The loan from Bed Bath & Beyond is good news. The bond market is still worried.

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Investors are wary of the financial health of Bed Bath & Beyond.

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Bed bath and beyond

is lower on Thursday, following reports that it has secured new funding as concerns over its balance sheet swirl. It would be a much-needed band-aid to the meme stock, though challenges remain.

Late Monday, sources close to Bed Bath (ticker: BBBY) told The Wall Street Journal that it was approaching a $400 million loan from Sixth Street Partners. The company did not return requests for comment.

The move comes as investors are wary of Bed Bath’s financial health, and although the shares were down 8% to $9.53 on the news, it was only after jumping double digits in the market. hoping to get a cash injection.

The meme frenzy, which has driven the stock nearly 90% higher in the past month, has made the company’s decision to spend lavishly on stock buybacks a little less questionable, though the stock has since retreated from last week’s peak.

Creditors have not been so quick to dismiss the company’s misfortunes. According to data from electronic bond trading company

MarketAxess

(MKTX), the Bed Bath issue maturing in 2044 was one of the most traded high yield bonds in the market at the end of last week. While not as high as July’s readings, the spread on the bond was the second-highest reading since early 2021, when meme trading first took off.

Unsurprisingly, the spread moved largely inverse to the stock price. In other words, the more Bed Bath falls, the more risky it seems to the company’s ability to repay its debt, and investors are therefore demanding a higher return to retain its credit.

Nonetheless, the news that it has secured new funding is welcome in the sense that Bed Bath needs cash. Interim chief executive Sue Gove has her work cut out for her as she seeks to salvage the company’s turnaround as its push for a broader private label portfolio and streamlined distribution hasn’t done much gained popularity in recent years.

Additionally, any new strategy must take into account that many consumers have been turning away from household products lately, given that they have made such large purchases during the pandemic. There’s also high inflation that squeezes discretionary budgets and a cooling housing market to consider. Simply put, pulling off a comeback is a tall order, and one that would be much more difficult without cash on hand.

Had the company been unable to secure a new loan, it could have been forced to step up efforts to sell its buybuy Baby division, a move campaigners had previously pushed for. Although analysts argued over the value of the asset, few would have liked to see Bed Bath sell it during a time of distress. As it stands, the company is using buybuy Baby as a key asset to secure its latest loan, according to information from Bloomberg.

Ultimately, however, Bed Bath’s status as a meme darling means investors will struggle to tie changes to its fundamentals and balance sheet to the stock’s trajectory.

Write to Teresa Rivas at teresa.rivas@barrons.com

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