The Chicago Journal

Bed Bath & Beyond take another step in bankruptcy: inventory liquidation

Claire Peterson Claire Peterson on April 24, 2023

Bed Bath & Beyond — Almost every item in a homeowner’s interior space originated from retail behemoth Bed Bath & Beyond during the 1990s and 2000s.

While there is no doubt that the firm flourished over time, it looks that all of the hard work was in vain as the company declared bankruptcy on Sunday.

Bankruptcy

Customers who visited the company’s website on Sunday morning were made aware of the announcement.

“Thank you to all of our loyal customers,” the blue font said upon opening the page.

“We have made the difficult decision to begin winding down our operations.”

The company’s website, 360 Bed Bath & Beyond locations, and 120 buybuy BABY stores will stay open for the time being.

The company got a $240 million loan to keep its operations running throughout its bankruptcy.

Certain Bed Bath & Beyond locations, on the other hand, will close, with store closing sales starting on Wednesday.

What will happen to the company’s 14,000 workers is unknown.

Uncertainty in the future

Bankruptcy filings may not always imply the death of a corporation.

When other significant US corporations declare bankruptcy, they remove debt and wasteful spending that they can no longer afford.

Even if they avoid bankruptcy, Bed Bath & Beyond’s future is uncertain.

The corporation intends to sell some, if not all, of its assets.

If a buyer is found, the company will cease retail closures.

If no buyer is found, Bed Bath & Beyond will most likely be liquidated completely before closing its doors.

According to GlobalData Retail analyst Neil Saunders, the firm may relaunch as an online-only store.

“Ultimately, if it emerges from bankruptcy at all, Bed Bath & Beyond will be a shadow of its former self,” said Saunders.

The empire

Bed Bath & Beyond heralded the arrival of “category killers,” or retail enterprises that specialize in certain retail categories, such as:

  • Toys “R” Us
  • Circuit City
  • Sports Authority

Customers switched away from local companies and toward online retailers like Amazon, forcing many firms to fail.

Bed Bath & Beyond quickly became well-known for its ubiquitous 20%-off coupons and enormous shops stocked with the following items:

  • Pots
  • Pans
  • Towels
  • Beddings

The blue-and-white coupons issued by the firm became a cultural icon, with millions of Americans stockpiling them in their vehicles, closets, and basements.

Customers have until Tuesday to utilize the remaining 20%-off certificates, according to the firm.

They will no longer accept them by Wednesday.

Read also: Investors behavior now leaning towards regional bank stocks

Store and sales

Instead, as part of its departure plan, Bed Bath & Beyond aims to provide significant product discounts.

By supplying brand names at reasonable costs, the company attracted a large number of customers.

Several companies battled for a spot on Bed Bath & Beyond’s shelves, which are well-known for their high sales.

Furthermore, the open-store style of the organization was strategic, allowing for unplanned acquisitions.

The firms handled almost every scenario, including:

  • Winter holidays
  • Back-to-school seasons
  • College season
  • Baby registry
  • Wedding registry

The firm, on the other hand, has been slow to adapt to changing customer preferences, with many customers preferring to shop at retailers such as Amazon and Target.

Bed Bath & Beyond alleged in its bankruptcy case that the company owes $5.2 billion and had assets worth $4.4 billion.

On Sunday, the firm said that it had collected $240 million in funding to sustain operations long enough to sell properties and wind down operations.

This week, Bed Bath & Beyond encouraged customers to take advantage of their lower-priced options.

Prior purchases are returnable until May 24, but after that date, all sales are final.

Additionally, as of May 8, the firm will no longer accept gift cards.

Online shopping

Despite the fact that home décor is one of the most popular online categories, Bed Bath & Beyond made a costly error by investing little time in e-commerce.

“We missed the boat on the internet,” said company founder Warren Eisenberg.

Customers used Amazon and other sites to find lower-cost alternatives, lowering the value of Bed Bath & Beyond discounts.

Bed Bath & Beyond’s issues were not just the result of Amazon, since other brands arose during the previous decade, including:

  • Costco
  • Target
  • Walmart

Bed Bath & Beyond customers benefited from cheaper costs and more selections from the three firms.

TJ Maxx and HomeGoods have both lowered their prices.

