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.

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.

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

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

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