Fear of Chinese Sinks PE Exit of US-based Aluminum Company

in

Commodities (Long Regulatory Risk! Short Aluminum?)

Per Reuters, Zhongwang USA announced earlier this week that it had called off its proposed $2.33b acquisition of once-bankrupt U.S. aluminum company, Aleris Corporation, after facing opposition from Wilbur Ross and the U.S. Committee on Foreign Investment in the United States. The issue is China, of course, which has used its competitive manufacturing advantage to effectively decimate America's aluminum capacity. It also doesn't help - for obvious reasons - that Aleris supplies America's largest combat aircraft manufacturers. Elsewhere in the world of aluminum, publicly-traded REAL ALLOY ($RELY) filed for bankruptcy this week after succumbing to its over-levered balance sheet. Why so much debt, you ask? The debtor levered up in 2015 to fund the $554.5mm purchase of aluminum recycler Real Industry Inc. from...wait for it...Aleris Corporation. Aleris is owned by Oaktree Capital Management LP ($OAK) and Apollo Management LP ($APO), which appear to have shed Real Industry Inc. at an opportune time. You win some, you lose some.

Interesting Restructuring News

in
  • Busted Tech. Ok, not yet. But soon. Faraday Future has cancelled its plans to build a Vallejo California assembly factory - shortly after scaling back its original Nevada facility. This Techcrunch piece says that "it's unclear where the future will lead for Faraday." Seems pretty clear to us that it will lead to bankruptcy court. And, quietly, a number of (once) high-flying startups are laying people off including, notably, Postmates and Zozi ($60mm VC - Richard Branson and others). Finally, Munchery, often hailed as a top food-delivery startup, required a recap this week to survive.
  • Grocery & Sun Capital Partners. We SWEAR we are not picking on SCP here but c'mon already: now it looks like Marsh Supermarkets is in trouble as the company falls behind on rent and quietly - well, not so quietly anymore - shuts locations. So, let's recap: in the past 6 months, SCP has seen the following portfolio companies file for bankruptcy: Garden Fresh Restaurant Intermediate Holdings LLC, Limited Stores Company LLC, Gordman Stores Inc. Maybe this will be the next?
  • High Yield. Remember a few years ago when Chobani was distressed? Now you can get in on a new offering at a premium to par, it seems. Semi-related, the bidding to lend to Westinghouse in bankruptcy was reportedly pretty intense, with Apollo Investment Corporation duking it out with Goldman Sachs, Highbridge Capital, and Silver Point Finance for the privilege to finance the nuclear power company while it figures out how to restructure its business and address two incomplete installations in Georgia in South Carolina. Yield, baby, yield. 
  • Oil&Gas. That was fast. Like super fast. Seems the new owners of Samson Resources II, LLC don't share a very "long" view of the oil and gas space - despite "having discharged approximately $4 billion of debt and nearly $300 million of annual interest expense from Samson Resources Corporation," aka the previously bankrupt entity that filed in mid-2015. And distressed investors wonder where the term "vulture" comes from. PJT Partners LP was the previous banker for the company but with the Board being what it is, there's no surprise Houlihan Lokey has a piece of the action.
  • Retail. Finish Line added itself to the long line of retailers that reported dogsh*t numbers with earnings down, same store sales down, blah blah blah. Right, and approximately 40 store closures. Naturally. Also, David's Bridal was downgraded this week. The CD&R LLC owned retailer has a $520mm term loan due in 2019 and if millennials continue to flick off conventional marriage, there's no way they'll be able to sell enough gaudy wedding dresses to manage the interest expense. And, uh oh, now there appears to be a glaring hole in the "fast fashion" narrative as H&M missed expectations with declining net profit.
  • Rewind I: 3-D Printing. Not to be a broken record about this, but it is totally real. Last week we noted Adidas' plans for it and this week Under Armour followed suit. The implications for those in the supply chain can't be underestimated.
  • Rewind II: Glass Half Full. Looks like Gordmans Stores won't be a complete liquidation after all: Stage Stores stepped up and, as part of a joint venture with Tiger Capital Group and Great American Group, will acquire roughly 50 stores with an option for a handful of others. The remainder will be liquidated but this presumably means that, for now, a couple of dozen will continue to operate. At least until the inevitable Chapter 22 that occurs after next holiday season. Kidding! (Or are we?)
  • Chart of the Week: 

News for the Week of 01/22/17

in
  • Distressed Investing. A short discussion of opportunities in post-reorg equities.
  • Fraud. With lofty valuations and lofty P/E ratios come lofty expectations. And fraud. Here's hoping this is confined only to tech. 
  • Hospitals. They're going away.
  • Malls. Simon Properties and General Growth Properties take a hit from The Limited Brands bankruptcy, which is only valuable on an IP basis. But don't worry: pop-up stores and pickup centers will ease the pain. Wait, what?
  • Mexico. Pemex is selling a baseball field to sure up liquidity. Yes, you read that right.
  • Retail & Retail Analytics. Some analytics around retail. Meanwhile, in the face of talk about renewed IPO activity in '17, Claire's Stores unsurprisingly abandoned its IPO, further calling into question Apollo's $3b take-private transaction. And then there's BCBG trainwreck. But hope is not lost for physical retail: a number of e-commerce retailers are increasing their physical presence, including Bonobos, Rent the Runway and others.
  • Rewind I: More on the Dallas pension fiasco.
  • Rewind II: New developments with Takata pummel the stock.
  • Chart of the Week: