👍The Quarter in Review 👎

It’s been a crazy quarter. Before we get there, though, a quick note about the week.

On Thursday we saw a rise in initial jobless claims sending a mixed signal on the same day that the S&P 500 broke above 4,000 for the first time ever and the ISM figures blew away expectations, reflecting robust order and production readings and foreshadowing an economy on the mend. The ISM gauge jumped nearly 4 points (to 64.7), representing the fastest pace of expansion since 1983 — a result presaged by an impressive 5.3 point beat coming out of the Chicago PMI index earlier in the week.

President Biden announced a massive infrastructure plan which is sure to change considerably when all is said and done but, in the first instance, reflects some big (and expensive) thinking coming out of Washington DC. $621b of the new package’s spending will be on transport infrastructure (e.g., roads, bridges, railroads, airports and hopefully better food options on the NYC-Wilmington Acela) while $174b will go to electric vehicles in the form of tax credits, a bolstered supply chain (with what commodities?) and 500k public charging stations. This push towards charging stations could help eliminate “Range Anxiety” tied to electric vehicles and further push the internal combustion engine towards the history books. We’ll see. If so, the long-awaited auto supply chain disruption that restructuring professionals (and, admittedly, PETITION) have been predicting for some time now may actually happen sooner rather than later (a weird thing to say considering many already expected it “sooner”).

On Friday, the Bureau of Labor Statistics posted March jobs data: 916k adds. The expectation was 660k. 🤯 The unemployment rate dropped to 6%. Factoring in upward revisions for January and February, there’s been a net gain of 1mm jobs since the turn of the calendar. Two weeks ago we mentioned Google mobility data showing a surge in traffic across public parks. Perhaps unsurprisingly, scenic and sightseeing transportation was the biggest percentage gainer. Non-internet broadcasting was the largest detractor, since nobody watches broadcast TV anymore. More details:

In March, employment in leisure and hospitality increased by 280,000, as pandemic-related restrictions eased in many parts of the country. Nearly two-thirds of the increase was in food services and drinking places (+176,000). Job gains also occurred in arts, entertainment, and recreation (+64,000) and in accommodation (+40,000). Employment in leisure and hospitality is down by 3.1 million, or 18.5 percent, since February 2020.

And:

Retail trade added 23,000 jobs in March. Job growth in clothing and clothing accessories stores (+16,000), motor vehicle and parts dealers (+13,000), and furniture and home furnishing stores (+6,000) was partially offset by losses in building material and garden supply stores (-9,000) and general merchandise stores (-7,000). Employment in retail trade is 381,000 below its February 2020 level.

Source: Bureau of Labor Statistics

Some of these gains have to be in energy.: total rig counts and frac spreads continue to rise along with (relatively) higher oil prices.

What else? Hmmmm. Well, in spite of their enthusiastic “f*ck the suits” campaign, day traders who bought into the Hertz frenzy last year hope to benefit from the hedge fund “suits” seeking to convince the bankruptcy court that Hertz equity is in the money. That’ll be hard to do considering the company is opting for an “enhanced” offer from Centerbridge Parters, Warburg Pincus and Dundon Capital Partners that reportedly has the support of 85% of the holders of the company’s unsecured notes (which they’ll exchange for 48.2% of the reorganized equity and rights to participate in a fully backstopped $1.6b equity offering). In other words, the company and its lenders clearly believe the fulcrum security is about mid-way through the unsecureds (PETITION Note: your next sh*tty car rental powered by private equity). Anywho, elsewhere in somewhat unexpected alliances, British PM Boris Johnson said that he was very hopeful that the government could leverage post-Brexit flexibility to buy British steel from Liberty Steel. Liberty is part of GFG Alliance which saw its funding evaporate following the collapse of Greensill Capital.

It wouldn’t be an a$$-kicking Sunday briefing without mention of at least one major loser: the forced liquidation of Bill Hwang’s Archegos Capital Management rippled through Wall Street as banks sought to liquidate securities held against the derivative exposure they provided to the family office. Credit Suisse Group ($CS) and Nomura Holdings ($NMR) are anticipating significant losses on their exposure, while Goldman Sachs ($GS), Morgan Stanley ($MS), and Deutsche Bank ($DB) appear to escaped mostly unscathed. The banks initially sought to coordinate liquidation but those efforts were derailed as Goldman and Morgan raced to sell down their positions, providing a fresh take on creditor-on-creditor violence.

