Energy (Who Can Make Sense of it All?)

This headline about sums up the effects of tax reform on energy policy: weakened incentives for solar and wind development and 1.5mm acres of the Arctic will be opened to new oil and gas development. Because there's, like, a ton of demand. But, even Bob Murray of Murray Energy Corporation isn't happy, alleging that tax reform will lead to more coal bankruptcies. Wait, we thought there was a coal bailout afoot? So confusing. Elsewhere, the Interior Department's Bureau of Land Management is delaying an Obama administration regulation that restricts harmful methane emissions from oil and gas production on federal lands. This should inure to the benefit of frackers who haven't exactly had an easy time the last few years. The debate over solar tariffs is getting faster and furious-er: NextEra Energy Inc.'s SVP, as just one example, thinks tariffs will decimate new utility-scale solar projects. Yet, curiously, congressional Republicans in Texans are conspicuously absent from the list of opponents to the tariffs, despite Texas being the 7th largest adopter of solar capacity in the US. Wait. They're voting against their constituent's interests? We could swear we've heard that recently in another context too.

Suniva & SolarWorld May Land Their Hail Mary

A Critical Decision on Solar is Coming

Remember how we previously told youabout bankrupt Suniva Inc. and SolarWorld AG's efforts to get the Trump Administration to levy tariffs on foreign solar imports (looking at you China)? Well, the US International Trade Commission ruled on Friday that domestic makers are, in fact, hurt by foreign imports. There are a few admin steps before it goes to Trump but this could get interesting. Choice quote: "Hopper argues Suniva and SolarWorld are the victims of mismanagement and that the foreign-owned companies are using U.S. trade laws to bail out their bad investments." You read that right: both companies are actually majority owned by, wait for it, non-US companies. W.T.F.

Notable (Mutual Funds, Crack Smoking & Solar Lobbying)

Mutual Funds. Why would anyone invest their money with this bozo at this point? We'll take some of what Bruce Berkowitz is smoking.

Solar. Suniva Inc.'s petition to the Trump Administration to impose tariffs on solar panels would wipe out 2/3 of projected installed solar systems over the next half-decade according to this report from GTM Research.

Bankrupt Solar Companies Are Pressuring @POTUS Towards Protectionism

We've previously noted Suniva's efforts to initiate a trade investigation (which, significantly, was a condition precedent to the $4mm DIP credit facility):this notes how significant the case could be for the solar industry and how it could score President Trump some major points. Notably, SolarWorld AG has now joined in the fun.

Solar Bailouts Are All the Rage ($RUN, $SPRW, $TSLA)

We're not referring to the one's you typically hear about. We're referring to the solar industry. First Elon Musk's Tesla took on SolarCity's sinking ship. And, now, Total S.A. has agreed to guarantee SunPower Corporation's $100 RCF with Credit Agricole. Without this, SunPower would likely be in the bankruptcy bin. Its guidance for Q2 '17 is $275-325mm revenue on gross margin of negative 3% and a net loss of $110-135mm (on a GAAP basis). Don't get us wrong: long term we are bullish on alternative energy but, for now, it doesn't seem like anybody has figured out a business model for solar. Though Sunrun's CEO remains bullish. And why not?...jobs!

SolarWorld AG = Latest Solar Bankruptcy

Renewables. Solar companies have been getting a lot of exposure to bankruptcy courts these days whether as an installer (Sungevity) or manufacturer (Suniva). This week, German company SolarWorld AG followed suit and time will tell if its US subsidiaries will also end up in bankruptcy court. Apparently, Suniva is taking efforts to compel the government to impose tariffs - a strategy that some question as counter-productive.

Interesting Restructuring News

• Busted Tech. This is becoming a regular topic. After LivingSocial (remember LivingSocial?) and its $6b valuation sold for bupkis, serious doubts now surround its acquirer, the publicly-traded Groupon. 

