Dive Brief:

• Bed Bath & Beyond on Tuesday announced the pricing of an offering of preferred stock, along with warrants to purchase shares of preferred stock and common stock. The company expects to initially raise about $225 million and receive an additional $800 million of gross proceeds through the issuance of securities requiring holders to exercise warrants to purchase series A preferred stock in the future.
• In a securities filing, the company said the cash infusion is needed “to operate our business” and pay debts. Without it, Bed Bath & Beyond “will likely file for bankruptcy protection.” The company in January warned of the possibility of bankruptcy.
• The company also named Holly Etlin as its interim chief financial officer, replacing Laura Crossen, who has held the role since September, following the death of CFO Gustavo Arnal. Etlin has 30 years of turnaround experience, including serving as the chief restructuring officer at Tailored Brands and as partner and managing director at AlixPartners.

Dive Insight:

At the time of Arnal’s death last fall the company’s leadership gap was seen by some as a wake-up call regarding the need for succession planning for all members of the C-suite.

Within days the Union, N.J.-based company swiftly moved to name Crossen, then the company’s senior vice president of finance and chief accounting officer, to the CFO seat. Now, with Etlin filling the interim role, Crossen will resume her previous roles and continue as the company’s principal financial officer and principal accounting officer, according to a company filing.

It is common for a company considering bankruptcy to switch a restructuring expert like Etlin into the CFO role, according to Shawn Cole, president of the boutique executive search firm Cowen Partners.

It is helpful to have an executive on board that has dealt with similar turbulent times but it is often a short-term or interim hire because few people want to take such a role on a permanent basis while the company’s direction is unclear, he said. “No one wants the job as a direct hire until the company is in a better place or the bankruptcy runs its course,” Cole wrote in an email.

Hudson Bay Capital Management is the main investor in the share sale, Bloomberg reported Tuesday, citing people with knowledge of the matter.

In addition to the stock transaction, Bed Bath & Beyond said it plans to draw $100 million more from a first-in-last-out loan from investment firm Sixth Street. The company wants to use the latest loan to pay down debt. 

Last week, the company confirmed it missed a $28 million interest payment on more than $1 billion in bonds. A 30-day grace period to make the payment ends on March 3. But in light of the company’s operational and financial challenges over the last year, analysts are not optimistic about a turnaround.

“Unfortunately, we see a low probability that the company will be able to raise equity and view this as a ‘last gasp’ before filing for bankruptcy protection,” Wedbush analysts led by Seth Basham said in a Tuesday note.

The company on Monday also said it plans to close an additional 150 underperforming Bed Bath & Beyond stores, which comes on top of the closing of about 200 stores under that banner and about 50 stores under the Harmon banner.

Wedbush said the store closings, including its entire chain of Harmon beauty stores, may help stop the losses “but comps will need to stabilize and vendors will need to have clarity on liquidity (to accept more normal payment terms) for the company to survive.” 

“We estimate that the additional capital provides the company with just a few more quarters of room to turn around its operations,” said Wedbush’s analysts. They also noted that a “weak” macroeconomic environment and a high execution risk of Bed Bath & Beyond’s inventory, assortment and cost savings initiatives under a new management team “further reduces the probability of success.”

Neil Saunders, managing director of GlobalData, echoed that sentiment.

“In our view, this is a last roll of the dice from a company that is desperate to raise cash to provide some financial headroom to pay down debts and keep operations going,” Saunders said in emailed comments. “With this move, it is clear that Bed Bath & Beyond has, so far, failed to find either a lender willing to inject liquidity or a prospective buyer for all, or part, of the business. As such, it has had to turn to the public markets for funding.”

Saunders said investors are likely put off by the company’s debt load and weak balance sheet.

“While a public offering seems like an odd device for a crisis-ridden company, Bed Bath & Beyond is desperate to avoid declaring Chapter 11 without having sufficient liquidity or potentially interested buyers in place,” he said, adding that in that circumstance, a bankruptcy judge could force the company into Chapter 7 liquidation.

Editor’s note: CFO Dive’s Maura Webber Sadovi contributed to this story.