Big-box retailer Bed Bath & Beyond Inc. on April 23 filed for Chapter 11 in bankruptcy court in New Jersey, the company announced, saying it did so “to implement an orderly wind down of its businesses while conducting a limited marketing process to solicit interest in one or more sales of some or all of its assets.”
The company’s petition listed total assets of roughly $4.4 billion and total liabilities of $5.2 billion.
According to the first-day declaration in the case from chief restructuring officer and CFO Holly Etlin, the company’s $791.5 million of secured debt comprises an ABL facility with $80.3 million outstanding plus $102.6 million of outstanding letters of credit, a FILO term loan facility with $547.1 million outstanding, and $61.5 million of finance leases.
The company’s $1.03 billion of funded unsecured debt consists of roughly $215.4 million of 3.749% senior notes due 2024, $209.7 million of 4.915% senior notes due 2034, and $604.8 million of 5.165% senior notes due 2044.
In addition, the company’s list of largest unsecured creditors includes 29 trade claims with amounts owed ranging from $2.4 million to $11.1 million.
The company said it has a commitment of roughly $240 million in debtor-in-possession financing (DIP) from Sixth Street Specialty Lending, which the company said it “expects…to provide the necessary liquidity to support operations during the Chapter 11 process.” According to court filings, the DIP comprises $40 million in new money and a $200 million roll-up of the FILO term loan.
The company’s Chapter 11 filing was not a surprise. It has been rumored for months, although the company managed to pull a few financial rabbits out of the hat before arriving there.
The company had initially defaulted on its credit facilities in late January, after terminating exchange offers for unsecured debt that it had launched in October 2022, leading to an acceleration of other debt. It seemed on the cusp of bankruptcy. On Feb. 7, however, the company announced a $225 million Series A convertible preferred stock and warrant offering underwritten by Hudson Bay Capital Management, with the opportunity to receive as much as $800 million of additional gross proceeds upon the forced exercise of preferred stock warrants under certain conditions. Between Feb. 7 and March 27, warrant exercises led to additional gross proceeds to the company of $135 million, bringing the total raised under the offering to $360 million.
Breathing space
Meanwhile, the company was able to negotiate waivers of default and amendments to its credit agreement designed to afford the company some breathing room. The capital raises allowed the company to announce on Feb. 22 that it would pay interest due on its unsecured notes.
Still, Etlin explained, the offering ultimately failed to provide the company with the “needed real runway to turn around its inventory and liquidity position.” Among other factors, she cited the need to use offering proceeds to repay existing debt rather than to implement strategic objectives, and the fact that the offering diluted the company’s stock and depressed its price, jeopardizing its ability to meet the conditions required, including a minimum stock price, to force the exercise of preferred stock warrants.
Etlin said the company amended the warrants in late March to reduce the minimum stock price to $1.00, in anticipation of raising an additional $100 million in April, but the stock price continued to slide. As a result, the company terminated the offering on March 30 amid uncertainty that it would be able to access the liquidity provided by the warrants.
On March 30, the company also announced an at-the-market equity purchase program through B. Riley Securities to sell up to $300 million of common stock. Proceeds were used to reduce debt. On April 5, the company unveiled a $120 million vendor consignment program designed to boost inventory backed by Hilco Global’s ReStore Capital investment arm, but the program was never implemented. And a day later, the company asked shareholders to approve a reverse stock split in a final effort to prop up the stock price, albeit to no avail. It proved to be the company's final gasp.
According to Etlin, the company’s cash burn continued, and while the capital infusions it engineered in the previous months had “temporarily averted the need for a Chapter 11 filing,” the company “once again [found itself] in an untenable liquidity position.”
The Chapter 11 filing followed.
Etlin summed up the company’s scrambles in recent months to avoid a Chapter 11 filing, and this weekend’s inevitable denouement, as follows: “The past twelve months have undoubtedly been the most difficult and turbulent in Bed Bath & Beyond’s storied history. From ‘meme stock’ mania to credit agreement defaults and back again, the company explored all potentially value-maximizing alternatives in an effort to turn around its business and stave off Chapter 11. All of this has come on the heels of the retail apocalypse and global pandemic that has permanently changed consumer behavior as the world knows it.”
Etlin continued, “Defying all expectations over the past four months, Bed Bath & Beyond secured credit agreement waivers and amendments and was able to access the equity markets in February and March in a last-ditch effort to avoid bankruptcy. But, in-store sales continued to decline — with fourth quarter sales falling by almost $1 billion dollars year over year — and strained vendor credit relationships which led to a lack of inventory. And notwithstanding painstaking, creative, and exhaustive efforts to right the ship along the way, Bed Bath & Beyond is simply unable to service its funded debt obligations while simultaneously supplying sufficient inventory to its store locations. All of which necessitates the filing of these Chapter 11 cases.”
Meanwhile, the company said it had filed motions seeking bankruptcy court authority to market Bed Bath & Beyond and buybuy BABY as part of an auction pursuant to section 363 of the Bankruptcy Code. Alongside these efforts, the company said it was also “strategically managing inventory to preserve value [and that] in the event of a successful sale, the company will pivot away from any store closings needed to implement a transaction.”
The firm said in its news release, “The company believes this dual-path process will best maximize value.”
Milestone deadlines
While the company’s motion for bid procedures was not immediately available, the DIP provides for milestone deadlines requiring the bankruptcy court to approve bidding procedures within seven days, by April 30; to set a bid deadline of less than 35 days from the petition date, or no later than May 28; to conduct an auction within 40 days of the petition date, or by June 2; and to obtain bankruptcy court approval of an asset sale within 45 days of the petition date, or by June 7. Alternatively, the DIP milestones require all going-out-of-business sales to be completed with 90 days of the petition date, or by July 22.
The DIP milestones also call for the filing of a plan by July 22, and plan confirmation by Aug. 21.
According to Etlin’s declaration, the company launched prepetition marketing efforts in December 2022, reaching out to a group of about 20 potential financial and strategic investors, including “financial sponsors, strategic buyers, and money center banks,” to solicit interest in both a going-concern transaction and the provision of post-petition financing. Nine of those parties executed non-disclosure agreements (NDAs).
In mid-January, Etlin said that “Efforts to identify a potential plan sponsor and investors to provide postpetition financing intensified,” and “the universe of potential investors…expanded.” In addition, the company received unsolicited interest from third parties. In total, the company had contacted 60 potential investors, 30 of which had executed NDAs.
Etlin said, however, “By the end of the month, it became apparent that the process was unlikely to yield a plan sponsor that would facilitate a going concern reorganization,” adding, “While [the company’s investment banker] and the company are still in contact with certain bidders in that process, to date, the company has been yet to identify an executable transaction.”
Still, Etlin said, “Bed Bath & Beyond has pulled off long shot transactions several times in the last six months, so nobody should think Bed Bath & Beyond will not be able to do so again.”
Kirkland & Ellis and Cole Schotz are serving as the company’s legal counsel, Lazard Frères & Co. is its investment banker, and AlixPartners LLP is financial advisor. In addition, the company retained Hilco Merchant Resources to assist with inventory sales.
In bond trading this morning, the company’s notes were changing hands mostly in small odd lots between 3.5 and 5, with a few trades near 4, down roughly one point for the 2034 and 2044 maturities, and down over two points for the 2024 maturity, according to MarketAxess.
Featured image by QualityHD/Shutterstock
This article originally appeared on PitchBook News
