Bed Bath Countdown to Bankruptcy Begins

Bed Bath & Beyond Inc. needed almost two months to secure $360 million in urgent financing from a hedge fund that stood to gain from the transaction. It wasn't enough.

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Now that the purchase disadvantaged existing shareholders and caused its shares to drop by 50%, the retailer has three weeks to extract another $300 million from equity markets that have mostly turned against it to avoid bankruptcy.

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Bed Bath & Beyond, cut off from direct access to its cash and forced to rely on third-party financing to persuade certain suppliers to ship items, is running out of choices to dig itself out of a financial hole that has been building for years. In January, its attorneys stood up to increasingly impatient lenders, insisting on a last-ditch effort to avoid Chapter 11; after that transaction garnered only a tenth of its $1 billion target, the company is back to begging.

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The equity markets are not impressed. The army of day traders who previously pushed its share price soaring soured on the company even more when they discovered their holdings would lose value under its funding agreement with hedge fund Hudson Bay Capital Management. According to Vanda Research statistics, retail investors have been net sellers over the last two weeks.

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"Even retail investors are abandoning the stock rather than viewing this as an opportunity to double down and get behind the name as they did with other meme stocks in the past," says Vanda's Marco Iachini. Overall retail trader purchases haven't topped $100 million since late summer, making it "quite a difficult scenario for Bed Bath & Beyond at the moment."

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More than 320 million shares were traded on Thursday and Friday, over nine times the usual volume for two days during the previous year, suggesting that the company was trying to dump additional shares on the market.

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The chief executive of Bed Bath & Beyond, Sue Gove, said in a statement on Saturday, "We recognize our valuation today is not indicative of our entire potential, and this inspires our desire to stabilize and eventually unlock our actual worth." We are constantly looking for methods to increase our liquidity so that we can keep running this cherished company.

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Bed Bath & Beyond agreed with bankers early this year to allay fears that surfaced when it momentarily defaulted on its most senior debt, but since then, the company has become more and more reliant on them and other partners to operate the business.

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Its ability to swiftly turn around the company may be restricted by the demand to pay all sales revenue immediately to its banks before borrowing further money to support operations. Bed Bath & Beyond announced it is going to utilize more credit-worthy middlemen to purchase products it would subsequently sell under a consignment model, in which the supplier keeps possession of the product until it is sold, to preserve the inventory that acts as security to the banks.

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Bed Bath & Beyond's bankruptcy has been largely attributed to the mistrust of its suppliers since the company stopped paying several of them last year. While some have been paid back subsequently, others have been hesitant to ship goods once more until the shop pays them the money they are due, which has resulted in store shelves being more vacant recently.

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According to Chris Peasley, head of North American sales for AeroPress Inc., a company that makes and distributes coffee makers, "there is a lot of fear out there among vendors."

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Bed Bath & Beyond ceased buying from AeroPress many months ago, according to Peasley, since the company is relocating coffee makers from the hundreds of locations it is shutting to the 360 that will remain open. "We continue to observe excellent weekly sales" in the stores that will remain open, he said.

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Peasley stated that the merchant had kept up with payments to AeroPress and vowed in February to pay suppliers in advance or on delivery.

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"We are constantly improving by taking steps to broaden and accelerate our overall brand experience - for our consumers, staff, supply partners, and, ultimately, our shareholders," Gove added.

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According to DataWeave, a retail research provider, product availability in Bed Bath & Beyond shops in March was 46% lower than a year ago. This figure is significantly lower than those of other shops. In March, for example, Home Depot Inc. had 66% product availability.

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The April 26 deadline for the share sale derives from the Securities and Exchange Commission's requirement that Bed Bath & Beyond publish its annual report, known as a Form 10-K, by that date. In that report, it must assess whether it still qualifies as a "well-known and seasoned issuer," a status that allows it wider access to US public markets.

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According to Alon Kapen, an attorney with Farrell Fritz in Uniondale, New York, the qualifying conditions include a public float of at least $700 million in the prior 60 days.

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Bed Bath & Beyond, which has a market worth under $200 million, hinted in a regulatory filing on Thursday that it won't fulfill those requirements after April 26 and won't be allowed to issue securities as part of its agreement with B. Reid Securities.

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The company "has to hurry and sell as much as possible between now and the 10-K filing on April 26," Kapen stated in an email.

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