Westinghouse (Get Off My Lawn)

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The Southern District of New York bankruptcy judge Heisman'd the official committee of unsecured creditors earlier this week after they attempted to propose a plan of reorganization mere days after the company's parent, Toshiba Corp., filed one. Meanwhile SCANA Corp. ($SCG) is in a war with the South Carolina legislature over whether the utility may continue to pass the costs of abandoned nuclear reactors to customers of electricity. If it loses? The company says it may have no choice but to file bankruptcy. Elsewhere in nuclear power, Santee Cooper has commenced an operational restructuring.

The Baupost Group LLC likes SCANA Corp.

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Taking Advantage of the Westinghouse Bankruptcy

Shortly after having its Puerto Rico position exposed, The Baupost Group LLC is now reported to have purchased claims thatSCANA Corp. ($SCG) and Santee Cooper have against Toshiba Corp. on account of the Westinghouse bankruptcy.

Notable (Molycorp, PwC, Sears, Toys R Us, Westinghouse)

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Molycorp. Oaktree Capital Group LLC may attempt to IPO Neo Performance Materials Inc., a remnant of the Molycorp bankruptcy.

PwC Law Firm. Yes, you read that right. PwC is launching a law firm in Washington DC to focus on international corporate restructuring. 

Sears. Is it the blueprint for everything Amazon is doing?

Toys "R" Us. This nine-year old kid has a future in marketing. If Toys doesn't figure out some way to market this, they deserve to liquidate. Meanwhile, Walmart smells blood in the water: with Toys' Babys "R" Us also in bankruptcy and NYC Mom-favorite Giggles closing, Walmart is expanding its private baby line. 

Westinghouse. Private equity firms are at the gates. 

Nuclear Power Issues (Toshiba & Westinghouse)

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Notably, the Westinghouse bankruptcy case appears to be proceeding at a snail's pace with, now well more than 30 days since filing, no second day hearing yes on record (it's on 5/23). It appears that the delays/inactivity may have something to do with the dominos that appear to be falling as a result of that bankruptcy filing - the largest of which may still be Toshiba Corp. 

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

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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...

Notable

  • Dyal Capital Partners (a Neuberger Berman company) has acquired an undisclosed minority stake at an undisclosed sum in Sound Point Capital Management and its $11.5b in AUM. 
  • Tiger Global Management has acquired a 12.5% stake in Apollo Global Management. They must've really desired exposure to US nuclear power given the sizable check Apollo is writing in Westinghouse.

Interesting Restructuring News

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  • 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.
  • 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.

Interesting Restructuring News

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  • 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: 

Interesting Restructuring News

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  • Grocery. Cerberus Capital Management-owned Albertsons is reportedly in talks regarding a possible take-private buyout of publicly-traded grocer Sprouts Farmers Market ($SFM). Given the tough grocery environment, this is an interesting development. And it may get EVEN MORE interesting given this.
  • Oil&Gas. Crude stockpiles hit a modern record this week as American producers basically flick off Saudi Arabia/OPEC and produce, baby, produce. Crude priced down to ~$48/barrel. This - and the embattled state of Seadrill Ltd. - isn't stopping John Fredriksen from looking at picking off offshore assets. Speaking of offshore assets, the oil players are going face-to-face with power suppliers - for wind. Meanwhile, a dissenting view relating to the effect of the rise of electric cars on oil demand (paywall). Elsewhere, in Canada...
  • Retail. Bebe Stores Inc. ($BEBE) is plans to shut down its brick-and-mortar locations and become an exclusively e-comm brand - a plan that depends on the sudden charity of landlords who have shown ZERO propensity for flexibility with retail tenants. Seriously, like, ZERO. See, e.g., THE TRAIL OF RETAIL CORPSES LINING THE 2017 BANKRUPTCY ROLLS. Meanwhile, Land's End ($LE) continued to suffer from its association with Sears while reporting a perfect storm of, wait for it...decreased net revenue, decreased catalogue and e-commerce revenue, decreased same-store sales, and worsening gross margin. J.Crew  reported sliding sales, revenue and same-store comps but nevertheless reported a (very) small profit - largely on the back of Madewell. And then there is Nike ($NKE) which, in its quarterly report, noted increased profit but modest sales growth in the face of online shipping headwinds.
  • Retail II. Uh oh. It appears that Walmart may be getting it's (e-commerce) sh*t together which doesn't bode well for brick-and-mortar already suffering from the Amazon onslaught. Speaking of which, peace out Payless Inc. Wethinks we'll soon be saying "peace out" to a bunch of Chinese shoe manufacturers on top of the thousands of American jobs that will be wiped out. But dividends for Golden Gate Capital and Blum Capital Partners!
  • Rewind I: We have taken a little bit of heat for two mentions of 3D-printing in this newsletter; we have been accused of over-hyping the technology and its near-term ramifications. Well, noting the Adidas announcement this week, have we?? 
  • Chart of the Week: 

Interesting Restructuring News

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  • 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 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: 

News for the Week of 3/5/17

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  • Coal. Post-reorg players like Arch Coal are now trying to take advantage ofgovernment subsidy (which reeks of buyside "value-realization"): query what this means for alternative energy players who already receive such subsidies and are rumored to be under siege by the Trump administration...?
  • Environment. We wrote a few months ago about Oklahoma and the apparent correlation between wastewater disposal and an uptick in seismic activity. The seismic-hazard warning for Oklahoma in 2017 is "still significantly elevated."
  • Golf & Sexy Time. There's zero correlation: we just thought it was a funny combination. That said, tough times for TaylorMade (owned by Adidas and apparently being shopped by Guggenheim Securities). Meanwhile, Agent Provocateur sold while in UK "administration" to an affiliate of Sports Direct (which also recently surfaced as the stalking horse bidder in Eastern Outfitters). AlixPartners was the administrator.
  • Legal Profession. Short big firm junior lawyers.
  • Power. This is an odd report on Westinghouse. 
  • Retail. We're getting a little sick of sounding like a broken record but Best Buy and Target reported numbers this past week and then saw massive stock drops due to weak guidance. And Barnes & Noble got DECIMATED after reporting numbers. The good news is that the coloring fad appears to be over. Meanwhile, the tech barrage shows no signs of abating: GameStop came under pressure this week after Microsoft announced its subscription gaming service. Is GameStop an immediate near term restructuring candidate? No, but part of the value we provide is highlighting for you where future pain points are hiding and without sounding TOO dramatic, this could be the beginning of the end.
  • Retail II. We're nerds and so we found this analysis of when to close retail stores interesting. And we're curious to know if any of our advisory readers agree with this...LET US KNOW. Speaking of closing retail stores, Abercrombie will close 60 stores, Crocs will close 160 stores, and looming bankruptcy candidate hhgregg is closing 88 stores (which briefly sent Best Buy's stock north back up, despite earnings). Meanwhile, Neiman Marcus hired Lazard for balance sheet help and Radio Shack 2.0 (aka General Wireless Operations) is rumored to be Radio Shack chapter 22.0.  
  • Tech. Rough week for Uber. Choice quote: "Before too long, Uber's cash will run out. And if Uber hasn't built a viable self-driving car by then, the results won't be pretty."
  • Telecom. Wow, Intelsat, bailed out? 
  • Fast Forward: Seadrill Ltd. noted the possibility of a bankruptcy filing, sending the stock into a tizzy. Still, John Fredriksen quickly highlighted his history of no default. Related, Pacific Drilling also noted in its earnings call that Chapter 11 is possible. 
  • Rewind I: A lot of folks have been sleeping on tech bankruptcies, but NJOY was a hardware bankruptcy from last year that now has a resolution: Mudrick Capital seeks to turn the company around, operating it like a PE-owned company rather than a VC-funded company. Speaking of which, Cirque du Soleil got a workover by TPG Capital (and AlixPartners) and now there's this YouTube promotional video to show for it. Speaking of purchases out of bankruptcy, it seems a Canadian retail player made the first move on Wet Seal only to be outflanked by Gordon Brothers.
  • Rewind II: Soundcloud looks increasingly like it will be in the busted tech bankruptcy bucket. IP sale?
  • Chart of the Week: 
  • Tweet of the Week: This is great because it doubles as a second chart of the week: we're so creative. Anyway, we hate to say we told you so but, effectively,we told you so: we'd love to know why nearly 200 companies felt the need to reference AI in their earnings reports...

