Bed Bath & Beyond could tap private credit market

Bed Bath & Beyond, which is burning through cash at a rapid rate, is considering tapping the private credit market to boost liquidity, Bloomberg reports.

Why it matters: With institutional loan issuance at its lowest quarterly level since Q2 of 2020 and high-yield issuance at its lowest level since Q4 2018, according to Fitch Ratings, retailers may increasingly have to turn to private lenders for their capital needs as syndicated debt dries up.

What they're saying: “We don’t comment on speculation," a Bed Bath & Beyond spokesperson responds via email, who then added:

• "I can remind you that, as discussed in our earnings materials and call with analysts, we have a $1 billion dollar asset-based revolving credit facility."
• "We also discussed how we have already taken actions on many fronts — including a reduction of at least $100 million of capex against the company’s original plan."
• The spokesperson also wrote that the retailer is pursuing additional measures as it works with financial adviser Berkeley Research Group "to focus on cash, inventory and balance sheet optimization" and will provide an update at the end of this month.

Be smart: Bed Bath & Beyond (Nasdaq: BBBY) does have at least one valuable asset — its retail banner buybuy Baby. On BBBY's most recent earnings call, interim CEO Sue Gove said the retailer continues to evaluate options for the business.

State of play: "Their financial health has fallen off a cliff after a valiant effort to rebound during the heart of the COVID crisis," says James Gellert, the chairman and CEO of RapidRatings.

• BBBY's ability to raise additional capital might be limited and very costly, given how closely it's being watched by the markets, he tells Axios.

• "A private equity or distressed fund will see value in breaking it apart, divesting buybuy Baby, and refocusing the business. It's hard to see how the company can continue without a major event," Gellert adds.

Of note: Private equity firms, including Ares Management and Carlyle Group, have aggressively raised funds earmarked for direct lending, as their buyout business shrivels up.

• And some, such as Blackstone and Apollo Global Management, are willing to make riskier bets, as Reuters reports.

Flashback: We saw similar scenarios play out back in 2013 when RadioShack received financing from Salus Capital Partners, whose strategy was to lend to distressed retailers.

• That didn't end well for RadioShack or for Salus.