Following its downgrade last month, S&P has again downgraded Bed Bath & Beyond’s (BBBY) issuer rating from CC to SD (selective default) and lowered its issue ratings for its 2024, 2034 and 2044 notes from CC to D. The downgrades follow BBBY’s announcement of privately negotiated debt exchanges of over $150mn par value worth of its senior unsecured notes for the company’s common stock. Resultantly, the New Jersey-based home retailer was able to wipe off about $154.5mn of debt obligations from its balance sheet, including:
$69mn of 3.749% unsecured notes due in 2024
$15.3mn of 4.915% unsecured notes due in 2034
$70.2mn of 5.165% unsecured notes due in 2044
The aforementioned bonds were swapped for approximately 13.6mn of BBBY’s common stock, which is valued at about $53.7mn based on its closing price on 11 November. S&P opines that the transaction was a distressed debt exchange and is tantamount to default, given that BBBY’s bondholders will receive less than what was originally promised. The rating agency continues to have a pessimistic outlook on BBBY and expects more distressed debt exchanges from it. Further, it is highly uncertain that BBBY will be able to generate positive cash flows. S&P expects to raise BBBY back to CCC shortly after it completes its debt exchanges. BBBY’s bonds are trading at distressed levels of 12-28 cents on the dollar.