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Meanwhile, to say that this quarter has been wild would be understating things. Let’s not forget that a bunch of hooligans stormed the Capitol, the former President got impeached, a new President took office, two Democrats won election to the Senate in Georgia (flipping control), COVID-19 surged but then so did vaccine approval and dissemination, a stimulus deal got done, inflation fears flew (doubling the 10-year treasury yield), a record number of SPACs went out to market and non-fungible tokens became a thing that leapt from heretofore-unknown to omnipresent.

In equity markets, after Tesla Inc. ($TSLA) got added to the S&P 500 and Cathie Wood’s ARK Innovation ETF ($ARKK) went balls to the wall piling up Tesla stock (and, derivatively, Bitcoin?), the company’s stock closed Q121 down 5.4% (and dropped another 1.5% in the first trading day of Q2). On the flip side, Bitcoin soared and so did … uh … GameStop Inc. ($GME). In case you didn’t hear. It finished the quarter up 907%. That’s no typo. 907-f*cking-percent. Bitcoin, paled in comparison, up a mere 104%. On the flip side, gold got absolutely smoked — a fact reflected in the performance of PETITION-fave Hycroft Mining Holding Corporation ($HYMC).

Loan and bond markets have been hot and heavy and CLO formation is occurring at a record-setting rate. Ratings agencies are busier upgrading companies than they are downgrading them. The list of distressed credits keeps dwindling. High yield is anything but these days.

The healthy loan and bond markets make sense when considered in the context of broader M&A and private equity: both broke all-time records in Q121. US M&A hit an all-time Q1 high, accounting for 50% of $1.3t in global M&A. The largest deal was the previously-discussed merger between General Electric Inc.’s ($GE) aircraft leasing business and AerCap Holdings N.V. ($AER). YOY PE deals were up 57%, hitting $249b, double the value of Q120.

Things are looking up for CMBS too. According to Trepp, the CMBS delinquency rate declined again in March after a substantial drop in February, marking the ninth straight month of declines since the worst of the cycle in May/June ‘20. Despite the overall decline, the rate for lodging remains stubbornly high and March witnessed some upticks in delinquency for certain property types, e.g., multi-family and office. Retail is on the decline.

Combined, all of this seems to favor “the bright side” of things which, for restructuring professionals, may not translate to the busiest 2021. Speaking of bright sides, here’s a random fact for you: The Killers’ “Mr. Brightside” has spent five years on the UK’s top 100, a new record. That’s 260 weeks running. Every week it is streamed 1.2mm times.

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On the bankruptcy front, it was a relatively slow quarter. The biggest drama came from the unprecedented Texas storm which led to a number of chapter 11 filings, e.g., Brazos Electric Power Cooperative Inc., Griddy Energy LLC, Entrust Energy Inc. and Just Energy Group Inc., to name a few, with more likely to follow.

Energy, as usual, created bankruptcy fees. Seadrill Ltd., Castex Energy 2005 Holdco LLC, Sundance Energy Inc., Highpoint Resources Corporation, and Nine Point Energy Holdings Inc. filled dockets.

Similarly, retail had its smattering of bankruptcy activity. Loves Furniture Inc., Tea Olive I LLC (d/b/a Stock+Field), Christopher & Banks Corporation, L’Occitane Inc., Paper Source Inc., and Belk Inc. added their names to the lengthy list of retailer-cum-debtors.

The best part? The work was pretty scattered. As usual, Kirkland & Ellis LLP and Latham & Watkins LLP had their share of the bigger cases. Other than a foray into the Israeli bond market, Weil Gotshal & Manges LLP was quiet. Foley & Lardner LLP and Pachulski Stang Ziehl & Jones LLP filed a couple of cases each.

On the advisory side, thanks as usual to Kirkland, Alvarez & Marsal LLC had its share of cases. AlixPartners had a busy March as it slowly gains more traction in the energy space. And a smaller shop, Ryniker Associates, picked up a few key assignments in January (Ferrellgas Partners LP and L’Occitane). Moelis & Company also had a busy January.

For our part, we pushed out — if we do say so ourselves — a lot more a$$-kicking content.

Our most viewed briefings were: “🔥Will Clubhouse own your ear?🔥” and “💰AMC💰.”

What did we miss? Email us: petition@petition11.com.