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Bed Bath & Beyond is closing more than 200 stores as it runs out of money to fund operations.
Dream time
Bed bath & beyond
admitted on Thursday what many industry analysts have suspected for some time: the company is quickly running out of money and unable to pay off its significant debt.
While acknowledging a problem may be progress, there’s likely more pain — and narrowing options — for the retailer.
“I’m convinced that
Bed bath & beyond
teetering on the brink of bankruptcy,” says Daniel Gielchinsky, partner at DGIM Law.
In a delayed quarterly filing with the Securities and Exchange Commission on Thursday, the retailer said its lenders called back their loans after the company failed to prepay an advance on a credit facility, causing defaults. An event of default is a predefined circumstance that allows lenders to demand full repayment of the outstanding loan before it is due, and to seize any collateral if the company is unable to pay the debt.
S&P Global Ratings has downgraded Bed Bath’s credit rating from CC to D as the company continues to default.
The retailer has $2.57 billion in current liabilities, including $550 million and $375 million under two separate credit facilities. That’s one piece of change that Bed Bath just doesn’t have, according to the filing. The company is exploring “all strategic alternatives” to repay the debt, including bankruptcy.
Cases like Bed Bath’s “are often very consistent,” says Victor Sahn, a partner in the Bankruptcy and Reorganization practice group at Greenspoon Marder. Usually, the company will broker a sale with a third party before filing for bankruptcy, either selling the company entirely or selling parts of it, he said. Some companies can also take out a loan in advance that helps keep operations going as they restructure their debts. That was the case then
Party town
(PRTY) filed for bankruptcy this year.
But in the case of Bed Bath, there are no known buyers so far, Sahn said. On Friday, The Wall Street Journal reported that the company was struggling to find financing to restructure the company. Private equity firm Sycamore Partners had expressed interest in acquiring (part of) the Buybuy Baby chain, according to previous reports. Sycamore said she had no comment at the time.
In an email to from Barona Bed Bath spokesperson said the company was not commenting on speculation, but continues to consider all paths and strategic alternatives.
The fact that no buyers have come forward yet suggests suitors were put off by the company’s business fundamentals and loss of supplier confidence, said James Gellert, CEO of RapidRatings, a financial health analysis firm.
“Every conversation for an 11e hour acquisition disappears when the clock strikes 12,” Gellert said. “They’re at 11:59 p.m..”
Of course, a lot can happen in a minute, especially when the situation is so volatile. “It never ends where you think it’s going,” says Deborah Weinswig, CEO of retail research firm Coresight Research. She pointed to the unlikely outcome of Kmart’s 2002 bankruptcy, which ended two years later with the $11 billion acquisition of department store Sears.
But with few potential buyers and creditors recalling current loans, things look bleak for the retailer. The best-case scenario now would probably be for the company to file for Chapter 11 bankruptcy protection, Gielchinsky said. By filing for Chapter 11, Bed Bath could continue to operate — albeit in a more immature fashion — while it searches for potential buyers or new loans.
It is also possible that the company cannot find a buyer and is forced to file for Chapter 7 bankruptcy, which is often referred to as a liquidation bankruptcy. If this happened, Bed Bath would be forced to sell all of its assets to pay off creditors and likely close its doors for good.
Both situations are bad news for Bed Bath & Beyond’s stakeholders – from employees, vendors and landlords to bondholders and shareholders. Bed Bath had already announced it planned to close 150 stores, and on Friday the company said in an email it would close another 87, resulting in thousands of layoffs.
Filing for bankruptcy would pave the way for what could become a protracted battle between creditors as they try to claim their share of the carcass. First-time lien holders may be able to get back a few cents on the dollar, Sahn said, but those at the bottom of the totem pole will be left with a small loot.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
