Bed Bath & Beyond bonds trade up on new issuance, stock sinks; Rite Aid moves lower

By Cristal Cody

Tupelo, Miss., Feb. 7 – Bed Bath & Beyond Inc.’s bonds gained while its stock sank on Tuesday as the distressed retailer priced and closed a convertible preferred stock and warrants offering during the session.

Bed Bath & Beyond’s 5.165% senior notes due 2044 (C/D) added 5 points on Monday after the deal was announced and traded about 5 points higher on Tuesday, sources said.

Meanwhile, Bed Bath & Beyond’s stock plunged about 49% by the day’s end.

The company’s $1 billion of outstanding bonds had been trading in the low single digits and mostly unchanged after the distressed retailer skipped bond interest payments due Wednesday.

The convertible offering, the company’s latest in a series of transactions to prevent a Chapter 11 bankruptcy filing, yielded proceeds of about $225 million. Bed Bath & Beyond said it also expects to receive $800 million more in future installments through the issuance of securities that require the holder to exercise warrants to purchase shares of series A preferred stock.

Proceeds will be used immediately to repay outstanding debt under its credit facility.

As part of the convertible offering, the company will use availability under its credit facilities to make the missed interest payment on its senior notes by March 3.

Markets reversed course on Tuesday ahead of president Joe Biden’s 2023 State of the Union address at 9 p.m. ET.

The CBOE Volatility index fell 4% to $18.66.

The S&P 500 climbed 1.29%.

The iShares iBoxx High Yield Corporate Bond ETF rose 27 cents, or 0.36%, to $76.17.

West Texas Intermediate crude oil benchmark futures for March deliveries rallied $3.03 to settle at $77.14 a barrel on Tuesday.

Rite Aid Corp.’s paper saw a drop in the secondary market on Tuesday following a downgrade and dismal view from Moody’s Investors Service.

The drug retailer’s 8% senior secured notes due 2026 (Caa3/CCC-/CCC) were down 1 point.

Bed Bath & Beyond gains

Bed Bath & Beyond’s 5.165% senior notes due 2044 (C/D) were trading about 5 points better on Tuesday on a 15 bid handle, a source said.

The issue added 5 points to hit 10 bid in trading on Monday after the retailer announced the convertible preferred deal.

Bed Bath & Beyond said the offering of convertible preferred stock priced and closed on Tuesday. The company will issue 23,685 shares of series A convertible preferred stock, warrants to purchase 84,216 shares of the series A stock and warrants to purchase 95,387,533 shares of the company's common stock.

In addition to the interest payments that were due on the company’s bonds on Feb. 1, Bed Bath & Beyond also had defaulted on its senior secured credit facilities after skipping the payment due Jan. 13.

The company has undertaken several maneuvers since 2022, including appointing new leadership and closing more than 100 stores.

Bed Bath & Beyond reported Jan. 5 that it terminated exchange offers launched in late 2022 for the notes after conditions were not met.

The Union, N.J.-based home products retailer’s stock plunged 48.63% to close Tuesday at $3.01 after climbing 92% on Monday.

Rite Aid declines

Rite Aid’s 8% senior secured notes due 2026 (Caa3/CCC-/CCC) traded down 1 point to 56¼ bid on Tuesday following Moody’s downgrade and were later seen off ¾ point at 56½ bid, according to a market source.

The bonds were up ½ point on Monday.

Moody’s said Tuesday that it dropped the secured notes to Caa3 from B3 and the senior notes to Ca from Caa2, reflecting its view that Rite Aid’s “capital structure is unsustainable at its current level of earnings, which, when combined with its debt maturities in 2025, increases the chances of a debt restructuring that would be deemed a distressed exchange.”

The Camp Hill, Pa.-based drug retailer completed two debt exchanges in 2022.

Distressed returns drop

S&P U.S. High Yield Corporate Distressed Bond index one-day returns fell to minus 0.69% on Monday from minus 0.41% on Friday and 0.12% in the same session last week.

Month-to-date returns softened to 1.12% as the week kicked off, down from 1.82% ahead of the weekend.

Quarterly and year-to-date total returns declined to 9.2% on Monday from 9.96% on Friday but were above the 8.03% return in the week-ago session.

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