Bed Bath & Beyond begins 3-week countdown to possible bankruptcy

It took Bed Bath & Beyond almost two months to raise $360 million in emergency financing from a hedge fund positioned to profit from the deal. It wasn’t enough.

Now, to avoid bankruptcy, the retailer has three weeks to squeeze another $300 million from equity markets that have largely turned against it after the deal diluted existing shareholders and sent its stock down 50%.

Cut off from direct access to its own cash and turning to third-party financing to convince some suppliers to ship merchandise, Bed Bath & Beyond is running low on options to dig itself out of a financial hole years in the making. In January, its lawyers stared down increasingly impatient lenders to insist on a last-gasp chance to forestall Chapter 11; after that deal raised a fraction of its $1 billion goal, the company is back to begging.

Equity markets are not receptive. The army of day traders who once drove its share price sky high soured even more on the stock when they realized their stakes would lose value under its funding deal with hedge fund Hudson Bay Capital Management. Retail investors have been net sellers over the past two weeks, according to Vanda Research data.

“Even retail investors are throwing in the towel on the stock rather than seeing this as an opportunity to double down and get behind the name as they did in the past with other meme stocks,” says Vanda’s Marco Iachini. Total retail trader buys haven’t crossed the $100 million mark since last summer, so it’s “quite a challenging situation for Bed Bath & Beyond at the moment.”

The shares traded Monday at a record low of around 41 cents, down from around 43 cents at Friday’s close.

Efforts by the company to dump new shares on the market were likely underway on Thursday and Friday when more than 320 million shares changed hands, roughly nine times the normal volume in a two-day stretch over the past year.

“We know our value today is not representative of our full potential, and this fuels our determination to stabilize and ultimately unlock our true value,” Sue Gove, Bed Bath & Beyond’s chief executive, said in a statement Saturday. “We are relentless in seeking ways to improve our liquidity to save this beloved business for the long term.”

Meanwhile, Bed Bath & Beyond has become increasingly dependent on its banks and other partners to manage the business since the retailer agreed to a deal with bankers earlier this year to quell concerns that arose after it temporarily defaulted on its most senior debt.

The company must turn over all income from sales directly to its banks before borrowing back the cash to fund operations, a hurdle that could slow its ability to quickly turn around the business. To maintain the inventory that serves as collateral to the banks, Bed Bath & Beyond said it is planning to use more creditworthy intermediaries to buy goods it will then sell under a consignment model—the supplier retains ownership of the product until it’s sold.

Distrust from suppliers has been a central element of Bed Bath & Beyond’s demise—the company stopped paying some of them last year. While some have since been repaid, others have been reluctant to ship merchandise again until the retailer pays them the money they are owed, which has left store shelves emptier in recent months.

“There is a lot of trepidation out there from vendors,” said Chris Peasley, director of North America sales for AeroPress Inc., which manufactures and sells coffee makers.

Several months ago, Bed Bath & Beyond stopped ordering from AeroPress, Peasley said, because the retailer is transferring coffee makers from the hundreds of stores it’s closing to the 360 that will remain open. In the stores slated to stay in business, “we continue to see strong weekly sales,” he said.

The retailer has kept up to date on payments to AeroPress, Peasley added, and pledged in February to pay suppliers in advance or on delivery.

“We are improving daily by taking actions to expand and accelerate our entire brand experience—for our customers, employees, supplier partners and, ultimately, our shareholders,” Gove said.

The availability of products in Bed Bath & Beyond stores in March was, on average, 46% of the level a year earlier, according to DataWeave, a retail data firm. That figure is much lower than other retailers. Home Depot, for instance, was at 66% product availability in March.

The April 26 deadline for the share sale stems from a requirement that Bed Bath & Beyond file an annual report, known as a Form 10-K, to the U.S. Securities and Exchange Commission by that date. In that report, it has to evaluate whether it continues to qualify as a “well-known and seasoned issuer,” a designation that gives it greater flexibility to access U.S. public markets. The eligibility requirements include having a public float of at least $700 million in the previous 60 days, according to Alon Kapen, an attorney at Farrell Fritz in Uniondale, New York.

Bed Bath & Beyond, which has a market capitalization of less than $200 million, implied in a regulatory filing on Thursday that it won’t meet those criteria after April 26 and therefore won’t be able to issue securities under its arrangement with B. Riley Securities.

The retailer, Kapen wrote in an email, “needs to hustle and sell as much as possible between now and the 10-K filing on April 26.”