(Bloomberg) — B. Riley Financial Inc.’s lenders are getting more oversight of the company’s finances, including weekly updates on its liquidity and some of its dealmaking amid efforts to pull the money-losing investment firm out of its tailspin.
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The bankers will get a report on liquidity every Wednesday and a weekly status report on its plan to raise cash by selling a stake in its Great American unit, according to amended terms of its senior bank loan reviewed by Bloomberg News. The company also must provide bankers with monthly financial statements and conduct a conference call with the lenders’ law firm to discuss matters including its status, finances, accounts, litigation and investigations, according to the Sept. 17 amendment.
No default has occurred, the document shows, but the new terms suggest concern among lenders about B. Riley after two years of losses, and gives them a window into the firm’s affairs that public investors are still awaiting.
Quarterly results and regulatory filings for the second quarter remain pending, but B. Riley has told investors to expect hundreds of million of dollars in writedowns, and said it’s cooperating with an investigation into some of its affairs by the US Securities and Exchange Commission.
The stock, which topped $90 in 2022, now trades for less than $5 and some of its junior debt sells at deeply distressed prices, signaling doubt that holders will be fully repaid. B. Riley has outlined plans for asset sales to meet its obligations, and the amendment includes an arrangement to pay off bonds due in February 2025.
“The credit amendment is consistent with the strategic plan outlined by the company on Sept. 9 and provides B. Riley with substantial flexibility as it prioritizes near-term debt reduction in anticipation of returning to growth in 2025,” B. Riley said in an emailed statement. The firm said it expects to use proceedDs from planned strategic actions and cash on hand to cut the balance on its senior loan to $125 million by the end of 2024 and $100 million by September 2025.
“B. Riley has been in regular communication with its lenders and the terms reinforce the company’s collaborative approach,” the Los Angeles-based firm said.
Nomura Holdings Inc., the administrative agent for the loan, declined to comment.
Hiring Advisers
Lenders can hire consultants and advisers to inspect the firm’s books and records to check on its financial performance, prospects and valuations, with B. Riley footing the bill up to $2 million, according to the amendment, which was signed by co-founder Bryant Riley.
A broad outline of the amendment in a regulatory filing last month showed lenders boosting the loan’s interest rate, eliminating a revolving credit line and telling B. Riley to cut the balance on its term loans to $100 million within the next year. As part of the deal, B. Riley repaid about $85.9 million, reducing the sum it owes to $388.1 million.
Bryant Riley said in an Aug. 12 statement the stock dividend was suspended “as we prioritize deleveraging.” The firm estimated at the time that all of its debts totaled about $2.16 billion.
The firm said in September that banks had agreed to let it pay some of the interest owed on its loans by adding it to the principal, known as pay-in-kind. The so-called PIK option is typically offered to borrowers who are trying to conserve scarce cash. The new amendment requires the company to pay lenders a quarterly fee equal to 0.75% of the amount outstanding starting next March, but the company can also pay in kind to meet the obligation.
Deal Status
The inclusion of specific asset sales in the loan documents implies that lenders regard the potential deals as plausible, something short sellers have been disputing since B. Riley announced them on Sept. 9. Plans call for B. Riley to raise hundreds of millions of dollars with a debt financing of the B. Riley and bebe brands businesses as well as selling a stake in Great American, known for its expertise in retail turnarounds.
B. Riley described those deals at the time as non-binding commitments, and it hasn’t announced formal agreements since then. A binding version of Riley’s informal bid to take the company private at $7 a share also hasn’t been announced.
This has fueled skepticism from short sellers such as Marc Cohodes, who contends the sales will never be consummated, given B. Riley’s financial and regulatory setbacks. Cohodes says his analysis shows B. Riley is facing a cash crunch.
“No company would be interested in buying any asset” amid B. Riley’s current financial straits, Cohodes said in an emailed statement. Secured debt holders have a solid claim on B. Riley’s assets and other creditors will have to “fight for scraps,” he said.
B. Riley has denounced short sellers, saying earlier this year that they’ve been disseminating “false information for their own profit to the detriment of the firm’s clients and customers.”
–With assistance from David Voreacos.
(Updates description of Nomura in the eighth paragraph.)
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