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All About Bed Bath & Beyond’s ‘Most Unusual’ Cash Infusion

Bed Bath & Beyond is raising another $135 million in proceeds from an equity offering, marking $360 million in total new capital over the past month after the company teetered on the verge of bankruptcy to start the year.

On Feb. 7, the home goods retailer completed an underwritten public offering which raised initial gross proceeds of $225 million from Hudson Bay Capital Management, with the company also having the option to raise an additional $800 million. Bed Bath & Beyond sold the New York hedge fund shares of Series A convertible preferred stock to raise the financing. As part of the agreement, Hudson Bay is required to purchase more shares in future installments when the retailer needs capital.

“Over the past month, we have been rebuilding our financial and operational positioning to execute our customer-focused turnaround plans,” Sue Gove, president and CEO of Bed Bath & Beyond Inc., said in a statement. “Since closing our equity financing last month, we have engaged with suppliers to improve our inventory positioning and we have continued to optimize our brick-and-mortar footprint through store closures to align with customer preference.”

Bed Bath & Beyond, which operated 762 namesake stores and 137 Buybuy Baby stores as of November 2022, is currently cutting its store fleet in half. The Union, N.J. company aims to operate approximately 360 Bed Bath & Beyond locations and 120 Buybuy Baby stores after the closures. It is also in the process of liquidating its Canadian division upon filing for insolvency in the country, closing 54 Bed Bath & Beyond stores and 11 Buybuy Baby locations in the process.

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The CEO’s comments on inventory positioning comes after a holiday season ravaged by inventory shortfalls when vendors refused and delayed shipments because the retailer had trouble paying its bills. At the time, Gove said the retailer had caught up on those obligations.

But the inventory issues pervaded the season and beyond, with total inventory availability dropping from 53 percent in December to 48 percent in January, according to a report from e-commerce analytics firm DataWeave.

Gove also noted the embattled retailer’s ability to pay the outstanding interest due on all senior notes at the end of February and draw the attention of credit agency S&P Global, which upgraded the retailer’s issuer credit rating to CCC from D.

While S&P Global still reported a negative outlook for Bed Bath & Beyond, saying its “turnaround prospects remain very weak,” Gove is optimistic about the company’s potential to reverse its fortunes.

“We continue to work with determination and diligence to fulfill both our near- and long-term goals of maximizing prospects for all stakeholders,” she said.

KeyBanc Capital Markets analyst Bradley Thomas wasn’t so bullish on the equity offering, calling it “one of the most unusual financing situations we have witnessed in 20+ years of following consumer and retail companies,” he wrote in a research note. “Fundamentally, we believe BBBY sales and margins continue to struggle mightily.”

Bed Bath & Beyond has used proceeds received to date to repay outstanding revolving loans, which the retailer says is creating additional liquidity opportunities to support operations.

In connection with the new equity financing, Bed Bath & Beyond entered into a waiver and amendment to its credit agreement with creditors including JP Morgan Chase and Sixth Street Partners. Under the amendment, creditors will waive the company’s previous defaults and rescind their requests for the company to immediately pay back loans under its credit facilities.

Prior to the cash infusions, the retailer had admitted it didn’t have the money to cover its debts after having failed to pay off various interest payments on bonds totaling $1 billion. This had raised serious doubts about the company’s ability to stay above water, leading the retailer to consider bankruptcy among potential strategic alternatives which included restructuring or refinancing its debt, or raising debt or equity capital.

Its third-quarter earnings reflected the dire state the retailer has been in ever since the Covid-19 pandemic snarled global supply chains. Total net sales declined 33 percent to $1.26 billion, with net losses amounting to $100.7 million when including impairment charges from certain store closures. Total inventory declined 24.9 percent to $1.44 billion, further compounding the company’s slowing sales during the holiday.

During the company’s earnings call in January, Gove said the chain would enact $80 million to $100 million in cost reductions across its corporate structure, including layoffs and expense reductions.

Even with all the funding coming in, it is still possible a bankruptcy could be in the cards if Bed Bath & Beyond doesn’t get its finances in order. In January, the company retained the legal services of Cole Schatz, which navigated Christopher & Banks through its Chapter 11 bankruptcy.

“While the offering has averted what was reportedly an imminent bankruptcy, we believe BBBY’s fundamentals and cash burn rate (of $400 million in the most recent quarter) still make a bankruptcy seem like the most likely outcome eventually,” said KeyBanc Capital Markets’ Thomas in his note. “In the interim, BBBY may be able to raise additional capital through convertibles that were a part of this offering, should new investors continue to buy shares.”

Bankruptcy or not, both S&P Global and UBS still project the company will face massive risk amid plummeting sales and lower margins. S&P even said it would lower the retailer’s credit rating again if it announces or engages in an exchange offer or debt restructuring, or if it is unable to meet its debt payments.