Recruiting & Business Development (Long Innovation)

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Think Outside the Box, We Say

We can't seem to get over our own obsession with private equity/biglaw/bank recruiting; we've written about it here, here and here. Why? Mostly because its stupid-absurd which, in turn, makes it funny. But after reading about the rise of corporate pop-ups here, we came up with what we think is a genius way to jumpstart business development and recruiting efforts in one fell swoop: a biglaw pop-up store. Stick with us here: picture a mall with next-wave bankruptcy candidates like Charming Charlie, Nine West, Bon-Ton Stores ($BONT), Sears Corporation ($SHLD), Destination XL ($DXLG), Destination Maternity ($DEST), etc. (collectively, the "Effed Retailers"). Picture, also, within close proximity, a corporate pop-up for, say, Law Firm AB&C LLP featuring all kinds of fancy screens rolling clips of how bada$$ and extreme its attorneys are while arguing (or singing) in court on behalf of retail clients. Imagine the product placement opportunities for the likes of Payless Shoesource, rue21 Inc., Gymboree, and True Religion (the "Successfully Reorganized Retailers"). "Stop by the AB&C LLP popup for awesome limited edition kicks and 'lit' specialty women's apparel," they'll say. In the opposite corner there can be a skull-and-crossbones banner hovering over an ominous display of retail carnage, e.g., hhgregg, Gander Mountain, etc. - all of which were, conveniently, of course, represented by other firms. Like, literally, a pair of running kicks should be on fire and death metal ought to be playing on the loud speaker. Of course, the managers of the Effed Retailers will see this and, in a panicked frenzy, start dialing corporate HQ asking, "Who is our Restructuring counsel?" Oh, really? Fire them. We need to hire AB&C LLP stat!" Meanwhile the Successfully Reorganized Retailers will generate some revenue from the product placement which, of course, they'll want to pay back when they inevitably are no longer "successful" and need to file for Chapter 22. Cha Ching! Another retention. Don't forget the REITs: Simon Property Group ($SPG) can continue to boast about 97% occupancy rates thanks to AB&C LLP filing space. And, finally, think of the branding potential. Law students and future law students will walk by and say "Holy crap. I want to go work at THAT law firm, AB&C LLP." Massive cross-benefit for recruiting. Whichever of your firms deploys this strategy first can send royalties via Paypal to petition@petition11.com.

Fashion (DNVBs = Distressed Opportunity?)

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Look for Our Launch of New 'Lit' Brand "Unicorn & Bankruptcy" 

Why is that so many brands now are named "Something + Something"? Are we the only one's who've noticed that trend? Anyway, Bonobos is a failure because it sold(out?) for 3x its venture capital investment to Walmart Inc. ($WMT) - or so the narrative now goes. Curious. Walmart, after all, reflected the makings of a resurgence this week with a blockbuster earnings report that many largely attribute to Jet.com's Marc Lore and the e-commerce expertise he's assembled around him. Like Bonobos' Andy Dunn, for example. Nasty Gal, however, is an entirely different story; it didn't sell for 3x. It sold for parts in bankruptcy court. Its ubiquitous founder, Sophia Amoruso, now runs a, gulp, digital media company (see above). Seeing Bonobos mentioned in the same breath as Nasty Gal must have Mr. Dunn questioning life's fairness. Anyway, read between the lines in the piece and it sure sounds like there could be a waive of would-be digitally-native disrupters disrupting themselves all the way to bankruptcy court (or an assignment for the benefit of creditors). Choice quote,"'We’re seeing that some of the same brands that get celebrated for raising $10M, or hitting $100M in revenue, are gone a few years later or eek out a distressed sale.'" You're damn right they do. Who wants to start the latest hot DNVB called "Unicorn & Bankruptcy"?

Fast Forward: (Nobel Group, Global Brokerage Inc., J.G. Wentworth Company, Bon Ton)

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Noble Group Ltd.'s options. Global Brokerage Inc. ($GLBR) announced entry into a restructuring support agreement with its noteholders and a bankruptcy is imminent. The J.G. Wentworth Company ($JGWE) announced that it will be filing a prepackaged bankruptcy soon. And Bon-Ton Stores ($BONT) announced the imminent closure of 40 more stores on its march towards bankruptcy.

