by Since missing the deadline last month to file its second-quarter financials, announcing its largest quarterly loss in company history and disclosing that it is under investigation by the SEC, B. Riley Financial has continued to make headlines. Behind or beyond these headlines? Not a whole lot.
One headline in mid-August just days after the bombshells had co-founder Bryant Riley “informally” proposing to buy back stock in B. Riley at $7 per share. Maybe. In a statement about the offer from Riley, who for months now has not spoken to reporters seeking comment, he said his trial balloon offer and proposal “does not constitute an offer or proposal of acceptance and may be withdrawn at any time.” Huh?
So, the offer isn’t (or wasn’t) really an offer? Whatever it is or was, the non-binding proposal purchased a day’s reprieve for the share price, lifting it to $5.85. B. Riley’s share price this past Friday closed at $4.92, down 57 cents and below the critical $5 per share threshold. Stocks that trade under $5 are typically regarded by institutional investors to be too risky. The stock price closed yesterday at $5.29.
While a far cry from the $50 share price of about a year ago, $7 would be quite a premium for B. Riley’s current stockholders, particularly on the heels of the announcement that the firm is likely to write down between $330 million and $370 million when eventually it does file its second-quarter report.
Tie a yellow ribbon
A week later, a Reuters headline trumpeted a proposal from Oaktree Capital Management to acquire a controlling interest in B. Riley’s Great American division, which is conducting the GOB sales at Conn’s and Badcock. The price, according to “people with knowledge of the matter,” is (or was) an estimated $380 million.
Oaktree is a global asset management firm with $192 billion in its portfolio as of March this year. The Reuters report said the deal “could be” announced last week. It wasn’t. Not a peep since the Reuters news article, and no other news outlets picked it up that I could see.
More recently, which is to say last week, B. Riley made headlines for winning more time from lenders to get that overdue bookkeeping corrected and its filing finished and submitted to the SEC. Stockholders, lenders and presumably regulators all want to see how B. Riley plans to meet its $2.2 billion in debt obligations that are due over the next four years, or into 2028, and pay mounting interest along the way. An interest rate cut by the Fed as early as this month will certainly help.
The reprieve pauses the 45-day clock for providing the filings, and it buys the investment bank time to negotiate with these lenders who are obviously interested in helping B. Riley avoid default. This is the second time in a year that lenders have agreed to more time for B. Riley to disclose its numbers, the last time coming at the end of fiscal 2023.
Major lenders to B. Riley include Nomura Holdings, Wells Fargo and Banc of California.
Betting the franchise
We can’t review the situation at B. Riley without also taking a look at Franchise Group, which, in one of those crazy coinkydinks, also just won a reprieve from major lenders, helping FRG avoid default, as well. FRG’s approximately $1.5 billion in debt also is being heavily scrutinized because, as Bloomberg reported, FRG violated the terms of its credit agreement.
Among FRG’s franchised businesses are Buddy’s Home Furnishings and American Freight, and it was FRG that shopped Badcock to Conn’s after two years stripping Badcock of its assets.
At the top of FRG’s lender list is B. Riley, which is one of the prime reasons the SEC is investigating both firms. B. Riley used FRG shares as collateral in securing some of its loans, which it could do because after helping then-FRG CEO Brian Kahn lead a $2.8 billion management buyout of FRG, B. Riley held a 31% stake in FRG.
“We are confident that the SEC will reach the same conclusion that our own internal investigation, with the assistance of two separate law firms, did,” Riley said in a statement more than a month ago, which is “that we had no involvement with or knowledge of any alleged misconduct concerning Brian Kahn or his affiliates.”
According to Bloomberg, FRG has until mid-September to provide lenders with a business plan and a loan restructuring proposal. These lenders agreed to waive at least some covenants in their credit agreements, provided FRG does what they want, which includes establishing a special committee with independent directors to negotiate the restructuring.
From Kahn to Conn’s
Mention of bankruptcy brings us back to Conn’s, which continues to unspool its entire business, including all 374 Badcock stores, as well.
It’s now September, which means nearly 270 Conn’s employees in Texas are now out of work, according to Patch Media, including 183 in The Woodlands, where Conn’s is based. In a matter of weeks, 4 million square feet of space in the state will belong to someone else, including a 443,000-square-foot distribution center, a 651,000-square-foot distribution and clearance center and corporate office, and 83 Conn’s stores. These figures come from The Real Deal, a real estate news source. More than 20 Conn’s locations already have shuttered.
Since filing for bankruptcy July 23, Conn’s has been busy hiring outside help to dismantle itself and ensuring that these outside firms get handsomely paid for their services, according to the many stipulated fees in court documents filed in Houston: monthly fees, transaction fees, restructuring transaction fees, sale transaction fees, etc., etc.
Approved were the hirings of a raft of attorneys; Houlihan Lokey Capital as financial adviser and investment banker; Berkeley Research Group Capital Advisors as interim management services provider; Epiq Corporate Restructuring as notice and claims agent; and Hilco as real estate adviser, according to the bankruptcy filings.
In addition, the judge authorized Conn’s to put its assets, including its portfolio of consumer loans, on the auction block on Wednesday, which, auspiciously enough, is 9/11. Bids are due today, Sept. 6, and at last check, 63 parties signed NDAs to conduct due diligence, according to one of many Conn’s attorneys. A final hearing on the auction sales is scheduled for Oct. 3.
The last word
We should give the last word to the The Press newspaper of Mulberry, Florida, where Badcock was founded 120 years ago. The good folks at the Polk County newspaper point out that while Conn’s HomePlus has been the marquee name in the headlines of the stories of the bankruptcy throughout the Southeast, Badcock had “already been stripped half naked by Kahn and Franchise Group” by the time FRG sold off the storied chain.
The Press is right to re-center Badcock in this retail tragedy. FRG’s acquisition of the chain in November 2021 was, according to the newspaper, one of the “worst days in the history of Mulberry.”
According to the newspaper’s front page analysis and wide-eyed lament, Conn’s was simply where “the body was dumped;” Conn’s management merely “accelerated the decomposition.” The description is stinky, but it sure complements the pinboard metaphor we’ve been using in this space to try to make sense of the B. Riley-FRG-Prophecy Asset-Vintage Capital-Badcock-Conn’s mystery.
