B. Riley Financial Inc., the embattled broker-dealer and investment firm, outlined preliminary plans to sell assets and round up financing to cope with its debt burden and shore up its balance sheet.
The Los Angeles-based firm confirmed it’s in talks to sell a majority stake in Great American Group, known for advising troubled retailers, and has a non-binding commitment for financing of its B. Riley and bebe brands businesses. Both deals are preliminary and still subject to reaching definitive agreements, the company said in a statement Monday.
If the talks succeed, the two transactions are expected to raise about $410 million of gross cash proceeds, the company said. B. Riley intends to use those funds to pay down what it owes under a facility arranged by key lender Nomura Holdings Inc. to about $125 million by the end of 2024, according to the statement.
Easing the debt load of more than $2 billion has become an added concern on top of federal inquiries into B. Riley’s financial reporting, writedowns on key holdings and a massive loss for the second quarter. The company still hasn’t released results for that period. B. Riley eliminated its dividend last month, citing the need to put a priority on cutting leverage.
By using cash on hand and proceeds from other asset sales, the firm expects to repay its outstanding February 2025 senior notes. B. Riley also confirmed it expects to announce an amended and restated credit agreement with Nomura.
“Given the opportunities we have in our core middle market financial-services businesses, we believe it is the right time to monetize these assets and leverage the proceeds to accelerate debt repayment,” Chairman and Co-Chief Executive Officer Bryant Riley said in Monday’s statement.
Bloomberg News previously reported that Oaktree Capital has been in negotiations to buy a stake in Great American, and that B. Riley was in talks with lenders about a debt amendment. The shares advanced about 4.3% to $5.61 as of 8:49 a.m. in New York.
The company’s setbacks have devastated B. Riley’s stock, and Riley has made an informal offer to take his company private for $7 a share. The firm said Monday it established a special committee consisting of independent directors to evaluate the proposal. Riley didn’t disclose who would provide financing when he made his offer.
Federal regulators are investigating whether B. Riley adequately disclosed the risks embedded in some of its assets, Bloomberg has reported. The US Securities and Exchange Commission is also seeking information on the interactions between Riley and longtime business partner Brian Kahn, the former chief executive of Franchise Group Inc., people familiar with the matter said.
Riley told investors during an Aug. 12 conference call that he and the company received subpoenas in July from the SEC seeking information about B. Riley’s dealings with Kahn. The latter has faced controversy over his alleged role in events that led up to the collapse of a hedge fund he advised, Prophecy Asset Management. Riley and Kahn have said they haven’t done anything wrong, and B. Riley has said it didn’t have anything to do with Kahn’s activities at Prophecy.
“We are responding to the subpoenas and are fully cooperating with the SEC,” Bryant Riley said during last month’s call.
Great American Group is the former name for what is today B. Riley’s appraisal and asset-disposition businesses. B. Riley has described its so-called Brands unit as home to retail clothing brands — including Scotch & Soda, Hurley and Justice — that other businesses pay royalties to use, according to a December 2023 presentation. Bebe stores inc., meanwhile, is a women’s clothing chain that B. Riley controls.
In the past, bebe stores has struck deals with Kahn, the US businessman at the center of much of the controversy swirling around B. Riley. The SEC has sought information about bebe stores, Bloomberg reported in January.
Nomura arranged a $500 million term loan for B. Riley last year that helped the firm orchestrate the FRG takeover, some $456 million of which was outstanding at the end of March, a regulatory filing shows. The Tokyo-based bank committed about $240 million of its own funds to the deal, more than any other lender, Bloomberg has previously reported.
This loan has since proved controversial. While B. Riley put up assets it said were worth about $1.5 billion as collateral, they included a stake in FRG worth about $200 million and a loan for a similar amount that it had made to Kahn — which itself was secured against more FRG shares. B. Riley now intends to write down the value of these assets by up to $370 million, according to an Aug. 12 statement.
A team of external advisers encouraged Nomura bankers to write down the value of its loan to B. Riley, citing the allegations against Kahn and warning that the collateral may be tainted by fraud, Bloomberg reported in January. Bankers at the Japanese lender declined to take any action then.
A spokesperson for Nomura declined to comment.
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