News for the Week of 2/26/17

in
  • Busted Startups. Here, Beepi. Despite $150mm of VC and a last raise at a $564 valuation, the used-car marketplace is selling for parts, with Sherwood Partners acting as assignee. With auto-lending for new cars at subprime levels, this capitulation isn't all-too surprising.
  • Busted Startups II. Some argue that part of the failing brick-and-mortar narrative relates to delivery services like Birchbox. Maybe not. Trunk Club sold to Nordstrom and has languished and now JackThreads looks like it's worth JackSh*t. 
  • Clean Energy. Challenges. But progress with storage.
  • Disruption. The fall of Blackberry.
  • Distressed Investing. In malls. These guys have cajones.
  • Greece. Remember the bailout controversies that sent the markets into a tizzy a few years back? Yeah, they're back. Europe looks staged for a lot of volatility in coming months with elections looming in France and Germany. This could create some real interesting investment opportunities. Of course, that's what people said of Brexit, too.
  • Power. Maybe. Maybe not. This week the denials poured down from Toshiba re: Westinghouse. Meanwhile, FirstEnergy drops some bombs in its investor presentation.
  • Restaurants. Five chains that look like dogsh*t in 2017.
  • Retail. Apparently President Trump's promises to make America great again did not take into account all of the vitriol that would be unleashed towards his brands and resulting domino effect: case and point, Perfumania, which was teetering BEFORE folks wanted to wash themselves of the Trump stank. Speaking of mall-based stench, L Brands' Victoria's Secret ain't looking so hot these days as forward guidance looked bleak. And Amazon announced the release of its discount bras. Cue Jaws theme song.
  • Retail II. People have been talking about Toys R' Us for years and in '16 they took steps to deal with the over-levered balance sheet. The company continues to cut costs on the ops side too. Meanwhile, other companies like J.Crew are engaging in Intellectual Property machinations to stave off the inevitable and raise financing - the legality of which remains an open question.
  • Retail III - Department Stores. AlixPartners makes a cameo appearance in this interesting summary of the state of department stores. Choice stat: "As recently as 1999, department stores had total sales of $230 billion. Last year they came in at $155.5 billion, according to Census data." Accordingly, JC Penney is closing 140 stores (and probably still has 300 too many) and Sears is continuing to cut costs with 130 HQ firings. On point, Macy's reported numbers this past week. And so did Walmart - and the market initially responded in a way that is a smack to Warren Buffett (see last week's newsletter). Meanwhile TJX Cos. (TJ Maxx, Home Goods, Marshalls) showed that brick-and-mortar still has some legs (as did Nordstrom).
  • Fast Forward: Ocean Rig acknowledged that it's effed and the stock took a dive: a possible bankruptcy is on the horizon. And Cumulus Media had a setback in its efforts to restructure.
  • Rewind I: Sporting goods - analysts are starting to notice the massive bloodbath and, accordingly, downgraded Dick's Sporting Goods.
  • Rewind II: Let's hope that Sycamore Partners' purchase of The Limited fares better than Versa Capital Management's investment in Eastern Outfitters. $26.8mm price tag. Meanwhile, Wet Seal is available.
  • Chart of the Week: 
  • Tweet of the Week:

News for the Week of 2/19/17

in
  • Capital Markets. The return of the Holdco PIK Toggle bond - a precursor to the inevitable market collapse. Or so they say.
  • Coal. Plants are closing. Looks like some votes from coal country were misplaced.
  • Dead Malls. Investing. See, e.g., this piece on Macerich. We don't typically cite to Seeking Alpha's collection of vagabonds and yahoos, but we found this particular analysis of A Malls interesting.
  • Exploration & Production. 17 months after filing its prepackaged bankruptcy case(s)...or was it prearranged?...sh*t, it's been so long that we can't even remember, Samson Resources Corporation finally has a confirmed plan of reorganization. We'd be curious to see what the professional fees are as a percentage of debt ($5.6b): perhaps this should be a new in-court ratio for courts to consider as part of 327(a) review. At least we got a new term of art out of it: "the Kirkland Prepack". So, there's that (2x if you consider EFH this week, too). 
  • Nuclear power. Toshiba took a beating on Westinghouse this week. And now there are whispers of bankruptcy.
  • Retail. We have a Billions-style therapist in-house who keeps using bad sex metaphors to inspire us to be more positive about retail. Ok, no we don't: last we checked none of you are paying for this newsletter and so how the hell would we afford THAT?! Still, there are some positive signs for retail: Barron's, for instance, thinks Macy's stock has fallen too far and has upside. Meanwhile, specialty women's retailer J.Jill has filed its S-1 under the JOBS Act for an IPO which either means there's one retailer bucking recent trends or - more likely - TowerBrook Capital Partners LP is looking to dump this thing before Amazon gobbles it up like it has everything else. Damn...that was cynical and negative wasn't it?  Well, we tried. 
  • Retail II. This week we learned that Warren Buffett dumped his entire position of Walmart stock ($900mm) which, as this piece notes, ain't exactly a vote of confidence in retail. Perhaps Buffett would have reconsidered had he known about "Moosejaw Madness." You read that right: this week Walmart spent $51mm to purchase Moosejaw, a Michigan-based online retailer (with about a dozen B-and-M locations). Interestingly, the business is similar to Gander Mountain which, as we covered last week, is staring down the barrel of a liquidation. Oh, and hhgregg isn't exactly instilling confidence either (yes, its publicly traded). But, in an ironic twist, Amazon is upping to 8 B-and-M book stores.
  • Retail III. This won't help mall foot traffic: frustrated by a lack of options, start-ups like Dia&Co. are looking to tackle the plus-size market (with wholly-unoriginal Birchbox-style monthly mailings). And a fresh round of funding from well-known VC Sequoia Capital will aid the effort. Speaking of Birchbox, note that the business - despite being copied by a slew of other start-ups - isn't exactly a shining tower of success; it recently took on venture debt (and rif'd staff) and now it's exploring pricier options to juice revenues.
  • Shipping. A bloodbath in China for the shipbuilders and Hanjin Shipping = toast.
  • Uber. With $500 million of delinquent taxi medallion loans, NY state regulators seized the Melrose Credit Union. #disruption 
  • Wind. No holding it back.