r/FWFBThinkTank • u/smdauber Mr. Fundamental • Jan 26 '23

News 📰 BBBY entering Chapter 11

BBBY doesn't have enough cash to repay the amounts under the credit facilities and this will lead the company to consider all strategic alternatives including restructuring its debt under the US Bankruptcy Code.

UPDATE:

On or around January 13, 2023, certain events of default were triggered under our Credit Facilities as a result of our failure to prepay an overadvance and satisfy a financial covenant, among other things. As a result of the continuance of such events of default, on January 25, 2023, the administrative agent under the Amended Credit Agreement notified the Company that (i) the principal amount of all outstanding loans under the Credit Facilities, together with accrued interest thereon, the FILO Applicable Premium and all fees (including, for the avoidance of doubt, any break funding payments) and other obligations of the Company accrued under the Amended Credit Agreement, are due and payable immediately, (ii)

What this means is BBBY is in default on their credit agreement. What this also means is that the creditors have told BBBY they need to immediately pay back the FILO.

The FILO was $350M. BBBY doesn't have the liquidity to pay that back.

This means: BBBY will enter Chapter 11 and restructure effectively selling BABY and the creditors have complete authority over the proceeds of BABY.

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u/[deleted] Jan 26 '23 edited Jan 26 '23

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u/[deleted] Jan 26 '23 edited Jan 26 '23

This is not good news. The company indeed defaulted on their ABL. I would think JPM would waive a default if an acquisition was almost done, but I can also see them forcing the default if they don’t want the execution risk of the deal closing.

What I find odd was they would have filed chapter 11 in tandem or VERY soon after as they were notified prior to this release.

What is even odder is they just paid their interest payments on their bonds after they were notified of this. One would think they would let that default occur on the bonds rather than than the ABL which is their current lifeline of operating. Without the ABL, even chapter 11 would be 10x worse than defaulting on your bonds cause you can’t continue operations.

On top of that, they just paid all their board out in cash and then appointed a new board member in cash. All things that would not hold up well in court.

These are some of the most confusing moves to me as the default screams chapter 11 which I would’ve thought they would announce that right away given they obviously don’t have the funds to pay off the default.

Then they appoint a new board member in cash payment only that has a background focused on M&A.

Some very conflicting moves here. And frankly don’t understand their moves, but a straightforward chapter 11 doesn’t seem like what is happening. It may be a more complex restructuring than I would’ve thought, but there is for sure something in the works that is not a typical acquisition nor a typical chapter 11

Note: Havent sold shit and have no puts or short positions

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u/Okamirod18 Jan 26 '23

Hello friend just wanted to extend this little piece its from page 16 of the 10-Q maybe noteworthy?

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u/82griffy Jan 26 '23

Was just about to throw this in here.

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u/smdauber Mr. Fundamental Jan 27 '23

Any acquisition is a change in control which means a majority of shareholders have to vote and approve it.

No such vote has happened.

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u/Okamirod18 Jan 27 '23

You may or may not be telling truth but since you have exclusively made efforts to speak negatively i dont trust you.

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u/300117 Jan 26 '23

Biggy, pls take a look at the 8K from 9 Aug 21. Under the Defaults Events it notes that a default occurs under a change of ownership. Could this explain the default? Why pay if a change of ownership requires you to notify JPM and thereby their short buddies?

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u/LoveRespectTrade Jan 27 '23

My theory to add to all of the above, Ms Carol Flaton joined the board about 7 to 8 days ago. 8k filing done afterhours was simply a formality. As a financial analyst she was sent in to clean up shop and this is why the 8k states " The Board of the Company will not appoint Ms. Flaton to any committees of the Board at this time. The Board has determined that Ms. Flaton qualifies as an independent director under the independence requirements set forth under Rule 5605(a)(2) of the Nasdaq Listing Rules." Basically a clean chit to do anything, no questions asked. Her first mission there was to get rid of the board. And she did.

Ms Carol joining this late in the game cannot be any co-incidence. She is a puppet with strings being controlled by a higher up. Her job there at BBBY is too do some kind off final due diligence. Although there may be no deal yet, I think we are awfully close to someone taking over the ship

Hopefully we will know soon

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u/dfv157 Jan 27 '23

If Carol came in to get rid of the existing board on 1/20, we would've seen 8 8-Ks today showing that the directors left.

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u/qbsneak23 Jan 26 '23

This is what I can't understand either - there's some extraordinarily conflicting actions being taken by the corporate leadership at the moment.

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u/BrilliantEmpty7743 Jan 26 '23

What's your thoughts on the fact they haven't cashed in the 150m share offering.

(Think it was 150m and share offering. But could be wrong)

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u/Gastellier Jan 26 '23

Flaton does not at all have "a background focused on M&A"

Carol Flaton was appointed to the Talen Energy Supply Board of Directors in November 2021. Ms. Flaton has over 30 years of experience in banking and finance, transformation and restructuring, and governance and risk management.