Bed Bath & Beyond’s sales declined between 2012 and 2019, despite the fact that the lowest pricing and alternatives stayed practically the same.

When the pandemic occurred in 2020, the firm was forced to close its outlets while “essential retailers” such as Walmart remained open.

In 2020, sales fell 17%, and in 2021, they fell 15%.

The corporation has also gone through a number of different leaders in recent years, each with their own strategy.

Former Target CEO Mark Tritton joined the firm in 2019 with a new strategy and financial backing.

Tritton reduced large brand discounts and stocks to emphasize Bed Bath & Beyond’s private-label merchandise.

Customers who had previously remained loyal to huge firms were fearful of the shift.

Later, Bed Bath & Beyond became behind on vendor payments, resulting in store inventory shortages.

Mark Tritton later resigned as CEO in 2022.

The Boy Scouts of America set to compensate sexual abuse victims

Leah Cooper Leah Cooper on April 24, 2023

The Boy Scouts of America — The Boy Scouts of America (BSA) declared bankruptcy in February 2020 in order to restructure and establish a compensation fund for sexual assault victims.

Several complaints were lodged against the organization, alleging years of abuse by scout leaders and volunteers.

As survivors sought accountability, the BSA’s sexual abuse concerns garnered national attention.

The Boy Scouts of America’s bankruptcy filing allowed them to stop litigation, compensate victims, and emerge as a more viable organization.

The Boy Scouts of America apologized to victims and acknowledged the need for reform after failing to safeguard youngsters.

The organization is still providing vital programs to youngsters all around the country.

The news

The Boy Scouts of America said on Wednesday that it will begin paying sexual assault victims following its bankruptcy procedures.

As part of a deal involving more than 82,000 survivors of abuse, the organization will pay $2.4 billion from a Victims Compensation Trust.

During the organization’s bankruptcy reorganization, the court formed the Victims Compensation Trust.

The Boy Scouts of America’s Chief Scout Executive, President, and CEO, Roger Mosby, issued the following statement:

“This is a significant milestone for the BSA as we emerge from a three-year financial restructuring process with a global resolution approved with overwhelming support of more than 85% of the survivors involved in the case.”

“Our hope is that our Plan of Reorganization will bring some measure of peace to survivors of past abuse in Scouting, whose bravery, patience and willingness to share their experiences has moved us beyond words.”

Read also: Alabama party goes downhill with mass shooting, 4 dead and 28 wounded

Reorganization plan

A Delaware federal bankruptcy court judge accepted the Boy Scouts of America’s restructuring plan in September 2022.

“These boys – now men – seek and deserve compensation for the sexual abuse they suffered years ago,” said Chief Judge Laurie Selber Silverstein.

“Abuse which has had a profound effect on their lives and for which no compensation will ever be enough.”

“They also seek to ensure that to the extent BSA survives, there is an environment where sexual abuse can never again thrive or be hidden from view.”

According to the Coalition of Abused Scouts for Justice, a group comprised of more than two dozen law firms representing more than 70,000 cases, the final clearance was momentous for tens of thousands of survivors of childhood sexual assault.

“The confirmation of this Plan makes closure possible and some measure of justice tangible for people whose voices have been silenced for far too long,” said Coalition representatives.

“The court found that the BSA’s liability for abuse claims is most likely between $2.4 billion and $3.6 billion, and approved settlements that will provide for initial funding of $2.279 billion to survivors: $78 million from the BSA, $515 million from local councils, $30 million from the United Methodist Church, and $1.656 billion from settling insurers.”

Aside from the monetary settlement agreements, the restructuring plan asks for the development of safety measures and safeguards for current (and future) generations of Scouts.

Praise for the decision

Attorney and Coalition co-founder Adam Slater praised the court for bringing survivors closer to justice.

“After years of protracted bankruptcy proceedings and decades of suffering in silence, tens of thousands of survivors of childhood sexual assault will now receive some tangible measure of justice,” said Slater.

“With this decision, the plan will now become effective, and the Trust will be able to begin distribution of the historic $2.45B settlement fund.”

“Even more important, it means that the safety measures and protections for current and future Scouts included in the Plan will also be put into place,” he added.

“And we know that for many survivors, this has been the highest priority.”

