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Bed Bath & Beyond Shares Surge Despite Liquidity Concerns
Bed Bath & Beyond Inc. shares soared another 67% on Tuesday and have more than tripled in the past week, defying recent analysts’ warnings over the retailer’s exaggerated valuation given its shrinking liquidity, WSJ Pro Bankruptcy reported. The stock of the home-goods company changed hands at as high as $28.04 a share in late-morning trading, surging from $8.88 on Aug. 9. The jump in shares coincided with a modest rally in Bed Bath & Beyond’s debt prices. Its 2044 notes traded at 31.5 cents on the dollar on Tuesday, up from 24.3 cents five days ago, according to MarketAxess. The sharp rise in shares came despite a number of analysts’ warnings about dwindling liquidity at the retailer, which is fighting to maintain the confidence of suppliers and investors after a push into private-label brands that didn’t resonate with consumers. Bed Bath & Beyond ended May with roughly $100 million in cash, after burning through more than $300 million of its reserves and borrowing $200 million from its credit line.
U.S. Factory Output Increases for First Time in Three Months
Production at U.S. factories increased in July for the first time in three months, propelled by a pickup in motor vehicle output that masked more mixed results in other categories, Bloomberg News reported. The 0.7% increase in manufacturing production followed a revised 0.4% June decline, Federal Reserve data showed Tuesday. Including mining and utilities, total industrial output climbed 0.6% last month. Despite firming last month, manufacturing has moderated and risks losing more momentum as businesses contend with an inventory overhang and an easing in domestic demand for goods. Recent factory surveys have illustrated a pullback in orders, while weaker export markets amid a strong U.S. dollar represent another headwind. A New York Fed survey on Monday showed manufacturing in the state suffered its second-largest monthly decline on record as bookings and shipments plunged. Separate regional data and national figures over the next week will help shed more light on the extent of the industry’s pullback.
Prosecutors Struggle to Catch Up to a Tidal Wave of Pandemic Fraud
As the pandemic shuttered businesses and forced people out of work, the federal government sent a flood of relief money into programs aimed at helping the newly unemployed and boosting the economy. That included $3.1 trillion that former President Donald J. Trump approved in 2020, followed by a $1.9 trillion package signed into law in 2021 by President Biden. But those dollars came with few strings and minimal oversight, the New York Times reported. The result: one of the largest frauds in American history, with billions of dollars stolen by thousands of people, including at least one amateur who boasted of his criminal activity on YouTube. Now, prosecutors are trying to catch up. There are currently 500 people working on pandemic-fraud cases across the offices of 21 inspectors general, plus investigators from the F.B.I., the Secret Service, the Postal Inspection Service and the Internal Revenue Service. The federal government has already charged 1,500 people with defrauding pandemic-aid programs, and more than 450 people have been convicted so far. But those figures are dwarfed by the mountain of tips and leads that investigators still have to chase. Agents in the Labor Department’s inspector general’s office have 39,000 investigations going. About 50 agents in a Small Business Administration office are sorting through two million potentially fraudulent loan applications.
Citi Sues Revlon Over Lender Status After $900 Million Mistake
Citigroup Inc. has sued Revlon Inc. in a bid to resolve a nagging legal question that emerged after the bank mistakenly wired $900 million to the cosmetics giant’s lenders and intensified after Revlon filed for bankruptcy, Bloomberg News reported. When Citi accidentally sent $900 million to Revlon lenders in August 2020 and later failed to get most of it back, the bank said it became a lender to Revlon, effectively stepping into the shoes of funds who refused to return about $500 million of the mistaken payment. But Revlon has since hinted that it may challenge Citi’s status as a creditor, prompting Citi to file suit in bankruptcy court Friday. Citi is asking Revlon’s bankruptcy judge to dispel any doubt about its right to repayment under the Revlon term loan. Because it had no obligation to pay down Revlon’s debt, denying the bank its rights as a creditor would let Revlon “escape liability for its own debt obligations,” lawyers for Citi wrote in the complaint. The bank was not aware that anyone would challenge its status as a creditor until days before the cosmetics company filed for Chapter 11 protection in June, according to court papers. It was then that Revlon and some of its creditors refused to acknowledge the bank’s rights as a secured lender in the company’s bankruptcy financing package.
Sears and Creditors Reach $175 Million Deal with Eddie Lampert to Settle Litigation over Allegations of Self-Dealing
After four years stuck in bankruptcy limbo, Sears Holdings and its creditors have reached a settlement with former Chief Executive and majority shareholder Eddie Lampert and other investors, clearing the path for the once-storied retailer to execute its bankruptcy plan, MarketWatch reported. Under the terms of the deal, which was filed in the U.S. Bankruptcy Court for the Southern District of New York, the plaintiffs will receive $175 million to end years-long litigation that pitted creditors against Lampert and other defendants. In a filing from November of 2019, Lampert and others were accused of “asset-stripping and ‘rank’ self-dealing” in the years leading up to the collapse of Sears and its bankruptcy filing. Lampert had positioned himself to benefit from the many moves required to keep Sears in business, while shielding himself from potential downside. Lampert wore many hats at Sears, from CEO, shareholder, lender to the company via his hedge fund ESL Investments Inc., and even landlord for some of Sears locations. Lampert and ESL received interest payments on loans and rents on real estate, even as the company continued to post heavy losses. Lampert and ESL also invested in, or took controlling stakes in, assets divested as the company struggled with declining sales, which included property, product brands, and retail brands such as Sears Canada and Lands’ End. After the bankruptcy filing, the remaining Sears and Kmart outlets were sold to Transformco, an entity controlled by Lampert, in 2019. Most of those stores have subsequently closed.
