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April 25, 2023 – The Court hearing the Bed Bath & Beyond cases issued an order: (i) approving bidding procedures in relation to the sale of the substantially all or any portion of the Debtors’ assets, (ii) authorizing the Debtors to select one or more stalking horse bidders (none selected yet, with May 22nd set as a deadline to notify Court of any selected), (iii) approving bid protections including a 3% break-up fee for any selected stalking horse and (iv) adopting a proposed auction/sale timetable culminating in an auction on June 2nd and a sale hearing on June 7th [Docket No. 92 with a form of APA attached at Schedule 2].
The Debtors, who conceded that their recent "prepetition sale process proved unsuccessful, producing limited interest," are nonetheless embarking on what investment banker Lazard (who contacted over 100 potential investors over the last nine months) characterizes as "the last, best chance for the Debtors to realize a going concern value for some or all of their Debtors’ Assets."
Run in parallel to these last gasp, going concern efforts, is an already underway liquidation (followed by wind-down) process being run by Hilco Merchant Resources, LLC. The sale effort, one way or another, is to be short-lived, with DIP lender Sixth Street pushing agressive milestones that require a sale hearing to occur within @ six weeks of filing (ie by June 7th).
As noted below, Hilco has already helped shutter over half of what was until recently over 900 locations. Also likely indicative of the primacy of "liquidation" effirts in this nominally dual path (ie going concern sale v. liquidation sales) process is the Debtors' estimate that the liquidation of the remaining stores (including a small take in respect of whatever additional "merch" Hilco throws into the mix) will net $718.0mn.
In a filing date press release, the Debtors, having confused/bemused markets for over three months with a pair of ill-fated efforts to raise equity capital, commented as to their goals for the long-awaited/long-delayed bankruptcy filings…that they intended "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 has filed motions with the Court seeking 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 is also strategically managing inventory* to preserve value. In the event of a successful sale, the Company will pivot away from any store closings needed to implement a transaction. The Company believes this dual-path process will best maximize value."
* This appears to be the latest euphemistic trend for "liquidation," with David's Bridal (also featuring Hilco) using the same verbiage last week as to a similar "dual path" (liquidation/sale) bankruptcy effort.
- Deadline to select Stalking Horse Bidders: no later than May 22, 2023
- Bid Deadline: May 28, 2023
- Auction: June 2, 2023
- Sale objection Deadline: June 5, 2023
- Sale Hearing: June 7, 2023
On April 23, 2023, Bed Bath & Beyond Inc. and 73 affiliate debtors (Nasdaq: BBBY, “BBB“ or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn (the Debtors' most recent 10-Q notes assets of $4.4bn and liabilities of $5.2bn as at September 30, 2022, and the Debtors note that they filed with $1.82bn of funded debt) At filing, the Debtors, “an omnichannel retailer with 949 stores and numerous websites,*” noted their intention to pursue "an orderly wind-down" while being prepared to pivot to an asset sale should the opportunity arise.
* As of November 26, 2022, the Company had a total of 949 stores, including 762 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 137 buybuy BABY stores and 50 stores under the names Harmon, Harmon Face Values or Face Values. The Company operates websites at bedbathandbeyond.com, bedbathandbeyond.ca, buybuybaby.com, buybuybaby.ca, harmondiscount.com, and facevalues.com.
On April 24th, the Debtors got Court authority to: (i) access $40.0mn of new money, debtor-in-possession (“DIP”) financing to be provided by certain prepetition lenders (with Sixth Street Specialty Lending, Inc. as administrative agent) and (ii) roll-up $200.0mn of amounts owed to Sixth Street, et al, under the Debtors' Prepetition FILO Facility. NB: Access to the entirety of the currently proposed $40.0mn of DIP financing, and the 5:1 roll-up, were authorized with the interim order.
Also on April 24th, the Debtors got Court authority to conduct store closing sales in respect of 473 stores operating under the Bed Bath & Beyond (BBBY-US) and BuyBuyBaby (BABY-US) banners with Hilco Merchant Resources, LLC (“Hilco”) to continue as liquidation consultant in respect of a store closing process which has (over the last 12 months) "reduced their store footprint by approximately 482 stores, leaving the Debtors with approximately 473 stores." The Debtors estimate that "net sales proceeds from all Sales at the remainder of the Debtors’ stores will be approximately $718 million."
