Fast Forward (Bon Ton Stores, David's Bridal, Supervalu and More)

Bon-Ton Skips Interest Payment ($BONT)

Bon-Ton Bankruptcy Coming to a Mall Near You Around January 15 2018

Bon-Ton Department Stores Inc. ($BONT) filed a notice with the SEC indicating that it is using its 30-day grace period to delay making a $14mm interest payment. It had gotten a small reprieve in December to bridge it through the holidays as vendors were clamoring for more friendly terms. Presumably, factorers were tightening terms as well. It seems like that the company will file for bankruptcy on or around January 15. 

Recruiting & Business Development (Long Innovation)

Think Outside the Box, We Say

We can't seem to get over our own obsession with private equity/biglaw/bank recruiting; we've written about it herehere and here. Why? Mostly because its stupid-absurd which, in turn, makes it funny. But after reading about the rise of corporate pop-ups here, we came up with what we think is a genius way to jumpstart business development and recruiting efforts in one fell swoop: a biglaw pop-up store. Stick with us here: picture a mall with next-wave bankruptcy candidates like Charming CharlieNine WestBon-Ton Stores ($BONT), Sears Corporation ($SHLD), Destination XL ($DXLG), Destination Maternity ($DEST), etc. (collectively, the "Effed Retailers"). Picture, also, within close proximity, a corporate pop-up for, say, Law Firm AB&C LLP featuring all kinds of fancy screens rolling clips of how bada$$ and extreme its attorneys are while arguing (or singing) in court on behalf of retail clients. Imagine the product placement opportunities for the likes of Payless Shoesourcerue21 Inc.Gymboree, and True Religion (the "Successfully Reorganized Retailers"). "Stop by the AB&C LLP popup for awesome limited edition kicks and 'lit' specialty women's apparel," they'll say. In the opposite corner there can be a skull-and-crossbones banner hovering over an ominous display of retail carnage, e.g., hhgregg, Gander Mountain, etc. - all of which were, conveniently, of course, represented by other firms. Like, literally, a pair of running kicks should be on fire and death metal ought to be playing on the loud speaker. Of course, the managers of the Effed Retailers will see this and, in a panicked frenzy, start dialing corporate HQ asking, "Who is our Restructuring counsel?" Oh, really? Fire them. We need to hire AB&C LLP stat!" Meanwhile the Successfully Reorganized Retailers will generate some revenue from the product placement which, of course, they'll want to pay back when they inevitably are no longer "successful" and need to file for Chapter 22. Cha Ching! Another retention. Don't forget the REITs: Simon Property Group ($SPG) can continue to boast about 97% occupancy rates thanks to AB&C LLP filing space. And, finally, think of the branding potential. Law students and future law students will walk by and say "Holy crap. I want to go work at THAT law firm, AB&C LLP." Massive cross-benefit for recruiting. Whichever of your firms deploys this strategy first can send royalties via Paypal to petition@petition11.com.

Fast Forward: (Nobel Group, Global Brokerage Inc., J.G. Wentworth Company, Bon Ton)

Noble Group Ltd.'s optionsGlobal Brokerage Inc. ($GLBR) announced entry into a restructuring support agreement with its noteholders and a bankruptcy is imminentThe J.G. Wentworth Company ($JGWE) announced that it will be filing a prepackaged bankruptcy soon. And Bon-Ton Stores ($BONT) announced the imminent closure of 40 more stores on its march towards bankruptcy.

Retail (Rise of the Retail Suppliers & Their Financiers)

