1.21 Gigawatts (What is Dead May Never Die)

All Herald the Inglorious Return...

What a strange week.

Henrik Fisker of once-bankrupt Fisker Automotive unveiled the Fisker Inc. EMotion this week at the Consumer Electronics Show in Las Vegas in a dramatic attempt to compete with Elon Musk and Tesla's ($TSLA) Model S. Or, more accurately put, he unveiled a pre-production model, because, well, it's CES and that's what people do: build shiny models to show off with bold statements and abstract availability dates. Just ask Faraday Future. Target price for the EMotion? $130k. "With a target price of $130,000, the EMotion won't be a mass-market car, and suggests that Fisker Inc. could go the way of Fisker Automotive." Right. Good luck with that. 

Thank you Disney ($DIS) and Netflix ($NFLX): the two are largely to credit (blame?) for the recent resurgence in...wait for it...cassette tapes. Yup, you read that right. Thanks to Guardians of the Galaxy, Stranger Things and 13 Reasons Why, cassettes enjoyed a 74% increase in sales in '17. While this may be hipsterific AF, we don't expect to see this "growth" listed as a "risk factor" in Spotify's coming direct listing. 

The resurgence of Nintendo.

Finally, we'd be remiss if we didn't mention once-bankrupt Kodak's ($KODK) foray into cryptocurrency (KODAKCoin). Because the more we read about it, the dumber it sounds and the more the company seems screwed, term loan rally be damned. But, hell, why not? Coming soon to Coinbase account near you: iHeartCoin, JCrewCoin, CenveoCoin, SearsCoin, Bi-LoCoin, etc. After all, there's THIS CHART (followed by a chart of blockchain-related stocks)...

If Apple is Screwed, We're All Screwed

We've been giving a lot of thought to the retail malaise currently infecting the US and one thing we debated recently is what would happen if Apple, Tesla, and some of the other saviors of US malls were to see a massive turn to the downside? Well, earlier this week Apple had a bit of bad news including potential delays to the iphone 8 and this: an indication that the flagship Apple store in the (recently CMBS'd) Boston Properties' GM Building on 5th Avenue is experiencing some flagging revenue numbers. No bueno. Choice quote NSFW: "'I think retail is f*cked, plain and simple,' developer Billy Macklowe said at a conference in April. Walking down Fifth or Madison Avenues, he said, 'just on a visual basis, you will get to a radical vacancy rate the major brokerages aren't putting out there.'" Wow. (PETITION note: read the comments too. Many appear to be spot on). 

Electric Cars & Car Insurance

If all you do is look at headlines, this piece may give you the impression that electric cars are doomed. Tack on Tesla's underwhelming news and attendant stock decline (prior to Friday's slight recovery) and that view may be warranted. But let's back up a minute: does a $100-200 charge move the needle for purchasers of electric vehicles? Speaking of vehicles, how is the auto insurance industry looking as we enter the next phase of electric and autonomous car adoption? According to KPMG, not good.

Chart of the Week I - Electric Vehicles Rising $TSLA $F

Wow. Electric car sales are soaring so...

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!

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 12/18/16

• 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: 

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