April 23, 2023 – The Debtors filed a motion requesting Court authority to: (i) assume a pair of consultancy agreements with Hilco Merchant Resources, LLC (“Hilco” or the “Consultant”), (ii) conduct store closing sales in respect of 473 stores operating under the Bed Bath & Beyond (BBBY-US) and BuyBuyBaby (BABY-US) banners, (iii) implement store closing procedures and (iv) adopt a bonus plan for store-level employees involved in liquidation efforts [Docket No. 28, with consultancy agreements attached].

Hilco has now been closing stores for even longer than the Debtors' investment banker Lazard has been trying to sell them, with the Debtors having (over the last 12 months) "reduced their store footprint by approximately 482 stores, leaving the Debtors with approximately 473 stores." 

How much value is left in a liquidation process? 

The Debtors estimate that "net sales proceeds from all Sales at the remainder of the Debtors’ stores will be approximately $718 million." If that estimate bears any semblance to to actual proceeds, it puts a significant marker in the ground for any potential going concern purchasers as the Debtors look to "maximize value for their estates."

The Debtors' longstanding dual path efforts are ostensibly continuing, with the Debtors running the Hilco-led liquidation effort in parallel with a last gasp going concern sale effort (see our separate coverage on the Debtors' bidding procedures motion and remaining hopes as to what was a fruitless, nine month out-of-Court sales effort run by Lazard), and are still being careful not to throw the (asset sale) baby out with the (liquidation) bath water, promising to quickly "pivot away from any store closings needed to implement a [sale] transaction." 

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."

* "Strategically managing inventory" 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) effort in those bankruptcy cases.

Case Status

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 23rd, the Debtors requested 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), (ii) roll-up $200.0mn of amounts owed to Sixth Street, et al, under the Debtors' Prepetition FILO Facility and (iii) use cash collateral.

Also on April 23rd, the Debtors filed a motion requesting approval of (i) proposed bidding procedures order in relation to the sale of the substantially all or any portion of the Debtors’ assets and (ii) a proposed auction/sale timetable culminating in an auction on June 2nd and a sale hearing on June 7th. 

The Debtors, who conceded that their recent "prepetition sale process proved unsuccessful, producing limited interest," are nonetheless going to embark 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." 

The Store Closing Motion

The motion [Docket No. 28] states, “Over the past several years, the Debtors’ have faced a challenging commercial environment brought on by increased competition, an unsuccessful foray into private label merchandise development, and the consumer shift away from shopping at brick-and-mortar stores. Given the expenses associated with a substantial brick-and-mortar presence, and the issues affecting the retail industry as a whole, a significant number of the Debtors’ stores are operating at sub-optimal performance levels.

In the past 12 months, the Debtors have reduced their store footprint by approximately 482 stores, leaving the Debtors with approximately 473 stores as of the Petition Date. Ultimately, the Debtors’ management team and advisors determined that it is appropriate to close and wind down any remaining brick-and-mortar stores that are not sold to a buyer pursuant to the Debtors’ bid procedures. The Debtors expect all Sales at the Closing Stores to be completed in accordance with the milestones set forth in the DIP Orders (as defined herein). The Debtors estimate that the aggregate net sales proceeds from all Sales at the remainder of the Debtors’ stores will be approximately $718 million.”

The Consultant

The motion continues, “For over two years, the Debtors have engaged the Consultant to facilitate store closures for the Company. As a result, the Consultant has significant expertise and expert knowledge of the Debtors’ business, their merchandise, and their store operations. Additionally, the Debtors and the Consultant are already party to the Consulting Agreements, which set forth the terms pursuant to which the Consultant has operated store closings for the Debtors for over two years. In light of this and the Consultant’s historic success in closing other stores for the Debtors, the Debtors concluded in their business judgment that (a) the services of the Consultant are necessary (i) for a seamless and efficient large-scale store closing process, as is contemplated by this Motion, and (ii) to maximize the value of the saleable inventory located in the Closing Stores (as defined in the Consulting Agreements, the ‘Merchandise’), and the associated furniture, fixtures, and equipment (as defined in the Consulting Agreements, the ‘FF&E’ and, together with the Merchandise, the ‘Store Closure Assets’), and (b) the Consultant is qualified and capable of performing the required tasks in a value-maximizing manner. Further, the Consultant is already in the process of liquidating inventory at most of the Closing Stores. By this motion the Debtors seek to assume the Consulting Agreements, allow the Consultant to continue its work as described herein uninterrupted, and to enter into additional agreements in, if necessary, on terms materially consistent with the Debtors’ historic practices.

The Store Closings are critical for the Debtors to efficiently administer their estates during the pendency of these Chapter 11 Cases, and assumption of the Consulting Agreements will allow the Debtors to continue to conduct the Sales and Store Closings in an efficient, controlled manner that will maximize value for the Debtors’ estates. In fact, the relief requested in this Motion overall is integral to maximizing the value of the Debtors’ estates. It will permit the Debtors to continue the Sales and commence the Store Closings in a timely manner and will establish fair and uniform store closing procedures that will maximize the benefit to the Debtors’ estates.

To maximize the value of the Store Closure Assets, the Consultant may determine that it will syndicate and partner with additional entities to serve as consultants (the ‘Additional Consultants’).”

Compensation for Consultant

In consideration of its services under the Consulting Agreements, Merchant shall pay Agent a ‘Base Fee’ equal to one and one half percent (1.5%) of the Gross Proceeds of Merchandise sold at the Stores. In addition to the ‘Base Fee’, Agent may also earn an ‘Incentive Fee’ (together with the Base Fee, the ‘Merchandise Fee’) equal to the aggregate sum of the percentages shown in the following table, based upon the following ‘Net Recovery Thresholds’ (e.g., in each case, as calculated back to first dollar):

Store Closing Bonus Plan

The motion further states, “…the Debtors are requesting the authority, but not the obligation, to pay Store Closing Bonuses (the ‘Store Closing Bonus Plan’) to store-level non-insider employees, who remain in the employ of the Debtors during the Sales. The Debtors believe that the Store Closing Bonus Plan will motivate employees during the Sales and will enable the Debtors to retain those employees necessary to successfully complete the Sales.

The Debtors’ Store Closing Bonus Plan has been active since November 2022. Payments under the program are made exclusively to non-insiders and on the condition of employment through the date on which the respective employee’s store closes. Hourly store associates are eligible to receive an additional $2.00 per hour for every hour worked during the closing period, payable in a lump sum on the associate’s last paycheck following the completion of the Store Closing. Store Managers are eligible to receive a one-time lump sum payment of $1,000, payable in a lump sum on the store manager’s last paycheck following the completion of the Store Closing. The amount of the bonuses offered under the Store Closing Bonus Plan vary depending upon a number of factors, including the employee’s position with the Debtors and duration of employment.

The aggregate amount of Store Closing Bonuses on account of all remaining Closing Storesis estimated to be approximately $ 1.6 million, assuming one hundred percent of the eligible employees remain employed through the duration of the Sales at every Closing Store.”

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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