Factorers Flex Their Muscles

We're getting amped up for Star Wars and so we figured we'd use a SW-like subtitle here. Anyway, Toys R Us'trouble sparked a vendor awakening (see what we did there?) and attendant media speculation, which, combined (with an obnoxious level of PE-placed debt), sparked the behemoth-retailer's surprise bankruptcy filing. Its logical to draw a direct line from that to the circumstances unfolding now in Bon Ton Stores ($BONT) and Charming Charlie, where both retailers reportedly had to get extended access to capital under their credit facilities to make it through the holiday season (after which they'll both probably file for bankruptcy anyway, but whatevs). Likewise, Sears Holdings Corp. ($SHLD) has had to recently tap all available resources to ward off retailers. Notably, it indicated that "[m]erchandise payables were $0.8 billion and $1.6 billion at October 28, 2017 and October 29, 2016, respectively, as we have significantly reduced our dependency on vendor financing." Sure, broheims. Is "significantly reduced our dependency on vendor financing" a euphemism for "nobody will extend us credit anymore"? Anyway, earlier this week, Calypso St. Barth couldn't make it that far as vendors filed an involuntary bankruptcy petition against it in New Jersey. Apparently, vendors don't like it when a company stonewalls them and refuses to pay. Go figure. But, wait:there's more. Unbeknownst to casual observers of the #retailapocalypse, many suppliers rely on specialty lenders called "factorers." Factorers purchase accounts receivable from suppliers so that suppliers have some near-term liquidity - rather than waiting 30-120 days for, say, Toys R Us to pay them (or waiting forever, as the case may be, e.g., Vitamin World, now liquidating). In turn, there are specialty insurers who provide the factorers cover in the event that the receivables are never paid. Which, given the volume of retail bankruptcies today, seems like a pretty likely risk. Apropos, (i) insurers are charging factorers more for insurance, (ii) factorers are seeking more favorable terms from suppliers and (iii) suppliers are therefore seeking tighter payment terms from retailers. Without the ability to satisfy those terms, well, you get it: Toys R Us. It's like a nice big game of dominoes played among one big unhappy family. With Uncle Amazon watching from above with an evil-a$$ grin on his face. 

Charming Charlie = Ghost of Christmas Past?

The Wall Street Journal reported last week that Charming Charlie LLC is in trouble with a financial advisor out in the market seeking a bridge loan. The news cannot be helping with suppliers in the lead-up to the holidays. Anyone paying attention knows that both Toys R Us and Bon Ton Stores ($BONT) had similar liquidity issues recently which were compounded by suppliers tightening terms. The former ended up filing for bankruptcy. The latter just got a rescue loan to last it through the holidays (after which, if we had to bet, it will disappoint and have to file for bankruptcy). More likely than not, the WSJ story didn't do the company any favors. Remember: Toys R Us blamed a CNBC story, in part, on its accelerated plunge into bankruptcy court.

Retail (Short Copycats)

Bon-Ton Stores is beginning to look a lot like Toys R Us. Meanwhile, we've previously discussed Appear Here here and here. Now Simon Property Group ($SPG) is dedicating pop-up space in certain of its locations. It's a brilliant move, frankly: this plan lets digitally-native-vertical-brands test physical locations; it could also be accretive to SPG as they can generate buzz that couples with the DNVBs' online communities/networks to bring e-commerce shoppers to physical locations; it also gives SPG early looks at potential retail investment opportunities. Meanwhile, the knock against Abercrombie & Fitch and other retailers was that millennials didn't want to be human billboards rocking an A&F sweatshirt with 485-font lettering on the front. That is, unless you show em the paycheckNow you can get paid for walking around big cities with Ipad-based advertisements on your back. Seems like a nice supplemental income for our friends in NYC.

Lots of Busted #Retail Narratives

Get em' a body bag. This is getting ugly. A few counter-narratives got napalmed this week in the retail space. It was a solid flameout, but, by the end of the week, there were some relative positives...

First, the narrative that discounted apparel retailers are doing just fine. Well BAM! Then The TJX Companies Inc. ($TJX) reported totally lackluster numbers for its T.J. Maxx and Marshall's brands. The floor fell out from under the stock in response. (To be fair, though, Ross Stores Inc. ($ROST) reported revenue and earnings growth though, still, at a slower pace).

Second, that "there will be winners from the bankruptcies." Well, that narrative got absolutely dumped on when Dick's Sporting Goods ($DKS) reported numbers. We're old enough to remember the bump that Dick's was supposed to get from The Sports Authority liquidation. Well, the stock got no such bump on its way to a 14% decline (though, there could be some credence to the argument that this is short term pain once the COB sales of recently liquidated competitors, e.g., Gander Mountain, end).

Can Super Hipster save the day? No, no, of course not. His jeans are too frikken tight...as evidenced by the bloodshed that was Urban Outfitters ($URBN) earnings report.

Okay, enough doom and gloom already: footwear is clearly safe. Wait. No. No its not. Foot Locker ($FL) reported and the stock immediately got pummeled. Apparently the white Adidas thing is over. Next?

Now, on the flip side, Target ($T) busted expectations favorably despite declining numbers across the board (other than a fairly meaningful increase in e-commerce); Ralph Lauren ($RL) exceeded pretty low expectations, though same stores sales comps declined 11%; Gap Inc. ($GPS) generally surprised all around and saw its stock rewarded. And then there was Walmart ($WMT). The behemoth reported growth in revenue and same store sales numbers and a KICKA$$ 63% sales growth figure for e-commerce (though this perhaps shows they were starting from virtually nothing).