TAKEAWAYS (Restaurants)

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Per Jonathan Maze of Restaurant News, this is the latest and greatest restaurant investment thesis: "[p]roblems in other consumer sectors are worse." So, yeah, people are clamoring to invest in restaurants, it seems, because it REALLY SUCKS MORE elsewhere. We love this, "The contrast between the restaurant industry deal flow and industry traffic was not lost on many experts. Same-store traffic has fallen 27 of the past 29 months, according to the monthly restaurant index MillerPulse." But, whatevs. Let's compete with a bazillion others, price inflate, and hope and pray we can find some other sucker on the backend - provided, of course, the macroeconomic environment affords opportunity for a "backend." Surefire strategy. Those takeaways emanated out of the Restaurant Finance & Development Conference in Las Vegas, which we had neither the time nor the funds to attend. And so we outsourced. We asked Navin Nagrani, Executive Vice President at Hilco Real Estate, for his thoughts on the conference considering he sat on a panel there. Here's what he reported back: 

  • "More lenders and private equity groups than ever. Most folks are hungry to do deals."
  • "Definite stress in the casual dining segment."
  • "Lots of chatter about fast casual being the next wave of distress."
  • "Usual conjecture on [A]mazon."
  • "Saw more activists attend this conference than before."

You Had One Job (Duck for Cover, Bro)

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And, in the case of a bulletproof vest, that job is to FRIKKEN STOP BULLETS. Not fall apart in the midst of a heated gun battle on the rough and tumble streets of Ohio. Okay, we got a little bit dramatic there but you get the gist: here, Point Blank Enterprises, is the subject of class-action lawsuits initiated by Ohio and Florida police unions. The company with the not-so-subtle name has a history with legal trouble, having already visited a bankruptcy court once before. This bit is next level: "The issue is that the shoulder straps routinely disconnect from the vest's ballistic panels (which are what stops bullets). They come loose on the front as well as the back. When this happens, officers have no choice but to stop whatever it is they're doing and get to safety where they can fasten their vest back together using either safety pins or duct tape, according to the police unions." Yup, you read that right. Cops have to STOP WHATEVER IT IS THEY'RE DOING to duct tape back together their bulletproof vests. The company denies the allegations, of course. One last point before we stop pulling our hair out on account of this ridiculousness and move on: the former company CEO had 50 Cent entertain guests at his daughter's Bat Mitzvah. Query: did FITTY have to duct tape his bulletproof vest back together in the middle of his set?  

Professional Fees (Long Cannibalization)

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$1725/hour = CHA CHING!

What a month ya'll. We can't remember the last time that restructuring fees have gotten so much public and mainstream scrutiny. Last week we noted how The New Yorker took shots at restructuring professional fees in Puerto Rico. This week, Dow Jones Newswires took a look at Seadrill Ltd. and noted that Kirkland & Ellis LLP collected over $47mm in the 12 months prior to the case filing. Shareholders denied an equity committee must love that. Elsewhere, The New York Times gets into the game and asks in a MUST READ "Why Companies Like Toys 'R' Us Love to Go Bust in Richmond, Va." Which, of course, was interesting because they basically took the foundations of our piece here and raised by going "all in," alleging that Virginia is now a favorable venue because of blah ("rocket docket"), blah (debtor-favorable precedent) and BOOM (homies are getting P.A.I.D.). Here's the NYT dropping the bomb: "But perhaps one of the biggest draws, according to bankruptcy lawyers and academics, is the hefty rates lawyers are able to charge there. The New York law firm representing Toys “R” Us, Kirkland & Ellis, told the judge that its lawyers were charging as much as $1,745 an hour. That is 25 percent more than the average highest rate in 10 of the largest bankruptcies this year, according [to] an analysis by The New York Times." Points for creativity: jurisdictional arbitrage is our new favorite form of professional revenue generation. Of course, "the huge fees can eat into the money that is left over for small creditors - typically vendors, suppliers and pensioners." Did someone say "pensioners"? Happy holidays.
 