• Lit. Google released the results of a survey showing what is currently considered "lit" (read: "cool") among the teen and millennial demographics. A few observations: 1) Ivanka Trump's brand was conspicuously missing and so clearly there is a high probability of this being "fake news" (yes, we're joking); 2) Netflix and YouTube are the two highest rated brands in both demographics which certainly raises questions about conventional media companies; 3) Tesla is considered the coolest auto company despite not necessarily having the highest brand awareness (nevertheless a positive leading indicator for electric vehicles assuming a) these idiots will drive, b) they'll have money to buy a Tesla, and c) Tesla can manufacture enough cars to meet the supposed demand); 4) Still, car brands across the board are cooler to millennials than teens which raises questions - in the face of autonomous cars - about what car ownership may look like in the next decade; and 5) there is little to no consumer products representation in the "cool" zone outside of footwear and electronics (gaming, Apple, GoPro) which speaks volumes about why we're seeing as much pain in the retail space as we have been. Notably, Uniqlo, Zara and H&M - favorite excuses for why conventional retail is, gulp, out of fashion, are all middling in the 6.5 area. Footnote: Quicksilver looks to have subpar awareness and "lit" ratings which begs the question: how long before Oaktree Capital Management flips it...?

• Post-Reorg Equity. Apparently filing for bankruptcy hasn't turned out too badly for certain oil and gas executives who find that they're realizing a lot of upside value through the reorganized equity of their companies (WSJ firewall). Elsewhere, upon release back into the market, Peabody Energy's equity initially traded up 3.5% only to flip-flop and go negative by over 12% by market close on Tuesday. #MAGA baby! Coal is, uh...back??

• Professional Fees. The American Lawyer seems to have it out for bankruptcy professionals these days as it seems freakishly obsessed with professional fees: in this instance, Weil's fees representing Westinghouse. 

• Restaurants. "There's been an oversupply for 10 years in our industry," says the Darden Restaurants CEO Gene Lene upon announcing the acquisition of Cheddar's Scratch Kitchen. Still, the fast casual space is showing signs of strength: most notably, Panera Bread's stock popped upon acquisition news earlier this week.

• Retail. We really tried to stay away from retail this week because, like you, we're just tired of the story. But, here (video), Jason Mudrick of Mudrick Capital Management provides some interesting thoughts on how to trade the space. This isn't new ground, necessarily, but for the less-initiated, his comments on the difficulty of shorting retail debt may be educational. Note, however, that his views are disputed by analysts at Citi who claim the CMBX trade is over-crowded and that CDS is, in fact, the way to go. Either way, his overall thesis seems a bit inconsistent to us. On one hand, he indicates that the "Amazon effect" (lazy) is leading to a secular decline in retail, generally, but on the other hand he leaves us with the impression that only the lower tier malls will be affected. If the "Amazon effect" is what it is and our parents will die and our kids only shop online (paraphrasing here), why isn't he mentioning the A tier malls as well? This seems to be a blind spot within the restructuring space generally. As we've noted, General Growth Properties and Simon Properties are appearing in the vast majority of these retail cases - even the little ones that nobody appears to have heard of prior to the last few months. Now, granted, there's something to be said for the "replacement value" argument: but are these mall operators really filling vacancies fast enough to maintain revenue and, if so, who is filling the void? Warby Parker currently has 47 "retail locations" (a term we use loosely because this includes small kiosks like the one in the Los Angeles Standard Hotel - basically a cart). Bonobos has 31 locations. Cuyana has three locations (one a pop-up). Birchbox has one location. And most of these are in major cities so not even necessarily in malls. And, directing you back to "Lit" above: we don't see much mall-based retail on that survey - "A" mall-based retail included. So then what? Chiropractors, dentists and clinics? Seems thin. All of this said, the WSJ reported that "the national retail-property market is holding steady," using flat vacancy rates as its measure across shopping centers, regional malls and neighborhood and open-air shopping centers. And mall operators, naturally, are talking a big game. Curious. (*Note: if anyone is interested, we do have a 50+ page hedge fund presentation outlining the CMBX thesis. Let us know).

