Like #Tech, Corporate Restructuring Has a Gender Imbalance

Unless you've been hiding under a rock, you've probably noticed the controversy that embroiled Silicon Valley over the July 4th weekend. In a nutshell, some super brave and bada$$ women came forward and accused a variety of high-powered men of sexual harassment and improper behavior. First, The Information reported (firewall) a story backed by the accounts of six women recounting the behavior of Justin Caldbeck of Binary Capital. He soon stepped down (as did his two partners, thus thwarting the close of BC's second fund). Then The New York Times published a piece implicating Chris Sacca (of Shark Tank fame) and Dave McClure of the venture capital firm, 500 Startups. The former had already given up on investing (and Shark Tank); the latter first stepped down as CEO of the firm, then, in a matter of days, stepped down as General Partner as well. Silicon Valley's gender imbalance has been in the spotlight for some time now. Now we're learning more and more why that imbalance exists in the first place. 

Before we get ahead of ourselves, we'll be upfront here: what we're about to say is in no way meant to imply that sexual harassment and inappropriate behavior runs rampant in the restructuring community. But, let's be honest: there is a wild gender imbalance in firm partnership ranks, conference room negotiations, and bankruptcy courts. The industry's most lucrative and prolific restructuring law firm has exactly one woman partner. One of the industry's top restructuring advisory IBs has exactly zero women partners and, yet, that didn't stop the leader of that group from being honored by Her Justice, an organization that provides legal services to NYC women in need. And those are just two examples. Suffice it to say, there are many.

Now there are exceptions to the general rule: AlixPartners LLC, for one, and Greenberg Traurig LLP, for another (see below), in that they are led (or co-led as the case may be) by women. Weil Gotshal & Manges LLP, as another example, includes a number of women partners on its roster. But there should be more. Industry-wide. And charity honorees should be the women who have risen through the ranks - despite the odds - AND cultivated other women to follow in their footsteps. Overall, the industry can do much much better.

Want to tell us we're morons? Or praise us? Cool, either way: email us. 

Reasonability of Fees

We want to apologize for an issue related to last week's newsletter; we failed to recognize that the (Amazon Web Services') link embedded in our feature (apparently) expires with time. Sorry about that. 

The right information could be found all week on our website (hint, hint) and we encourage you all to visit it here. The upshot is that an Iowan judge gave Weil a beating because of redonk fees. But don't take our word for it: the opinion is worth a read if for no reason other than its sheer comedy. We enjoyed where the Court indicates that Weil argued that the fees were reasonable because, well, they're Weil, damn it, and they damn well said the fees were reasonable. 

On the subject of fees and billing, the opinion wasn't nearly as amusing (or bemusing, depending on your POV) as this quote from a Caesars-related story from Q4 '16: "The advisory firms have adopted the attitude that every possible land grab that is is worth chasing. These firms have no capital markets businesses and just outsource the work to JP Morgan and the like. These fees are just a tax on the estate. The creditors are doing most of the work here and these restructuring proposals are really ours [creditors]. But the legal departments of these investment banks are crafty. Debtors have to be more responsible on the front end of an engagement. The problem is that the debtors’ lawyers are completely and utterly conflicted. The bankers are often former restructuring lawyers themselves and they are all just referring each other business. This has become a feeding frenzy." 

In many ways, the problem stems from information dislocation. The buyside appears to be getting sick of WSJ headlines about fees - whether they're in Caesars or Lehman Brothers. And so tighter and tighter DIP budgets are becoming the norm and professionals are increasingly expected to agree, upfront, to some fee concessions. But company management teams aren't nearly as savvy; they don't know where to find out what "market" engagement terms are. Certain resources that track this information are firewalled unless you pay tens of thousands of dollars for access. So, who is going to educate management? Debtor's counsel? If the quote above is any indication - and referrals truly are traded like chips - that may be asking for a lot. And so don't be surprised if there are more activist judges opining on the reasonability of fees going forward.

