Unrestricted Subsidiary Shenanigans: iHeartMedia Version

in

Last week we wrote about Caesars and the "mess" that ensued after beleaguered creditors went after PE funds for value transfers to unrestricted subsidiaries (a playbook recently deployed in J.Crew, as well). This past week a judge ruled in favor of the company in iHeartMedia Inc., ruling that an equity transfer to an unrestricted sub didn't equate to a default. Elsewhere in iHeartMedia world, lots of negotiations and due diligence (per Reorg Research).
 

Fast Forward (A&M Castle, HCR Healthcare, iHeartMedia)

in

A&M Castle & Co. is finally filing for bankruptcy. Assisted living facility operator HCR Healthcare got downgraded and is helping contribute to the latest narrative/focus on distressed healthcare opportunities. What happens to HCR may also determine the fate of Quality Care Properties, HCR's primary lessor.iHeartMedia has extended the exchange offer as noteholders continue to balk at the company's attempts.

Short Music Festivals

in

Mere weeks after the Fyre Festival debacle, the Pemberton Music Festival has been cancelled and the organizer has filed for bankruptcy. Chance the Rapper and Muse were among the headliners. Simply seems to us that the music festival space is getting wildly over-saturated and duplicative. Does iHeartMedia have a concert business? Of course it does.

IHeartMedia Music Festival > #FyreFestival

in

We suppose it could be worse: this could be the Fyre Festival. Its looking increasingly likely that the lineup for the next IHeartMedia Music Festival will include U2, Sia, Kendrick Lamar and Kirkland & Ellis LLP*. Something for everyone. We mean, seriously, we'd rather listen to a K&E tax attorney than Ja Rule anyway. Yippee!

*for the uninitiated, K&E is a bankruptcy law specialist.

Interesting News (Weed, Quora, Dead Malls & More)

in

Bankruptcy Code Section 4:20. Just kidding...the bankruptcy code isn't available for folks who make money off of weed. 

Busted Tech. Answers.com takes a stray bullet in this piece about IAC's plans to shut down About.com. The fact that About.com has actually still been running this whole time renders us - yes, even us - speechless. Meanwhile, more busted tech is coming...soon. On the flip side, Quora is now a unicorn so who the hell really knows?

Canada. Housing is looking like an oncoming disaster - particularly in Toronto - and blood is appearing in the water.

Casual Dining. Quietly, a NYC mainstay is disappearing. 

Dead Malls/Investing. David Simon's optimism notwithstanding (see above), everyone is all over the "short the malls" thesis - now even extending it to the "A Malls" that, prior to recently, were generally considered to be impervious to this retail malaise (note: there's over $1b of short interest on SPG currently). And this guy from Alder Hill Management LP is the poster child. (Let us know if you want his report: PETITION has it.) Some are throwing shade all over this hype. Finally, according to this, maybe we should all be doing a better job to ensure that algorithmic shopping doesn't gain more ground and malls actually DO survive.

Oil & Gas. Nothing like a good old corruption allegation that embroils multiple law firms and a private equity shop to help push a company (here, Cobalt International Energy) closer to bankruptcy (paywall).

Oil & Gas II. Wait. So now we're at an oil and gas deficit?!

Retail II (Jamming like a Boss). While Gibson Brands was able to refinance its debt and push out issues, Guitar Center is looking increasingly troubled. Given that the company is private equity-owned, undoubtedly there is an over-leverage story here (like with all other PE-owned retail), but we wonder whether the show-room trend is particularly applicable to this kind of business. We asked our artsy friends and one of them openly admitted to strapping in at the local GC and then purchasing on Amazon. The pricing was the same and he didn't have to worry about lugging it home. We find the in-store lessons narrative dubious as well. There are countless online resources for learning guitar - YouTube, most notably. Meanwhile, we enjoyed this decidedly millennial take on the death of retail. 

Retail (Canadian Lumber Edition). Kidding, more like Canadian cashmere. Washable cashmere company Kit and Ace is restructuring in an additional acknowledgement that brick-and-mortar retail is tough - even if you're a VERY proven founder of successful apparel companies (in this case, Lululemon). Choice quote within: "Really it was just another store." Something tells us "Just another store" won't be part of the restructured company's marketing strategy.

Solar. SunEdison. Sungevity. Suniva. Verengo. SolarCity. Okay, just kidding about the last one but who knows what would've happened sans Elon Musk's Tesla/Solarcity merger shenanigans. Now Heliopower. We know many of you know the solar story: too much subsidy, too much debt, flooded supply from China pressuring margins, yadda yadda yadda. But we wonder if any of you have a notion with respect to a potential successful business model. We're serious: we're crowdsourcing your view here...

Taxis. Calling for a bailout.

The Profit. That's what Marcus Lemonis calls his CNBC show and now we'll get to see whether he can make some with the Camping World-led purchase of select portions of the Gander Mountain business in bankruptcy.

Fast Forward (Beauty). Uh oh. We noted last week that beauty category has been largely e-commerce resistant. Well, maybe not.

Rewind I (Bueller, Bueller). Get on with it already. Takata has become the new Westinghouse. Lots of noise. Just a matter of when. And, shocker! iHeartMedia's proposed subscription service with Napster - YES, NAPSTER - hasn't helped generate enough revenue to counteract $20b of debt.

Rewind II (Literally): We are as guilty as anyone hyping up the potential of autonomous cars but if anything is indicative of the wholesale difficulty to achieve 100% adoption, it's this piece about surviving Blockbuster franchises. Suffice it to say, there won't be driverless cars rocking the streets of Alaska anytime soon.

Rewind III (Shipping): We all know that the shipping industry hasn't been immune to its fair share of troubles the past year or so. Notably, Hanjin, Toisa, Daewoo, Ezra, and International Shipholding have all seen themselves in bankruptcy court. And, of course, Algeco Scotsman restructured as did Modular Space Corporation, as container companies, naturally, have also felt the effects. So, we thought this use case for surplus modular containers was interesting and we're dying for one of our readers in, say, Texas, to get one of these and report back.

Rewind IV (Apologies...More on the Retail Apocalypse): Last week we highlighted Jeff Jordan's early 2014 call on retail. Subsequently, he dove into the mall scene: you can read it here. The below excerpt should be particularly interesting to PETITION readers as we've been saying for some time that restructuring pros who continue to claim that Bonobos and Warby Parker will fill the retail void are, quite plainly, making a$$es out of themselves. As are, quite notably, REIT CEOs. Nothing has changed since JJ wrote this...

What the Pros Say (Week of 4/9/17)

in
  • Brand/IP Value. Hilco Streambank's David Peress is quoted herein discussing loans structured upon brands. 
  • CDS. Given the comments about CDS by Jason Mudrick (see above) and the events emanating out of iHeartCommunications Inc., credit default swaps are coming back into focus. Here (part 1) and here (part 2), Kramer Levin Naftalis & Frankel LLP's Stephen Zide and colleagues provide a solid two-part summary of the CDS determination made in the iHeart matter.
  • Feasibility. In an attempt to overtake Jones Day as the winner of "Most Prolific Marketing" content supplier, Kramer Levin Naftalis & Frankel LLP's Stephen Zide and David Braun provide a summary of the Paragon Offshore matter which, from our perspective, has been wildly under-covered - other than by us.

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: 

What the Pros Say (3/19/17)

in
  • Professional Compensation. Whereas we would typically demerit a firm for reviewing a "recent" case from 4 months ago, we'll pass here for two reasons: 1) this DLP Piper LLP summary by Richard Chesley, Rachel Albanese and Adam Lanza is solid; and 2) there's no ridiculous attempt here to shield the bankers from a decision that ultimately came down in their favor. Sidebar: speaking of fees, SunEdison was in the spotlight this week and these fees are in bleacher seat territory.
  • Unrestricted Subsidiaries. Anyone interested in understanding the shenanigans taking place in iHeartMedia or J.Crew ought to read this strong coverage of the use of covenants to restructure their capital structure by Chapman & Cutler LLP's Michael Friedman, Simone Tatsch, and Nicholas Whitney.

Interesting Restructuring News

in
  • 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.
  • Restaurants. Ruby 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's, Payless Shoes, rue21, J.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 II. Bon 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: 

News for the Week of 12/18/16

in
  • Distressed Debt. More focus lately on Africa and the Middle East. Meanwhile, New Jersey is issuing transportation debt directly to state pension funds, cutting out middlemen in the issuance and driving down issuance costs. 
  • Hertz. Despite Carl Icahn's best efforts, this company has shown nothing but decline in the face of Uber and Lyft stealing revenue from the consumer-facing rental car business.
  • Renewable Energy. Wind and natural gas are on the rise in the United States: there's no holding it back. Interestingly, Statoil announced this week that it - like many others - is abandoning the Canadian oil sands to the tune of a $500mm impairment; meanwhile, Statoil paid $42.4mm for a lease to develop a wind farm 79k acres southeast of New York City. There were 33 rounds of bidding: the longest auction the agency has ever had for offshore wind. Earlier this week the wind farm offshore of Rhode Island went on-line.
  • Shenanigans. JCrew transferred its IP to a Cayman subsidiary triggering significant downward trending term loan activity; IHeartMedia elected not to pay $57mm of senior notes due to an affiliate upon maturity which may or may not be a CDS credit event; Cumulus Media launched a lawsuit against JPMorgan for allegedly unreasonably withholding consent to a proposed refinancing transaction that would significantly delever its balance sheet. 
  • Takata. The airbag recall keeps spreading - now to McLaren, Ferrari and Tesla. Chances are the company is looking on at the General Motors situation with great interest.
  • Twinkies. An interesting summary of the company's history - including stints in bankruptcy.
  • Fast Forward: Forbes Energy Services' fifth forbearance expires on 12/23, Stone Energy's equity committee hearing is 12/21, and CHC Group Limited may get its PSA ruling from Judge Houser this week.
  • Rewind I: Neiman Marcus reported dog-sh*t numbers this past week blaming a strong US dollar and general retail headwinds for a widened $23.5mm loss. Headwinds persist for retailers: here are top trends affecting retail go-forward.
  • Rewind II: For-Profit Education. The US FTC announced a $100mm settlement with DeVry University, capping a BRUTAL two years for for-profit education. Some highlights: ITT Technical Institute already shut down earlier in the year, the infamous Trump University recently settled a suit for $25mm, and last year Education Management Corporation paid a $95.5mm settlement and Corinthian Colleges filed for bankruptcy.
  • Rewind III: We discussed Amazon Go last week. Here are some more takes on the technology.
  • Chart of the Week: 

Tweet of the Week: