Bed Bath & Beyond Gets Fresh $40 Million to Fund Bankruptcy

(Bloomberg) — Bed Bath & Beyond Inc. won permission Monday to tap $40 million, money the retailer said it needs to cover payroll for its roughly 14,000 employees and buy management time to try and locate a buyer in Chapter 11 bankruptcy to rescue some or all of its stores.

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US Bankruptcy Judge Vincent Papalia in a hearing Monday said the urgent funding provided by Bed Bath & Beyond’s lenders averts a potential “fire sale” and immediate liquidation of the 52-year-old retail chain. The financing approved Monday includes a May 28 deadline for bids on the company’s assets.

But the money comes at a cost to junior creditors: in exchange for the $40 million, Bed Bath & Beyond agreed to roll-up $200 million in existing debt, moving that debt to the front of the Chapter 11 repayment line. The retailer said in its bankruptcy petition it had roughly $4.4 billion in assets compared to more than $5.2 billion in total debt as of last year.

Lawyers for lenders Sixth Street Specialty Lending Inc. and JP Morgan Chase Bank N.A. defended the roll-up, saying lenders went to extraordinary lengths to provide Bed Bath & Beyond runway as it pursued last-ditch equity raises in an ultimately failed attempt to avoid bankruptcy.

Sixth Street lawyer David Hillman said Bed Bath & Beyond’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. Sixth Street is an agent on an existing $547.1 term loan for Bed Bath & Beyond and the Chapter 11 financing.

“We wish there was a different outcome,” Hillman said.

Judge Papalia approved the funding after lenders clarified that junior creditors would have an opportunity to review and potentially challenge the Chapter 11 financing, addressing a concern raised at Monday’s hearing by a unit of the US Justice Department monitoring the nation’s bankruptcy court.

Kurt Mayr, a lawyer representing a group of investors who own Bed Bath & Beyond unsecured bonds, indicated at the hearing that bondholders will review the financing but said his clients intend to work collaboratively with the company and lenders to try and save the business. Bed Bath & Beyond has more than $1 billion in unsecured bond debt, according to court documents.

Bed Bath & Beyond is planning to start store closing stores later this week as it holds out hope that a buyer will come forward to save the retailer from going out of business. The retailer’s management team is searching for a buyer to save all or some of its 360 Bed Bath & Beyond stores and 120 Buy Buy Baby shops, company lawyer Joshua Sussberg said.

“We are not, under any circumstances, giving up on a going concern for some or all of the remaining stores,” Sussberg said.

The case is Bed Bath & Beyond Inc., 23-13359, US Bankruptcy Court for the District of New Jersey.