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April 23, 2023 – Bed Bath & Beyond Inc. and 73 affiliate debtors (Nasdaq: BBBY, “BBB“ or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of New Jersey, lead case number 23-13359 (Judge TBA). The Debtors, “an omnichannel retailer with 949 stores and numerous websites,*” are represented by Michael D. Sirota of Cole Schotz P.C. Further board-authorized engagements include: (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) AlixPartners LLP as financial advisors (with Alex Partners' Holly Etlin to serve as CRO and CFO), (iii) Lazard Frères & Co. LLC as investment bankers, (iv) Hilco Merchant Resources LLC to assist with inventory sales and (v) Kroll Restructuring as claims agent.
* 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.
The Debtors’ lead petition notes between 25,000 and 50,000 creditors; 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). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) BNY Mellon (as Trustee in respect of $1.185bn of unsecured bonds), (ii) Personalization Mall ($11.1mn trade debt claim) and (iii) Intersoft Data Labs Inc. ($6.8mn trade debt claim). All 30 of the Debtors' top 30 unsecured claims are in excess of $2.4mn.
In a press release announcing the filing, BBB provides that it had (finally) filed for Chapter 11 protection "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.
While the Company has commenced a liquidation sale, Bed Bath & Beyond Inc. intends to use the Chapter 11 proceedings to conduct a limited sale and marketing process for 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."
Goals of the Chapter11 Filing
The Etlin Declaration (defined below) provides: "Bed Bath & Beyond has filed a motion to establish procedures to govern an efficient, public, and flexible auction process to realize the full value of existing assets. Bed Bath & Beyond has likewise proposed procedures to govern a wind-down process for all of its assets, including of the liquidation of inventory in all retail stores and distribution centers. Bed Bath & Beyond believes the framework and roadmap of these combined
procedures will best maximize value for all stakeholders.
While the commencement of a full chain wind-down is necessitated by economic realities, Bed Bath & Beyond has and will continue to market their businesses as a going-concern, including the buybuy Baby business. 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 [really?]. To the contrary, Bed Bath & Beyond and its professionals will make every effort to salvage all or a portion of operations for the benefit of all stakeholders"
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Etlin Declaration) [Docket No. 10], Holly Etlin, the Debtors’ recently appointed Chief Restructuring Officer and Chief Financial Officer (also an AlixPartners Partner & Managing Director) commented: “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….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….
In March 2019….the overhauled leadership of Bed Bath & Beyond made a concerted effort to revitalize its brand and regain its status as the go-to bed and home superstore….Bed Bath & Beyond’s new vision was a digital-first, customer-focused omnichannel retailer with a more curated, inspirational, and differentiated product collection across categories; this also meant a significant deduction of national brands and changes to previous long-standing vendor relationships. The Company hoped this would enhance margins and create an improved value proposition for the consumers.
Unfortunately, this strategy proved not to be successful. Traffic, market share, and important customer programs such as loyalty and registry were impacted. Changes were ushered in faster than the Company built systems to support them, and the transformation strategy proved too much for Bed Bath & Beyond’s supply chain to handle. Customers were confused as they visited Bed Bath & Beyond stores that looked nothing like the stores that had engendered their loyalty over decades, with well-known national brands like KitchenAid mixers and Calphalon cookware being replaced for private-label brands that customers did not want.
The self-inflicted disruption occurred at the same time brick and mortar retailers across the globe felt the unprecedented disruption caused by the COVID-19 pandemic….In compliance with local mandates, on March 23, 2020, Bed Bath & Beyond implemented temporary closures of retail banner stores across the United States and Canada….Along with the health and safety issues, the pandemic also exacerbated supply chain problems, serving as the driving force behind inflationary pressures that led to higher inventory costs and reductions in consumer discretionary spending. Bed Bath & Beyond’s massive shift towards private-label brands resulted in longer lead times to produce and ship to stores when compared to the more easily accessible national brands upon which Bed Bath & Beyond built its reputation and customer base.
Despite these headwinds, in late 2020, Bed Bath & Beyond announced plans to buy back $675 million of its common stock…(the 'ASR Program')…The Company became increasingly aggressive about its share buyback plans and increased its total buyback target from $675 million to $825 million in December 2020, and again to $1 billion in April 2021, even though Bed Bath & Beyond’s finances and overall economic trends among retail companies were weakened by the pandemic….Bed Bath & Beyond’s accelerated ASR Program caused some concerns amongst its merchandise suppliers, with vendors fearing the Company would not have enough cash on hand to pay them in full, resulting in some vendors scaling back their business with Bed Bath & Beyond.
