What happened

Shares of Bed Bath & Beyond (BBBY) had tumbled 8.1% as of 10:38 a.m. ET Wednesday as investors prepared for the worst following reports bondholders were circling their wagons to protect themselves from a potential debt reorganization. 

Bed Bath & Beyond is looking for ways to reduce the burden of its debt as sales have failed to materialize following the pandemic lockdowns. While the retailer had previously secured some $850 million in liquidity as of the end of last month from new loans it secured from banks and other lenders, it is considering how best to restructure its debt portfolio.

Bondholders are worried any changes to the debt structure would harm their own interests in the event of a bankruptcy filing.

A $100 bill burning.

Image source: Getty Images.

So what

The home goods chain is rapidly deteriorating as net sales plummeted 28% last quarter and comparable sales crashed 26% from the year-ago period. Margins continued to erode as well with gross margin dropping by 260 basis points. 

The Wall Street Journal reports Bed Bath & Beyond is looking at several potential scenarios, including a distressed debt swap that would exchange the retailer's outstanding bonds for new, longer-term debt or equity in the company. It also said nothing might come of it.

Now what

Bed Bath & Beyond's bondholders are taking no chances. Analysts increasingly don't expect the retailer's turnaround to succeed, with Bank of America analysts telling investors they expect the company's cash burn to continue.

If Bed Bath & Beyond does take on new debt, the bondholders fear their claims on the retailer's assets could be weakened.