• Retail II. DAMN IT, retail, we just can't quit you. More from this past week: 1) Citi cut both L Brands and Urban Outfitters from buy to neutral, 2) Ralph Lauren announced the closure of its Fifth Avenue flagship store (with additional closures to come), 3) Bebe Stores announced the closure of its 34th Street store (great quotes within) and 4) the discount space saw some consolidation as Dollar General scooped up Charlotte-based Dollar Express, a Sycamore Partners company. We can therefore add this to our #MAGA! sub-category given the 2700 jobs slated to be cut. SO. MANY. JOBS. LIKE. REMARKABLE.

• Second Order Effects....of advancing car tech. We previously covered Benedict Evans' presentation on the rise of mobile and made some abstract statements relating to second order effects of mobile phones and electric/autonomous cars then. Here, Evans goes a bit further in what makes for a long but interesting read about industries that ought to brace for change (thanks to our friends at Hilco for forwarding to us). TL;DR: car suppliers, machine tooling, car repair, gas stations, convenience store retailers (and, by extension, snack & tobacco providers), building power generation providers, safety equipment manufacturers (i.e., airbags - this is thin, we think, and airbags will probably still be in cars for the foreseeable future), parking operators, truck stops, etc. Of course, this all presumes mass adoption in the time frame the herd generally suggests: 5-10 years. There are notable naysayers.

• Sungevity, a Piece of the Solar Story & Real World Ramifications. Yikes. This is a STINGING synopsis of the downfall of Sungevity, a solar company that recently filed for bankruptcy (our summary and case roster is here). To be fair, the writer seems to have some sort of ax to grind with the company but the comments taken from Glassdoor are, in many respects, heart-breaking and serve as a real-world reminder that while they may line your pockets and juice your bonuses, these cases hurt people. Remember that. 

• Venezuela. With a state oil company debt payment of $2b looming on the horizon, investors are speculating about the likelihood of default.

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• Fast Forward: Someone just please put Seadrill Ltd. out of its misery. Per Bloomberg, rue21 is due any day now. Sequa Corp....finally. And metals/mining looks like its back on the map with the announcement thatA&M Castle & Co. will be filing a prepackaged bankruptcy shortly.

• Rewind I: We've been spending a good amount of time highlighting busted tech lately and so we'll add another (per Fortune): Yik Yak. For the uninitiated, Yik Yak was a high-flying anonymous social media app that garnered $73.5mm of VC from Sequoia Capital at a valuation over $400mm. Now it is effectively selling for parts (to Square?) in a manner that likely won't even cover the VC. Ouch. I suppose we can call this the "Snapchat Effect."

• Rewind II: Ashley Stewart, a plus-size retailer that was in bankruptcy in 2014 opened its first new store last weekend, a counter-narrative to the doom-and-gloom otherwise hanging over retail.

• Rewind III: We've covered Spotify at length and this week's news of a potential direct listing rather than an IPO is interesting. And goes to show what we've been saying: that convertible venture debt it took on is getting expensive.

