Red Robin Plans Share Sale Amid Hot Market for Shaky Companies

(Bloomberg) -- Red Robin Gourmet Burgers Inc. is the latest struggling company to reach into the equity markets for a lifeline.

The burger chain is working with JPMorgan Chase & Co. to sell up to $40 million of shares, according to a regulatory filing Tuesday. That’s less than a month after Red Robin told investors that there’s doubt about its survival because it had violated terms of its loans, and that it needs to raise at least $25 million of equity by November to comply with a waiver from its lenders.

A representative for the chain declined to comment. Chief Financial Officer Lynn Schweinfurth told investors during a June 10 conference call the company was confident it will line up the funds needed to satisfy the lenders.

Red Robin is coming to market during a period of unusually fervid demand for the shares of struggling companies. Retail investors have been piling into potentially worthless shares of bankrupt firms like Hertz Global Holdings Inc. and Whiting Petroleum Corp., generating enough buzz to allow the rental car company to raise bankruptcy financing through the stock market, instead of lining up more traditional debt.

Read more: Hertz joins record rush to at-the-market offerings

Open-market offerings, which cut out the need for institutional investor participation, have been on a record pace as companies try to raise financing to ride out the pandemic. In recent months, U.S. issuers have announced 90 such offerings, the most on record, and are seeking to raise as much as $12 billion.

Red Robin’s shares soared as much as 9% after the offering was disclosed, then whipsawed to a loss of more than 6% at $11.97 as of 12:48 p.m. in New York. That gives the Greenwood Village, Colorado-based company a market value of about $150 million.

Debts total about $291 million at Red Robin, according to its most recent quarterly statement. Though Red Robin is healthier than the bankrupt firms, its shares have plunged more than 60% this year as restaurants shuttered to help prevent the spread of Covid-19.

Red Robin said in a statement last week that its revenue for the three months through April dropped more than 25% from a year earlier, primarily due to its closed restaurants. It’s been making only partial rent payments.

As of June 7, the company had re-opened 270 locations for limited-capacity dining, and told investors during the conference call it had $84 million in cash and credit lines.

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