Home New Bed Bath & Beyond Investor Wants Improved Capital Structure
July 25, 2022
New Bed Bath & Beyond Investor Wants Improved Capital Structure

By Mike Duff

Contributing Editor

What will be the fate of Bed Bath & Beyond remains an open question, given its recent executive shakeup and declining financials, but the company continues launching new initiatives.

Investor Freeman Capital has acquired 6.21% of Bed Bath & Beyond’s outstanding shares, and, as it informed the company of the stake, sent a letter that made certain suggestions to the retailer’s board of directors. Credit rating consultancy Pulse Ratings suggested the investor suggestions might only address part of Bed Bath & Beyond’s challenges.

In the meantime, Bed Bath & Beyond announced in an email blast to customers that it has established a new wellness destination dubbed Ritual + Renew as the company continues attempting new kinds of customer engagement.

Freeman Capital sent the letter to Bed Bath & Beyond on July 21, and it read:

BBBY is facing an existential crisis for its survival. To effectuate its survival, BBBY needs to cut its cash-burn rate, drastically improve its capital structure and raise cash. Currently, the U.S. options market is pricing in high implied volatility for BBBY derivatives which can be leveraged and capitalized on in order to effect a realignment of BBBY’s debt. 

 

Freeman Capital’s plan for the realignment of BBBY consists of two crucial legs: cutting debt and raising capital. To cut debt, Freeman Capital believes BBBY should engage in a trade to exchange the current senior unsecured debt for notes with significantly lower par value. To raise capital, Freeman Capital believes BBBY should issue convertible first-lien bonds as an efficient means to raise funding from the market . These financial transactions would reduce BBBY’s effective senior unsecured debt from $1.195 billion to $499 million. Additionally, the first-lien bonds would raise one billion dollars in funding, which would be the cash infusion that BBBY desperately needs. 

For its part, Pulse Ratings notes that, although Bed Bath & Beyond could use a rescue formula, the Freeman Capital plan may not be altogether feasible. Freeman’s notion to exchange Bed Bath & Beyond debt and reduce what’s outstanding could have some merit, Pulse Ratings maintained. But raising $1 billion in new funding through a convertible note issuance is less likely. Current business trends being what they are, Pulse Ratings stated the firm doesn’t believe that investors will receive this new debt offer gladly. The firm also noted that Freeman Capital has not committed to injecting capital into the retailer, nor has it proposed a plan covering how Bed Bath & Beyond could turn around operations and cash flow.

In the meantime, Bed Bath & Beyond continues to update operations to bring them into line with its strategies, which have as part finding more ways to engage consumers and support their lifestyles.

The retailer introduced Ritual + Renew, calling it a new destination for health, beauty and wellness for everyday family routines. The email blast promised great prices on hair care, with electric beauty tools prominently pictured, bathing basics including cleansers and scrubbing brushes, vitamins and supplements, and grooming tools such as lotions and razors. On the company home page, Ritual + Renew showcased a banner that flipped between category and use cases, including one dubbed wellness with images of supplements and a woman working on an arm with a muscle massager. Click through and the category headings of wellness, beauty, bath & body and men’s include presentations of health and wellness products ranging from, in wellness, the Sharper Image Powerboost Deep Tissue Massager previously illustrated to, in men’s, electric groomers and shavers.

The Ritual + Renew category organization sits just above a beauty essentials listing under which are click-throughs to categories skin care, hair care, hair styling tools, shaving & hair renewals, mirrors & makeup and travel size. Next comes an everyday self-care listing with the categories oral care, vitamins & supplements, body wash, massage & spa, fitness, and medicine.

To look at it another way, Bed Bath & Beyond now has two separate wellness curations that include a broader range of products in tandem with its Harmon Face Values operation. Amid the product category presentations is a never run out banner that declares: “Get your faves delivered automatically. Subscribe now.”

With all the corporate turmoil lately, Ritual + Renew demonstrates Bed Bath & Beyond still is investing additional effort into its wellness business. The longevity of such initiatives launched lately by the retailers, observers noted, will depend on how the present management and investor dynamics work out.

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