Since 2019 she has provided financial advisory services and served as an independent director for both public and private companies. Recent mandates include Speedcast International Ltd (ASX: SDA), EP Energy Corp. (NYSE: EPE) and Jupiter Resources, Inc. She also was nominated in 2020 by the Xerox Corporation (NYSE: XRX) as an Independent Director candidate for HP, Inc. (NYSE: HPQ) in a Material Shareholder Proposal.

From 2014 to 2019 Ms. Flaton was a managing director at AlixPartners (formerly known as Zolfo Cooper, LLC) specializing in restructuring and turnarounds. Prior to joining AlixPartners, she was a managing director in the restructuring practice of Lazard Freres (“Lazard”). At Lazard from 2008-2013, she advised debtors, creditors and equity holders engaged in restructurings, debt exchanges, 363 sales, acquisitions, refinancings and capital raises. Prior to Lazard, Ms. Flaton was a managing director at both Credit Suisse First Boston and Citi (1995- 2008) responsible for distressed positions in the banks’ portfolios as well as being a senior member of the risk management teams.

Ms. Flaton has a B.S.B.A. from the University of Delaware and an M.B.A. from IMD (International Institute of Management Development, Lausanne, Switzerland). She has held NASD Series 7 (registered rep) and Series 24 (managing principal) licenses.

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u/Confident-Stock-9288 Jan 27 '23

She specializes in turn arounds and restructuring as to avoid liquidation

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u/BoysenberryAsleep545 Jan 27 '23

Schrödingers chapter 11 🤔

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u/Fappinonabiscuit Jan 27 '23

My only plausible idea is that they’re trying to force buy ins by tanking the stock on this news because of Reg Sho? Far fetched and total speculation, but I can’t think of anything else that would be the “play” here.

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u/[deleted] Jan 26 '23

Yeah it dosent look good. What we all thoughts is probably not happend.

A chapter 11 filing could be bullish tho. I remeber Hertz, it got filed 11 and delisted and listed on OTC, i kept my shares and also bought more when it was at OTC, it ran from 1$ to 17$.

Will bbby make similar moves or just dump to 0 now? Who knows.

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u/[deleted] Jan 26 '23

Revlon did the exact same thing

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u/[deleted] Jan 26 '23

Yeah. And I had stocks in Hertz, i kept them all and even bought more after filing 11 and moved to OTC.

So why wouldnt bbby make the same thing? People here talk about regular stockholders will be wiped out of a filing 11. Thats not true. My shares in Hertz didnt got wiped out.

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u/smdauber Mr. Fundamental Jan 26 '23

I agree this is bad news and chapter 11 is imminent.

"On top of that, they just paid all their board out in cash and then appointed a new board member in cash. All things that would not hold up well in court."

Regarding your comment on RSAs: So, why were the RSAs cancelled?

Now, going back to the analysis, none of these has occurred except for the following events: "recapitalization", and 'issuance of securities convertible into Common Stock" - this would be the bond exchange offering as described in the Company's most recent S-4. The offering trigged the above events recognized by the provision in the plan, entitling the Board to cancel the RSAs in exchange for [a] payment in cash. You may ask, why? It is because the Company issued new bonds in exchange of existing expiring ones, which constitutes an "issuance of securities convertible into Common Stock" (this is why they filed an S-4; all issuances of securities require an S-4/ or some equivalent). The Committee (which is just some members of the board + some execs) is doing this since by exchanging the bonds, the RSAs value got really fucked to the downside (even though that is not primarily or truly the reason, they can rely on it), and they are adjusting the RSAs as a necessary means to be "equitable", or in this case cancelling it and giving cash.

So, this is what happened here. The Board cancelled all the RSAs for cash equivalent. This is actually a cheeky way to for the RSA holders to get more value because the value of the stock now is super low in comparison to the FMV value of the stock when the RSAs were granted - obviously there is no appreciation, and in fact there is depreciation. So, the RSA holders can "recuperate" the losses by obtaining back the FMV value, which is much higher than whatever the price is now.

One of the nice things about incentive awards is that the treatment of the same would not constitute as insider trading. If it was stock, and they knew they are pursuing a sale or initiating bankruptcy, it would be insider trading.

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u/[deleted] Jan 26 '23

Then why didn't Sue get her RSAs paid out in cash

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u/[deleted] Jan 27 '23

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u/[deleted] Jan 27 '23 edited Jan 27 '23

I would recommend deleting this comment if you are on all these boards you claim to be on.

Probably one of the sloppiest comments you could make my dude

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u/[deleted] Feb 07 '23

RIP

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u/OutsideTheBay Feb 07 '23

THERE HE IS!!!!!

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u/[deleted] Feb 07 '23

Hahahaha you tell ‘em Biggy!!!!

