Matt Levine: Explanation of the Janky Bed, Bath, and Beyond Bailout: $BBBY Has A Very Big Vig To Pay

Matt explains in concise detail the $BBBY “deal” which I’ve seen others on Twitter fail to explain, and then he goes to town on "Also Tether’s banks, Binance’s chats, Multicoin’s returns, Citadel’s meteorologists, TARA/TAPAS/TIARA and Jim Cramer shorting himself.

Matt missed a career in teaching. He would be great at it:"

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 Management 1 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.

There are limits to this. This plan involves issuing hundreds of millions of shares of Bed Bath stock; when the plan was announced, there were only 117.3 million shares outstanding. So Bed Bath would be issuing many times more shares to Hudson Bay than it currently has outstanding, and Hudson Bay would be dumping them, relentlessly, over the course of the year. Relentlessly dumping stock will move the price down. The stock closed at $5.86 per share on Feb. 6, as this plan was being finalized. It closed at $1.49 this past Friday.

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