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Today, we will learn more about:

1. Deep dive into Bed Bath & Beyond

2. Toggle Bonds

3. Total Returns Swaps

Deep dive into Bed Bath & Beyond

Background

Bed Bath & Beyond (BBBY) is one of many companies affected by the ongoing retail apocalypse, which has been triggered by a combination of factors such as rising borrowing costs, reduced savings, and inflationary pressures that have discouraged discretionary purchases. These macroeconomic events have brought to light inherent issues in brick-and-mortar retail businesses, such as changing consumer habits that favor virtual purchases, excessive debt, and an overabundance of physical stores, issues that have been masked for years due to the post-pandemic stimulus-driven spending. Alongside these industry-wide factors, BBBY entered distress due to a myriad of strategic missteps, which have resulted in a steady decline in sales since 2017. Among these blunders included a shift away from national brands towards private label products in an attempt to improve margins. Various members of management were at odds with the decision, resulting in a half-hearted rollout of the plan, which ultimately proved to be unsuccessful. BBBY has recently pivoted on its decision, shifting back towards national brands, but the move seems to be a little too late. Another miscalculation includes neglecting to focus on their e-commerce platform and relying on an outdated website that caused customers to shift towards competitors. The company's situation worsened as it failed to pay vendors on time, leading to restrictions on shipments. The resulting inventory decrease frustrated customers who could not find the products they wanted, causing further damage to the company's operations. To address these issues, the company has implemented various operational changes such as consolidating stores, reducing corporate overhead, and renegotiating contracts with vendors in an effort to improve its financial situation. BBBY’s decline in operations resulted in the company facing a liquidity crunch in August, which the company attempted to address by securing a $375M FILO loan from Sixth Street Partners. The liquidity injection did little else than kick the can down the road, as declining customers & vendor confidence still plagued the fundamentals of the business. The company explored several additional solutions, offering debt exchanges & sales of various assets, including their crown jewel, Buy Buy Baby: a subsidiary of BBBY focusing on selling adolescent merchandise. However, the inability to exchange debt and secure a buyer resulted in a need to look towards more creative alternatives. To provide additional context, BBBY has a history of being a "meme stock," gaining popularity among retail investors after an equity investment by activist investor Ryan Cohen. This has led to extreme volatility in the company's stock price, with large temporary surges in demand for the company's equity throughout 2022, despite the company's bleak fundamental outlook. Given this demand, it was a natural move for the company to consider issuing stock to raise capital, similar to what Hertz attempted to do during its bankruptcy in 2020. In Hertz’s case, the SEC eventually shut down the proposed stock offering, citing concerns that the company was essentially selling a worthless asset. While BBBY's situation differs from Hertz's in the sense that Hertz attempted to sell stock while in bankruptcy (which went against its fiduciary duty to shareholders) BBBY's attempt to raise capital was also hindered by potential regulatory action.

Overview of the deal

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