Notice of Appearance: Joshua Sussberg, Partner at Kirkland & Ellis LLP

This week PETITION welcomes a notice of appearance by Joshua Sussberg, Partner in the New York office of Kirkland & Ellis LLP.

PETITION: What is the best piece of advice that you’ve been given in your career?

“Always be the most prepared. Period. Whether it is a call, meeting or court appearance, be the most prepared person there. This piece of advice is something I do not forget and pass on.”

PETITION: What is the best book you’ve read that’s helped guide you in your career?

“A Civil Action. It was a requirement to read heading into law school and I went back and read it again years later. It teaches that one lawyer can ultimately make a difference. It also speaks to, and without question demonstrates, the high stakes and personal commitment the profession requires and demands. A must read.”

PETITION: What is the one product that helps make you a more efficient or relaxed pro?

“Wireless headphones. Airpods. But it really can be any wireless headphones at all.…”

PETITION: Cool. Anything interesting you’re listening to at the moment?

"Top hits on Spotify!”

PETITION Note: You’re one in (70) million, Josh!

PETITION: What is one notable trend you expect to see in ’18 that not enough people are talking about?

“Restructuring professionals spend lots of time these days talking about the retail, oil & gas and the healthcare sectors, with much less attention being paid to real estate (both commercial and multi family). While there is still a lot of capital in the market place, rising rates and lower rents may pressure this and cause dislocation later in the year.”

PETITION Note: We agree, Josh. We’ve been writing since our inception that the cavalier attitude that many players in the space have taken vis-a-vis the real estate sector is mistaken. If anything, the recent low price offered by Brookfield Capital Partners for General Growth Properties may be the canary in the coal mine for commercial real estate. Note also, this, relating to the liquidation of The Bon-Ton Stores:

⚡️A Quick Update⚡️: The Bon-Ton Stores

On Monday, The Bon-Ton Stores filed a motion seeking permission to pay a $500k diligence fee to a combination of DW Partners, Namdar Realty Group, Washington Prime Group Inc. ($WPG) and AM Retail Group Inc. in connection with a signed letter of intent to purchase the company’s assets. The former three firms would seek to own all of Bon-Ton’s assets other than a distribution center, which would go to AM Retail. The company also postponed its sale auction to April 16. The purchase price is:

“…no less than (i) an aggregate purchase consideration sufficient to have a minimum excess availability of 22.5% at closing; and (ii) a minimum aggregate cash payment of no less than $128,000,000.00 (the “Baseline Bid”), a sufficient portion of which shall be funded into an escrow account to pay fees and expenses (including professional fees) associated with the wind-down of the Debtors’ estates after the Closing.”

In filing the motion, the Debtors champion that this bid is the only bid it received by its bid deadline that would allow for the Debtors to continue to operate as a going concern rather than liquidate; it is the only bid that would have the effect of:

“saving over 20,000 jobs and preserving a 120-year-old business that is a significant customer for its vendors, an anchor tenant for many of its landlords, and the leading hometown department store for millions of consumers in local communities throughout twenty-three (23) states.”

This will, no doubt, be a controversial course of action as certain creditors have been pursuing liquidation since the petition date.

Four things of note:

1. The minimum cash consideration offered — the $128mm — is INCLUSIVE of professional fees to fund the wind-down of the case. With only one Operating Report on file with no professional fees paid to date, it’s unclear how much of that consideration will actually inure to the benefit of the estate.

2. The offer is contingent upon a “[d]emonstrable commitment…by a substantial number of the Debtors’ existing landlords and trade vendors…to support the Company’s liquidity needs at close and through a period of no less than one year from the closing date….” In other words, this is very much pay-to-play: if landlords and vendors want to benefit from Bon-Ton remaining a going concern, they have to agree, upfront and for one year, to engage in rent and receivables forgiveness. What do they do? This is the quintessential “cutting off the nose to spite the face” dilemma.

3. The Official Committee of Unsecured Creditors filed a “Statement” last night supporting the proposed diligence fee; it analogizes this case to Aeropostale and notes how the work fee there helped encourage a going concern transaction. It said the diligence fee and a going concern offer “…is the last and only hope to save Bon-Ton from the fate of so many retailers that have filed for bankruptcy during this ‘retail apocalypse.’” Dark and stormy. We dig it.

4. Morgan Stanley Research analysts are bullish on the transaction for the mall operators. Per CoStar,

“If they were to lose Bon-Ton as a tenant, cap rates for their malls would likely widen if given the risk of co-tenancy and capex requirements to redevelop. 

But it could also be somewhat of an offensive move. It's possible that the landlords could place Bon-Ton stores in malls where they have a big box vacancy. 

’We can't help but think this would be a competitive advantage for these two mall landlords relative to their peers,’ the two analysts said. ‘First, they could choose to keep open stores at their properties while closing others at competing locations. Second, it could provide them an opportunity to buy malls from their competitors at more attractive valuations if there is a risk of losing a major tenant.’”

This is retail today, ladies and gentlemen.