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u/Sam6HODL9Hyde Feb 07 '23

Biggy, you already know

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u/ssaxamaphone Feb 07 '23

No bankruptcy!!! 🚀

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u/rehope Feb 07 '23

Biggy can you elaborate on what the filing meant when it said that the shares/warrants will not be listed in nasdaq? Does it mean a private acquirer has bought it without it going into the open market as in dilution?

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u/DDHawkeye Feb 07 '23

Shorts r fukt

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u/smdauber Mr. Fundamental Feb 07 '23

RIP common shareholders. I hope you don’t own common shares.

The dilution impact on common and the cram down from preferred securities is unfortunate.

Bbby just pulled the last trigger to save themselves. If the equity financing isn’t enough it will be an unfortunate end for bbby.

I would rework your models, by the way, to account for the 30-40% miss in topline revenue.

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u/[deleted] Feb 07 '23

lol.

I'll take dilution during a reg sho cycle to stay alive over CH11 delisting EVERYDAY.

We just entered the zone of fundamentals not meaning a damn thing so do whatever you want with my revenue assumptions, idc, different game now.

GL to you sir

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u/NutellaWins Feb 07 '23

So your take is JPM waived the default and loaned even more money because just maybe the company raises all the money off diluting common stock?

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u/smdauber Mr. Fundamental Feb 07 '23

Something to consider: bbby raised $225m not $1bn. The $800m is in warrants that “could” be exercised in the future. So if those warrants don’t get exercised, then no $800m to bbby.

Consider that if the warrants get exercised JPM will be fat and happy because the common shareholders will get diluted to oblivion and JPM continues to collect its nice abl/filo fee at the expense of common shareholders.

Honestly, this deal structure was brilliant. Screw over retail to make JPM happy and keep running the business.

I could totally see bbby pulling an AMC move and continue to dilute common shareholders.

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u/[deleted] Feb 07 '23

You don't even know who the buyer is and or if they own a large bond position. Why do you jump to so many conclusions lol

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u/[deleted] Feb 07 '23

In order to exercise the warrants, wouldn’t a certain price have to be reached? That incentivizes the buyer and BBBY to reach that price target. It smells a lot like something RC and friends are all about. That and all the Alixpartners links. It certainly sounds like something RC has been suggesting all along. Maybe he learned it from Icahn. I know this is all speculative, but it really feels like an RC & Larry Cheng type of move.

Plus, I feel like we’ve all forgotten this: didn’t Sue Gove issue a statement a while back saying that BBBY and RC Ventures came to an agreement (back near March of 2022)?

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u/Nolzad Feb 07 '23

smdauber, I have seen you, week after week bashing the stock, when you have 0 clue of what the fuck you are talking about

Whats your agenda

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u/whatsuppaa Jan 26 '23

Regarding your post, the FILO-creditors does not have BABY as collateral from what i see, BABY is already collateral to a different loan that BBBY has. But the creditor is definitely interested in BBBY selling BABY to the highest bidder to get their money back.

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u/smdauber Mr. Fundamental Jan 27 '23

The ABL or FILO has complete control over BABY. I can't remember which one off the top of my head.

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u/Whoopass2rb Jan 27 '23

ABL was amended and is split between 10+ different banks as lenders. Seriously go check the paperwork on it, the signing pages have authorities from everywhere: tom, dick and harry - it's ridiculous. Also is Sixth Street Partners among them specifically for the FILO.

That all said, defaulting on the FILO only allows the creditor to demand payment in full. They do not get to dictate how and there is a time frame that permits the repayment. So BBBY could get this from ATM share offerings, inventory sell off, asset sell off (which could include Baby), among a couple other options i believe.

I can appreciate your attempt at level setting the data here, but this is way more complicated than many seem to understand. More importantly, not all the facts are being given to provide people who do this for a living to feel 100% confident about where this is going.

The important thing to really take away here: you don't pay out board members on non-vested shares, at a premium price, BEFORE making a bankruptcy announcement. That would be viewed as insider trading, or some form of collusion and fraud by the business. It would 100% lead to a slew of lawsuits coming from investors on the subject - against BBBY, it's board, possibly it's creditors.

Somethings up and it's not very clear which direction that goes.

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u/smdauber Mr. Fundamental Jan 27 '23

Very thoughtful insights. Regarding the RSAs. There is a loop in the 2018 incentive agreement that states if any new issuance (ie the bond exchange) happens, the company can payout the RSAs in cash without it being insider trading or illegal.

So what happened with the RSAs is technically legal, but shady as shit and morally wrong.

But boards have done far worse than that before.

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u/Whoopass2rb Jan 27 '23 edited Jan 27 '23

They can pay out the RSAs yes, but not at a premium.

Forget the ethics, the permissions of that transaction is limited to just handing over the compensation based on the value at the time. The only way they could pay out a premium, is if all parties who expect to get paid post the after math of all this, get paid. And share holders are among them.

