Quote:
Originally Posted by Slava
Which was panned by investors. I haven’t followed the saga that close, but the investors enacted them to restructure and get things sorted, but they found a way to get a pile of cash instead. The stock chart is amusing with the spike and subsequent crash.
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I mean, the company is fundamentally worthless, they had huge losses even during their Christmas quarter. Taking the money was the right choice - even if they file it'll give them more options. DIP financing has gotten really expensive, and they don't have any unencumbered assets they could use to secure it, so there would have been a priming fight, which drives up the legal costs of chapter 11. Converting a bunch of debt to equity and closing stores won't fix the business - it very may well be unfixable either way.
But when a firm is insolvent (and BBBY is) the relevant corporate law requires directors take a fiduciary duty to debtholders as well, which almost certainly obligates them to sell equity in this situation. As a meme stock they have a unique ability to sell equity while insolvent (which isn't common when you're on the edge of bankruptcy, even though the terms are very onerous). Plus the way its structured allows them to raise money when in possession of material non-public information, which is presumably why they weren't using their at-the-market offering during the recent short squeeze. The SEC set a precedent in the Hertz case that they won't allow firms to raise equity after filing Chp 11 even if there's demand for it, so they had to do so prior to filing. Whether they file will depend on the stock performance - if the price holds up they could end up with $1B which would last awhile.
For full disclosure, I'm short a meaningful amount of call options here, as I felt the possibilities were bankruptcy or dilutive financing and implied volatility was very, very high.