New York, July 20, 2022 — Moody’s Investors Service (“Moody’s”) has downgraded the Family of Companies (“CFR”) rating of Bed Bath & Beyond Inc. (“Bed Bath”) to Caa2 from B2, its probability of default rating at Caa2-PD from B2-PD and its senior unsecured note rating at Caa3 from B3. The speculative liquidity rating was also lowered to SGL-4 from SGL-2. The outlook changed from stable to negative.

The downward revisions reflect the impact of Bed Bath’s sharp decline in revenue and EBITDA on its liquidity, free cash flow and credit metrics. The challenges Bed Bath faces in restoring profitability are also considered. Inventory levels are not only high and misaligned with sales trends, but are overweight private label products that need to be phased out and replaced with national brands in the face of weaker consumer demand. In addition, the downward revisions reflect governance considerations, including the company’s early departure of its CEO and chief marketing officer, the completion of its $1 billion accelerated share buyback program with $40 million of share buybacks in the first quarter of 2022 despite the company’s weak operational performance and the ineffectiveness of its turnaround strategy to address continued pressures on Bed Bath’s operations and credit metrics.

The downgrade of its speculative liquidity rating to SGL-4 (low liquidity) reflects the reduction in Bed Bath’s cash balances following its share buybacks at a time when free cash flow is expected to be significantly negative over the course of the year. fiscal 2022 due to high working capital utilization and weak operating performance. As a result, Bed Bath will increase its reliance on its $1 billion asset-based revolving credit facility (“ABL”), which will result in limited excess capacity in the coming quarters. The Bed Bath ABL expires in August 2026, but its maturity will revert to May 1, 2024 if more than $50 million of the 2024 notes are still outstanding by that date.

Bed Bath’s credit impact score was lowered to CIS-5 from CIS-3 and governance IPS was lowered to G-5 from G-3, acknowledging Bed’s aggressive share buyback program Bath combined with management’s inability to complete its operational turnaround and effectively manage inventory levels that resulted in low liquidity and very high leverage.

Downgrades:

..Issuer: Bed Bath & Beyond Inc.

…. Business family ranking, downgraded to Caa2 from B2

…. Default scoring probability, downgraded to Caa2-PD from B2-PD

…. Speculative liquidity rating, downgraded to SGL-4 from SGL-2

…. Senior regular unsecured bond/debenture, downgraded to Caa3 (LGD5) from B3 (LGD4)

Outlook Actions:

..Issuer: Bed Bath & Beyond Inc.

…. Outlook, changed to negative from stable

RATINGS RATIONALE

Bed Bath’s Caa2 CFR reflects its low liquidity, very high leverage and the challenges it faces in turning around its operating performance. For the LTM period ended May 28, 2022, debt/EBITDA was 9.7x and EBIT/interest was -1.6x. For the same period, Bed Bath generated free cash flow deficits of $722 million. The company’s operational challenges have steadily accelerated, which have taken a heavy toll on its profitability and liquidity. Interim senior management has hired consultants to support Bed Bath in its operational turnaround efforts, which include inventory, cash management and balance sheet optimization. However, operational performance is expected to weaken further during 2022 as the company must eliminate excess inventory while continuing to deal with supply chain challenges and inflation. Bed Bath’s liquidity is weak as the use of working capital has increased due to longer lead times, higher transit inventory and lower consumer demand which has unbalanced inventory. Nonetheless, the company continues to seek strategic alternatives for its BABY buybuy operations, which have sales of more than $1.4 billion and could be a significant source of additional cash. Bed Bath faces $285 million notes maturing in 2024 and a significant improvement in profitability will be needed to return to a sustainable capital structure.

The negative outlook reflects Moody’s expectation for continued pressure on profitability that reflects the lack of progress in its turnaround efforts as it faces a challenging consumer environment for the household goods category. The outlook also reflects the need to refinance its 2024 maturity, which increases the risk of a distressed market and its need to improve its liquidity profile.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Ratings could be downgraded to the extent that its operational efforts do not result in consistent short-term operational improvement, if market share erosion is long-lasting, if liquidity deteriorates for any reason, or if the risk of a distressed market or financial restructuring increases.

An upgrade would require the company to maintain adequate liquidity and make meaningful progress on its operating initiatives, resulting in positive free cash flow and market share stabilization while EBIT/interest is maintained above 1.0x.

Based in Union, NJ, Bed Bath & Beyond Inc. is an omnichannel retailer selling a wide assortment of home and home furnishings that operates as Bed Bath & Beyond, Harmon, Harmon Face Values ​​or Face Values, buybuyBABY , and Decorist. LTM revenue for the period ending May 28, 2022 was approximately $7.4 billion.

The main methodology used in these ratings is Retail published in November 2021 and available on https://ratings.moodys.com/api/rmc-documents/356421. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the announced credit rating metric(s) described above.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Christine Boni
Senior Vice President
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer Service: 1 212 553 1653

Margaret Taylor
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer Service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer Service: 1 212 553 1653