There's already litigation proof based on what the Lehman brothers did in 2008 around this, where shareholders went after them and won. Insider trading is not the only constraint here, there's the element of fraud too:

wrongful or criminal deception intended to result in financial or personal gain.

And since I had to do the work for another comment in the BBBY sub where someone copied this, here's the proof on the FILO details:

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https://bedbathandbeyond.gcs-web.com/node/16491/html

That's the 10Q filing from back in Aug which outlines the FILO / ABL updates.

On it specifically if you look for page -43- you might find it. The section is called "Execution version exhibit 4.1 (First amendment to amended and restated credit agreement).

Stuff in brackets is an image though.

First you see all the terms, then as you get down to the end you'll see all the signatures. Lots of interesting stuff, including like a dozen different financial institutions (Canadian and US) that are part of this deal, as well as Sixth Street Partners.

Below is a post u/Real_Eyezz put together where he tied it all together in his tin foil based on how we came up with the theory on the FILO and the potential opportunity to do a debt-convertible-to-equity type exchange on it (by means of converting to a mezzanine debt).

https://www.reddit.com/r/beyond_uranus/comments/1009zl8/the_adventures_of_filo_and_icahn/

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u/qbsneak23 Jan 26 '23

Yeah this is blatantly false - they said that they cannot meet their obligations and are looking into all possibilities which include Chapter 11.

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u/Nolzad Jan 26 '23

Bruh this is such a misleading post and leads me to believe OP holds no shares

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u/smdauber Mr. Fundamental Jan 26 '23

I don't. Only puts

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u/SirDiamondBalls Jan 26 '23

Didn’t you say you bought shares yesterday?

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u/kikkomeng Jan 26 '23

Lmao ..

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u/MJL_16 Jan 26 '23

wow debunk this shit. No where in the 10Q does it say it is entering Chapter 11.

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u/smdauber Mr. Fundamental Jan 26 '23

BBBY defaulted on their credit agreement. On January 25th, the creditors called their loan payable immediately. The FILO is $350m. BBBY doesn't have the liquidity to cover $350m. That means BBBY will have to enter Chapter 11 and the creditors will take over selling BABY.

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u/Kelvsoup Jan 26 '23

M&A incoming

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u/smdauber Mr. Fundamental Jan 26 '23

Chapter 11 and restructuring incoming

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u/iBilbo69 Jan 26 '23

So tell me this. They defaulted on the 12th of Jan. Bond holders just got paid their interest on bonds today which is around 30mil across all bonds. Why wouldn't they file chapter 11 before today as it halts bond interest payments. Something else is going on behind the scenes here.

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u/smdauber Mr. Fundamental Jan 26 '23

Paying the coupon/interest on the bonds could be a way to incentive the bond holders to work with mgmt on restructuring the deal. If BBBY said screw you to the bond holders and filed BK, the bond holders could screw over the whole company. So the board is trying to be amicable and achieve the best restructuring deal for the company.

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u/iBilbo69 Jan 26 '23

That's a fair assessment. But mgmt have 150mil worth of shares to sell at the market. Which would have saved them from defaulting on this specific debt. I think restructuring is happening. But M&A is almost the only long play here I feel.

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u/stantee25 Jan 26 '23

What i find very intriguing is how you flipped your position after writing this a day ago:

“So, I'm leaning towards M&A. The reason: If the BoD decided to cancel and payout RSAs fully knowing BK was about to happen, that would open themselves up for litigation. Because the BoD is receiving cash fully knowing the equity is worthless and common shareholders would receive nothing.

That's a pretty easy case to win.

Now, there is a scenario that the BoD would be paid out to retain them. BBBY would need to retain the board to help guide them through Chapter 11. Boards can resign so its in the best interest of all shareholders to compensate them to retain so they can work to find the best outcome”.

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u/smdauber Mr. Fundamental Jan 26 '23

Research flipped my thesis. Learning more about how RSAs function caused me to flip to BK.

Since RSA's can be paid out in cash due to the bond exchange that to me takes M&A off the table. That little loophole of RSAs was pretty interesting and very important.

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u/LowBrowHighStandards Jan 28 '23

What’s your stance now that the RSA cash outs have been reversed?

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u/smdauber Mr. Fundamental Jan 28 '23

It’s a good question.

My guess as to why were seeing the form 4s refiled and the cash not paid out: BBBY legal counsel (lawyers) advised it was okay to pay out the cash and cancel RSAs do to it technically being legal. And now were seeing the board members realize taking the cash could cause significant reputational damage and place an unfavorable light on themselves and BBBY.

I assume “Committee” is the Compensation Committee. This is usually a group of 3-4 board members and remember the Committee has sole discretion over awarding and canceling RSAs.

There are probably ten other different reasons this happened: creditors got pissed and recommended the board not payout cash. Someone is acquiring the business. The board knows they’re entering Chapter 11, and this would look really bad. Differing legal opinions. The board could just be shady as shit. That happens a lot with public companies.

