Chinese Distress (Short Transparency, Long Process Risk)

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There's been a lot of news surrounding HNA Holding Group Co. of late. The company is a large shareholder of Hilton Worldwide Holdings Inc. ($HLT) and Deutsche Bank AG. Now (a) the US government is seeking more information (video), (b) the ECB is considering a review, (c) ratings agencies are downgrading certain segments of the conglomerate, (d) a bankrupt company is suing HNA, and (e) bond prices are decreasing. The company - maybe best known for its proposed acquisition of Anthony Scarramucci's fund of funds - has made more than $40b of acquisitions since 2016. While it is unclear to what degree the capital structure is in trouble, the company is divesting assets, such as a Sydney building to Blackstone Group for $161mm. 

The company also serves as a warning signal to distressed investors with an eye towards China. This past week, Bill Bishop of Sinocism highlighted that the Chinese media has been told to tone down coverage of the firm's travails. They're concerned that market forces will further compound the company's issues. While we don't endorse opacity ever, we surely appreciate - given the recent trends with Toys R Us - why this might be. Per Bloomberg, the company faces some heavy bond maturities from Q3 2018 through Q3 2019. With pressure on the bonds, there very well could be a distressed opportunity here. Provided, that is, you can get your arms wrapped around all kinds of categories of risk. Including, of course, a government-imposed lack of information. 

Speaking of risk, it appears - thanks, of course, to a lot more transparency - that Chinese investors are comfortable with investing in stressed US-based companies (like Community Health Systems ($CYH)). 

Private Equity Recruiting is Bananas

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M*therf*ckers Have Lost Their G*d-damned Minds

There is so much to unpack in this stupid piece about the annual private equity recruiting frenzy. First, let's stop calling kids who are weeks out of college "talent" merely because they got a job in an investment bank trainee program. They haven't proven that they're talented at anything just yet. Going to an ivy league school, having a trust fund and being a douche isn't dispositive of anything. So, everyone chime the f*ck down please. Second, these folks get paid $200k? And people say there's no wage inflation? Third, the idea that an ibanker trainee is going to be appreciative for the two years of training a bank has given them and, in turn, give later private equity business to said bank is ludicrous. As a practical matter, his/her connection to that bank lasts a mere few weeks prior to them securing the next bigger, better and more Tinderable gig with which they prefer to identify. This seems like an outdated model with bad assumptions baked into it. The only sure thing seems to be that no matter which one of the PE firms these trainees land at, they'll be hiring Kirkland & Ellis LLP as bankruptcy counsel for one of their busted portfolio companies. Fourth, we love this bit about recruiting being earlier than ever "after an agreement to hold back fell apart." Hahahaha. So, private equity firms - KNOWN FOR DEAL-MAKING - couldn't even come to a deal amongst themselves?? This is like mutually assured destruction among KKR, Warburg Pincus, Carlyle Group LP, Apollo Global Management LLC, Bain Capital, Blackstone Group LP, TPG and Golden Gate Capital. Here's a great idea: lets trip over ourselves - and each other - to hire people with literally "no work experience." Those interviews must be PAINFUL AF. And, oh, hey you Managing Director. We love that you're "often forced to cancel business meetings last-minute to interview candidates." We're sure a multi-billion dollar transaction can wait for some piss-ant Harvard bro who inexplicably and unnecessarily writes equations on glass to regale everyone with his rad math skills. So lit. On what basis are these kids REALLY getting hired then? We think its probably pretty obvious. And its questionable how this BS still flies. What does any of this have to do with disruption? Well, when you're competing with venture capital and tech to acquire "talent," desperate times seemingly call for desperate measures. Logic has been disrupted. And it's absurd.

News for the Week of 3/12/17

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  • Commercial Real Estate Backed Loans. Looks like J.C. Penney store closures could impair $30b of loans.
  • European Elections & CDS. Investors perceive greater redenomination risk in France and Germany.
  • European Retail. It seems the bloody retail phenomenon isn't exclusive to US retailers. Jack Wolfskin, a German producer of outdoor wear and equipment, is in the midst of a restructuring of its $365mm of debt. The Blackstone Group is the company's sponsor and PJT Partners is shopping the company. Meanwhile, Jaeger, a UK-based clothier is also on the block, with an administration within the bounds of possibility. AlixPartners is advising the company.
  • High Yield. Valeant Pharmaceuticals, Foresight Energy and Community Health Systems all issued new high yield debt this past week and what screams of a massive yield grab. No, we're not joking: this actually happened. And demand was so strong that upsizing took place. We repeat: "demand was so strong that upsizing took place."
  • Oil & Gas Fallout. Like we said last week, we're crushing Ramen so it's hard to feel sorry for a man pulling in $2mm and a $50k/month consulting fee, but its interesting to see some of the effects of the energy downturn - here, relating to Energy XXI's former CEO. 
  • Power. The Westinghouse saga got juicier with Weil and the Japanese Prime Minister basically saying put up or shut up. Meanwhile, FirstEnergy is involved in shenanigans and Exelon is now getting active. 
  • Private Equity History Lesson. A review of J.Crew's take-private transaction and private equity's affinity for dividends, long-term viability be-damned. 
  • Puerto Rico. Sh*t is getting real and people are starting to clamor for bankruptcy.
  • Television. Netflix is going after unscripted reality TV. Choice quote: "The competition should be scared out of their minds. These guys are monsters — they're coming in to play and play hard."
  • Uber. Expansion in India seems to be predicated upon a mountain of driver debt.
  • Rewind I: Five weeks ago we reported the following: "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." Apparently, we were too generous with our characterization of the financial consideration. Something tells us this won't stop Peter J. Soloman from dutifully and opportunistically noting the tombstone on its pitch materials for the next big retail mandate.  See, also, this.
  • Rewind II: Looks like Avaya Inc. has a potential buyer in publicly-traded Extreme Networks Inc. for its networking business (for $100mm).
  • Rewind III: Store closures. Add Staples to the list (70 locations) and Signet Jewelers (165 stores). And here is one report on the failure of BCBG.
  • Chart of the Week: 
  • Chart of the Week II: