B. Riley Financial (NASDAQ:RILY) stock is plunging lower following a 24-page short report from Wolfpack Research. Wolfpack starts off the report by highlighting that B. Riley overleveraged in 2020 and 2021 to purchase “speculative assets.” It also provided capital to companies that have since “degenerated into zombies.”
Last December, the investment bank announced provided Core Scientific (OTCMKTS:CORZQ) with a $42 million loan. The company later filed for bankruptcy. On Jan. 31, B. Riley offered Core Scientific $70 million in bankruptcy financing, which Wolfpack believes will end in a default before June 2023.
Wolfpack highlights several other financing deals in which it believes B. Riley will face significant losses. Let’s get into the details.
RILY Stock Falls on Wolfpack Research Short Report
As of the third quarter of 2022, Exela Technologies (NASDAQ:XELA) had $75 million in outstanding loans from B. Riley. On Jan. 17, Exela failed to complete interest payments on a loan to another creditor and was provided with a 30-day grace period. A failure of the interest payments “could trigger cross-default and acceleration, rapidly pushing the company into bankruptcy.”
Another $175 million could be at risk if its special purpose acquisition company (SPAC), B Riley Principal 250 Merger Corp (NASDAQ:BRIV), fails to find a merger target by May 11. Wolfpack notes that it would probably be in B. Riley’s best interests to liquidate the SPAC due to its history with FaZe Holdings (NASDAQ:FAZE). Shares of FAZE are currently trading near $1, down from the high of about $20 last August.
Meanwhile, the short seller points out that B. Riley has “guaranteed up to $110 million in debt” for Babcock and Wilcox (NYSE:BW), which Wolfpack believes will soon file for bankruptcy. The investment bank has also provided Arena Group Holdings (NYSEMKT:AREN) with a $98 million loan. Wolfpack believes that Arena may have trouble paying back the loan by its maturity date of Dec. 31.
Finally, Wolfpack takes issue with B. Riley’s equity holdings. It reports that almost 40% of the operating companies in B. Riley’s 13F portfolio have either issued going concern warnings or mentioned going concerns in their respective 10-Qs. These “zombie companies” were worth around $34 million as of Q4, which Wolfpack believes will fall lower.
On the date of publication, Eddie Pan did not hold (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.
