Hedge Fund Rescue At Risk Due To Bed Bath & Beyond's Tanking Stock

Due to the retailer's plummeting stock price, the financial lifeline that saved Bed Bath & Beyond Inc. from bankruptcy last month is already in jeopardy.

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The hedge firm Hudson Bay Capital spearheaded the equity transaction, which gave the corporation $225 million up front with the promise of another $800 million over the next eight months. Bed Bath & Beyond CEO Sue Gove hailed it as a "transformative transaction" on February 7 and said it will give the business time to launch a comeback.

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Yet there are conditions tied to the extra money. According to a regulatory filing, among them: Future injections are subject to Bed Bath & Beyond sustaining a weighted average stock price of at least $1.25 or $1.50, depending on the timing. The provisions of the agreement allow Hudson Bay to refuse to abide by such requirements.

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Yet, it might be difficult to keep the stock price above such levels. Since February 6 it has already decreased by more than 70% and on Tuesday it closed at $1.41. On Thursday, the shares were worth $1.56.

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A Hudson Bay spokesman declined to comment. Requests for feedback from a Bed Bath & Beyond representative went unanswered.

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The rescue itself has contributed to some of the pressure on the stock. In the first step, Hudson Bay was given the option to convert its initial investment into common shares at a discount to the market price, giving it the chance to sell the shares for a profit immediately away.

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The possibility that the financing will oversupply the market with stock and lower the value of the outstanding shares was quickly recognized by investors. As a result, after the announcement of the deal, the price continued to decline.

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The rescue financing that Bed Bath & Beyond obtained in February to avoid bankruptcy was not the company's first.

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In order to get a $375 million loan, the corporation gave credit fund Sixth Street Partners a promise of its assets. The retailer's net loss for the three months that ended in late November was $393 million. By January, that funding had run out, and Bed Bath & Beyond had begun bankruptcy proceedings.

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This time, Sixth Street contributed an additional $100 million in connection with the stock deal with Hudson Bay. Bed Bath & Beyond's future, however, may hinge on the promise of the $800 million yet to come, which could potentially place the company's fate at the mercy of its stock price given the size of its quarterly losses.