What happened

Shares of GNC Holdings Inc. (NYSE:GNC) plunged today after the struggling health-supplement retailer took another step to shore up its finances in the face of a potential bankruptcy. The company came to an agreement with convertible debt holders to buy back debt with company stock, diluting current shareholders in the process.

As of 11:04 a.m. EST, the stock was down 20.4%.

A pair of hands holding a bottle of vitamins and several vitamin tablets on a wooden table.

Image source: Getty Images.

So what

GNC said it would exchange 14.6 million shares and $500,000 in cash to buy back $98.9 million of 2020 convertible senior notes. Management said it made the decision in order to optimize its capital structure and enhance shareholder value, acknowledging that it could engage in similar exchanges in the future. The exchanges will dilute current shareholders by a little more than 20%, as there are 69 million shares outstanding, and the news that GNC could make more such moves likely added to the pressure on the stock.

Now what

GNC stock has tumbled over the last three months, down nearly 60%, as the company's attempts to refinance and restructure have fallen flat, and its debt is now worth only about half of its face value, a sign that investors fear the retailer could soon declare bankruptcy. Sales and profits have fallen over the last two years as e-commerce has taken away business from brick-and-mortar nutritional supplemental retailers like GNC and Vitamin Shoppe, which now seem to have thousands more stores than they need.

Two weeks ago, the company hired Goldman Sachs to help it pursue strategic alternatives, including a sale. While an acquisition would likely be in shareholders' best interest, GNC's debt load of $1.4 billion may make it difficult for the company to find a buyer.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.