Protocols

Since then, the Boy Scouts of America have put in place a number of safeguards to prevent such sexual assault.

Among the protocols are the following:

  • A process of screening incoming adult leaders and personnel that involves a criminal background check.
  • A policy requiring the presence of two youth-protection trained individuals around children during scouting events.

The proposal would also restrict adults from dealing with children alone in one-on-one conditions.

What is Chapter 13 bankruptcy?

Leah Cooper Leah Cooper on March 30, 2023

If you have debt problems and are looking for a way to resolve them, then Chapter 13 bankruptcy might be an option to consider. In this article, we will tell you more about Chapter 13 bankruptcy and what it can do to help you overcome your financial problems.

Understanding Chapter 13 bankruptcy

Chapter 13 refers to a bankruptcy case in the United States when debtors reorganize their finances under the court’s supervision and consent. As soon as the bankruptcy case is filed, collections are put on hold. That means that debt collectors and creditors are required to stop calling, visiting, or texting you.

This repayment plan offers various forms of relief to individuals and married couples. Everyone who works and earns enough money to pay off their debts may apply for Chapter 13, even if they are self-employed or running an unincorporated business. 

The difference between Chapter 13 and Chapter 7 bankruptcy

Bankruptcy can be valuable not only for people but for businesses struggling with overwhelming debt. However, it is essential to understand the differences between Chapter 7 and Chapter 13 bankruptcy and choose the one that best suits your needs and objectives in terms of money.

Chapter 7 bankruptcy, also known as liquidation bankruptcy, is intended for people with excessive debts and insufficient income. Unsecured debts such as credit cards and medical expenses can be discharged under this sort of bankruptcy without repayment. The filer’s assets are evaluated, and those not covered by bankruptcy exemptions may be sold to repay some creditors. However, most people keep their assets since they are covered by exemptions. Chapter 7 bankruptcy is ideal for individuals with little or no property who wish to discharge their debts quickly.

On the other hand, Chapter 13 bankruptcy, or reorganization bankruptcy, is designed for individuals with a stable income who cannot manage their debts. This type of bankruptcy allows filers to reorganize their debts and repay a portion of them over time while protecting their assets from seizure.

This chapter is ideal for individuals with a stable income who wish to keep their assets and repay their debts over time. Filers are required to provide a repayment plan outlining their three- to five-year payback schedule for creditors. They must pay their debts in full or at least the value of the non-exempt property. Moreover, non-dischargeable debts, such as tax obligations and child support, cannot be eliminated but can be reorganized.

In conclusion, the primary difference between Chapter 7 and Chapter 13 bankruptcy is the debt relief method. Chapter 7 offers a quick and complete discharge of unsecured debts, while Chapter 13 offers a reorganization of debts with repayment over three to five years. Filers must choose the type of bankruptcy that best meets their financial needs and goals.

How to file for Chapter 13 bankruptcy?

There are a couple of steps to follow when filing for Chapter 13 bankruptcy.

– Credit counseling: You must complete pre-filing bankruptcy counseling through a nonprofit credit counseling agency. Your counselor may help you draft a repayment plan.

– Get an attorney: Hire a qualified bankruptcy attorney to guide you through the complex Chapter 13 process.

– Fill out paperwork: You and your attorney must gather information on your debts, income, property, and monthly expenses to complete the required forms.

– Submit bankruptcy petition: Submitting the forms completes the process and triggers an “automatic stay” that prohibits most attempts to collect on your debts.

– Submit payment plan: Within 14 days of filing, you must submit a proposed payment plan and start making payments within 30 days, even if it hasn’t been approved yet.

– Meet with creditors: The trustee will host a meeting between 21 and 50 days after filing, during which creditors can raise any issues they have.

– Confirmation hearing: The trustee and the creditors who wish to attend should meet in court no later than 45 days after the meeting of creditors to confirm the payment plan.

Do state laws change the procedure significantly?

The truth is that state laws can impact the bankruptcy process, including eligibility requirements, exemptions, and the specific procedures and timelines involved. It’s important to consult with a qualified bankruptcy attorney familiar with your state’s laws and regulations to ensure you understand how they may impact your case.