Professional-Services.ai

Short junior attorneys...the machines are coming for them. And, frankly, why shouldn't they come for attorneys at ALL levels? After all, are there situations where there is "overzealous advocacy and hyperactive legal efforts"? When there are "so many attorneys and their respective billings"? "When the hourly rates and amount of time billed are simply unreasonable"? "Staggering," in fact?  Suffice it to say, you won't see Weil filing any cases in Southern District of Iowa anytime soon (see below). Frankly, "overzealous advocacy and hyperactive legal efforts" seems like it could have just as easily applied to the pissing contest that was the equitable subordination claim in Aeropostale but who are we to judge a grudge match between Weil and Kirkland & Ellis (which the the latter convincingly won)? We were too busy popping popcorn and putting our feet up. Switching gears and looking elsewhere in changing labor markets, here's to wondering: is the "gig economy" working? And what becomes of those 89,000 lost retail jobs?

Speaking of retail jobs, it looks like the bankers have all of them. Now there's M&A noise around Neiman Marcus, which is heating up with Hudson's Bay sniffing around hard but trying to avoid assumption of Neiman's substantial debt-load. Meanwhile Nine West Holdings has hired Lazard to figure out its capital structure. Elsewhere in retail, Macy's ($M), Kohl's ($KSS), Nordstrom ($JWN) and J.C. Penney ($JCP) all reported earnings that looked like a dumpster fire and the stocks promptly got decimated. We're sure the bankers are salivating. And speaking of retailers with jacked-up debt (and bankers), GNC Holdings Inc. and its agent bankers JPMorgan reportedly attempted but ultimately failed to extend GNC's $1.13b loan by three years. Now GNC says it will use its "strong" free cash flow to fund ops and deal with its '18 maturity. This is an interesting story on many levels. First, there have been a TON of share buybacks in recent years (the public equivalent of a dividend recap - our favorite) and so it was only a matter of time before one of them bit an uncreative and misled -- uh, we mean, generous shareholder-minded - management team in the bum. Second, the "Amazon-effect" apparently applies to meatheads too with vitamin sales allegedly shifting online. Who knew Biff could function in an m-commerce world? Go Biff. Third, despite a variety of downward trending financials, GNC's loan is still trading at a tick below par and so the proposed transaction might have affected the lenders' yield metrics (hence the rejection). Which gets us to #4: with crappy loans like GNC's ticking up so far upward, most distressed players can't stop complaining about a dearth of opportunities to target: everything is priced to perfection. Sadly, everyone needs the yield wherever they can get it hoping (praying?) that when the going gets rough, they'll be the first to hit eject. No, no (rate-fueled) bubble to see here.  

Diving into Retail II (Discounting Like a Boss)

More Walmart. Apparently Walmart doesn't care one iota that it's driving grocer margins way down in a race to the bottom. This is going to get ugly. Case and point: Central Grocers looks like it is on the precipice (with Weil, Conway MacKenzie and Peter J. Soloman in the trenches). And as groceries get cheaper, it will get harder and harder for casual restaurants to compete as well.

'16 Q4 in Review

'16 Q4 in Review

Hopefully the industry can coast through the end of 2016 sans any emergency bankruptcy filings that destroy people's holidays. Last year, Swift Energy set the tone for 2016 with a New Year's Eve filing: we're sure the good folks at Jones Day LLP enjoyed the heck out of that. 

This past quarter saw a significant amount of activity among the usual sectors:

• Consumer Products/Retail (Gracious Home, Roust Corporation, American Apparel, Jo-Jo Holdings Inc., Nasty Gal, Garden Fresh, Cosi)
• Exploration & Production/Oil Field Services (Stone Energy, Northstar Energy, Erickson Inc., Shoreline Energy, Enquest, Basic Energy, American Gilsonite, Key Energy, Tervita, Connect Transport)
• Metals & Mining (Optima Steel, Emeco, Rubicon)
• Power (Illinois Power, La Paloma)
• Telecom/Media/Technology (Violin Memory, Scout Media, Choxi.com, Limitless Mobile, DirectBuy Holdings, Implant Sciences, Filip Technologies)

We spent much of the quarter focused on the food and retail space, whether it was addressing the implications of Amazon Go, the increasingly crowded and commoditized grocer space, noting the disaster that is the Chapter 22 filing of American Apparel, or querying (pre-election) whether progressive policies were destroying restaurants. We also discussed, in the wake of the Paragon Offshore decision, whether the industry has a feasibility problem and got some community feedback as to what the election of Donald Trump means for the industry. In other words, we've been busy.

