Bed Bath & Beyond’s Fizzling Rally Narrows Options for Cash Infusion

The falling share price has made it less likely that the retailer can fix its financial problems by issuing stock, as other struggling companies have done when they suddenly sparked the interest of bullish individual investors.

The company has signaled it has to raise cash; while it has said it should be fine for a year, its business remains in decline. It has been working with restructuring consultant Berkeley Research Group LLC to improve its cash, balance sheet and inventory positions, the company said in June.

Bed Bath & Beyond didn’t respond to requests for comment. “We are continuing to execute on our priorities to enhance liquidity, make strategic changes and improve operations to win back customers, and drive cost efficiencies,” company spokesman

Eric Mangan

has said previously.

The company’s sales in the latest quarter declined 25% from a year earlier. In late May, it had about $108 million in cash reserves, down from $440 million in February. In financial filings, it said that it had a solid liquidity position and could generate cash it needed from an existing credit line and its operations for the next year.

Recently, it has been hunting for $375 million in debt to pad its cash levels and help pay down existing debt, people familiar with the matter have said. A loan deal would help reassure suppliers and provide liquidity to fund inventory for the crucial holiday shopping season.

Law firm Kirkland & Ellis LLP is advising the company on the financing, according to a person familiar with the situation. Bloomberg earlier reported on the law firm’s work with the company.

The Union, N.J., retailer has been reaching out to vendors to try to negotiate longer payment terms, the person said. One firm that finances suppliers has stopped providing credit on shipments to Bed Bath & Beyond, this person said, a sign of concern in the retailer‘s ability to pay vendors.

Urged by Mr. Cohen through his investment firm RC Ventures, Bed Bath & Beyond said earlier this year it would explore strategic options, including a potential sale of the BuyBuy Baby brand, which had 135 stores as of May. The company’s interest in separating the seller of baby items and nursery furnishings has since cooled, according to people familiar with the discussions.

The prospective loan, marketed by

JPMorgan Chase

JPM -2.47%

& Co., would be secured by intellectual property at the company’s BuyBuy Baby division and structured in a way that would be ranked below other secured debt if the company files for bankruptcy, people familiar with the matter have said. Credit investors, including some focusing on distressed debt, have been scrutinizing the brand’s value to decide whether it is enough to secure the loan, the people said.

A credit investor who submitted a proposal in recent days as the company’s stock price rose asked the retailer to issue more stock as part of the debt deal, one of the people said. The company hasn’t publicly indicated that it is considering an equity offering since the shares began rallying earlier this month, just as equity analysts were downgrading its prospects.

The retailer has said that it would provide an update on efforts to strengthen its balance sheet at the end of the month.

As its stock lost steam, Bed Bath & Beyond’s 2024 bonds also dropped in tandem, trading at roughly 40 cents on the dollar Friday, down nearly 27% from two days earlier, according to MarketAxess. The discounted price shows debtholders aren’t confident the notes would be paid out in full, implying that equity is at high risk of being wiped out, as is common in a restructuring.

Still, there is recent precedent for troubled businesses to defy debt markets to generate shareholder value. Professional investors largely assumed that

Hertz Global Holdings Inc.

HTZ -2.87%

was valueless after it filed for bankruptcy in 2020, but it was amateur stockholders who won big betting the rental-car business would recover beyond the pandemic.

AMC Entertainment Holdings Inc.

AMC -6.58%

also sold $2.2 billion of equity to get through the pandemic after becoming a favorite of individual traders, despite severe financial strains. Debt financing also requires confidence in Bed Bath & Beyond rebounding from operating missteps, including plowing money into private-label brands that alienated customers and had poor sales.

As the company adds name brands back, some suppliers are no longer giving the retailer the preferential treatment it once enjoyed, according to other people familiar with the matter. Some suppliers that once sold at Bed Bath & Beyond exclusively have broadened their distribution to include other retailers, the people said.

If the home-goods retailer, known for its large assortment of products, manages to get fresh funding, it would ease the pressure by suppliers who might further tighten payment terms or demand cash upfront for merchandise. A tightening of vendor payment terms to 30 days from 60 days would roughly double the quarterly cash burn to $400 million from about $200 million estimated for the coming quarters, an analyst at Bank of America said in a note in June.

—Alexander Gladstone and Alexander Saeedy contributed to this article.