Core Scientific reported to file for Chapter 11 bankruptcy

Jason Robinson Jason Robinson on February 21, 2023

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Core Scientific: Core Scientific is one of the most recognizable publicly traded crypto mining enterprises with an American base.

The Texas-based business reportedly intends to declare bankruptcy on Wednesday morning.

After a year of rising energy prices and plummeting bitcoin prices, the company decided to declare bankruptcy.

The company

One company that has mined Bitcoin and other proof-of-work currencies the most is Core Scientific.

The business employs a method to provide electricity to data centers nationwide.

There are incredibly specialized machines inside that verify transactions and produce new tokens.

The process requires the following:

  • Expensive equipment
  • Technical know-how
  • Plenty of electricity

Market cap

The market value of Core Scientific was $78 million at the close of trading on Tuesday.

Core Scientific valued the business at $4.3 billion when it went public in July 2021, utilizing a special-purpose acquisition vehicle.

But the company is currently valued at less than that amount (SPAC).

Over the previous year, the stock dropped by more than 98%.

Although the business has a healthy cash flow, it is insufficient to pay off the debt associated with its leasing equipment.

While Core Scientific continues to operate, as usual, the senior security noteholders, who are in charge of the majority of the company’s debt, will come to an agreement.

The person who gave the majority of the material did so under the condition of anonymity to speak about sensitive business matters.

Filing

At the end of October, the company issued a bankruptcy warning.

The stock price of Core Scientific decreased by 97% as a result.

The corporation likewise warned regular stockholders that their investments could be lost.

But if the sector rebounds, this might not be the case.

It is created so that common equity owners won’t lose everything if conditions surrounding bitcoin improve beyond the terms of the convertible note contract with Core’s holders.

The fact that Core Scientific missed the loan payments that were due in late October and early November was also brought up.

Additionally, the business said creditors are welcome to sue them for nonpayment.

Read also: Sam Bankman-Fried found to donate to lawmakers probing FTX collapse

Token drops

The token’s value at Core Scientific dropped from a record high of $69,000 in November 2021 to roughly $16,800.

The margins are under pressure from declining value, increased mining competition, and rising energy costs.

Operations

Although it has activities in North Dakota, North Carolina, Georgia, and Kentucky, the corporation is headquartered in Austin, Texas.

The protracted decline in the price of Bitcoin and the rise in electricity prices, which were also mentioned in the October filing, had a negative impact on operating performance and liquidity.

According to Core Scientific, the hash rate on the Bitcoin network has increased.

Celsius

The crypto loan marketplace Celsius filed for bankruptcy in July.

According to the corporation, it has $167 million in cash on hand to pay down debt and continue its operations.

Before declaring bankruptcy, Celsius gained notoriety for freezing client accounts.

One of Core Scientific’s clients was the crypto-lending sector.

The pressure Celsius’s bankruptcy proceedings put on Core’s balance sheets illustrates how the cryptocurrency market was affected in 2022.

Read also: Elon Musk highlights macroeconomic factors for Tesla shares decline

Other companies

Core Scientific is one of the most prominent hosts and providers of blockchain infrastructure in North America.

It also mines a massive quantity of digital assets.

Core is only one of many failing enterprises, despite its importance.

In September, Compute North, a company that offers hosting and infrastructure for bitcoin mining, filed for Chapter 11 bankruptcy.

Another miner, Marathon Digital Holdings, disclosed an exposure to Compute North of $80 million.

In the meantime, Greenidge Generation, a vertically integrated cryptocurrency miner, disclosed second-quarter net losses of more than $100 million in August.

Finally, the business decided to give up on its Texas expansion plans.

Additionally, after the company disclosed plans to raise $27 million with a strategic partner on October 31, shares of Argo fell 60%.

However, that was no longer taking place.

References:

Bitcoin miner Core Scientific is filing for Chapter 11 bankruptcy – but plans to keep mining

Embattled crypto lender Celsius files for bankruptcy protection

Bitcoin miner Core Scientific issues bankruptcy warning and the stock is down 97% for the year

Bed Bath & Beyond joins list of companies under fire

Nicholas Alexander Nicholas Alexander on January 30, 2023

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Bed Bath & Beyond: On Thursday, Bed Bath & Beyond announced an issue after suffering another setback.