Most professionals seem to think that many of the aforementioned industries will see continued distress in 2017 - with a number of previously-deemed potential 2017 hot spots having recovered nicely from the Trump bump, i.e., for-profit education, for-profit prisons, biotech/pharma, defense...to name a few. And many expect most of the same questions and themes we've covered to continue to be relevant. Time will tell. 

The following firms killed it in the fourth quarter and hereby win PETITION's first ever quarterly kudos:

• Legal (tied):
  • Latham & Watkins LLP (Optima Steel, Stone Energy, Illinois Power, Key Energy, Tervita)
  • Weil (Violin Memory, DirectBuy, Performance Sports Group, Basic Energy, American Gilsonite). Weil was the subject of a feature piece a few weeks back.
• Financial Advisor/Investment Banker:
  • Houlihan Lokey (Violin Memory, Roust Corporation, American Apparel, Erickston Inc., Catalyst Paper, Emeco, American Gilsonite, Key Energy, Tervita Corporation, Connect Transport)
• Claims Agent:
  • Prime Clerk (Northstar Offshore Group, Violin Memory Inc., Gracious Home LLC, DirectBuy Holdings Inc., Shoreline Energy LLC, American Apparel LLC, Transtar Holdings Company, Channel Technologies Group LLC, Performance Sports Group)

We'll be sure to watch closely for what 2017 has in store for us. We suspect more pain in the oil field services space, a post-holiday crush of (brick-and-mortar) retail spirits, and more advanced technological disruption of incumbent companies (and failure of "tech" companies). The same firms are likely to be just as busy in 2017 as they were in 2016. The only real mystery is who will be on the receiving end of Judge Jones' next big dress down...? 

As we (hopefully) jump from the beta test phase of our weekly curated newsletter (and corresponding website, where stories post on delay to the newsletter) to a more robust product and community, we ask for your assistance: please encourage your colleagues, peers and friends to subscribe HERE. The more people that are part of the community the more we'll collectively get out of it. 

Most importantly, PETITION wishes you a happy, healthy and safe new year. PETITION is out until 2017. Peace. 

Comeback Kids

Everyone loves a comeback. And Weil is most definitely back.

Post-Lehman and GM, Weil settled into a notable rut as Kirkland & Ellis and others stole market share and preeminence in the restructuring world. Though Kirkland & Ellis arguably remains the dominant player in the industry, Weil is swiftly climbing back up the ranks. How have they done it?

We're going to stay away from crediting any specific individuals here because it is difficult to say what is outside deal flow origination and what is platform-based. 

But one thing is clear: Weil has diversified its practice. Sure, debtor work - across an array of industries - remains its bread and butter and debtor work abounds: Golfsmith, Aeropostale Inc., Breitburn Energy Partners, Fairway, Halcon Resources, Basic Energy, American Gilsonite, Paragon Offshore, CHC Group, A&P, Vantage Drilling Company, and Chassix Holdings Inc. But now Weil is also doing lender, bondholder, and equityholder work as in Seventy-Seven Energy, Things Remembered, Aspect Software, Performance Sports Group and DirectBuy Holdings. And unsecured creditor committee work, e.g., SunEdison and Ultra Petroleum. Wait, what? Weil does UCC work now? 

It's not all sunshine, though. Last week, Weil's attempted confirmation of Paragon Offshore's plan of reorganization over the objection of crammed-up term lenders failed in a rare judicial recognition of the feasibility standard. Now exclusivity may be in danger. In Breitburn Energy Partners, equity holders (represented by Weil alumni) successfully argued for an equity committee over vehement Weil objection (in contrast, this week Kirkland & Ellis successfully defeated an equity holder attempt to form an official equity committee in C&J Resources). In Aeropostale, the Southern District of New York judge handily denied Weil's attempts to recharacterize and equitably subordinate Sycamore Partners' claims.  

As we near the end of 2016, PETITION offers a hearty congratulations to Weil: it's been a great year. 2017 appears promising too.