Rent the Runway has filed an amended registration statement for a rights offering that could raise up to $15 million through the sale of as many as 4.23 million shares of Class A common stock at $3.55 per share. The offering is backed by an investor group that has agreed to purchase any shares not subscribed for by existing stockholders, subject to the terms and conditions of the backstop agreement.
The preliminary prospectus filed with the Securities and Exchange Commission on Sept. 28 sets the offering at up to 4,225,352 shares. Rent the Runway will distribute one transferable subscription right for each Class A share held as of the Sept. 25 record date, with each right allowing holders to purchase approximately 0.1251 additional shares on a pro rata basis. The company said the subscription price of $3.55 reflects the greater of two volume-weighted average price calculations specified when the backstop agreement was negotiated.
The rights offering is scheduled to begin Sept. 30 and expire at 5 p.m. New York time on Oct. 14, unless extended. Shareholders who fully exercise their basic rights may also subscribe for additional shares under an oversubscription privilege, to the extent other holders do not exercise their rights. Rent the Runway expects to deliver shares issued through the rights offering around Oct. 19, followed by any shares issued under the backstop agreement around Oct. 21.
The backstop group consists of CHS US Investments LLC, Gateway Runway LLC and S3 RR Aggregator LLC. Under the agreement, the investors will purchase all unsubscribed shares for cash at the same subscription price and will not receive a fee for providing the backstop. If no other rights holders participate, the filing says the backstop transaction would result in the issuance of all 4.23 million shares to the investor group, increasing its ownership to more than 86.2% of Rent the Runway’s outstanding Class A stock after the offering.
The company expects net proceeds of approximately $14.3 million after offering expenses and plans to use the funds for general corporate purposes. The offering is therefore intended to provide additional liquidity and financial flexibility rather than fund a specifically identified acquisition or expansion program.
Rent the Runway’s amended filing also highlights its recent financing activity. On Sept. 1, the company borrowed the full $10 million available under an incremental term loan facility established through an amendment to its credit agreement. The financing followed a period in which the company continued to report losses and a negative stockholders’ equity position.
For the six months ended July 31, Rent the Runway reported revenue of $187.6 million, up from $150.5 million a year earlier. Subscription and Reserve rental revenue increased to $161.5 million from $131.2 million, while the company recorded a $27.5 million operating loss and a $31.8 million net loss. Its cash and cash equivalents stood at $29 million at July 31, while long-term debt, net was $157.5 million and total stockholders’ equity was negative $65.5 million.
The filing also describes the potential dilution for existing shareholders who do not participate. Based on 33.76 million Class A shares outstanding at July 31, approximately 37.98 million shares would be outstanding after full exercise of the basic subscription privileges. Rent the Runway cautions that shareholders who do not exercise or sell their rights will see their proportional ownership reduced.
The company said its Class A shares trade on Nasdaq under the symbol RENT. The Sept. 25 closing price cited in the prospectus was $1.67, while the rights offering subscription price is $3.55. Rent the Runway specifically states that the subscription price is not an indication of the fair value of its common stock and that the shares may trade above or below that price.
The financing comes as other smaller public companies have also turned to equity markets for additional capital, including Arbe Robotics’ $15 million equity offering. Unlike a conventional marketed share sale, Rent the Runway’s transaction gives existing holders transferable rights while providing the investor group with a contractual backstop for unsubscribed shares.