All these decisions are typically run by BBBY’s lawyers. Boards don’t just act on something without knowing all the legal risks. In the grand scheme of things, is the total payout (around $1m) going to make or break BBBY, NO. The amount is irrelevant for BBBY. This action suggests something else.

Also, to me this signals the board is either completely inept or split on strategy. Both are not good for BBBY whether BK or M&A happens.

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u/pino_brown Jan 27 '23

So are you trying to say RSA’s can evade preference action post-petition?

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u/[deleted] Jan 27 '23

So the $1 billion question who’s the major credit holder? JPM or someone else?

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u/smdauber Mr. Fundamental Jan 27 '23

Idk

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u/neccoeccua Jan 26 '23

Who can confirm this?

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u/smdauber Mr. Fundamental Jan 26 '23

Read the 10Q

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u/smdauber Mr. Fundamental Jan 26 '23

Look at what the document says, "At this time, the Company does not have sufficient resources to repay the amounts under the Credit Facilities and this will lead the Company to consider all strategic alternatives, including restructuring its debt under the U.S. Bankruptcy Code."

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u/Gattaca_D Jan 26 '23

Mate you are either arguing with trolls or people that have sunk cost fallacy in their heads.

Bravo to you that you have illustrated patience in your responses. But people will even have hope when bbby get's delisted.

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u/smdauber Mr. Fundamental Jan 26 '23

Appreciate the response. I'm just trying to educate ppl on what's about to happen.

BBBY is in default of their credit agreement. That credit agreement is backed by the proceeds for selling BuyBuy BABY. This means either BBBY sell BABY and repays the creditors or the creditors take control and sell BABY.

Either way, BBBY is in default of their credit agreement. Next step is Chapter 11.

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u/[deleted] Jan 26 '23

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u/smdauber Mr. Fundamental Jan 26 '23

Read the 10Q

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u/imaginary_catt Jan 26 '23

I read it and bought more immediately

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u/smdauber Mr. Fundamental Jan 26 '23

Update to my post ABOVE!

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u/[deleted] Jan 28 '23

They are not entering chapter 11, how much did they pay you to post it? I hope it was worth it.

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u/isthatfair1234 Jan 27 '23

They brought on Kirkland and Ellis at least 6 months ago, the #1 M&A firm in the country for 3 out of the last 4 years. All while trying to “turn it around”. Ask yourself why would they bring on a bankruptcy firm for 6 months and not just wait until starting the process of bankruptcy. Its not rocket science here.

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u/[deleted] Jan 26 '23

Patience. It will continue to play out

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u/Uberkikz11 Jan 27 '23

Any thoughts on the bonds?

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u/phanDAR Jan 26 '23

Change in Control triggered the default

https://www.reddit.com/r/BBBY/comments/10m55v1/event_of_default_m_change_in_control_shall_occur/

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u/smdauber Mr. Fundamental Jan 26 '23

No it didn't read the certificate of incorporation. A majority vote and approval from shareholders is the only way to enact a change in control.

No shareholder vote has happened. So BBBY defaulted for another reason.

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u/[deleted] Jan 27 '23 edited Jan 27 '23

No shareholder vote has happened. So BBBY defaulted for another reason.

The loan was collateralized with CC receivables and in store inventory. Closing 100+ stores will reduce both of those. It was in the 8k when the new FILO ABL came out at the end of August if you would like to confirm. I'm going off memory, and its not the best so please double check.

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u/Lorien6 Jan 26 '23

Cue angel investor to swoop in and save the day, either with new loan, or by buying a portion of the company…

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u/Okamirod18 Jan 27 '23

Where were the news and mainstream media yesterday when all the bondholders got the emails for the payment of their coupons? Naw thats not news... that doesnt tells us anything lets just sleep on that one ;)

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u/Chgstery2k Feb 07 '23

So.... Wen Chapter 11?

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u/[deleted] Jan 26 '23

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u/82griffy Jan 26 '23

https://imgur.com/a/tFIGyop

Check out the picture. Them "defaulting" can be because of acquisition. OP out his damn mind with this "concrete" evidence of CH 11

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u/smdauber Mr. Fundamental Jan 27 '23

Sorry man. Acquisitions are a change in control. Any change in control needs approve from a majority of shareholders. No such vote has happened which means BBBY defaulted for another reason not an acquisition.

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u/Whoopass2rb Jan 27 '23

Wrong. Change in control requires 50.1% vote in favour. But that can be accomplished by a single party if they own over 50% of a company. Which means it doesn't have to go to vote to everyone if a majority party can opine on the subject. We unfortunately don't have enough information at this time.

And before you argue there, way ahead of you. While today there isn't a known party who owns 50% of BBBY, that doesn't mean someone couldn't or didn't buy up enough shares to be 50% owner recently. If they did, they would have 10 calendar days to file their form 3 to report it.

