Stock Sales Couldn’t Save Bed Bath & Beyond as Debts Mounted

Welcome to . It’s Amelia Pollard in New York and Eliza Ronalds-Hannon in Atlanta, where we traced Bed Bath & Beyond’s final days. We also have the latest on the French supermarket chain Casino and ATM-maker Diebold. Follow this link to subscribe. Send us feedback and tips at [email protected] or Tweet/DM to @ameliajpollard

Final Days

The inevitable arrived for Bed Bath & Beyond on Sunday when it filed for bankruptcy with a plan to close its doors. The usual retail problems, such as a slow transition to online sales, were at the heart of the retailer's long and painful demise. But in its final days, its undoing was simple: it could no longer generate enough cash to pay its lenders, even after eleventh-hour equity deals bought the company a few months of time.

A deal with hedge fund Hudson Bay Capital Management -- which capitalized on the retailer's bafflingly resilient status as a meme stock -- generated $360 million of fresh cash over seven weeks in February and March. But virtually every penny of that went to Bed Bath's creditors. 

Lender Sixth Street’s lawyer David Hillman said Bed Bath’s financial situation was so dire last week that it required emergency funding Friday morning, two days before the company filed Chapter 11, and needed money in order cover costs associated with the bankruptcy filing.

“We wish there was a different outcome,” Hillman said in the company’s first bankruptcy court appearance on Monday. 

Now, Sixth Street and potential other parties are throwing in $40 million of new money to help the company wind down, according to court papers. Some $200 million of previous borrowings will jump ahead in the repayment line. The retailer estimates it will raise $718 million by liquidating. 

Retail stock investors, who typically recover nothing in Chapter 11 cases, will likely walk away empty handed again. But some memestock traders stuck with Bed Bath until the very end: just days before the filing, shares that had been languishing around 25 cents shot up as high as 55 cents. But by Tuesday, they were trading at around 20 cents. 

High Alert

• First Republic Bank is slashing its workforce, shrinking its balance sheet and pursuing strategic options after deposits plummeted even more than analysts expected during last month’s regional-banking crisis.
• Investors are growing more concerned about a Kenyan default. The extra yield investors demand to hold the country’s dollar bonds over US Treasuries rose to 1,019 basis points on Monday, above the the 1,000 level widely considered by bond traders as distressed.
• Failed crypto lender Celsius Network has attracted two new bidders in a three-way auction set for Tuesday: Fahrenheit, a consortium backed by Techcrunch founder Michael Arrington, and Blockchain Recovery Investment Committee, backed by Gemini Trust, run by the Winklevoss twins, and exchange-traded fund manager Van Eck Absolute Return Advisers Corporation
• Creditors contesting Adler Group’s €6 billion ($6.6 billion) debt restructuring were denied permission to appeal, helping the embattled real estate firm move ahead with the plan.
• For more on the distressed debt outlook, listen to the latest Credit Edge podcast

The Latest on… Casino

The moment of reckoning for French retailer Casino Guichard-Perrachon may have arrived sooner than expected, Irene Garcia Perez writes

The company, unable to tackle a €6.4 billion ($7.1 billion) debt pile amid dwindling sales in France, has been seeking a difficult deal with retailer Teract, owner of the Jardiland garden chain as well as Frais d’Ici food stores, to stay afloat. But before market opened on Monday it announced it received an offer for a €1.1 billion capital increase, led by Czech billionaire Daniel Kretinsky. 

The terms of the offer aren’t clear yet but it won’t be an easy one to swallow for shareholders and potentially creditors. Kretinsky, who already owns 10.1% of Casino, is asking as a condition to buy back a substantial amount of the bonds and convert them into equity to shrink the debt pile. The deal would most likely give him control of the business, with some analysts calculating he could take a stake of almost 70%, leaving CEO Jean-Charles Naouri with a minority stake.

Naouri has been fighting for years to keep his grip on Casino, but he knows well he needs a radical deal to save the business. The Czech tycoon’s offer may be the best one on the table. 

Kretinsky, who made his fortune investing in coal mines and gas, is a well known investor in France, with stakes in other businesses like retailer FNAC. He has now to inject €750 million in the supermarket chain, with €150 million coming from a French shareholder and €200 million reserved for other existing shareholders.

Under the circumstances, it could be a good deal for bondholders too. 

The offer is a “deeply discounted bid for the Casino equity through unsecured bonds,” said Peter Cuckovic, head of leveraged credit strategy at UBS. “In theory, if all of the €1.1 billion of proposed capital raise is used to buy back all the unsecured bonds, it would imply average price of 49 cents for unsecured bonds. This is a big premium compared to where the unsecured bonds are currently.” 

Notes From the Brink

ATM maker Diebold Nixdorf is still struggling to extend the maturity of its 8.5% unsecured bonds due next year, Reshmi Basu writes. 

The company first proposed a debt swap on Feb. 10, and set an initial deadline of March 24 for the deal, which would give participants new secured bonds due in 2026 that pay 8.5% in cash or 12.5% in-kind, plus warrants. 

Holders of less than 9% of the debt agreed to the exchange at the time, and the company has since extended the offer several times. But few new takers emerged: As of Friday, holders of 12.6% of the bonds have signed on. The latest deadline for the deal is May 5. 

Last month, the firm cautioned investors that it faced a liquidity shortfall, raising substantial doubt as to whether the company can continue operating. The warning came just a few months after Diebold secured a restructuring deal for $400 million in new funding from key investors. 

By the Numbers

Ratings firms are warning investors to watch out for worsening credit conditions at some companies, Lucca de Paoli writes. The number of firms downgraded by S&P Global Ratings hit the highest level for at least a year, according to data published by the firm at the end of last week. “Downside risks are rising, and a sharp increase in negative bias across most regions tells us more downgrades and defaults are to come,” analysts at S&P including Nicole Serino wrote in a note. That’s part of a wider trend where more companies have seen their ratings fall than rise over the last year, as inflation and higher interest rates weigh on many. 

More from The Terminal and Bloomberg Law

• Vedanta Resources Cuts Debt by $1 Billion as All April Dues Paid
• Chinese Developer Says It Hasn’t Sought Creditor Committee
• Johnson & Johnson Talc Unit Faces Call to Toss Second Bankruptcy
• Prepa Bankruptcy at Risk of Dismissal Absent Accord, Judge Warns

Thank you for reading , Bloomberg’s twice-weekly newsletter on corporate crisis and distressed debt. Contact the author of today’s issue via email at [email protected] or Tweet/DM to @ameliajpollard

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— With assistance by Irene Garcia Perez, Lucca De Paoli and Reshmi Basu