For those who are new to us, our “Notice of Appearance” feature provides an opportunity for a professional in the field of restructuring to provide us all with some perspective about the markets generally, the industry, and professionalism. This week, we dialogued with Sean Cannon, a Director at GLC Advisors & Co.
PETITION: Your shop does a lot of creditor-side representations. What can you tell us about cooperation agreements and how are those shaping restructuring negotiation dynamics?
We’ve seen that in appropriate situations, cooperation agreements can be an extremely powerful tool to combat coercive transactions launched by companies. In those instances, it is imperative that creditors present a united front and cooperation agreements are one way to formalize that unity. There are certainly challenges to negotiating effective cooperation agreements – the devil is always in the details, and understanding precisely what parties are agreeing to cooperate on, the voting provisions, the term and what can trigger a termination is critical. However, as we saw in iHeart, it is possible for creditors (bonds and term loans) across multiple tranches of debt to align interests via a cooperation agreement in an extremely effective way despite differences in maturities and collateral.
PETITION: There were a significant amount of "Chapter 22s" in 2018 and it looks like 2019 may take it to another level (e.g., Payless, Gymboree, Southcross, Vanguard). What do you attribute these repeat filings to and how can they be avoided in the future?
It’s industry-specific to an extent, so I’ll pick on everyone’s favorite: retail. The sector is going through a massive paradigm shift and to an extent many investors are still guessing what a successful retailer looks like in 2019 and beyond. For the Chapter 22s, the first time around there was of course a view that the underlying businesses were viable. In some cases that assumption is simply proving to be untrue and the businesses models have failed. I also think investors mis-priced both value (real estate, intellectual property, customer loyalty programs, etc.) as well as risk (trade credit, consumer behavior, etc.). While views on the future of retail will undoubtedly evolve, I believe we’ll continue to see brick-and-mortar retailers struggle to reimagine themselves for the future.
PETITION: What is your assessment of the distressed opportunity set in 2019 and what is one thing that you think people aren't focusing on that they should be?
I’m continuing to spend time on the retail and consumer sector, and also on healthcare, specifically acute care providers. The healthcare cycle is tricky to predict given its dependence on public policy, but the fundamentals are extremely challenged and we believe a breaking point is inevitable.
I also think the muni space is interesting. Investors have gradually started to pay more attention in the wake of Jefferson County, Detroit, Puerto Rico and others, but there is a massive amount of debt outstanding and many issuers in difficult financial condition. The public pension deficit alone in the U.S. is frightening – there something like $1.6 trillion of unfunded pension liabilities at the state level alone. Couple that with historically weak credit documents and poor reporting, and I think we could see a wave of municipal restructurings.
PETITION Note: To your point, take a look at the Sacramento California school district.
PETITION: What is the best book that you've read that's helped guide you in your career?
Tough question. I read a lot of different stuff, but I’ll say that most of what I read is not directly related to my career. Sure, I’ve checked off all the “required reading” for finance and restructuring, but I’ve always viewed reading as a way to diversify my knowledge beyond my career and personal experiences (important, if for no other reason than to not be the most boring person at a cocktail party). I like historical nonfiction – I recently finished Battle Cry of Freedom, probably the most comprehensive book on the American Civil War, and also Once is Enough, a true story about a couple who attempted to sail a small boat around Cape Horn in the 1950s. Like I said, lots of different stuff.
PETITION: What is the best advice that you’ve been given in your career?
One of my first bosses said, “Whatever pre-conceived notions you have of what your job is supposed to be, or what you signed up for, forget about them. If you show up to work thinking about how you can be helpful, whether to clients, peers, bosses, etc. – it doesn’t matter – if you show up each day with that attitude, you’ll be successful at whatever you do”