Dilution Alert: BBBY Stock Falls as Bed Bath & Beyond Issues More Shares thumbnail

Dilution Alert: BBBY Stock Falls as Bed Bath & Beyond Issues More Shares

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Bed Bath & Beyond (NASDAQ:BBBY) opened lower by about 7% after the retailer announced it would wipe out $123 million in debt through the issuance of 11.7 million shares of BBBY stock to existing institutional shareholders. Of the $123 million, institutional investors own $69 million of 2024 notes, $5.8 million of 2034 notes, and $48.2 million of 2044 notes.

The shares will be exchanged for 13.109% of all of the company’s senior unsecured notes. Bed Bath intends to convert the notes to common stock, which will dilute existing shareholders. Furthermore, the transaction is expected to close this upcoming Wednesday, Nov. 16, subject to customary closing conditions.

“We are pleased to announce additional progress towards greater financial flexibility, with further reduction of our long-term debt, particularly our nearest-term 2024 notes,” said CEO Sue Gove.

BBBY Stock Falls on Debt For Equity Swap

The announcement follows a previous debt for equity swap that Bed Bath executed last week. At that time, the company eliminated $31.5 million in debt through the issuance of 2.8 million shares. The proceeds will be used toward “general corporate purposes.”

BBBY shareholders are hoping the debt cancellation will help lift Bed Bath out of the rubble. Earlier this month, some of the company’s suppliers stated that they would be halting shipments, despite $500 million of new financing it received.

The company used some of these funds for overdue payments to suppliers. Still, some are worried about the long term health of the retailer. In September, Dbest Products, which was been supplying rolling carts to Bed Bath for over a decade, asked the company to pay upfront for the first time ever. Bed Bath declined.

Meanwhile, YouCopia, another supplier, stated it had stopped shipping products to the company after over a decade as well. “There is considerable financial risk,” explained president of kitchen storage and organization Lauren Greenwood. “We’re wishing them well. We’ll see if that means getting back into stores — or waiting from the sidelines to see if they can pull it off.”

This doesn’t fare well for Bed Bath as we head into the highly anticipated holiday shopping season. On top of that Wall Street analysts don’t seem too bullish either. BBBY has an average price target of $3.73 among 11 firms with coverage of the stock.

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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.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.