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People are chasing soaring stocks. This is otherwise known as "dumb money." And the dumping of "dumb money" is, usually anyway, a sign of trouble to come...or so they say. Does any conventional wisdom apply to this unique FED-propped environment?
Appvion Inc. (summary below) filed for bankruptcy early Monday morning. This shouldn't have come as a surprise to people following the situation as (i) the company had previously issued a "going concern" warning and (ii) S&P Global Ratings had issued a credit downgrade. The First Day Declaration filed in conjunction with the bankruptcy notes that the thermal paper segment is being counted on for growth. Seems like that segment, then - currently 60% of net sales - would be the cornerstone of a restructuring. It's not clear from the papers how much of that business is point-of-sale receipts and coupons. We HAVE to imagine, though, that that portion of the segment is under threat. To point, note that on Monday Shake Shack ($SHAK) announced that it will be testing a cashless kiosk near New York University in New York City's East Village neighborhood. Cashless and receipt-less. Notably, Sweetgreen has also taken this step. Disruption, in real time.
Hartford Connecticut. Greenberg Traurig LLP and Rothschild & Co. are getting folks up to speed quickly. Interesting quote which, to us, reflects a deep-ridden skepticism: "'Very honestly, we need honesty from you people,” she said. “And I will gladly pay you — well, the city will gladly pay you — $1,400 an hour for you guys to tell us the truth.'”
Combine lower tax collections, high commercial vacancies, decreased tourism and now this (spoiler alert: the most foreclosures in NYC since 2009) and we're beginning to think there's some reason to worry about New York City. You couldn't tell, though, from the mayoral race. Big Bird will probably come in second place via write-in vote.
Amazon (Getting its Own Category). As this point, Amazon merely needs to hint that it may enter a vertical and market caps will get sliced by 30%. It doesn't matter whether that's logistics (see UPS and Fedex) or pharma. The idea that Amazon Prime will affect wholesale retailers like Costco? Well, Costco's CEO said, "As it relates to the publicity and the news and the noise around Amazon and Whole Foods, all we can do is perform." That's not a confidence-inspiring answer by any stretch of the imagination. And the market reacted by sending shares down nearly 10%. Why? Membership renewals and margins were down. Revenue? Up. Net income? Up. That's what makes this market move so intriguing. The report actually wasn't terrible. But Amazon!
What a disaster. Lots of noise on this and so here goes PETITION stream-of-consciousness mode. Trump spoke and Lawrence Summers agreed about wiping out PR's debt. But, wait! Maybe, just maybe, the process has to play out ("Hello, right hand. Meet left hand."). The bond bloodbath that wasn't. Choice quote, "There were, quantitatively speaking, twice the number of buyers than sellers, of Puerto Rico’s benchmark security, the 8 percent general obligation bonds." Sounds like one of those sellers may be MatlinPatterson which likely isn't the last hedge fund to close its doors due, at least in part, to the Puerto Rico morass. Paulson & Co. continues to sh*t away the glow it gained during the financial crisis. The Baupost Group, a Boston-based hedge fund managed by billionaire Seth Klarman, has significant exposure. As do some others. And some think that exposure will equate to 10-to-20 cents-on-the-dollar (video). And, many think Washington is to blame for a lot of this mess. Finally, a special report from Reuters on the situation.
Not going back in the bottle huh? They call them cycles for a reason.
ISS recommends that no director sit on more than five public boards, lowered from six back in February. The WSJ writes (firewall), "Major institutional investors, governance advisers and boards themselves are cracking down on so-called overboarding, trying to ensure that directors don’t spread themselves too thin. Overstretched directors lack time to adequately monitor management, these critics contend." This is so typical of regulators. So, no more than five public boards, huh? Well, what if one of us sits on, say, five public boards and like 205 private boards and doesn't have time for a Board call. Does that count as "overboarding." Fortunately, this sort of problem NEVER happens in the restructuring world. Btw, we have a bridge for sale. Interested?
Hardly the savior the category had been chalked up to be.
Before the "Amazon Effect" dominated the #retailapocalypse narrative, commentators liked to say that (predominantly European-based) fast-retailers like H&M, Zara, and Uniqlo were killing brick-and-mortar American retailers. They innovated faster, many said, keeping more to-date with fast-changing fashion changes. You know, like, athleisure pants that droop from the a$$ so you can look as moronic as Justin Bieber. What a model: recognize (cough, copy) a trend, develop it and ship within weeks. Rinse, wash and repeat. Curious, though, that H&M's numbers (continue to) look like dogsh*t, with profits down 20% YOY. The company has expanded its physical footprint dramatically - now up to 4100+ stores - and is only now realizing it needs to rapidly expand its e-commerce capability. Sound familiar?
Canyon Partners is big in oilfield servicing and hates retail. We wonder why. Not that OFS is looking so great either, though. Elliot Management = not killing it. Franklin Resources Inc. is dropping Puerto Rico bonds like they're hot.
Quirky is back. Why have recent tech companies failed (and, in certain cases like Quirky, gone bankrupt)? Because, according to Wired, hardware is...uh...hard. Tell that to the investors in Roku ($ROKU), which IPO'd this week and soared 67% on day one and another 20% on day two (to be fair, Roku is hardware and software, but whatevs).
Not going back in the bottle huh? They call them cycles for a reason.
Offshore exploration and production is a relatively expensive process unjustified by $50 barrels of oil. That, though, didn't stop the Trump administration from considering changes to 11 marine sanctuaries that would allow for more drill-baby-drilling. All in the supposed name of jobs and "energy needs." Energy industry reps, however, are lukewarm on the prospect. Because it may damage marine habitats and coral reefs, you ask? Of course not. Because it wouldn't be economical? Bingo! Indeed, shale drillers - after shedding costs to the bone - will, according to Moody's, continue to struggle if oil remains in the $50 range. Elsewhere in gas world, coal and nat gas are likely to fight for marginal megawatt-hours like "cats in a sack." We love that. You're definitely gonna be hearing that phrase again in the future.
We've been harping on the fact that resale apps are contributing to brick-and-mortar pain because we think that is an under-appreciated piece of the narrative. Well, this week LetGo, a New York-based startup marketplace for used good (that we've previously noted) raised a fresh round of $100mm in venture capital funding at a valuation of $1b.
The degree of short-termism reflected in this piece is mind-boggling. In a nutshell, anchor tenants like Macy's ($M), JC Penney ($JCP) and Sears ($SHLD) are squeezing landlords over waivers of reciprocal easement agreements (REAs), often holding out for payments. Sure, we understand the basics of contract rights but it strikes us as pennywise-and-pound-foolish to delay any updates to malls on account of...signage? Maybe these guys didn't get the memo that many malls - particularly those with Macy's, JC Penney and Sears as anchor tenants - are under existential siege and everyday that passes without significant and meaningful change is another day closer to the grave. Meanwhile, the New York City retail sitch is looking bloodier and bloodier, with retail tenants seeking massive rent reductions from their landlords. Choice quote from an obstinate landlord, “None of those tenants would agree to pay more rent to me if I asked them to because the market had gone up.”Hahaha, WOW. We guess, uh, he's gotta point??
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.
Guitar Center earned a Moody's downgrade this week as it marches towards some sort of balance sheet transaction and/or restructuring.
In a week when PREPA bondholders offered bridge financing and then were promptly told to go eff themselves, this...
Source: Bloomberg