$Bed Bath & Beyond (BBBYQ.US)$ So this is what people get co...

So this is what people get confused about the leveraged buyout play.

Bonds were trading as low as like $0.05 to the dollar at points because many didn't think the bonds would be paid out. If a party who was interested in doing a leveraged buyout bought those bonds, then they could make their money work 20x for the amount they spend (20x $0.05 = $1) .

But let's be reasonable and say that someone bought about $500 million worth of bonds at $0.20, so an 80% reduction. That means they spent $100 million to get accredited $500 million.

Now, when that party goes to make a offer on the company they say, "I want to use the leverage buyout to forgive the debt", meaning, they will take $500 million from the debt and wipe it off. In exchange, that takes $500 million off the buy price. So instead of paying that $500 million to the company in the buying process, for the company to turn around and pay back the debt, they just wave it.

But the trick here is the buyer ***only*** paid $100 million for it, even though it's *worth* $500 million. Now think of that if you had say, $1.5 billion worth of debt you could forgive? All the sudden a company that needs say a $3.5 billion evaluation to get out of debts and sell off with a profit, can do so at $2 billion. And $2B is a 40% reduction in price to buy the company. Plus, if we assume the buyer got the full $1.5B worth of debt forgiveness at 20% cost value (thus an 80% reduction), they would have only spent $300M to get that $1.5B off the books.

This is a rough example so don't take it as exactly the BBBY case here. But you get the idea. Now let's assume there's still some debt, say around 25% still cover from that $2B. That would be roughly $500M. So say the sale that gets pushed to share holders then is $1.5B in value since $500M will pay off the rest of debt. Even if we take the float today, that I very much disagree with as I don't believe it's 739M shares outstanding:

$1.5B / 739M = $2.03 per share roughly.

Now at that price, a fair amount of investors would come out positive on that or minimalize their losses based on how low BBBY and BBBYQ has been trading the last 4-5 months. There will still be casualties, there always are but all things considered - that's not bad. ***Oh and that's*** ***if the sale*** ***is cash only.***

When it's **not,** and given we suspect a new company formed here means it won't be, but instead a cash + equity deal, that $2.03 per share climbs because of shorts having to close out positions. Why do they need to close? The company needs to get the accurate number and ownership for the new shares being offered as part of the "equities" part of the equation. Thus any institutional owners of shares who wants to be accounted for and get the value of the new shares, need all short positions to close up and return so they know the truth number of shares.

Now we understand why if the float has any discrepancy, some parties are going to be in very big trouble, real fast.

**Still think** **shareholders** ***will get*** ***nothing*****?**