News for the Week of 2/5/17

• Athleisure. Start the funeral dirge. Under Armour reported dreadful numbers and guided poorly, citing the Sports Authority bankruptcy as a reason for decreased exposure to product. Then S&P kicked UA while it was down, downgrading its corporate credit rating from investment grade to high yield. It's not a restructuring candidate with double-digit growth but its results don't bode well for retailers, generally. Good thing J.Crew is NOW starting to focus on athleisure.
• Avaya. Doing a little damage control.
• Cumulus Media. What the public is learning.
• Europe. Some expect a bigger year for restructuring in 2017.
• Private Equity. Some doubts about portfolio quality.
• Solar. The technology continues to take hold and grab share but there'll be a lot of carnage along the way. Meanwhile, Exxon got pummeled, noting over $2b in writedowns.
• Retail. As distressed investors and bankruptcy professionals lick their chops over the possibilities with rue21, True Religion, Claire's Stores, J.Crew and others, "fast fashion" gets a second look as a culprit in the demise of retail (adding to the typical Amazon narrative). Still, even H&M and Uniqlo have announced intentions to scale back growth plans and/or close stores in the US.
• More Retail. The Finish Line Inc. announced its sale of Jack Rabbit Sports this week (66 locations) for undisclosed terms. "Undisclosed terms" = GU gels and a jock-strap. Peter J. Soloman served as financial advisor. The quote, "The acquisition eases fears that the chain would face liquidation with no strategic buyers for the business"...basically sums up specialty retail. Reasons for the company's struggles are particular to specialty running stores, including, notably a marked decline in marathon participation. It's just not that easy to take a selfie while running 26.2.
• Morer Retail - Canada. Once high-flying e-commerce startup Shoes.comcapitulates under the weight of multiple lawsuits, thwarting an IPO. In addition to shutting down the e-comm channels, the Vancouver-based company will shut down two brick-and-mortar locations - effectively flushing $45mm of PE down the toilet. Still, that URL seems like it would fetch some value...
• Fast Forward: Walmart is looking to disrupt Amazon while Amazon is looking to disrupt Alphabet and Facebook. And UPS. In other words, Amazon is after EVERYONE.
• Rewind I: Usually we reserve "rewind" for topics we've discussed in previous weeks but we're making an exception here: apparently HMV still exists in Canada. Or did. What a major blast to the past. What were they selling, exactly, 8-tracks?
• Rewind II: Payless Shoes. 4400 stores? Wow.  Apropos, retail now the sector with the most distressed debt. In other retail news worth a rewind, Sports Direct is reportedly in talks to acquire Eastern Outfitters, the parent company of Bob's Stores and Eastern Mountain Sports from Versa Capital Management out of bankruptcy. If those names sound familiar, it's because Versa literally just bought them in bankruptcy last year in the Vestis Group case. So, add this to the growing list of Chapter 22 cases. 
• Rewind III: Given our revelation last week of the connection between Puerto Rico-Dentons-New Gingrich, its intriguing that Greenberg Traurig is distancing itself from another Trump supporter.
• Chart of the Week: Sometimes to disrupt the incumbents, you have to bleed cash like nobody's business...

News for the Week of 12/11/16

• Argentina. Lawyers get credit for a break in the 15-year impasse.  
• Distressed Legal Debt. Wait, say what? Anchorage Capital purchased Citi's debt in law firm Slater & Gordon for $0.38/on-the-dollar. 
• Solar & Wind. In the wake of La Paloma Generating and Illinois Power Generating Company (Genco) both filing for bankruptcy (see below), solar seems to be gaining momentum with measurable progress in Florida and California (San Diego). But not just solar: this week Google announced that its reducing its carbon footprint with direct purchases of renewable (wind) energy. See Chart of the Week II below.
• Fast Forward: UnderArmour announced this week that, starting in 2020, it has exclusive rights to produce Major League Baseball's uniforms. While this is a way off and numbers for MLB fanhood may be even weaker than today, this is a big deal for them and a major loss for Majestic Athletic. Cause and effect: we're wondering what this will mean for Majestic's business go-forward...
• Rewind I: Dead Malls. People can't seem to talk about this enough: here, some ways to invest it.
• Rewind II: Dallas. We previously mentioned the pension issues there and talk of Chapter 9. This week Moody's released a report highlighting that Texas' four largest cities have a combined $22.6 billion in underfunded pension liabilities. Yikes.
• Rewind III: Last week we noted the injunction in place delaying, for now, a mandated overtime pay rule that is thought to endanger retail profits further. Some companies have decided to implement the change preemptively. 
• Chart of the Week: When viewed in tandem with last week's chart about peak oil, the rise of battery-powered cars is marked.  

Renewable energy use...this is changing rapidly: