Thu 01/20/2022 09:27 AM
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Relevant Items:
Bed Bath and Beyond Debt Documents
Bed Bath and Beyond Covenants Tear Sheet

On Jan. 6, Bed Bath & Beyond released its financial results for its third fiscal quarter ended Nov. 27, 2021. Like most other retailers, the company has been adversely affected by global supply-chain issues. On the company’s earnings call, management stated that “overall sales were pressured despite customer demand due to the lack of availability with replenishment inventory and supply chain stresses that had an estimated $100 million, or mid-single digit, impact on the quarter and an even higher impact in December.”

During the second quarter, the company amended the credit agreement governing its secured asset-based revolving facility to, among other things, expand the facility size from $850 million to $1 billion, extend maturity to August 2026 and remove financial restraints such as anti-cash-hoarding and minimum availability requirements.

The company’s capital structure as of Nov. 27 is as follows:

 
Purchasing the Senior Notes

Since the release of its third-quarter earnings, Bed Bath’s 2024, 2034 and 2044 senior notes have traded down to about 99.25, 82 and 75, respectively, according to SolveAdvisors.

Although the company can redeem the notes only by paying a make whole premium, it can also purchase them in the open market and take advantage of the discounted trading prices and significantly reduce leverage.

The ABL facility does not limit the company from purchasing the senior notes as long as it can satisfy the “Payment Conditions,” defined as no default or event of default then occurring and either (a) 30-day trailing availability is no less than less than the greater of (1) 17.5% of the Line Cap or (2) $175 million and 1.0x FCCR or (b) 30-day trailing availability is no less than the greater of (1) 22.5% of the Line Cap or (2) $225 million. The company is currently able to satisfy the Payment Conditions.

Because the company can currently meet the Payment Conditions, it is not restricted from purchasing the remaining balances of its senior notes using balance sheet cash or ABL borrowings.
Covenant Conclusions (as of Nov. 27)

 

  • Financial covenants - The ABL facility contains a 1x fixed charge coverage ratio financial covenant that is tested if availability is less than the greater of 10% of the Line Cap and $95 million. Given that the facility was undrawn as of Nov. 27, the covenant is not currently tested.

  • Debt capacity - Bed Bath is currently permitted to incur about $2.04 billion debt pari to debt under the ABL facility, plus $50 million of non-ABL collateral secured debt.

  • Restricted payment and investment capacity - Because the company can satisfy the Payment Conditions, it is currently not restricted from paying dividends or making investments.

  • Asset sales and change of control - The senior notes do not include asset sale restrictions; a change of control, however, could be triggered if the company were to sell all or substantially all of its assets and the notes are downgraded below investment grade as a result of the change-of-control transaction. The ABL facility generally permits the company to sell assets as long as those sales are consummated at fair-market value and 75% of the consideration consists of cash. If those conditions cannot be met, the company is limited to $100 million of asset sales.


--Maribeth Lemen
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