American domestic merchandise retailer Bed Bath & Beyond (NASDAQ:BBBY) has been in the limelight for months due to its dismal quarterly performances and frenzy amongst memesters. BBBY stock has lost 65.1% so far this year.
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A slew of headwinds, including plunging demand for home furnishings, low consumer spending power, persistently high inflation, supply chain snarls, and excess inventories, have dragged down the company’s performance. Moreover, the cash-strapped retailer has a lingering liquidity crisis and debt repayment challenges. In an effort to shore up its balance sheet, BBBY announced a debt exchange program yesterday.
However, the bond exchange program hasn’t gone well with the rating agencies. S&P Global (SPGI) downgraded BBBY’s credit rating to junk (from CC to CCC). Furthermore, it lowered the rating on BBBY’s outstanding debt to CC from CCC-, implying that the debt is “highly vulnerable” with high chances of default. S&P sees the bond exchange program as an event of default as “the noteholders will receive less than they were originally promised.”
Bed Bath & Beyond’s Debt Exchange Offer
The cash-strapped retailer is offering its senior noteholders due 2024, 2034, and 2044 an exchange offer plan. For the 3.749% notes due 2024, each $1,000 principal note holder can opt for either 3.693% senior second-lien secure nonconvertible notes due 2027 or a $410 principal amount of new 8.821% senior second-lien secured convertible notes due 2027.
Similarly, holders of the 4.915% notes due 2034 and the 5.165% notes due 2044 will be eligible to exchange them for a $217.50 principal amount of new 12% senior third-lien secured convertible notes due 2029.
Furthermore, BBBY has maintained the November 15th deadline for participation. Should bondholders participate in the exchange before 5 p.m. on October 31, they will be eligible for early participation payments.
Is BBBY Stock a Good Long-Term Investment?
The prospects of Bed Bath & Beyond outshining its current headwinds seem dull. The current short-term challenges are too grave for the retailer to pass through easily. Wall Street analysts have a Strong Sell rating on Bed Bath & Beyond stock, implying they don’t see any possibility of the retailer outperforming soon.
On TipRanks, the average Bed Bath & Beyond price target of $4.28 implies 19.1% downside potential from current levels. Also, analysts have given two Hold and nine Sell ratings on BBBY stock during the past three months.
Ending Thoughts
Bed Bath & Beyond is making every effort to carry on with regular company operations. The latest measure to strengthen the balance sheet has already drawn the flak of rating agencies, which view the retailer’s default as inevitable. Shutting shops, controlling expenses, and now, exchanging debt, BBBY may be running out of options soon to try to reign in its bleak future.