Bidding Procedures Motion
The motion [Docket No. 29] states, “…the prepetition sale process proved unsuccessful, producing limited interest in a viable proposal to acquire the Debtors’ assets. Through the filing of these chapter 11 cases and this Motion, the Debtors seek to continue the process to sell any portion, all, or substantially all of the Debtors’ Assets, either as a going concern or as a liquidation (whichever is most value maximizing to the Debtors’ estates) to one or more third-party buyers. That process will run in tandem with the continued liquidation of the business, which is being implemented with the support of Hilco Merchant Resources, LLC ('Hilco') pursuant to the wind-down procedures…"
[t]he Debtors commenced these chapter 11 cases following a year of financial tumult. Poor earnings reports in early 2022 led to multiple downgrades to the Debtors’ credit rating, and a subsequent purchase and sale of a massive stake in Bed Bath & Beyond by ‘meme’ stock investors sent share prices plummeting. These problems were exacerbated by the shifting consumer behavior in the wake of the COVID-19 pandemic and the supply chain crisis that followed. As the Debtors’ liquidity picture worsened over the past twelve months, efforts by prior management to reorient the Debtors’ business around private-label products proved unsuccessful, leading to strained relationships with the Debtors’ key stakeholders, including customers and vendors. Despite the best efforts of the new management team to right the ship, facing a severely constricted liquidity picture, outstanding debt defaults, and rapidly declining year over year sales, the Debtors determined to evaluate all strategic alternatives, including a sale of the Debtors’ businesses.
… The Debtors commenced these chapter 11 cases with committed postpetition financing in the form of the DIP Facility, granting the Debtors with runway to pursue a sale transaction while in bankruptcy. Thus, time is of the essence. Pursuant to the DIP Credit Agreement, the Debtors must satisfy certain milestones (the ‘DIP Milestones’) for the sale of their Assets t, including:
- any bid deadline must be no more than 35 days from the Petition Date.
- The Bankruptcy Court shall have entered an order or orders approving the sale(s) of all or substantially all of the Debtors’ assets no later than 45 days from the Petition Date.
Conducting a thorough yet expedited bidding process and consummating a Sale Transaction are vitally important to the Debtors’ efforts to maximize value by selling the Assets. Failure to comply with the DIP Milestones would place the Debtors in default under the DIP Credit Agreement. Such a result can, and should, be avoided in order to provide the Debtors with the best chance to maximize the value of their estates through the sale of some or all of the Assets. Such a Sale Transaction would benefit not only the Debtors, but their vendors, lenders, dedicated employees, and other key stakeholders, as well.
To preserve the value of the Debtors’ estates—and to offer the Debtors a chance to increase the ultimate value provided by the monetization and disposition of their assets—the Debtors propose the Bidding Procedures contemplated herein. The Bidding Procedures provide substantial flexibility with respect to the structure of any transaction(s). The Debtors will consider all viable options in accordance with the Bidding Procedures before determining if selling Assets will, in their business judgment, maximize value for the estate. Any delay would hinder the Debtors’ efforts to maximize value.”
In a declaration in support of the motion [Docket No. 29] the Debtors’ investment banker (David Kurtz of Lazard) states, “In August 2022, the Debtors engaged Lazard to pursue a debt exchange transaction to address the Senior Unsecured Notes. Specifically, Lazard analyzed and developed potential offers to exchange any and all of the then-outstanding Senior Unsecured Notes via a public exchange with the goal of reducing the Company’s debt and interest expense and addressing the near-term maturity of the 2024 Notes. In addition, Lazard assisted the Company with negotiating and implementing two private debt-for-equity exchanges in November 2022. As described in the First Day Declaration, the Company terminated the public exchange transaction on January 5, 2023.
In December 2022, Lazard commenced a process to solicit interest in a going concern sale transaction that could be effectuated in chapter 11, as well as to solicit interest in providing post-petition financing. Lazard initially reached out to a group of potential financial and strategic investors who are experienced in investing in the retail sector, operational turnarounds and/or distressed situations and held meetings with certain of those investors in late December 2022. This initial group was comprised of approximately twenty investors, nine of which had executed confidentiality agreements by the second week of January 2023. Those parties included various financial sponsors, strategic buyers, and money center banks. Several of the parties contacted could have potentially been acquirers of some or all of the Debtors businesses, as well as providers of post-petition financing to fund a going-concern reorganization.
