Impacted by the Silicon Valley Bank failure, online bulk-products retailer Boxed Inc. is mulling a potential bankruptcy filing as it works to shore up financing and find a buyer for the company.
In an 8-K filing on Tuesday with the Securities and Exchange Commission (SEC), New York-based Boxed said it’s “actively soliciting proposals for the sale of all or substantially all of its assets, as well as other material transactions that would improve its liquidity position.” The e-tailer has retained investment banks Solomon Partners and TD Cowen as financial advisers to help gauge strategic alternatives.
One of those options now includes a possible Chapter 11 bankruptcy protection filing, Boxed indicated in the 8-K report filed Tuesday.
“The company continues to evaluate its options, which may include potentially filing for relief under the U.S. Bankruptcy Code and other strategic alternatives,” Boxed stated in the 8-K filing.
The report also said Boxed’s discussions with lenders include the “anticipation of the negotiation of a stalking horse bid” as it solicits potential buyers.
Boxed couldn’t immediately be reached by Winsight Grocery Business for comment on the 8-K report.
Boxed’s consideration of a possible Chapter 11 filing stems in part from the Silicon Valley Bank (SVB) shutdown that has rattled financial and credit markets nationwide and internationally.
In the 8-K filing, Boxed reported that Santa Clara, Calif.-based SVB “held the majority of its cash deposits and other liquid instruments” as of the bank’s March 10 closure date. Boxed also noted that, under a lending facility with SVB in June 2014, the online retailer agreed to maintain its bank accounts at the bank—plus cash management and corporate credit card services—and continued to do so after the loan was repaid.
However, as of Monday, Boxed had “transferred a majority of its cash out of its SVB accounts” and was arranging a “new commercial banking relationship” with the SVB receivership set up by the Federal Deposit Insurance Corp., which took over the state-chartered bank after it was shut by California’s Department of Financial Protection and Innovation, the filing said.
“The remaining cash balances in its SVB accounts will be used to fund the company’s near term obligations while it establishes its new commercial banking accounts with the goal of transferring all remaining cash balances to its new commercial banking relationship as soon as practicable,” Boxed stated in its recent 8-K. “At this time, the successor entity to SVB has confirmed that it is operating as usual and has communicated to the company that it intends to honor the letters of credit SVB issued on behalf of the company that are fully collateralized by funds in the company’s SVB accounts. The company is working to secure the funds collateralizing the letters of credit and establishing new letters of credit for the beneficiaries with its new commercial banking relationship.”
On Sunday, a forbearance agreement that Boxed holds with lenders is slated to expire, according to an 8-K filing by the company on March 6. Boxed said in the most-recent filing, however, that it might not be able to meet the terms of the agreement by the deadline and is in negotiations with the lenders. Terms include providing an acceptable debtor-in-possession budget, entering into a binding debt commitment letter and term sheet, and prepaying at least $5 million with accrued interest and an early prepayment fee.
“The lenders have provided limited extensions for the satisfaction of these milestones to permit the company and the lenders to continue their discussions, although the company may not be able to satisfy the terms of the prepayment at this time,” Boxed said in the March 14 SEC filing. “In connection with the foregoing, the company has implemented cash management strategies, including streamlining operations and headcount reductions.”
In addition, Boxed on Friday entered into retention agreements with key executives—including co-founder and CEO Chieh Huang, Chief Financial Officer Mark Zimowski and E-Commerce President Alison Weick—to manage company operations and finances and “retain critical talent in an effort to maximize value during a period of significant volatility,” according to the latest 8-K filing.
“The board of directors of the company determined that it was in the best interest of the company to reinforce and provide incentive for the continued attention and dedication of certain key employees to their duties of employment,” the filing stated.
Financially strapped Boxed had announced in early January that it was exploring a potential sale of the company, among other strategic options. A few months earlier, the e-tailer had received delisting warnings from the New York Stock Exchange as its stock price and market capitalization fell below required levels. To rectify the situation, Boxed said at the time that it would evaluate various options, including a reverse stock split. Then later in January, Boxed reported that it had arranged up to $20 million in new funding, and the company reiterated that it was continuing to seek a possible buyer.
For investors, Boxed offers a robust B2C and B2B retail business and an end-to-end e-commerce platform offered via a software-as-a-service model. The retail arm provides warehouse club-style shopping—including groceries, pantry items, household staples, health and beauty aids, office supplies, private label, and organic and natural products—through the company’s website and mobile app, but without the membership fees of traditional wholesale clubs. Boxed also operates perishables and rapid delivery services.
Founded in 2013, Boxed in June 2021 unveiled plans to go public through a merger with special purpose acquisition company (SPAC) Seven Oaks Acquisition Corp. The new company, Boxed Inc., began trading on the NYSE effective Dec. 9, 2021. Boxed is led by Huang as CEO and Seven Oaks Chairman and CEO Gary Matthews as chairman.
In a January interview with WGB, after Boxed announced a potential sale of the company, Huang said the business has been hampered by a tough market for technology-driven companies. “We’re in a world where technology companies are certainly not being rewarded with the multiples that we saw in years past,” he said. “And there has been a lower sentiment than in years past on e-commerce companies as well.”