(Bloomberg) -- Bed Bath & Beyond Inc. lined up investors for an eleventh-hour cash infusion that would allow it to stave off a bankruptcy filing, according to people with knowledge of the matter.

The retailer, which has been preparing for a Chapter 11 filing after lenders declared it in default last month, priced new convertible preferred securities and warrants, it said in a statement Tuesday, in a deal that will ultimately raise more than $1 billion.

The company gathered orders from institutional investors that cover the full offering, said the people, who asked not to be identified because the details are private. A significant chunk of the orders are coming from one anchor investor, said one of the people, who wouldn’t identify the investors. B. Riley Securities Inc. arranged the deal. 

The company expects to immediately receive $225 million through the sale of convertible preferred shares and warrants. The fresh cash would allow the company to cure a default on an asset-based loan and make overdue debt payments that it missed this month. It also received a fresh $100 million from its largest lender, Sixth Street Partners LLC, as an increase on its existing loan. 

The company could raise another $800 million over time through the execution of the warrants it issues. 

In a statement, a Bed Bath & Beyond spokeswoman said the company wouldn’t comment beyond regulatory filings and news releases about the deal. 

Buying Time

“This buys them time but it doesn’t change anything about the fundamental problems of the business,” said Joel Bines, who recently retired as the global head of retail for consulting company AlixPartners and now runs his own firm, Spruce Advisory.

Bed Bath & Beyond’s cash pile has been dwindling and revenue has been plunging year-over-year in the double digits for several quarters. “If there are buyers for equity that’s very likely to eventually be worthless – I guess it’s Bed Bath & Beyond’s fiduciary duty to sell that equity,” he added. 

The company warned in a securities filing on Monday that it might have to file for bankruptcy protection even if the offering is completed. “Trading in our securities is highly speculative,” the company said. Also, it warned that it “may not be successful in implementing our transformative plan, including building back our inventory and increasing customer sales, and we have historically underperformed in implementing management plans.”

Bed Bath & Beyond has warned of its solvency challenges and previously said it was considering bankruptcy. It defaulted on a credit line and skipped interest payments on some of its debts, entering a 30-day grace period. Recently, it has been struggling to find interested buyers to help it finance and ultimately emerge from bankruptcy, Bloomberg News reported. 

Even as its options seemed to narrow, the company’s stock has staged a volatile rebound from decade lows over the past week. Its share price surged 92% Monday to close at $5.86 before the announcement, and then plunged as much as 48% on Tuesday morning. 

The company also named as its interim chief financial officer Holly Etlin, a partner and managing director at the consulting firm AlixPartners. AlixPartners is one of several firms that has been working with Bed Bath & Beyond to trim costs and attempt a business turnaround.

Merchandise Problems

Convertible preferred stocks typically pay dividends and give holders the option to convert their equity into common shares. The offering is often popular among cash-strapped firms seeking ways to raise capital. 

The home goods retailer said it also planned to use some of the proceeds of the share sale to rebuild its merchandise. But it’s an uphill battle. Even with any cash infusion, it’s not certain the company will be able to turn around its business, and the new funds could end up simply extending its long decline.

Company executives have said during the past two earnings calls that when they have had enough merchandise on hand, sales have improved - a sign, they said, that there is still consumer demand for Bed Bath & Beyond’s products.

Many shoppers have already given up on the home goods chain and it will be hard to win them back, suppliers and analysts say. And it can be costly to improve tired-looking stores and to invest in marketing to let shoppers know if stores become well-stocked again. Meanwhile, suppliers are likely to remain wary of shipping their products to the ailing retailer.

--With assistance from Andrew Monahan.

(Updates to add detail through the first four paragraphs.)

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