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Here, the New Republic argues that the tax code provides too many incentives for PE shops to lever the eff out of portfolio companies. Specifically, the deductibility of interest. We'll see whether the provisions that attempt to limit this benefit currently baked into the new tax plan will remain.
So, apparently organized crime is a "new" threat to retail. Granted The Sopranos hasn't been on TV for years, but wethinks organized crime has always had a grand ol' time boosting valuable merchandise. Not entirely sure what's new about this. The masterplan that the Sun describes at the Apple Store in Towson hardly sounds like a sophisticated operation. But, what do we know? That said, we read the piece and we couldn't help but think about Walmart's ($WMT) employee delivery program. We mean, seriously, what could go wrong?
In this shocking bit of news, hedge funds like Fir Tree Partners and Strategic Value Partners intend to maximize value. Who knew?
We previously reported on how some of our favorite restructuring bankers were faring after the recent deluge of earnings reports.Lazard Ltd. ($LAZ) reported $53mm in revenue for Q3 '17, a 3% YOY increase. For the first nine months of '17, operating revenue was $229mm, a 38% YOY increase. The company does some bragging here (page 11). Still, some are of the few that thousands of i-banking jobs will fall to artificial intelligence by 2025.
Professionals Fees. THIS is really a New Yorker story about Puerto Rico but dive deeper and its a rough commentary about professional fees. A mainstream AF one, at that.
For anyone wondering whether there is growth opportunity in hedge funds after a stint at say, an investment bank or a law firm, well, these trends don't bode well...
We previously snarked about the ridiculousness of private equity recruiting. Rather than just make fun of the problem, we figured we'd offer some constructive suggestions. First, we note that Bravely, a New York-based startup recently raised $1.5mm in seed funding; it provides a platform that connects employees with expert communication and conflict coaches for off-the-record b*tch-sessions. Some VP busting your chops about a misplaced comma in the latest-and-greatest all-nighter-induced pitchbook? See Bravely. Some Partner just throw you under the bus while on a call with the client? See Bravely. If this is anything less than the equivalent of the shrink in Billions telling young professionals how "alpha" they are and how much value they provide to their respective firms, then fire up the "Busted Tech" column: it'll be there soon. And if that doesn't entice you to join the PE/investment-bank/biglaw ranks, maybe this will. After all, who WOULDN'T want to sleep where they work? Basically everyone other than millennials, it seems. We guess this explains WeLive.
We're getting amped up for Star Wars and so we figured we'd use a SW-like subtitle here. Anyway, Toys R Us'trouble sparked a vendor awakening (see what we did there?) and attendant media speculation, which, combined (with an obnoxious level of PE-placed debt), sparked the behemoth-retailer's surprise bankruptcy filing. Its logical to draw a direct line from that to the circumstances unfolding now in Bon Ton Stores ($BONT) and Charming Charlie, where both retailers reportedly had to get extended access to capital under their credit facilities to make it through the holiday season (after which they'll both probably file for bankruptcy anyway, but whatevs). Likewise, Sears Holdings Corp. ($SHLD) has had to recently tap all available resources to ward off retailers. Notably, it indicated that "[m]erchandise payables were $0.8 billion and $1.6 billion at October 28, 2017 and October 29, 2016, respectively, as we have significantly reduced our dependency on vendor financing." Sure, broheims. Is "significantly reduced our dependency on vendor financing" a euphemism for "nobody will extend us credit anymore"? Anyway, earlier this week, Calypso St. Barth couldn't make it that far as vendors filed an involuntary bankruptcy petition against it in New Jersey. Apparently, vendors don't like it when a company stonewalls them and refuses to pay. Go figure. But, wait:there's more. Unbeknownst to casual observers of the #retailapocalypse, many suppliers rely on specialty lenders called "factorers." Factorers purchase accounts receivable from suppliers so that suppliers have some near-term liquidity - rather than waiting 30-120 days for, say, Toys R Us to pay them (or waiting forever, as the case may be, e.g., Vitamin World, now liquidating). In turn, there are specialty insurers who provide the factorers cover in the event that the receivables are never paid. Which, given the volume of retail bankruptcies today, seems like a pretty likely risk. Apropos, (i) insurers are charging factorers more for insurance, (ii) factorers are seeking more favorable terms from suppliers and (iii) suppliers are therefore seeking tighter payment terms from retailers. Without the ability to satisfy those terms, well, you get it: Toys R Us. It's like a nice big game of dominoes played among one big unhappy family. With Uncle Amazon watching from above with an evil-a$$ grin on his face.
It's crazy how quickly oil and gas companies defaulted and, in turn, how quickly restructurings swept through the space. Now, default rates there are way down while retail is picking up some of the slack...
