In the post-financial-crisis world, cost cutting and stock buybacks have been the name of the game for many public companies. Concerning share repurchases, many companies haven’t been shy about leveraging up their balance sheets in order to have more funds available for stock buybacks. For a while, Bed Bath and Beyond hadn’t joined the leverage-up-the-balance-sheet-to-buy-back-stock party, resorting to more conservative means of coming up with cash to fund buybacks. With its recent $1.5 billion debt issuance and $1.1 billion accelerated share repurchase, however, Bed Bath & Beyond has officially arrived at the party.
Founded in 1971, Bed Bath & Beyond has nearly 1,500 stores. Among others, its subsidiaries include Cost Plus World Market and Christmas Tree Shops. The company ended its most recently-completed fiscal year on March 1, 2014, with $11.503 billion in net sales, $4.565 billion in gross profit, $1.614 billion in operating profit, $317 million in capital expenditures, and over $1 billion in free cash flow. Additionally, the most recent quarterly earnings report, for the three months ending May 31, 2014, showed a 1.71% year-over-year increase in sales, a 6.93% drop in operating profit, and a $170 million increase in cash and cash equivalents. At the end of the quarter, Bed Bath & Beyond had a bit over $536 million in cash and cash equivalents.
In terms of the three-part bond offering, below are the highlights:
- $300 million of 3.749% senior unsecured notes maturing August 1, 2024; CUSIP 075896AA8; Semiannual interest payments beginning February 1, 2015; Make whole call prior to May 1, 2024 at the Treasury Rate plus 20 basis points; callable at par on or after May 1, 2024; Conditional put at 101 upon a Change of Control Triggering Event; Baa1/A- ratings from Moody’s and S&P respectively.
- $300 million of 4.915% senior unsecured notes maturing August 1, 2034; CUSIP 075896AB6; Semiannual interest payments beginning February 1, 2015; Make whole call prior to February 1, 2034 at the Treasury Rate plus 25 basis points; callable at par on or after February 1, 2034; Conditional put at 101 upon a Change of Control Triggering Event; Baa1/A- ratings from Moody’s and S&P respectively.
- $900 million of 5.165% senior unsecured notes maturing August 1, 2044; CUSIP 075896AC4; Semiannual interest payments beginning February 1, 2015; Make whole call prior to February 1, 2044 at the Treasury Rate plus 30 basis points; callable at par on or after February 1, 2044; Conditional put at 101 upon a Change of Control Triggering Event; Baa1/A- ratings from Moody’s and S&P respectively.
Despite the 30-year offering recently yielding over 5%, it may not be an appropriate holding for every investor’s portfolio. In fact, with the yield on the 20-year debt so close to that of the 30-year, from a risk/reward standpoint, bond investors wanting exposure to Bed Bath & Beyond seriously consider favoring the 20-year over the 30-year. And for those who want even less duration exposure in their portfolio, the 10-year still offers an inflation-adjusted positive return.
Finally, as part of your due diligence, remember to read the prospectus supplement. Moreover, keep in mind that if Treasury yields rise or corporate bond spreads widen in the near future, there’s a good chance each of the notes mentioned in this article will experience mark-to-market price declines.
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