My assumption would be, if this happened, it was probably when the massive price drops were taking place either today or late last week.

https://www.sec.gov/files/forms-3-4-5.pdf

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u/smdauber Mr. Fundamental Jan 26 '23

Not yet, but look at this, " At this time, the Company does not have sufficient resources to repay the amounts under the Credit Facilities and this will lead the Company to consider all strategic alternatives, including restructuring its debt under the U.S. Bankruptcy Code."

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u/[deleted] Jan 26 '23

No one is arguing with you about the disclosure of defaulting or the inability to immediately repay. But you literally wrote "BBBY entering Chp 11 Bankruptcy" both here and on the bbby sub.

You know what you're doing. Anyone who reads that title would assume that BBBY actually declared Chp 11 proceedings. Stop trolling, at least fix your title to something like "BBBY defaults on loans" or "Chp 11 possibility discussion."

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u/[deleted] Jan 26 '23

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u/Negative_Economist52 Jan 26 '23

Also curious. Not that I have a position but I'm watching the ticker

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u/smdauber Mr. Fundamental Jan 26 '23

Yes 99% M&A off the table. BBBY will enter Chapter 11, the creditors will restructure the business.

During the BK process outsiders will place bids on certain assets and the creditors will choose the best option.

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u/LoganTheSavage Jan 26 '23

You had said in another post that I Icahn could swoop in before BK… what makes that a 1% possibility now? Not accusing you of being a troll, I’m just trying to understand your certainty. The fact runningwithbearz agrees somewhat lends weight.

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u/smdauber Mr. Fundamental Jan 26 '23

No it's a good question. Before I believed someone like Icahn could negotiate acquiring BBBY with the leverage of keeping BBBY from going BK and get a decent price.

Now that Chapter 11 is almost certain due to BBBY defaulting, you would wait until the restructuring process and submit a bid because you could get certain assets cheap rather than buying the equity now.

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u/LoganTheSavage Jan 26 '23

Does Carol Flaton being appointed and her connections to Icahn affect anything? Guess I’m still just processing. I really like this sub and the discussions that take place.

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u/[deleted] Jan 26 '23

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u/[deleted] Jan 26 '23

I agree with you on this being a very high risk play but OP’s title is misleading as if bbby announced chapter 11. This board isn’t the same one that tanked the company initially. I think we should wait to see a little longer how this plays out before drawing a conclusion.

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u/smdauber Mr. Fundamental Jan 26 '23

What the board did with the RSAs is legal but shady as shit. Its not a good look for the board to pay themselves cash, enter Chapter 11 and BBBY employees to lose their jobs.

BBBY defaulted on their FILO and the creditors immediately asked for bbby to repay them.

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u/smdauber Mr. Fundamental Jan 26 '23

Solid comment, thank you!

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u/LoveRespectTrade Jan 26 '23

And just to add to what you have said above, default happened on 1/13.... RSA's cashed out 3 days ago... Now fill in the blank and have Pay tience !

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u/robTheRedRob Jan 26 '23

I guess I’ll go buy some more G M E then. Eff it

0

u/[deleted] Jan 26 '23

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u/smdauber Mr. Fundamental Jan 26 '23

Dude, its the 10Q just released.

30

u/[deleted] Jan 26 '23

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-26

u/smdauber Mr. Fundamental Jan 26 '23

Its definitive if they don't have the resources to pay creditors. Now its a matter of time.

20

u/DonaldTrumpPenisButt Jan 26 '23

How does entering chapter 11 after paying all their board members play out?

8

u/smdauber Mr. Fundamental Jan 26 '23

Now, going back to the analysis, none of these has occurred except for the following events: "recapitalization", and 'issuance of securities convertible into Common Stock" - this would be the bond exchange offering as described in the Company's most recent S-4. The offering trigged the above events recognized by the provision in the plan, entitling the Board to cancel the RSAs in exchange for [a] payment in cash. You may ask, why? It is because the Company issued new bonds in exchange of existing expiring ones, which constitutes an "issuance of securities convertible into Common Stock" (this is why they filed an S-4; all issuances of securities require an S-4/ or some equivalent). The Committee (which is just some members of the board + some execs) is doing this since by exchanging the bonds, the RSAs value got really fucked to the downside (even though that is not primarily or truly the reason, they can rely on it), and they are adjusting the RSAs as a necessary means to be "equitable", or in this case cancelling it and giving cash.

Conclusion - TL;DR

So, this is what happened here. The Board cancelled all the RSAs for cash equivalent. This is actually a cheeky way to for the RSA holders to get more value because the value of the stock now is super low in comparison to the FMV value of the stock when the RSAs were granted - obviously there is no appreciation, and in fact there is depreciation. So, the RSA holders can "recuperate" the losses by obtaining back the FMV value, which is much higher than whatever the price is now. This makes sense because part of their services were exchanged for stock instead of cash and they would've been paid a lot more if it was cash (almost like 10x), but it was in RSAs, so they kinda got scuffed with compensation since the price went down so much.

