Bed, Bath & Beyond Analyst Says Debt Restructuring Wont Save The Company

Bed Bath & Beyond Inc BBBY shares dropped 12.1% on Friday after a big Thursday rally on news Freeman Capital has taken a 6.2% ownership stake in the company and called for it to restructure its debt and issue $1 billion in bonds. Unfortunately, At least one analyst remains skeptical of the stock and Freeman's plan.

The Analyst: On Friday, Bank of America analyst Jason Haas reiterated his Underperform rating and $2.40 price target for Bed, Bath & Beyond.

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The Thesis: Haas said Bed, Bath & Beyond has a liquidity problem that debt restructuring won't solve. In addition, he said a plan to raise $1 billion in debt simply isn't realistic at this point.

"The company’s CEO and a number of other executives recently departed, the turnaround strategy has not worked as planned, inventories are bloated and consumers are broadly pulling back on discretionary spending," Haas said.

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Moody's recently downgraded the company's senior unsecured notes rating 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 company's biggest risk is vendors pulling their financing after Bed, Bath & Beyond reported a $500 million cash burn in the first quarter. Haas said a drastic improvement in cash burn and a source of liquidity are far more important for the company at this point than restructuring its current debt.

Benzinga's Take: To say things are bleak for Bed, Bath & Beyond is an understatement. In addition to its $500 million Q1 cash burn, the company had just $100 million in cash as of the end of the first quarter and had drawn an additional $200 million out of a $700 million revolver as of June 29.

Photo: Coutesy of Mike Mozart on Flickr