The business claimed that it had no resources to pay off its entire debts.

An anticipated bankruptcy notice was issued as a result of the company’s failure to make payments on its JPMorgan credit line.

Later on Thursday after hours, shares of Bed Bath & Beyond dropped, abruptly suspending trading.

The market value of the shares was $295 million at closing, representing a 22% decline.

The news

In a securities filing, Bed Bath & Beyond stated that the company looked to be short of resources to cover the debts that the Credit Facilities had guaranteed.

If resources are insufficient, the company may need to investigate additional options.

One of its alternatives is restructuring its debt in line with the US Bankruptcy Code.

Bed Bath & Beyond is now attempting to reduce costs by adopting a number of strategies, including:

  • Closing stores
  • Lowering capital expenditures
  • Negotiating lease deals with landlords

The company did issue a cautionary statement, noting that the efforts might not be productive.

Challenging times

Bed Bath & Beyond’s most recent filing is additional proof that its time is running out as a result of its stagnant sales and increased debt.

Additionally, it occurs during a time of economic change during which inflation has been putting a pressure on household budgets.

Consumers are also spending more money on leisure and travel than on domestic goods.

Bed Bath & Beyond demanded early payments in the second quarter of its fiscal year, which led to a decrease in credit limits and a restriction of credit conditions, both of which led to problems.

According to the filing, they prevented the business from properly storing items before the holiday season.

Furthermore, Bed Bath & Beyond made it clear that sellers had to make payments in advance.

Read also: Tesla slashes prices in the US and the UK

Debt

The JPMorgan asset-backed loan still owes $550 million.

In addition, as a result of the credit facility’s renewal in August 2022, Bed Bath & Beyond owes Sixth Street $375 million.

The company’s debt includes unsecured notes worth about $1.2 billion.

As of the notes’ staggered maturity dates of 2024, 2034, and 2044, their trading values have fallen.

Bed Bath & Beyond announced that the company was unable to restructure part of its debt less than a month after assuring investors it would utilize additional credit to pay its bills.

The business recently made substantial acquisitions.

Bed Bath & Beyond issued cash payments on Thursday totaling $890 million for the nine months that ended on November 26.

At that time, the company confirmed that it still had $225.7 million in cash.

Early warning

This month, Bed Bath & Beyond warned that the company was considering filing for bankruptcy owing to a shortage of funds.

There was a higher likelihood that the company wouldn’t have enough cash on hand to fulfill its obligations because of the lower-than-expected revenues.

Sue Gove, the company’s CEO, stated that the company’s primary goals at the time were to renovate Bed Bath & Beyond and ensure that its brands remained the top choice among consumers.

The Bed Bath & Beyond “going concern” warning over its inability to make payments during the challenging quarter is followed by the Thursday update.

Other options

Bed Bath & Beyond has only recently begun weighing alternatives.

The company is considering looking for funding to keep it afloat in the event that it needs to file for bankruptcy.

The firm is currently going through a sales process to locate a buyer and support keeping its doors open for larger brands.

Bed Bath & Beyond is seeking lenders that could provide funding to keep the company afloat in the event that bankruptcy filing is necessary.

“Multiple paths are being explored, and we are determining our next steps thoroughly, and in a timely manner,” a spokeswoman said last week.

Sycamore Partners, a private equity firm, has shown interest in acquiring the company.

The fact that Buybuy Baby has outperformed the larger company interests the firm.

According to sources, Buybuy Baby will remain in operation.

Sam Bankman-Fried taken in by Bahamian police

Edward Anderson Edward Anderson on December 13, 2022

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The founder and former CEO of bankrupt crypto exchange FTX, Sam Bankman-Fried, was arrested in the Bahamas on Monday.

A Bahamian government statement revealed that the arrest came from the orders of US prosecutors who filed criminal charges against him.

The news

The Southern District of New York investigated Sam Bankman-Fried and the FTX and Alameda collapse.

The SDNY also confirmed the arrest, announcing the news on Twitter.

US Attorney Damian Williams made the arrest public in a tweet:

“Earlier this evening, Bahamian authorities arrested Samual Bankman-Fried at the request of the US government, based on a sealed indictment filed by the SDNY.”