Some narratives that DID hold: consumers don't want to spend discretionary income to be a walking billboard for brand. Apropos, American Eagle Outfitters' numbers were bloody. And women's specialty retail continues to be beaten down: Ascena Retail Group ($ASNA) - better known for brands like Dress Barn and Ann Taylor - offered horrible guidance and subsequently traded down 29%. Bon-Ton Stores showed same store sales down 8.8% and a net loss of nearly $60mm. Fresh off of getting a target painted on its back by the ratings agencies, big and tall men's apparel retailer Destination XL Group Inc. ($DXLG) announced some pretty bearish guidance. Finally, Florida-based department store Stein Mart Inc. ($SMRT) got OBLITERATED by the perfect storm of massive discounts and light foot traffic on its way to suspending its dividend and a massive stock plummet (though e-commerce showed improvement). 

Did you get all of that?

Interesting Restructuring News

  • 3-D Printing. A few weeks ago we noted the disruptive potential of 3-D printing. You can revisit that piece here. The spare parts market already appears to be under seige.
  • Automation. We hate to pick on support staff as there's been a lot of pain there the past decade but...short administrative assistants? On the flip side, note this.
  • European Distressed Debt. The vultures are looking at Spain and Italy. Meanwhile, last week Agent Provocateur, this week Jones Bootmaker = the latest PE-backed European retailer staring down the brink of administration(with KPMG hired to find a buyer).
  • Grocery. Food deflation appears to be leveling off - good news for grocers who had a rough 2016 (which we covered previously here).
  • Guns. Looks like the rise in anti-Semitism and hate crimes hasn't translated into robust gun sales: Remington Arms Co. is downsizing. The $2.6mm trade claim the company has in the Gander Mountain Company bankruptcy won't help matters either.
  • Malls. The Providence Arcade is deploying new and creative ways to put mall space to use. This brings a whole new meaning to "consumer culture." Meanwhile, more on malls becoming the new big short.
  • RestaurantsRuby Tuesday is now for sale after closing 100 locations. UBS is apparently the financial advisor.
  • Retail. Shocker! A newly released report delineating the most valuable retail brands failed to include Charming Charlie'sPayless Shoesrue21J.Crew...ah, you get the point. Also notably absent from this list is Neiman Marcus which, given its lack of scale (42 stores, ex-Last Call & Bergdorf Goodman), isn't all too surprising on a relative basis but that hasn't stopped it from attracting attention from Hudson's Bay Co (note: the Canadians have been taking a lot of interest in US retail lately, see, also Eastern Outfitters). Looks like some teens DO shop at Neiman Marcus but find malls, generally, "vanilla"...choice quote here: "I like finding stuff on eBay - clothes and accessories that no one else is wearing...[e]verything you can't find in a mall." See, also, Poshmark. Meanwhile, private equity backed retail is especially sordid.
  • Retail IIBon Ton Stores (BONT) reported higher earnings, cost savings that bested projections and a free cash flow positive '16 (compared to a wildly cash flow negative '15). But same store sales were down big. A few takeaways: 1) bad retail performance is always partially the weather's fault; 2) it's planning to make its landlords sweat with lease negotiations; 3) it's closing 46 stores in '17; 4) it's picking from the carcass of closed Macy's locations, poaching vendors and sales associates; and 5) it's still over-levered AF. While there is no near-term maturity post-retirement of the '17 second lien senior secured notes and the company claims liquidity through '17, the company is still levered at 8.5x and raising rates, generally, won't help retail. And the stock trades in dogsh*t (reverse split?) territory at $1.00. Hmmmmm.

  • Fast Forward: iHeartMedia launched an optimistic restructuring process seeking to swap more than 90% of its $20b of debt; Gymboree got a going-concern warning in the face of declining revenue and same-store sales and a 12/17 maturity; Gulfmark Offshore skipped its interest payment triggering a 30-day grace period due 4/15; the same date marks the forbearance expiration agreed to by lenders of 21st Century Oncology; and Concordia International Corp. reported HORRIBLE numbers and declined to provide go-forward guidance given the headwinds confronting drug pricers. 
  • Rewind I: We swear we're not picking on Sun Capital Partners but this week S&P Global Ratings downgraded Vince Intermediate Holdings to CCC+ making SCP's portfolio a virtual retail minefield. 
  • Rewind II: Yawn, more Westinghouse
  • Rewind III: Last week we covered Aquion Energy in our summaries of cases (click company name for summary). Turns out, this dog is more controversial than we thought as its another example of government subsidy gone wrong. Which is not to say we're not for experimentation/funding with/for alternative energy businesses, particularly in storage. But the comments to this seem on point.
  • Chart of the Week

Chart of the Week II