Fast Forward: Week of 1/7/17

Destination Maternity is churning through management while continuing to insist that Berkeley Research Group is only providing operational improvement services. Fieldwood Energy has a little more timeNeiman Marcus is getting serious about engaging various creditors about its well over-levered balance sheet ($4.9b of debt). Steinhoff International Holdings N.V. is in the market for a Chief Restructuring Officer. Before year end, there were some interesting happenings with Sungard AS that may portend some action to come.

Retail (Who the hell can keep up?)

Toy's R' Us YOY down $33mm and comp stores down 4%. Neiman Marcus, meanwhile, reported that it is terminating its proposed sale process. Hudson's Bay Co., considered a buyer, is suffering itself and apparently the two parties couldn't figure out what to do with Neiman's $4.8b of debt. Now the company has to fend for itself. Speaking of bigbox, Sears Canadalooks like the first domino to fall in the Sears empire and its former CEO isn't pulling any punches vis-a-vis ESL. Ascena Retail Group ($ASNA) announced that it's closing 25% of its stores. And now the game of chicken between retailers and malls is at full force with restaurants bouncing around to the Sam Cassell big balls dance (c'mon, you know the reference). Finally, Walmart bought Bonobos and the retail race is on: WMT vs. AMZN!

Lots of Busted #Retail Narratives Part II ($SMRT)

A quick look at SMRT's board and it's no wonder they, too, have been swept up in the retail carnage: members include former executives from Macy's and Neiman Marcus. We're surprised there hasn't been a corporate governance backlash against these various retailers as Amazon - which just celebrated its 20th anniversary - didn't exactly come out of nowhere. We don't think it's a coincidence that Walmart surprised to the upside. With Kevin Systrom (Instagram Founder) and Greg Penner (early Baidu investor) on the Board, there are some new innovative voices around the table. We may need to do a deeper dive on this but aren't entrenched management teams and old-school directors part of this story? Classic innovator's dilemma.

Interesting Restructuring News

  • 3-D Printing. A few weeks ago we noted the disruptive potential of 3-D printing. You can revisit that piece here. The spare parts market already appears to be under seige.
  • Automation. We hate to pick on support staff as there's been a lot of pain there the past decade but...short administrative assistants? On the flip side, note this.
  • European Distressed Debt. The vultures are looking at Spain and Italy. Meanwhile, last week Agent Provocateur, this week Jones Bootmaker = the latest PE-backed European retailer staring down the brink of administration(with KPMG hired to find a buyer).
  • Grocery. Food deflation appears to be leveling off - good news for grocers who had a rough 2016 (which we covered previously here).
  • Guns. Looks like the rise in anti-Semitism and hate crimes hasn't translated into robust gun sales: Remington Arms Co. is downsizing. The $2.6mm trade claim the company has in the Gander Mountain Company bankruptcy won't help matters either.
  • Malls. The Providence Arcade is deploying new and creative ways to put mall space to use. This brings a whole new meaning to "consumer culture." Meanwhile, more on malls becoming the new big short.
  • RestaurantsRuby Tuesday is now for sale after closing 100 locations. UBS is apparently the financial advisor.
  • Retail. Shocker! A newly released report delineating the most valuable retail brands failed to include Charming Charlie'sPayless Shoesrue21J.Crew...ah, you get the point. Also notably absent from this list is Neiman Marcus which, given its lack of scale (42 stores, ex-Last Call & Bergdorf Goodman), isn't all too surprising on a relative basis but that hasn't stopped it from attracting attention from Hudson's Bay Co (note: the Canadians have been taking a lot of interest in US retail lately, see, also Eastern Outfitters). Looks like some teens DO shop at Neiman Marcus but find malls, generally, "vanilla"...choice quote here: "I like finding stuff on eBay - clothes and accessories that no one else is wearing...[e]verything you can't find in a mall." See, also, Poshmark. Meanwhile, private equity backed retail is especially sordid.
  • Retail IIBon Ton Stores (BONT) reported higher earnings, cost savings that bested projections and a free cash flow positive '16 (compared to a wildly cash flow negative '15). But same store sales were down big. A few takeaways: 1) bad retail performance is always partially the weather's fault; 2) it's planning to make its landlords sweat with lease negotiations; 3) it's closing 46 stores in '17; 4) it's picking from the carcass of closed Macy's locations, poaching vendors and sales associates; and 5) it's still over-levered AF. While there is no near-term maturity post-retirement of the '17 second lien senior secured notes and the company claims liquidity through '17, the company is still levered at 8.5x and raising rates, generally, won't help retail. And the stock trades in dogsh*t (reverse split?) territory at $1.00. Hmmmmm.

