Bed bath and beyond
admitted on Thursday what many industry analysts have suspected for some time: the company is rapidly running out of cash and cannot service its considerable debt.
While acknowledging that a problem might be progress, there’s likely more pain and reduction options ahead for the retailer.
“I’m convinced that
Bed bath and beyond
is on the verge of bankruptcy,” said Daniel Gielchinsky, partner at DGIM law.
In a delayed quarterly filing with the Securities and Exchange Commission on Thursday, the retailer said its lenders were calling back their loans after the company failed to prepay an advance on a credit facility, triggering events of default. An event of default is a predefined circumstance that allows lenders to demand full repayment of the outstanding loan before its maturity, as well as to seize any collateral if the company is unable to pay the debt.
S&P Global Ratings downgraded Bed Bath’s issuer credit rating to D from CC, saying it considers the company to be in default.
The retailer has current liabilities of $2.57 billion, including $550 million and $375 million under two separate credit facilities. It’s a chunk of change that Bed Bath just doesn’t have, according to the record. The company is exploring “all strategic alternatives” to repay the debt, including bankruptcy.
Cases such as Bed Bath’s “are often very consistent,” said Victor Sahn, a partner in Greenspoon Marder’s Bankruptcy and Reorganization practice group. Usually the company will negotiate a sale with third parties before filing for bankruptcy, either selling the business entirely or selling chunks of it, he said. Some businesses can also get a loan up front that helps keep operations afloat while they restructure their debt. This was the case when
(PRTY) filed for bankruptcy earlier this year.
But in the case of Bed Bath, there are no known buyers so far, Sahn said. Friday, The Wall Street Journal indicated that the company was struggling to find financing to restructure the business. Private equity firm Sycamore Partners had expressed interest in acquiring all or part of the Buybuy Baby chain, according to previous reports. At the time, Sycamore said he had no comment.
In an email to Barronsa spokesperson for Bed Bath said the company did not comment on the speculation, but continued to consider all strategic avenues and alternatives.
The fact that no buyers have yet come forward suggests that suitors have been discouraged by the company’s business fundamentals and loss of supplier confidence, said James Gellert, CEO of RapidRatings, a market analytics firm. financial health.
“Any conversation for an 11e the time 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,” said Deborah Weinswig, CEO of retail research firm Coresight Research. She pointed to the unlikely outcome of Kmart’s bankruptcy in 2002, which ended with the acquisition of the Sears department store for $11 billion two years later.
But with few buyers and potential creditors calling back outstanding loans, things are looking bleak for the retailer. The best-case scenario now would likely 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 stunted way – while looking for potential buyers or new loans.
It is also possible that the business cannot find a buyer and is forced to file for Chapter 7 bankruptcy, often referred to as liquidation bankruptcy. If that were to happen, Bed Bath would be forced to sell all of its assets to pay off its creditors and would likely close for good.
Either situation is bad news for Bed Bath & Beyond’s stakeholders, be they employees, vendors, owners, bondholders or shareholders. Bed Bath had already announced plans to close 150 stores, and on Friday the company announced in an email that it would close 87 more, which would result in the layoff of thousands of employees.
Filing for bankruptcy would set the stage for what could be a protracted battle between creditors as they seek to claim their share of the carcass. First lien holders might be able to salvage pennies on the dollar, Sahn said, but those at the lower end of the totem pole will be left with slim choices.
Write to Sabrina Escobar at email@example.com