“We expect to move to unseal the indictment in the morning and will have more to say at that time.”

The arrest

Sam Bankman-Fried was a cryptocurrency celebrity until earlier last month, when his company faced a cash crunch, forcing him to file for bankruptcy.

He quickly became a pariah, leaving over a million depositors without access to their funds.

The FTX founder was arrested in the Bahamas at his apartment complex on Monday night.

According to a statement from the Royal Bahamas Police Force, he will appear in court in Nassau on Tuesday.

The SEC

The Securities and Exchange Commission confirmed it approved separate charges related to Sam Bankman-Fried’s “violations of securities laws.”

It remains to be seen what the founder of FTX, a 30-year-old crypto celebrity and now a crypto pariah, will be charged for.

The company’s collapse follows a struggle with a cash crunch that forced it to file for bankruptcy in November.

As a result, millions of FTX customers can no longer access their funds.

Read also: Maxine Waters firm on having Sam Bankman-Fried attend hearing

Charges

Writing about a person familiar with the situation, The New York Times revealed SBF’s allegations, which include:

  • Wire fraud
  • Wire fraud conspiracy
  • Securities fraud
  • Securities fraud conspiracy
  • Money laundering

The United States has an extradition treaty with the Bahamas that allows US prosecutors to return suspects to US soil.

According to the treaty, the charges would carry more than a year in prison in both jurisdictions.

Aftermath of the collapse

Four weeks after FTX filed for bankruptcy, Sam Bankman-Fried had the behavior of a “hapless” CEO.

He acted like someone hovering in the sky, denying allegations of fraud against FTX clients.

“I didn’t knowingly commit fraud,” said SBF on BBC last weekend.

“I didn’t want any of this to happen. I was certainly not nearly as competent as I thought I was.”

House hearing

Sam Bankman-Fried was scheduled to appear before the US House Financial Services Committee via video call on Tuesday.

The committee demanded answers on the FTX crash and how it traversed the digital asset ecosystem.

Due to their FTX involvement, several cryptocurrency companies have gone bankrupt, frozen client accounts, and gone out of business.

After the arrest, Rep. Maxine Waters, chair of the committee, said SBF was no longer required to testify in court.

Statement

Originally, the hearing was to be supported by testimony from John J. Ray III, the new CEO of FTX.

He assumed Sam Bankman-Fried’s role on November 11 and guided the company through the bankruptcy process.

“While I am disappointed that we will not be able to hear from Mr. Bankman-Fried tomorrow,” Waters said in a Monday night statement.

“We remain committed to getting to the bottom of what happened.”

So far, Ray has described the company as a crypto empire with no oversight and no financial or other records.

“The scope of the investigation underway is enormous,” said Ray in remarks on Monday ahead of his testimony.

Although investigations are ongoing, the collapse appears to have stemmed from the concentration of power “in the hands of a very small group of grossly inexperienced and unsophisticated individuals” who failed to entrench control of the company within the company.

According to Ray, SBF mixed client resources from FTX with Alameda.

The revelation is crucial information for investigators since FTX and Alameda were separate entities on paper.

Read also: Cardi B shares mouthwatering payslip to shut troll up

Denials

After the crash, Sam Bankman-Fried denied pooling the funds.

He has since tried to distance himself from the daily operations of Alameda.

The company allegedly developed risky trading strategies, including arbitrage and yield farming.

According to a Wall Street Journal report, the Yield Farm strategy invests in digital tokens that pay rewards, including interest.

SBF admitted to mismanaging the company and having little awareness of the risks.

Late last month, he made a virtual appearance at the New York Times DealBook Summit.

“Look, I screwed up,” said Bankman-Fried during the summit.

“I was CEO of FTX… I had a responsibility.”

Sam Bankman-Fried also admitted that the companies he oversaw lacked corporate controls and risk management.

“There was no person who was chiefly in charge of positional risk of customers on FTX,” said SBF.

“And it feels pretty embarrassing in retrospect.”

A Reuters report in November raised a crucial question about the incident, saying SBF had created a “backdoor” into FTX’s accounting system.

It allowed him to change the company’s finances without raising the alarm.

According to the report, Bankman-Fried used the backdoor to transfer $10 billion of client funds to Alameda.

As a result, more than 1 billion dollars disappeared.

However, Sam Bankman-Fried denied knowing anything about the back door.

“I don’t even know how to code,” he said in a November interview with Tiffany Fong.

Reference:

Sam Bankman-Fried, FTX’s founder, is arrested in the Bahamas

Carvana faces bankruptcy after cutting workforce

Claire Peterson Claire Peterson on December 12, 2022

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Carvana, a renowned used car retailer, has been facing a cash crunch and could be facing bankruptcy.

The reports emerged from published reports and a bearish analyst’s call to slash its share-price target to a meager $1.

The news

During the mid-afternoon trading, Carvana stands at $4.60 a share, which is up on the day.

However, it is also down more than 40% from a week ago.

Carvana is best known for its unique auto vending machine concept.

The industry

In recent months, used car prices have fallen from record highs due to higher interest rates making used cars unaffordable for many potential buyers.

Carvana is one of the newer companies in the used car industry.

Losses

Although it hasn’t been around for long, the company has already lost money in most quarters since going public in 2017.

Initially, Carvana’s model aims for sales growth instead of short-term profitability.

However, the company’s losses widened even further amid the recent downturn in the sector.

Carvana reported a significant net loss of $1.5 billion in the first nine months of 2022.

The loss is higher than the $105 million net loss in the same period from last year.

The company’s cash on hand was $316 million in September, which is down 22% from the start of 2022.

However, its borrowing capacity increased.

Last month, the company announced it was cutting 1,500 jobs on slower car sales.

Read also: Amazon checkout traffic causes problems

Job cuts

In mid-November, Carvana announced it was cutting 8% of its workforce amid waning demand for used cars.

The slowed demand coincided with sky-high prices and supply shortages.

Demand for used cars diminished was affected by hybrid-working models and higher costs caused by higher interest rates.

As a result, consumers started rethinking their personal mobility options to adapt and trim their daily expenses.

CNBC was among the first to report the layoffs, citing an internal memo about the move.

The memo revealed that Carvana was facing economic headwinds from higher financing costs.

Additionally, the company failed to predict how the headwinds would all play out and their impact on Carvana’s operation.

In November, Carvana’s shares were down 7%, missing expectations for adjusted earnings in the last five quarters as expenses soared and used car demand dropped.

Debt concerns

Last Tuesday, Bloomberg reported that major holders of the company’s debt entered a cooperation agreement.

They mutually agreed to work together, giving them more leverage in negotiations with Carvana.

A day later, the company spoke with lawyers and investment bankers about options to manage its debt load amid solvency concerns.

Wedbush Securities analyst Seth Basham slashed his price target on the stock from $9 to $1 in a Wednesday note.

Basham explained that the fact that its debt trading is less than 50 cents in the dollar is a sign of a high likelihood of debt restructuring.

The restructuring could leave the equity worthless in case of bankruptcy; otherwise, the best case would have it highly diluted.

Company problems

Carvana entered the market a decade ago with the goal of disrupting the used car market.

It offered online car shopping, trade-ins, and distinctive car vending machines,

However, Basham spoke with CNN, telling them that Carvana’s problems are worse compared to other used car dealers.

He explained that the company expanded faster than the sales could support.

“They put the cart before the horse,” said Basham.

“They built infrastructure for a lot more sales than they’re currently doing. And that saddled them with a ton of excess capacity.”

Read also: Even used cars are becoming more unaffordable as CarMax suffers losses

Company statements

Carvana commented directly about the meetings with lawyers and bankers, saying it is not a party to the cooperation agreement among bondholders.

“Our message to our customers, shareholders, employees, and other stakeholders remain clear,” said the company.

“We are singularly focused on executing on the plan to profitability outlined in our third quarter shareholder letter, and we have substantial liquidity to get us there.”

“In no way do these reports change that strategy.”

However, the reports only addressed a sell-off in shares already underway.

So far in 2022, shares have been down 97% at the close of trading last Friday.

They dropped to an all-time low of $3.55 a share on Wednesday before closing at $3.83 a share, which was down 43% for the day.

References:

Carvana bankruptcy worries swirl around used car retailer

Carvana news: used car retailer cuts 1,500 jobs on slowing demand