7 Companies at Risk of Liquidity Squeeze: What You Should Know

Watch The Liquidity

Rising interest rates and tightening credit conditions may make it difficult for higher-risk issuers to refinance debt or borrow more.

We chose seven firms to keep an eye on Royal Caribbean, Party City (PRTY), Bed Bath & Beyond (BBBY), pharmacy chain Rite Aid (RAD), fashion retailer Express (EXPR), and footwear makers Wolverine World Wide (WWW) and Caleres (CAL).

The retail industry is a source of concern. Retailers rely significantly on consumer demand and frequently lack the pricing flexibility to pass on increasing expenses to customers, according to Neha Khoda, head of the lending strategy at Bank of America Merrill Lynch.

Bed Bath & Beyond is experiencing decreasing sales and losses as consumers spend less in the face of rising prices. It doesn't help that since 2020, the corporation has spent more than $1 billion on share buybacks. Bed Bath & Beyond had $108 million in cash as of May, down from $1.1 billion the previous year.

While the majority of Bed Bath's loans do not mature until 2024, the company must pay $335 million in rent next year. Bank of America analyst Jason Haas cautioned that if vendors push for shorter payment periods, the store might face a liquidity crisis.

According to a corporate spokesman, Bed Bath & Beyond still has $1 billion available in its revolving credit arrangement. "We have already taken initiatives on several fronts," he said in an email, "including a decrease of at least $100 million in [capital expenditure] versus the company's initial plan."

As of June, Party City had $39 million in cash and $350 million in debt and rent payments due in a year. The retailer's earnings for the previous year were $95 million, a 20% decrease from the previous year.

"Despite the ongoing macroeconomic concerns affecting our company, we are satisfied with our present liquidity and believe it is adequate to manage the business," stated CFO Todd Vogensen on the most recent earnings call.

According to Vogensen, Party City has $157 million in its revolver and other levers at its disposal, such as lowering capital spending and postponing projects. It also plans to borrow $22 million from present creditors.

Rite Aid has minimal debt due until 2025, but it's $574 million in short-term lease commitments loom over the $56 million cash balance as of May. Earnings have fallen 18% year on year over the last four quarters.

"Debt reduction is a primary focus for our organization," stated CFO Matthew Schroeder during a recent earnings conference. The business is looking at other sale-leaseback possibilities for its owned stores and expects to receive profits later this year.

Rite Aid also intends to repurchase existing bonds at a discount, using up to $150 million of its $1.7 billion in revolver liquidity. According to the corporation, the move will result in some future interest savings because revolver loans have a lower interest rate.

Express, Wolverine, and Caleres all have large short-term liabilities and little cash on hand, but their profitability has improved in recent quarters. The three firms either declined to comment or did not reply to a request.

More enterprises will experience pressure if the economy enters a recession. "The longer circumstances continue this tight," says S&P's Gunter, "the higher the potential that susceptible issuers, regions, or industries would feel the pressure."