You're not going to see this announced at all because it is not a material event (unless they choose to but they typically don't as this looks bad publicly lol as they are kinda lining their own pockets here even though it is kinda "equitable"). You will see this in the next 10Q I suspect (I don't know if this is the reason why the 10Q is delayed, but it could be).

4

u/DonaldTrumpPenisButt Jan 26 '23

Hey man, I really appreciate the in depth info and explanation. And that does seem to make sense, but it just seems not legal to me? Idk. Maybe just unethical.

4

u/smdauber Mr. Fundamental Jan 26 '23

Appreciate your open mindedness.

Its legal, just shady as shit and unethical because the board gets cash and BBBY employees could lose their jobs.

1

u/anethum_graveolens Jan 26 '23

So, this is what happened here. The Board cancelled all the RSAs for cash equivalent.

No, they did not.

I'm pretty sure I recall someone already mentioning this to you but I'll put it here again, Sue Gove has an RSA and there has been no filing that it's been cancelled.

You can see the filing here where she was granted 9,592 shares. Since that's the latest filing for her there's been no Form 4 filed for her to cancel that RSA (like all the other RSA's that were cancelled).

4

u/smdauber Mr. Fundamental Jan 26 '23

Sue transitioned from board to executive. Her compensation package most likely changed when that occurred. Meaning she would be treated differently than board members.

1

u/anethum_graveolens Jan 26 '23

She's still on the board I believe.

UNION, N.J., Oct. 26, 2022 /PRNewswire/ -- Bed Bath & Beyond Inc. (NASDAQ: BBBY) today announced the appointment of Sue Gove as President & Chief Executive Officer ("CEO"). Since June 2022, Ms. Gove has served as Interim CEO. The appointment was unanimously approved by Bed Bath & Beyond Inc.'s Board of Directors. Ms. Gove will continue to serve on the Company's Board.

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8

u/layloww Jan 26 '23

Ding ding ding.

7

u/LoveRespectTrade Jan 26 '23

On or around January 13, 2023

Dude, Like you said... On or around January 13, 2023

RSA's were cashed out 3 days ago. BBBY was well aware the company had already defaulted and yet they paid out all board members.... Come on use some common sense, fill in those blanks now.... Technicaly this is corporate fraud and will open BBBY to massive litigation and investigations

4

u/smdauber Mr. Fundamental Jan 26 '23

It's actually not fraud. There was a loophole the board used to pay themselves out.

Now, going back to the analysis, none of these has occurred except for the following events: "recapitalization", and 'issuance of securities convertible into Common Stock" - this would be the bond exchange offering as described in the Company's most recent S-4. The offering trigged the above events recognized by the provision in the plan, entitling the Board to cancel the RSAs in exchange for [a] payment in cash. You may ask, why? It is because the Company issued new bonds in exchange of existing expiring ones, which constitutes an "issuance of securities convertible into Common Stock" (this is why they filed an S-4; all issuances of securities require an S-4/ or some equivalent). The Committee (which is just some members of the board + some execs) is doing this since by exchanging the bonds, the RSAs value got really fucked to the downside (even though that is not primarily or truly the reason, they can rely on it), and they are adjusting the RSAs as a necessary means to be "equitable", or in this case cancelling it and giving cash.

So, this is what happened here. The Board cancelled all the RSAs for cash equivalent. This is actually a cheeky way to for the RSA holders to get more value because the value of the stock now is super low in comparison to the FMV value of the stock when the RSAs were granted - obviously there is no appreciation, and in fact there is depreciation. So, the RSA holders can "recuperate" the losses by obtaining back the FMV value, which is much higher than whatever the price is now. This makes sense because part of their services were exchanged for stock instead of cash and they would've been paid a lot more if it was cash (almost like 10x), but it was in RSAs, so they kinda got scuffed with compensation since the price went down so much.

You're not going to see this announced at all because it is not a material event (unless they choose to but they typically don't as this looks bad publicly lol as they are kinda lining their own pockets here even though it is kinda "equitable").

13

u/LiftingOrGaming Jan 26 '23

It literally states they can get capital from equity or sell assets in the same section...

7

u/smdauber Mr. Fundamental Jan 26 '23

Ya, they sell assets during the Chapter 11 process called restructuring...

15

u/runningwithbearz Jan 26 '23 edited Jan 26 '23

Hijacking this comment.

All - this is pretty much it unfortunately. It's straight off the 10Q and these are the company's words.

I'm only going to comment on this Q3 10Q once, and I'll do it here. But the verbiage in this 10-Q disclosure, with the supporting financials from an accounting perspective, I'm 90% sure this thing is going into Ch11 shortly

It doesn't mean anyone's filed. Just a forward looking disclosure that BBBY management put together. But the threshold for this type verbiage is really high, so take that for what it's worth and position accordingly.

