Bed Bath & Beyond Stock (NASDAQ:BBBY)
Bed Bath & Beyond (NASDAQ:BBBY) got a notice of default from JPMorgan on one of their main credit lines last week. When you add the default notice to the fact that a bond interest payment is due on February 1, bankruptcy will likely be filed soon. Due to a big drop in assets over the last two years, it’s unlikely that stockholders will get anything back when the company goes bankrupt. That means Bed Bath & Beyond stock price will likely fall to $0.00.
How the Reorganization Process in Bankruptcy Works
Retail investors don’t understand how reorganization works in bankruptcy, so let’s go over how it works. When a company goes bankrupt, the stock symbol usually gets a “Q” at the end to show that the company has stopped paying its debts. The important thing to remember is that this new symbol is not the new shares of the company. They are the same shares that are already past due. In bankruptcy court proceedings the common shareholder is in the very back of the line to be repaid. Repayment in bankruptcy goes in the following order:
- Secured Creditors – loans that are backed by specific assets, similar to how a home mortgage is backed by the value of a house in foreclosure.
- Employees – things like unpaid wages may have to be collected in bankruptcy.
- Unsecured Creditors – typically bonds issued by the company, and these can be further ranked as senior or non-senior debt.
- Shareholders – stockholders of the company only receive any compensation at the end of bankruptcy if all the above parties are paid in full.
The balance sheet of the company must be looked at to get an idea of who might be paid after bankruptcy. In their November filing, Bed Bath & Beyond said that they owned $4.4 billion and owed $5.2 billion. They have been consistently spending $200 million every three months, so they likely have even less money now. Another important thing to remember is that the value of the assets listed on the books is not likely to be what is recovered in bankruptcy. Things like inventory and real estate might only get back 50 cents on the dollar.
As of November 26, 2022, the Company had $550,000,000 in outstanding loans under the ABL Facility and $186,200,000 in outstanding letters of credit issued under the ABL Facility, and $375,000,000,000 in outstanding loans under the FILO Facility. When the company goes bankrupt, these credit facilities will be the first ones to be paid back. Together, they are worth more than $1.1 billion. Since the company has assets worth more than $4 billion, JP Morgan will likely be paid back in full. This means that bondholders and other unsecured creditors may have something left at the end of the bankruptcy, but how much?
Based on where Bed Bath & Beyond bonds are trading, the bond market does not think that this debt will be paid back in full. The company has three bonds that can be bought and sold on the open market that are worth a total of $1.5 billion.
In the last six months, all three bonds have been worth less than 30 cents on the dollar for most of that time. In the last month, that value has dropped to less than 10 cents. So, the bond market thinks it’s unlikely that this $1.5 billion debt will be paid back in full, and judging by the prices, it looks like a lot of investors think it won’t be paid back at all.
BBBY Shareholders Will Likely Get Nothing
If there are doubts about whether or not senior bondholders will get paid after bankruptcy, it is very unlikely that common shareholders will get paid. Bed Bath & Beyond probably should have gone bankrupt years ago, but meme stock rallies gave it a few last chances to stay in business. Due to the public’s misunderstanding of how bankruptcy works, this one is likely to have one last pop because it will get a lot of attention on the day it files for bankruptcy. The smart investor would get out of this one when the market gets stronger. Whether the company is completely liquidated in bankruptcy or restructured, the value of Bed Bath & Beyond stock should be expected to be $0.00.
Featured Image: Google Image @ arc-anglerfish-washpost