Shares of domestic merchandise retailer Bed Bath & Beyond (NASDAQ:BBBY) stock are trending today and down about 1% on news that the company is undertaking a senior convertible note deal to inject further liquidity into its operations and avoid a cash crunch.
The senior convertible note deal comes days after Bed Bath & Beyond announced that it is issuing more shares in order to raise some much-needed cash. Investors appear to be growing increasingly concerned about the Union, New Jersey-based company’s liquidity problems and efforts to remedy them.
BBBY stock has fallen nearly 10% in the past five trading sessions, bringing its year-to-date loss to 74%. The stock now trades at $4 a share.
Bed Bath & Beyond has announced a privately negotiated senior notes exchange agreement and a simultaneous private placement of common stock as it races to improve its liquidity situation. The company said it entered into the exchange agreement with an existing holding of 4.915% senior notes that come due in 2034 and 5.165% senior notes that are due in 2044.
The deal specifies that Bed Bath & Beyond will issue $2.8 million worth of common stock to the existing holders, which would consist of 1.8 million shares in exchange for the notes. Money raised from the private placement of common stock will be used to help shore up Bed Bath & Beyond’s finances, the company said.
The senior convertible note exchange is expected to close by Nov. 14 of this year.
Why It Matters
With this latest deal, Bed Bath & Beyond is further diluting the holdings of its existing shareholders which is prompting many of them to hit the sell button on BBBY stock. In addition to being worried about Bed Bath & Beyond’s cash position and its ability to continue as a viable business, shareholders tend to hate it whenever a company issues more stock, which serves to depress the share price and make their holdings less valuable.
The latest move to raise cash is another sign that things are going from bad to worse at the retailer. On Nov. 2, Bed Bath & Beyond’s chief customer and technology officer resigned from the company, the latest in a series of executive departures. In September, the company announced that it is closing 150 store locations. Currently, Bed Bath & Beyond is laboring under more than $3 billion of debt and about $1 billion of cash on hand.
What’s Next for BBBY Stock
BBBY stock looks likely to sink further today on news of its latest efforts to raise cash and further dilute its outstanding share count. There is growing speculation that the company could file for bankruptcy protection in the coming months if its financial health does not improve.
As such, investors would be smart to steer clear of BBBY stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.