  • Fast Forward: iHeartMedia launched an optimistic restructuring process seeking to swap more than 90% of its $20b of debt; Gymboree got a going-concern warning in the face of declining revenue and same-store sales and a 12/17 maturity; Gulfmark Offshore skipped its interest payment triggering a 30-day grace period due 4/15; the same date marks the forbearance expiration agreed to by lenders of 21st Century Oncology; and Concordia International Corp. reported HORRIBLE numbers and declined to provide go-forward guidance given the headwinds confronting drug pricers. 
  • Rewind I: We swear we're not picking on Sun Capital Partners but this week S&P Global Ratings downgraded Vince Intermediate Holdings to CCC+ making SCP's portfolio a virtual retail minefield. 
  • Rewind II: Yawn, more Westinghouse
  • Rewind III: Last week we covered Aquion Energy in our summaries of cases (click company name for summary). Turns out, this dog is more controversial than we thought as its another example of government subsidy gone wrong. Which is not to say we're not for experimentation/funding with/for alternative energy businesses, particularly in storage. But the comments to this seem on point.
  • Chart of the Week

Chart of the Week II

News for the Week of 3/5/17

  • Coal. Post-reorg players like Arch Coal are now trying to take advantage ofgovernment subsidy (which reeks of buyside "value-realization"): query what this means for alternative energy players who already receive such subsidies and are rumored to be under siege by the Trump administration...?
  • Environment. We wrote a few months ago about Oklahoma and the apparent correlation between wastewater disposal and an uptick in seismic activity. The seismic-hazard warning for Oklahoma in 2017 is "still significantly elevated."
  • Golf & Sexy Time. There's zero correlation: we just thought it was a funny combination. That said, tough times for TaylorMade (owned by Adidas and apparently being shopped by Guggenheim Securities). Meanwhile, Agent Provocateur sold while in UK "administration" to an affiliate of Sports Direct (which also recently surfaced as the stalking horse bidder in Eastern Outfitters). AlixPartners was the administrator.
  • Legal ProfessionShort big firm junior lawyers.
  • Power. This is an odd report on Westinghouse
  • Retail. We're getting a little sick of sounding like a broken record but Best Buy and Target reported numbers this past week and then saw massive stock drops due to weak guidance. And Barnes & Noble got DECIMATED after reporting numbers. The good news is that the coloring fad appears to be over. Meanwhile, the tech barrage shows no signs of abating: GameStop came under pressure this week after Microsoft announced its subscription gaming service. Is GameStop an immediate near term restructuring candidate? No, but part of the value we provide is highlighting for you where future pain points are hiding and without sounding TOO dramatic, this could be the beginning of the end.
  • Retail II. We're nerds and so we found this analysis of when to close retail stores interesting. And we're curious to know if any of our advisory readers agree with this...LET US KNOW. Speaking of closing retail stores, Abercrombie will close 60 storesCrocs will close 160 stores, and looming bankruptcy candidate hhgregg is closing 88 stores (which briefly sent Best Buy's stock north back up, despite earnings). Meanwhile, Neiman Marcus hired Lazard for balance sheet help and Radio Shack 2.0 (aka General Wireless Operations) is rumored to be Radio Shack chapter 22.0.  
  • TechRough week for Uber. Choice quote: "Before too long, Uber's cash will run out. And if Uber hasn't built a viable self-driving car by then, the results won't be pretty."
  • Telecom. Wow, Intelsatbailed out

  • Fast ForwardSeadrill Ltd. noted the possibility of a bankruptcy filing, sending the stock into a tizzy. Still, John Fredriksen quickly highlighted his history of no default. Related, Pacific Drilling also noted in its earnings call that Chapter 11 is possible. 
  • Rewind I: A lot of folks have been sleeping on tech bankruptcies, but NJOY was a hardware bankruptcy from last year that now has a resolution: Mudrick Capital seeks to turn the company around, operating it like a PE-owned company rather than a VC-funded company. Speaking of which, Cirque du Soleil got a workover by TPG Capital (and AlixPartners) and now there's this YouTube promotional video to show for it. Speaking of purchases out of bankruptcy, it seems a Canadian retail player made the first move on Wet Seal only to be outflanked by Gordon Brothers.
  • Rewind IISoundcloud looks increasingly like it will be in the busted tech bankruptcy bucket. IP sale?
  • Chart of the Week
  • Tweet of the Week: This is great because it doubles as a second chart of the week: we're so creative. Anyway, we hate to say we told you so but, effectively,we told you so: we'd love to know why nearly 200 companies felt the need to reference AI in their earnings reports...