As of November 2020, Bed Bath & Beyond had about $1.5 billion of cash on hand, compared to roughly $1.2 billion of debt. But, over the span of 18 months following implementation of the ASR Program, together with the unexpected drastic and continual decline in Bed Bath & Beyond’s stock price, Bed Bath & Beyond’s liquidity position stressed the financial stability of the Company.
As time passed, global supply chain hardships and inflationary conditions worsened, further disrupting Bed Bath & Beyond’s situation. The speed of industry inflation and lead time pressures outpaced the Company’s plans to offset these headwinds. And as a result, Bed Bath & Beyond failed to pivot fast enough—especially on price and margin recovery….The Company also implemented changes to its domestic distribution strategy—the network through which product is delivered to stores. The distribution strategy was not equipped for these changes to the upstream supply chain, nor resilient in the face of the pandemic-related issues that occurred at the Port of Los Angeles, which severely affected many companies….The Company wound up with empty shelves as factory closures and shipping bottlenecks delayed the arrival of the new private-label goods. Once the items hit stores, they did not resonate with shoppers. As a result, Bed Bath & Beyond was unable to achieve sufficient levels of inventory to meet demand over the important 2021 holiday season, leading to frustrated customers and sharp declines in sales. During third quarter of 2021, an estimated $100 million of sales were not fulfilled due to out-of-stocks and in the fourth quarter of 2021, an estimated $175 million of sales were not delivered. By the end of 2021, Bed Bath & Beyond reported net losses of $559.6 million, a decrease of approximately 14.8% compared to fiscal year 2020. Vendors and licensees grew concerned by the pace and scale of changes the Company was undergoing. During the first half of calendar ’22, Bed Bath & Beyond further tested its important vendor relationships by slowing payments and trimming down its orders quarter after quarter to focus on its private-label brands—forcing vendors to look to other stores and websites….As the Company’s financials worsened, tensions with its merchandise suppliers grew.
After successive quarters of earnings misses and failing to meet targets, continuing share price decreases, and spiraling expenses, Mark Tritton was excused on June 29, 2022. Contemporaneously, Bed Bath & Beyond reported that net sales in the first quarter fell by 25% year over year.
During the holiday season, unlike in years past, the Company did not have the financial flexibility to sufficiently restock inventory levels due to persistently deteriorating liquidity and tightening vendor credit. By December 2022, the Company’s stores were nearly 35% percent out of stock. Following a holiday season in which sales fell nearly 50% from the same period a year before, Bed Bath & Beyond triggered multiple events of defaults under its financing facilities. Because of the liquidity situation and the continued decline in inventory level, the Company found itself in the position of a nearly $200 million overadvance under its Prepetition ABL Facility….On January 25, 2023, JPMorgan sent a notice of acceleration and default interest…to the Debtors as a result of the ongoing Events of Default."
The Debtors' Petition date press release provides: "To facilitate this process, the Company has received a commitment of approximately $240 million in debtor-in-possession financing ("DIP") from Sixth Street Specialty Lending, Inc. Following court approval, the Company expects this financing to provide the necessary liquidity to support operations during the Chapter 11 process."
Prepetition Capital Structure
As of the Petition date, the Debtors have approximately $1.8 billion in total funded debt obligations. This consists of approximately (a) $80 million in aggregate principal amount outstanding under the Prepetition ABL Facility (plus $103 million of outstanding letters of credit), (b) $547 million in aggregate principal amount outstanding under the Prepetition FILO Facility, (c) $1.03 billion in outstanding Senior Unsecured Notes spread across three separate issuances with varying maturity dates and interest rates, and (d) $61.5 million of aggregate capital lease obligations.
The following table summarizes the Debtors' prepetition capital structure:
Key Prepetition Shareholders
- BlackRock, Inc: 14% (as at December 31, 2022, down from 20.7% as at February 7, 2022)
- The Vanguard Group: 7.31% (as at December 31, 2022)
- FMR LLC: 13.7%
- RC Ventures: 0% as at August 16, 2022 (having held 11.8% as at March 24, 2022)
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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