Write to Jodi Xu Klein at [email protected] and Suzanne Kapner at [email protected]

The falling share price has made it less likely that the retailer can fix its financial problems by issuing stock, as other struggling companies have done when they suddenly sparked the interest of bullish individual investors.

The company has signaled it has to raise cash; while it has said it should be fine for a year, its business remains in decline. It has been working with restructuring consultant Berkeley Research Group LLC to improve its cash, balance sheet and inventory positions, the company said in June.

Bed Bath & Beyond didn’t respond to requests for comment. “We are continuing to execute on our priorities to enhance liquidity, make strategic changes and improve operations to win back customers, and drive cost efficiencies,” company spokesman

Eric Mangan

has said previously.

The company’s sales in the latest quarter declined 25% from a year earlier. In late May, it had about $108 million in cash reserves, down from $440 million in February. In financial filings, it said that it had a solid liquidity position and could generate cash it needed from an existing credit line and its operations for the next year.

Recently, it has been hunting for $375 million in debt to pad its cash levels and help pay down existing debt, people familiar with the matter have said. A loan deal would help reassure suppliers and provide liquidity to fund inventory for the crucial holiday shopping season.

Law firm Kirkland & Ellis LLP is advising the company on the financing, according to a person familiar with the situation. Bloomberg earlier reported on the law firm’s work with the company.

The Union, N.J., retailer has been reaching out to vendors to try to negotiate longer payment terms, the person said. One firm that finances suppliers has stopped providing credit on shipments to Bed Bath & Beyond, this person said, a sign of concern in the retailer‘s ability to pay vendors.

Urged by Mr. Cohen through his investment firm RC Ventures, Bed Bath & Beyond said earlier this year it would explore strategic options, including a potential sale of the BuyBuy Baby brand, which had 135 stores as of May. The company’s interest in separating the seller of baby items and nursery furnishings has since cooled, according to people familiar with the discussions.

The prospective loan, marketed by

JPMorgan Chase

JPM -2.47%

& Co., would be secured by intellectual property at the company’s BuyBuy Baby division and structured in a way that would be ranked below other secured debt if the company files for bankruptcy, people familiar with the matter have said. Credit investors, including some focusing on distressed debt, have been scrutinizing the brand’s value to decide whether it is enough to secure the loan, the people said.

A credit investor who submitted a proposal in recent days as the company’s stock price rose asked the retailer to issue more stock as part of the debt deal, one of the people said. The company hasn’t publicly indicated that it is considering an equity offering since the shares began rallying earlier this month, just as equity analysts were downgrading its prospects.

The retailer has said that it would provide an update on efforts to strengthen its balance sheet at the end of the month.

As its stock lost steam, Bed Bath & Beyond’s 2024 bonds also dropped in tandem, trading at roughly 40 cents on the dollar Friday, down nearly 27% from two days earlier, according to MarketAxess. The discounted price shows debtholders aren’t confident the notes would be paid out in full, implying that equity is at high risk of being wiped out, as is common in a restructuring.

Still, there is recent precedent for troubled businesses to defy debt markets to generate shareholder value. Professional investors largely assumed that

Hertz Global Holdings Inc.

HTZ -2.87%

was valueless after it filed for bankruptcy in 2020, but it was amateur stockholders who won big betting the rental-car business would recover beyond the pandemic.

AMC Entertainment Holdings Inc.

AMC -6.58%

also sold $2.2 billion of equity to get through the pandemic after becoming a favorite of individual traders, despite severe financial strains. Debt financing also requires confidence in Bed Bath & Beyond rebounding from operating missteps, including plowing money into private-label brands that alienated customers and had poor sales.

As the company adds name brands back, some suppliers are no longer giving the retailer the preferential treatment it once enjoyed, according to other people familiar with the matter. Some suppliers that once sold at Bed Bath & Beyond exclusively have broadened their distribution to include other retailers, the people said.

If the home-goods retailer, known for its large assortment of products, manages to get fresh funding, it would ease the pressure by suppliers who might further tighten payment terms or demand cash upfront for merchandise. A tightening of vendor payment terms to 30 days from 60 days would roughly double the quarterly cash burn to $400 million from about $200 million estimated for the coming quarters, an analyst at Bank of America said in a note in June.

—Alexander Gladstone and Alexander Saeedy contributed to this article.

Write to Jodi Xu Klein at [email protected] and Suzanne Kapner at [email protected]