Bed Bath and Beyond was downgraded to Caa2 from B2 by Moody’s following “steep decline in revenues and EBITDA on its liquidity, free cash flow and credit metrics”. The downgrade also reflects the company’s reduced cash balances following its share repurchases at a time when free cash flow is expected to be significantly negative in 2022. Thus, Bed Bath will increase its reliance on its $1bn asset-based revolving credit facility which is expected to lead to limited excess capacity in the upcoming quarters. Bed Bath’s debt/EBITDA was at 9.7x and interest coverage was -1.6x, with free cash flow deficits of $722mn for the twelve months ended-May 2022. Moody’s said that its inventory levels are not only elevated and misaligned with sales trends, but also overweighted to private label products as compared to national brands. This is also set to further weaken in 2022. Bed Bath faces a $285mn bond due in 2024 and “a significant improvement in profitability will be needed to return to a sustainable capital structure”.

Bed Bath’s 3.749% 2024s were down 0.3 points to 41.25 cents on the dollar.

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