Pensions & the PBGC

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Long Financial Shenanigans

It's hard to categorize anything relating to pensions as "interesting stuff" but we like to go out on a limb. The Pension Benefit Guaranty Corporation - an independent agency of the US government created to safeguard defined benefit pension plans - issued its annual report this week and it contained some astounding numbers. Before we get there, for the uninitiated, the PBGC runs a federally-supported insurance program for those workers across the US who have deferred wages in favor of potentially lucrative retirement benefits. You see this a lot in manufacturing and energy companies and pensions can become a particularly hot topic for bankrupt companies who can, subject to various statutory requirements, use the tools of the bankruptcy code to shed pension obligations. Indeed, the PBGC is/was an active participant in the bankruptcies of Peabody Energy ($BTU) and, more recently,Appvion Inc., among several others. The numbers: the PBGC reported (i) an increased deficit in its insurance program for multi-employer plans ($65.1mm up from $58.8mm) and (ii) a decreased deficit in its single-employer insurance program (falling to $10.9mm from $20.6mm). What does this mean? For one, that the PBGC, itself, is basically insolvent. After providing $141mm in assistance to 72 insolvent multi-employer plans in fiscal '17 (up from $113mm to 65 plans), the PBGC notes that demand for its assistance is only set to increase. With $67.3b in liabilities and $2.2b of assets...well...you do the math. They say they'll run out of money by 2025. How they will make it that long is beyond us. But, wait: we said there was improvement in the (entirely separate) single-employer program, didn't we? Yes, we did. Choice quote, "The PBGC said the drivers of its continued improvement include premium and investment income, as well as increases in the interest factors used to measure the value of future liabilities." We're not pension experts by any stretch but we take that to mean that the PBGC generously toggled the interest factor used in its projections to pretty-up its numbers. And because those deficit numbers are also predicated upon increased investment income in a time of high-flying markets, there is cause for concern for that "improvement" once/if the markets turn (depending on the investment mix). Last point here: if anyone here thinks - as boring as talk of pensions may be - that any of this pension stuff DOESN'T impact local, state and federal elections, well, you may want to wake up.

A Surprising Week in Retail Ahead of #BlackFriday

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Walmart, Abercrombie & Fitch, Foot Locker & The Gap Surprise to Upside

Lots and LOTS of brain damage about how to salvage retail these days. And there should be: look at THIS graphic of empty retail storefronts in New York City. So, here, there are some interesting suggestions for the future of retail by a venture capitalist. And, here, a real stretch by Williams-Sonoma Inc. ($WSI) with the acquisition of augmented reality 3D imaging startupOutward for a nice sum of cash. Meanwhile, US e-commerce sales jumped 15.5% in Q3. In a CURIOUS week which calls into question the full power of the "Amazon Effect" (just kidding, no it doesn't) many down-and-out retailers like Abercrombie & Fitch Inc. ($ANF), Gap Inc. ($GPS) and Foot Locker Inc. ($FL) surprised to the upside. TJX Co. ($TJX), on the other hand, broke its 8-year sales growth streak while missing revenue estimates all while competitor, Ross Stores Inc.($ROST), blew it out of the water. Perhaps TJX' miss is a one-time thing that truly is attributable, as its CEO said, to poor merchandising and weather or, as we asked on Twitter, maybe the discounters are subject to a trickle-down effect...? Elsewhere, we should note that Poshmark, an app-based fashion marketplace that we have credited for contributing to millennials' distaste for malls, raised $87.5mm in Series D funding. Finally, Black Friday may put a dent in household debt levels as credit spending is on the rise. We're sure that'll play out just fine.

Fear of Chinese Sinks PE Exit of US-based Aluminum Company

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Commodities (Long Regulatory Risk! Short Aluminum?)

Per Reuters, Zhongwang USA announced earlier this week that it had called off its proposed $2.33b acquisition of once-bankrupt U.S. aluminum company, Aleris Corporation, after facing opposition from Wilbur Ross and the U.S. Committee on Foreign Investment in the United States. The issue is China, of course, which has used its competitive manufacturing advantage to effectively decimate America's aluminum capacity. It also doesn't help - for obvious reasons - that Aleris supplies America's largest combat aircraft manufacturers. Elsewhere in the world of aluminum, publicly-traded REAL ALLOY ($RELY) filed for bankruptcy this week after succumbing to its over-levered balance sheet. Why so much debt, you ask? The debtor levered up in 2015 to fund the $554.5mm purchase of aluminum recycler Real Industry Inc. from...wait for it...Aleris Corporation. Aleris is owned by Oaktree Capital Management LP ($OAK) and Apollo Management LP ($APO), which appear to have shed Real Industry Inc. at an opportune time. You win some, you lose some.

Payless Shoes = "Successful" Reorganization?

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Everything is Relative

Everything is relative. Apparently, as we noted above, Payless Shoesource set the bar for what constitutes a "successful reorganization": not liquidating. We think there should be a tail or clawback for such labels given the state of retail these days and the seemingly strong likelihood of retail Chapter 22s. Apropos, Payless is taking "additional steps" to sure up its footing, which apparently includes "a significant workforce downsizing to occur this week." While stores may be open, (some) jobs preserved and tax revenue maintained (assuming the company doesn't just accumulate net operating losses), this news probably doesn't sound all too "successful" to those employees who now look like they're going to have a rough holiday season. Like we said, everything is relative: what may have been a "successful reorganization" to those lawyers touting as much in court looks entirely different to those who are now worried about Christmas.