How Bed Bath & Beyond Avoided Bankruptcy

Alarmed by the retailer’s deteriorating finances, banks in January had cut off their credit lines and pushed for the company to start a liquidation, including selling off inventory, to repay their loans, said people familiar with the matter.

Ms. Gove, Bed Bath & Beyond’s chief executive, and her team sought a delay. They told the lenders they needed more time to set up bank accounts to make payroll in bankruptcy, the people said. They also were seeking a lifeline.

Watching the drama from his home office in suburban Connecticut, George Antonopoulos, a managing partner at hedge fund Hudson Bay Capital Management, saw a troubled company that had at least one thing going for it: the passionate interest of individual investors who were keeping its stock price afloat despite an expected bankruptcy. 

Working with Hudson Bay’s co-founder,

Yoav Roth,

and others at the fund, Mr. Antonopoulos determined Bed Bath & Beyond’s shares could be an attractive investment—as long as the fund could get a guaranteed below-market price, according to people close to the matter.  

Their thinking: Bed Bath & Beyond was a storied brand. If it somehow could turn around its fortunes, an investment at these levels would lead to big gains. But if the company’s prospects turned bleaker, the Hudson Bay team knew there was a good chance they could dump the retailer’s shares without losing too much money, thanks to the high investor interest in the stock.

The unusual $1 billion financing arrangement—with $225 million upfront and installments paid over the rest of the year—will buy the unprofitable retailer more time to fix its business. The hedge fund stands to profit as long as the company can stay out of bankruptcy court this year and its stock stays above 72 cents. 

Investors, employees and vendors are divided on whether it will be enough. Bed Bath & Beyond lost more than $1 billion in the nine months ended on Nov. 26. It has projected steep sales declines for another quarter and needs to stem its losses to avoid burning through its rescue package, as it did with a September financing deal. 

The company’s stock, which was trading near $6 the day the rescue was announced, has fallen back below $2 this week. The shares fell 6% to $1.82 on Thursday afternoon. The bonds are trading at between 11 and 29 cents on the dollar, according to Finra data.

Investors often have little interest in providing financing to save struggling retailers.


Bloomberg News

Bed Bath & Beyond is still going through the sort of painful restructurings that typically happen in bankruptcy. The company is closing hundreds of stores. It is cutting thousands of jobs and has filed to liquidate its Canadian operations. 

“Keeping the company out of bankruptcy gives them the highest chance of survival,” said

Jonathan Duskin,

chief executive of Macellum Capital Management, an activist investment fund that in 2019 nominated Ms. Gove to serve on Bed Bath & Beyond’s board. 

Ms. Gove has steered several retailers through bankruptcy. She spent two decades rising through the financial ranks at jewelry retailer Zale Corp. before running Golfsmith, a retailer of golf gear. 

Her experience at Zale, which went through bankruptcy during her tenure, and her time as a board member at men’s clothing chain Tailored Brands Inc., which also restructured in bankruptcy, prepared her for some of the challenges facing Bed Bath & Beyond, say people who have worked with her.

She stepped in to run Bed Bath & Beyond last June when CEO

Mark Tritton

was ousted. Soon after, she said the company’s push into private labels went too far, and she would woo back the big brands. She worked to reassure banks and vendors through the holidays after the company’s finance chief,

Gustavo Arnal,

died by suicide in September.

By January, Bed Bath & Beyond was warning it might not be able to stay in business. 

A group of lenders led by

JPMorgan Chase

& Co. grew alarmed that month when they learned about the rapid deterioration in the value of Bed Bath & Beyond’s inventory, which served as collateral for their loans, according to people close to the matter. 

They gave the company a week to prepare for bankruptcy. When the company didn’t follow through, the lenders sent a default notice, asked for immediate repayment on their loans and set a deadline for the company to file, the people said. 

Ms. Gove and others searched for ways to save the company. They were well-aware that investors often have little interest in providing financing to save struggling retailers. Equity financing is even harder to obtain because shares, unlike senior loans, don’t have a claim on collateral. Making matters worse, Bed Bath & Beyond had previously sold the bulk of its real-estate holdings.

Bed Bath & Beyond, which is closing stores, agreed to appoint a new CFO with restructuring experience.


Jane Hahn for The Wall Street Journal

However, Bed Bath & Beyond had become something of a meme stock following

GameStop Corp.


Ryan Cohen’s

short-lived flirtation with the company. The stock had been trading at high volumes despite a possible bankruptcy filing. The problem for Bed Bath & Beyond was that it didn’t have time to try to raise money from individual investors. 

Investment bankers at

Lazard Ltd.


B. Riley Financial Inc.

sounded out institutional investors on a pitch to bet on Bed Bath & Beyond as it shut down unprofitable stores and tried to turn itself around. To make the investment more attractive, Bed Bath & Beyond would enable them to acquire shares at a substantial discount to the market price.

Among those interested was Hudson Bay Capital, which manages $19 billion but likes to stay under the radar. A liquidation of the retailer was set to begin on Friday, Feb. 3, putting pressure on the negotiators. Informed that a new investor might emerge, the company’s lenders agreed to pause the liquidation proceedings over the weekend, the people said. After negotiations over video calls, Hudson Bay presented an offer that topped a rival bid, the people said. 


Is there a future for Bed Bath & Beyond? And what about its stock? Join the conversation below.

The banks approved the deal after a junior lender, Sixth Street Partners, agreed to provide a new $100 million loan—funds that Bed Bath & Beyond could use to pay back the banks and provide severance to employees laid off by the company. The company also agreed to appoint a new chief financial officer with restructuring experience.

On Feb. 6, the money was wired to the banks, giving the company some breathing space. It also allowed employees at a store in Oceanside, N.Y., to post a sign by the cash register that reads: “This Store Is Not Closing.”

Suzanne Kapner contributed to this article.

Write to Gregory Zuckerman at [email protected], Soma Biswas at soma.biswa[email protected] and Alexander Gladstone at [email protected]

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