective buyer for all, or part, of the business. As such, it has had to turn to the public markets for funding.”

Saunders said investors are likely put off by the company’s debt load and weak balance sheet.

“While a public offering seems like an odd device for a crisis-ridden company, Bed Bath & Beyond is desperate to avoid declaring Chapter 11 without having sufficient liquidity or potentially interested buyers in place,” he said, adding that in that circumstance, a bankruptcy judge could force the company into Chapter 7 liquidation.