B. Riley Lenders Extend a Deadline Amid Focus on Easing Debt
(Bloomberg) -- B. Riley Financial Inc.’s lenders have granted the embattled firm more time to produce an overdue financial report as it looks for ways to ease its debt load of more than $2 billion.
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Bankers put aside requirements for B. Riley to provide financial statements within 45 days after the recent quarter ended, heading off what could have been deemed a default, according to people familiar with the matter.
The extra time is being used to discuss amendments to B. Riley’s loan agreements that would give the brokerage and investment firm more flexibility, the people said. It’s too early to say whether an agreement will be reached, but new terms could emerge around mid-September, said one of the people, who asked for anonymity because the talks are private.
The extension isn’t the first one for B. Riley this year — lenders also granted more time when its 2023 data was late.
A representative for Los Angeles-based B. Riley declined to comment. The firm’s debts include loans and credit lines such as those arranged by Nomura Holdings Inc., Banc of California Inc. and Wells Fargo & Co., which all declined to comment. The shares fell as much as 7.8% in New York trading.
Missed Deadline
B. Riley has been struggling to correct weak controls and flawed accounting, and it missed a similar deadline for filing its second-quarter report with the US Securities and Exchange Commission. B. Riley said in an Aug. 12 filing it was working to deliver that data “as promptly as practical.”
Easing B. Riley’s debt load has become an added concern on top of federal inquiries into its financial reporting, writedowns on key holdings and a massive loss for the second quarter. Co-founder Bryant Riley said in an Aug. 12 statement the dividend was eliminated “as we prioritize deleveraging.”
Those setbacks triggered a renewed plunge in the stock, which has been under attack from short sellers. Riley responded with a non-binding buyout offer that he said would be financed with debt and perhaps third-party equity, without naming the providers.
The talks with lenders coincide with debt discussions under way at Franchise Group Inc., or FRG, a key B. Riley holding. Lenders granted FRG a short reprieve after the firm violated some terms of its credit agreement, Bloomberg News reported earlier.
Those discussions also have a mid-September target to work out a restructuring proposal for FRG’s roughly $1.5 billion of debt. The process is likely to be keenly watched by investors in B. Riley, because the firm used FRG shares to secure a loan package from Nomura. Equity shares can be diluted by debt restructuring deals, sometimes severely.
Maturity Dates
Most of B. Riley’s estimated $2.16 billion debt is due to be repaid in less than four years. The firm said in its annual filing that the burden is becoming more expensive to carry as interest rates rise, with interest expense swelling to $187 million in 2023 from $141 million a year earlier. B. Riley estimates it had $237 million of cash and equivalents on hand at midyear.
The company’s senior loans trade close to 100 cents on the dollar, reflecting confidence among creditors that they’ll be fully repaid, but some of the most junior obligations are quoted at less than half face value.
Nomura said earlier this month that it holds less than 25% of a syndicated credit facility for B. Riley, which was funded at about $474 million as of March 31. “Our loan is secured and collateral is significant, with FRG-related assets comprising a minority,” Nomura said at the time.
Debt Impact
Marc Cohodes, one of the most prominent short sellers betting against B. Riley’s shares, said the firm’s heavy debt burden could make the most junior “baby bonds” worthless. It also casts doubt on Riley’s idea of using borrowed money for his go-private offer, Cohodes said. Much of the firm’s assets are already pledged to back existing loans, Cohodes said, making them unattractive to potential new creditors.
Cohodes wondered who would be willing to provide Riley with debt funding amid federal probes and subpoenas to the executive and the company, the firm’s weak financial results and accounting flaws disclosed in its filings. The latter included difficulty in valuing its assets, including loans and investments. With these matters pending, Cohodes said he’s written to the board asking that Riley be put on leave.
The company and Riley have said they’re cooperating with authorities and there has been no wrongdoing.
(Updates with short seller comment on M&A impact, starting on the last screen.)
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