Bed, Bath & Beyond analyst says debt restructuring won’t save company

Bed Bath and Beyond Inc BBBY shares fell 12.1% on Friday after a big rally on Thursday on the news Freeman Capital took a 6.2% stake in the company and called on it to restructure its debt and issue $1 billion in obligations. Unfortunately, at least one analyst remains skeptical of Freeman’s stock and plan.

The analyst: On Friday, the Bank of America analyst jason hasas reiterated its underperforming rating and price target of $2.40 for Bed, Bath & Beyond.

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The thesis: Haas said Bed, Bath & Beyond had a cash flow problem that debt restructuring would not solve. Furthermore, he said a plan to raise $1 billion in debt just wasn’t realistic at this point.

“The company’s CEO and a number of other executives have recently left, the turnaround strategy hasn’t worked as expected, inventories are inflated, and consumers are cutting back on discretionary spending significantly,” Haas said.

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Moody’s recently downgraded the rating of the company’s senior unsecured notes to just Caa3. Finally, Haas said few bond investors would trust a company with $3.3 billion in debt and negative EBITDA.

For now, Haas said the biggest risk for the company is that suppliers pull funding after Bed, Bath & Beyond reported a cash burn of $500 million in the first quarter. Haas said a drastic improvement in cash burn and a source of cash is far more important to the company at this point than restructuring its current debt.

Benzinga’s opinion: To say things are bleak for Bed, Bath & Beyond is an understatement. On top of its $500 million cash burn in the first quarter, the company only had $100 million in cash at the end of the first quarter and had drawn another $200 million on a $700 million gun. to June 29.

Photo: Courtesy of Mike Mozart on Flickr

Julio V. Miller