Bed Bath & Beyond Stock Is On Sale

We talked last month about a death-spiral-ish financing at Bed Bath Beyond Inc. The company was days away from bankruptcy when a deal arrived: Hudson Bay Capital Management1 would put about $1 billion into Bed Bath in exchange for vast amounts of stock. But not, like, Hudson Bay wrote a check for $1 billion and Bed Bath gave it a pile of stock. Rather, the deal is that Bed Bath got $225 million, and in exchange it would basically give Hudson Bay stock each day, and Hudson Bay would sell it, until Hudson Bay got back its $225 million plus a nice little return. The mechanics were more complicated than that — they involve convertible preferred stock with a floating conversion rate, etc. — but that’s the economic intuition. Each day Hudson Bay can convert some of its $225 million investment into shares at below the market price that day, and then sell those shares to pay itself back with interest.2

If all goes well, Hudson Bay will put up more money: as much as $800 million more, in stages, over the course of the year. Each time, it will put up some money and get the same deal again, convertible preferred stock that it can convert over time into common shares at a discount to the market price each day. It keeps doing that until Bed Bath has gotten the full billion.