In mid-January 2023, efforts to identify a potential plan sponsor and investors to provide post-petition financing intensified, the universe of potential investors that Lazard engaged with expanded, and diligence continued. The Debtors and Lazard shared diligence materials and financial projections, discussed the structuring of potential transactions, and conducted in-person or telephonic meetings with certain of these parties and the Debtors’ management. The Debtors also received unsolicited inbounds from potential third-party financing sources who expressed some level of interest in potentially providing post-petition financing, which Lazard explored. At the same time, the Debtors’ liquidity position was deteriorating rapidly. By the end of January 2023, as the number of investors that Lazard was engaging with had increased and as investors continued to conduct diligence, it became apparent that the process was unlikely to yield a plan sponsor that would facilitate a going-concern reorganization. By that time, Lazard had engaged with approximately sixty potential investors to solicit interest in serving as a plan sponsor, acquiring some or all of the Debtors’ assets or businesses, or providing post-petition financing. Thirty of those parties had executed confidentiality agreements.
In January 2023, the Debtors executed a second engagement letter with Lazard to broaden the scope of the engagement, including to explore a potential sale and restructuring transaction that could be implemented through chapter 11. Over the past several months, Lazard has worked closely with the Debtors’ management and other professionals retained by the Debtors with respect to the Debtors’ restructuring efforts and has become well-acquainted with the Debtors’ capital structure, financing needs, and business operations.
In mid-April 2023, Lazard once again reengaged with potential investors in an effort to identify a plan sponsor in connection with a chapter 11 restructuring or a provider of postpetition financing. In connection with that process, Lazard engaged with over 30 parties to assess interest in acquiring all or part of the business or providing DIP financing and no viable buyer was identified and no investors were willing to provide actionable DIP financing proposals. In total, Lazard engaged with over 100 potential investors since December 2022; over 50 of those parties executed NDAs. As set forth in my declaration in support of the postpetition financing motion, the Debtors again found themselves in an untenable liquidity position, necessitating the commencement of these chapter 11 cases.
While the Debtors did not receive any actionable offers for an acquisition of their Assets before the Petition Date, the Debtors and Lazard are continuing their efforts to market all or a portion of the Assets (in whole or in part) and, if appropriate, enter into an agreement with a Stalking Horse Bidder. The Debtors are committed to achieving the highest or otherwise best bid for some or all of the Debtors’ Assets by marketing those Assets pursuant to the Bidding Procedures, and, if necessary, conducting an auction for such assets as well as any additional assets of the Debtors. I am confident that the Bidding Procedures and the other relief requested in the Motion, including setting a schedule for an auction (if necessary), represent the last, best chance for the Debtors to realize a going concern value for some or all of their Debtors’ Assets. I believe the proposed Bidding Procedures will facilitate the sale of the Debtors’ Assets, including the Debtors’ trademarks, for the highest or otherwise best value, and potentially preserve jobs for their dedicated employees. The Debtors anticipate that any stores which a potential purchaser does not seek to acquire will be wound down through store closing sales. I believe that the proposed Bidding Procedures provide for substantial flexibility with respect to the structure of any Sale Transaction, and the Bidding Procedures are the best path to garner interest in the Assets and maximize value for all stakeholders.”
About the Debtors
According to the Debtors: “Bed Bath & Beyond Inc. and subsidiaries…is an omnichannel retailer that makes it easy for our customers to feel at home. The Company sells a wide assortment of merchandise in the Home, Baby, Beauty and Wellness markets. Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond.
The Company operates websites at bedbathandbeyond.com, bedbathandbeyond.ca, buybuybaby.com, buybuybaby.ca, harmondiscount.com, and facevalues.com. As of November 26, 2022, the Company had a total of 949 stores, including 762 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 137 buybuy BABY stores and 50 stores under the names Harmon, Harmon Face Values or Face Values. During the fiscal 2022 third quarter, the Company closed 6 Bed Bath & Beyond stores. The joint venture to which the Company is a partner operates 12 stores in Mexico under the name Bed Bath & Beyond.”
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