Because this is Sears Holdings Corp. ($SHLD) and the logo looks crappy and the strip mall photo wildly uninviting, people are going to write-off its efforts to create "experiential" specialty stores focused only on appliances and mattresses. Hard not to. These guys can't do anything right. To be clear, though, it's not like the rest of the mattress industry is a no-brainer. How do you decide between Casper,Leesa, Purple, Saatva, Tuft & Needle, or blah & blah (how much space do we have in this newsletter?). Particularly when they're pulling shenanigans like this (a must read)? Anyway, mattresses are one item that people still want to touch, feel, and test. Given that nobody actually goes to Sears, that might actually be the spot to do just that: smaller likelihood of crowding. Or bedbugs. Go against the grain, we say.
Bi-Lo looks increasingly distressed, no thanks to dividends and other fees reported to have been paid to private equity sponsor, Lone Star Funds.
Everyone in the restructuring space has been pontificating about increased healthcare distress and yet the action has been relatively limited. This past week, however, Genesis Health Inc. ($GEN), one of the largest nursing home operators in the US, reported earnings and indicated that bankruptcy is a possibility. With 450 locations and nearly $1b of debt, this will surely pique a lot of interest. The company blames shortened stays, wage inflation, professional liability issues and escalating lease payments for the company's distress. Accordingly, it has entered into sale leaseback bandaids...uh, agreements...with two landlords, Sabra Healthcare REIT Inc. ($SBRA) andWelltower Inc. ($HCN). Will the company file for bankruptcy? It's capital structure is relatively un-complex and so this would seem to be an out-of-court candidate. But you never know.
The New York Times Magazine does a deep-dive this week into the future. One of the reporters says about self-driving cars, "...I think we're all radically underestimating how much will change once they arrive." On the road to this radically transformational future, there'll surely be winners and losers. We've talked about this before. Faraday Future, the would-be challenger toTesla, looks more and more like a loser every time we read something about it. But let's take a step back: we're wildly aware of investors talking their book, so to speak, in an effort to affect bond pricing, bond trading, or management behavior in the midst of restructuring discussions. They may plant something fundamentally untrue in, say, Debtwire, with the hope that the market will read it and market forces will bend to their benefit. Oldest trick in the book. But we're not sure we've ever seen the next-level sh*t reported here: that is, that someone purportedly created a fake FF powerpoint presentation to suggest an imminent bankruptcy and force out the company's main financier. Choice response: “These documents were not created by Faraday Future, nor were they created on behalf of Faraday Future or at Faraday Future’s request,” said a spokesperson. Interesting. Was this the work of some sloppy lawyer or banker who left a pitch-book sitting around? (Haha, probably yes). Inquiring minds want to know.
Ruh roh. Blaming (i) a migration of consumers to specialty beauty retailers, (ii) ecomm, (iii) store closures, (iv) inventory reductions among mass retail partners, and (v) inventory rebalancing, Revlon Inc. ($REV) reported dogsh*t numbers this past week with EBITDA numbers posting nearly 49% below analyst estimates. The bonds promptly traded down. Curiously, Ulta Beauty Inc. ($ULTA) equity is off roughly 25% the last three months. Sephora ($LVMH), too, is experiencing lower numbers and "traffic is slowing down a bit...." But, don't worry: beauty is impervious to ecommerce because women want to try makeup in store. Mmmm hmmm.
Linn Energy ($LNGG) is shedding assets and Kirkland & Ellis LLP is raking in even more fees. Meanwhile, C&J Energy Services ($CJ) is buying assets (and, presumably, Kirkland & Ellis LLP is raking in even more fees).
Wow. Nice price fetched for a bankrupt retailer's URL. If you're of the belief that there'll be more distressed tech (and, of course, more distressed retail with IP like URLs to sell), this is a nice comp. Credit Hilco Streambank for conducting the auction.
Shortly after having its Puerto Rico position exposed, The Baupost Group LLC is now reported to have purchased claims thatSCANA Corp. ($SCG) and Santee Cooper have against Toshiba Corp. on account of the Westinghouse bankruptcy.
We're old enough to remember when Eatsa was the next bright big shiny thing in dining. Guess not.
The pilot shortage issue that dropped Republic Airways into bankruptcy last year doesn't appear to be abating. On a small scale, there has been a decent amount of bankruptcy activity in the airline space.
Two weeks ago we asked whether there'd be an uptick in auto distress. We didn't really even touch on to what degree ride-sharing will impact car ownership though we did point out GST Autoleather's assertion in its bankruptcy papers that Uber and Lyft have had an affect on OEM production levels. Well, this doesn't bode well for suppliers then. Take this chart for what it is: a bit of marketing, a bit of projection. After all, it is from Lyft directly and, of course, they want to show "up and to the left." Still, just imagine what this means if true.
Notably, General Motors ($GM) reported numbers this past week that surprised to the upside and the stock popped. They did discount heavily, but whatevs. Significantly, GM also noted a 26% decline in production. That, too, to our point, cannot bode well for the players in the auto supply chain. Keep an eye on auto - 3% GDP growth notwithstanding.
Source: Lyft