Revlon Stockholders Ask for Court Blessing to Form Equity Committee
A Revlon Inc. shareholder group petitioned in bankruptcy court for the formation of an official equity committee, citing the continued buoyancy in the company’s stock price as evidence its shares still have value, WSJ Pro Bankruptcy reported. A minority shareholder group asked the court overseeing Revlon’s chapter 11 case to form an official committee to represent the interests of equity holders. The Justice Department’s bankruptcy division declined last month to form an equity committee, which would give shareholders an official voice in the chapter 11 case and put Revlon on the hook for their legal fees. Bankruptcy courts can order equity committees even after the Justice Department says no in situations where the interests of shareholders aren’t adequately represented. The stockholder group said Tuesday that Revlon might owe less than the $3.54 billion in bonds and loans it brought with it into bankruptcy. The beauty-products maker may not owe anything to lenders that were accidentally repaid in 2020 by their loan agent, Citigroup Inc., according to the shareholder motion. Lenders that were paid off by the bank returned roughly $385 million of that money to Citi, which has been fighting in federal court for nearly two years to claw back roughly $500 million more from other lenders. The shareholder group said it believes lenders that returned the money were under no obligation to do so “and therefore may not hold a valid claim against Revlon.” “Such a voluntary return of funds is effectively a gift,” the equity group said in Tuesday’s court filing. The shareholders also said that Citi’s inadvertent payoff “could be seen as ‘voluntary,’ thus canceling $500 million of debt.”
Burning Cash, Commercial EV Startups Race to Deliver Vehicles
A handful of commercial electric vehicle (EV) startups are burning through cash fast, racing to bring vans or trucks to market before the funds run out or customers choose to buy from legacy automakers like Ford Motor Co or General Motors Co (GM.N), Reuters reported. Boosted by investor hunger to create the next Tesla Inc., a clutch of commercial EV makers on both sides of the Atlantic have gone public via reverse mergers with special-purpose acquisition companies (SPACs), raising hundreds of millions of dollars as they sought to emulate Elon Musk's success. These include Arrival Inc., Canoo Inc., Lordstown Motors Corp., Electric Last Mile Solutions Inc. and REE Automotive Holding Inc. But investors have soured on EV startups and their ability to compete with legacy carmakers, sending their shares to a fraction of their peak prices. This has raised the pressure to produce working vehicles fast if they want to raise fresh funds in an industry where launching a single vehicle can cost $1 billion. "It's vitally important at this stage to get vehicles into customers' hands," said Daniel Barel, chief executive of Israeli electric chassis maker REE Automotive, which has run vehicle tests with customers near Detroit and will unveil a UK prototype van this week. "Only then can they make a real decision to buy." REE's chassis use "corners" or standalone in-wheel electric motors, with brakes and steering housed in all or some of the wheels of an EV that do not need axles or powertrains, freeing up more space inside a van. To get to market faster, REE has tapped legacy suppliers like American Axle for electric motors and Italy's Brembo for brakes. Companies like EAVX and Morgan Olson, units of commercial vehicle body maker JB Poindexter & Co, will provide standardized bodies for REE's U.S. trucks. The clock is ticking. REE's shares are almost 90% below their July 2021 debut. The company had $239 million in cash at the end of March and expects to invest up to $120 million in 2022 to scale up for production in 2023.
Bed Bath and Beyond Is Said to Mull Private Loans for Liquidity
Bed Bath & Beyond Inc. is considering tapping the private credit market to boost liquidity as the struggling retailer burns through its cash, Bloomberg News reported. Company management consulted with direct lenders about a potential new asset-based credit line. The company had about $108 million in cash and equivalents at the end of May, down from $1.1 billion a year earlier. The retailer’s talks with private credit providers are preliminary and it is still weighing other options. Bed Bath & Beyond is mired in a deep sales slump, and its bonds change hands for less than half of face value amid concerns that the retailer’s turnaround effort has stalled. Its chief executive officer stepped down in June after the company reported a $224 million adjusted loss and a glut of inventory that will need to be marked down. The retailer, based in Union, N.J., hired advisory firm Berkeley Research Group to help it focus on cash, inventory and balance sheet optimization. It also made plans to cut at least $100 million in planned capital expenditures. Supply chain disruptions and weakening consumer confidence have pressured retailers, many of which are now swamped with goods after rushing to build up inventories. Bed Bath & Beyond’s inventory was up more than 12% compared to a year earlier, while sales fell, according to its its earnings report for its first quarter, which ended May 28. The company still has room to draw on its existing $1 billion asset-based loan from JPMorgan Chase & Co., but anticipates additional needs. Chief Financial Officer Gustavo Arnal said in a June conference call to discuss earnings that the company was exploring ways “to even increase further our liquidity and navigate through the working capital cycle, particularly in the next two quarters.”