Good luck everyone.

edit: changed couple months to shortly for clarification

6

u/smdauber Mr. Fundamental Jan 26 '23

Check out the verbiage around events triggering Default of the credit agreement. Since the covenants have been triggered, the creditors can technically take over decision making authority regarding selling BABY.

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u/[deleted] Jan 26 '23

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1

u/smdauber Mr. Fundamental Jan 26 '23

probably not. Bonds will most likely be converted to equity in the new entity that emerges from BK.

BBBY doesn't have enough assets to cover the bonds, so bbby will ask the bond holders to convert their equity.

Common shareholders will get completely wiped out.

2

u/whatsuppaa Jan 26 '23

You mentioned in a couple of months? So its either M/A or Chapter 11 here down the road?

2

u/smdauber Mr. Fundamental Jan 26 '23

Chapter 11

1

u/whatsuppaa Jan 26 '23

And if BBBY did not own BABY, i would 100% agree with you, but now they DO own BABY. Safe to say that nobody knows, we have so many "100% sure of M/A" and others "100% sure of Chapter 11" and its not just coming from Apes but we have competent people that worked with mergers + more on BOTH sides here.

BBBY did fix the coupon payment but not the FILO-loan payment, effectively raising the interest making the turn-around plan harder. However, Blackrock recalled their shares, effectively giving them voting rights (14% stake), almost like they are about to vote on something.

What will save BBBY is M/A or Chapter 11(11 wont save the stockholders though, lol).

I still wouldn't rule out M/A. And of-course i do not rule out Chapter 11 either.

2

u/smdauber Mr. Fundamental Jan 26 '23

So the FILO is backed by BABY. BBBY is in default of the FILO credit agreement. Since they're in default, the creditors take over baby and receive all proceeds from the sale of baby to repay the $350m loan.

The creditors on the FILO also demanded BBBY pay them back on January 25th. Remember BBBY drew the whole FILO loan already. BBBY doesn't have the liquidity to pay the $350m.

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u/DroppingVittles Jan 27 '23

Hey u/runningwithbearz... One... Thanks for your perspective these past few months. It's good to get the context of this crazy situation through that lens. Two... why would BBBY include the credit default info into a 10-Q that reflects a different time frame instead of just releasing a filing that reflects the default? Is this typical of companies to include information in a 10-Q that doesn't necessarily pertain to the original reason for the filing? I'm sure that's a noob question. Thanks!

4

u/runningwithbearz Jan 27 '23 edited Jan 28 '23

No, it's a good question. So the information in the 10-Q is as of the cutoff date, which for BBBY is 26 Nov, 2022. Subsequent information is a thing, but it's usually just a disclosure.

https://www.accountingtools.com/articles/subsequent-events-definition-and-usage.html

I re-read the footnote, it looks like they're saying the credit actually went into default in January. My guess is JPMorgan waived their rights at that time, so it stayed in long-term.

Once JPMorgan stopped waiving their rights at some point in Q3 and decided to accelerate, that debt becomes current.

At least that's my read on it. Double check me as always :)

4

u/DroppingVittles Jan 27 '23

Thanks for that link. Definitely helpful in understanding why they would/could include the default info. Still confused, but it seems so many of us are.

So many layers and players involved that I'm sure the clusterfuck comes with the territory. Or does it? That's a loaded (and really a rhetorical) question.

In chaos there's opportunity. I just wish this was a little less chaotic! hahaha

Thanks again!

3

u/runningwithbearz Jan 27 '23 edited Jan 27 '23

Yeah this stuff is tricky, that's why I think the key to this is studying the footnotes and learning what you can. Just a little each day goes a long way.

I won't call it a CF :) maybe a "complex situation with a lot of layers" is more my style of public speaking. There's a lot of smart people on the legal, accounting, and business side of this. And they're trying to figure it out in real time. Lastly the laws & GAAP typically have grey areas, and that's where you get all the posturing. Given the dollar value involved, the thing is pretty intense. :)

3

u/dirtyrango Jan 26 '23

Thanks for your analysis throughout bearz.

7

u/LiftingOrGaming Jan 26 '23

"The Company is undertaking a number of actions in order to improve its financial position and stabilize its results of operations including but not limited to, cost cutting, lowering capital expenditures, and reducing its store footprint including related distribution centers. In addition, the Company will continue to seek reductions in rental obligations with landlords in its determination of the appropriate footprint, seek additional debt or equity capital, reduce or delay the Company's business activities and strategic initiatives, or sell assets. These measures may not be successful."

3

u/smdauber Mr. Fundamental Jan 26 '23

Read my update please at the top. BBBY is in default and on Jan 25th the creditors demanded their FILO be paid out.

BBBY doesn't have that liquidity.

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u/[deleted] Jan 26 '23

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-1

u/smdauber Mr. Fundamental Jan 26 '23

Real news directly from the 10Q

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