News for the Week of 2/12/17

  • Coal. Prices have risen and Trump is promising assistance. Is this enough to offset sagging demand? China's new measures aren't helping. But the capital markets are, as Peabody EnergyArch Coal, and Contura Energy are all taking advantage of cheap financing/refinancing options. Peabody shopped an upsized term loan (by $450mm) with revised company-favorable pricing; it also issued new notes and bonds. Amazing how quickly things changed with coal.
  • Chicago. S&P is making threats. 
  • Electric Vehicles. Something tells us that oil and gas management teams and their wildly astute restructuring bankers and advisors neglected to bake this element into their business plans. 
  • European DebtIncreasing concerns about Italy and Greece. Meanwhile, in France, CVC Capital Partners' owned vehicle leasing firm Fraikin has hired Rothschild to restructure its 1.4 billion Euro debt. Lazard will represent the mezz debt.
  • Moelis & Co. & Aramco"Ken of Arabia"? C'mon, that's just dumb.
  • Power. California has more power plants than it needs. After a slate of power-related bankruptcies, it looks like there is more hurt to come in this space. And big developments on the storage side probably won't help. And this new cooling tech won't help either - if it's legit.
  • Retail. And people wonder why private equity is vilified...case and point: Rackspace. Speaking of private equity, Canada Goose's proposed IPO reeks of a dump-and-run on greater fools. Millennials don't spend money, but Bain Capital will have us believe that $900 fur-lined jackets are the exception to the rule. Riiiight. 
  • Retail Part IIOrganized Retail Crime = massive problem. 
  • Retail Part IIIGander Mountain = toast.
  • Retail Part IVAmazon announced that the number of third-party sellers on its B2B site has reached 45k, up about 50% from the approx 30k sellers it had at the end of Q2...IN JUNE.
  • Return of the Maturity Wall. Nothing gets restructuring professionals' juices flowing like sexy maturity stats. So, here it is: $2 trillion of corporate debt comes due in five years. And this is, in part, because the capital markets are definitely wide open right now in the face of soon-to-be rising interest rates. Take THAT wall, President Trump! 
  • Sears. Everyone is looking at this oncoming trainwreck and wondering "when?", not "if." Nice recent CDS movements on it but then the company unearthed a remarkable $1b in cost savings. Like, out of nowhere. And, naturally, the stock soared 25+%.
  • Spotify. Typically there are tremors before the earthquake. Perhaps Filip TechnologiesViolin Memory, and Nasty Gal are the tremors foreshadowing a venture debt-backed reckoning on the horizon. It's unclear. But, in Spotify's case, the interest ratchets attached to $1b of debt get more and more expensive with each consecutive quarter sans IPO. A big "unicorn" is going to fail and fail big. Spotify may not be the one, but it ain't looking great. But that one IS coming (Zenefits anyone?). Along these lines, how the eff is Theranos not bankrupt yet
  • Takata. Inching towards bankruptcy.
  • Fast Forward: Most retail-focused restructuring pros emphasize "omni-channel," the latest retail buzzword that, practically speaking, means basically nothing in today's climate. Case and point: Neiman Marcus, which was downgraded this week with projected 10x leverage on $4.77b of debt. Most of the cap stack traded at new lows this week. Omni-channel ain't a panacea, it appears.
  • Rewind IThis result for Relativity Media sure sounds positive.
  • Rewind II: The grocery space is getting hammered so badly that now even Whole Foods is retrenching, shutting more stores than it's opening go-forward.
  • Chart of the Week
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News for the Week of 01/29/17

  • Artificial Intelligence. Throw the phrase "AI-based" in front of anything and all of the sudden it's like gold. Including retail. We're pretty sure we'll start seeing established companies start rebranding to curtail further devolution, e.g., neiman-marcus.ai or Macy's.ai. After all, we have MacGuyver back on TV and Luke Skywalker back in the theaters...might as well get nostalgic for .com-style frenzy. 
  • Boutique IBanking. An interesting review of the stock performance of one of the original public boutique investment banking firms out there: Greenhill & Co
  • Coal. Longview Power CEO Jeff Keffer's assessment of the industry. TL;DR...at least under Trump there's a chance...
  • Conflicts. Believe it or not, conflicts DO exist in bankruptcy court. We're just as shocked as you, but in the Transtar bankruptcy cases, Willkie Farr & Gallagher LLP submitted a motion seeking to withdraw from the case after it determined that "in responding to requests by the Examiner in the course of its investigation, WF&G's own interests may conflict with the interests of the Debtors, or create an appearance of such a conflict." Pinch us. Jones Day LLP is apparently taking Willkie's place for the debtors.
  • Hedge funds. This about sums it up: "No matter what initial capital you give the hedge fund to start with, the hedge fund will become richer than you since its real talent is transferring your wealth into its coffers..."  Indeed, with 2/20, a hedge fund making 10% will make more money than its investors in 17 years.
  • Malls. We probably give the impression that we really love to shop given all of the mall talk lately. But, c'mon, you can talk to us until you're blue in the face about A Malls and C Malls but the truth is that A-LL malls are looking increasingly screwed. There are so many experiential possibilities. 
  • Neiman Marcus as a High Yield Sinkhole. The debt is plummeting: some holders are hitting eject on high yield retailers. And more concerns about liquidity in the bond market.
  • Taxis. So, the Uber effect is contagious? Seemingly so. Capital One Financial holds a distressed (and distressing) taxi medallion lending portfolio. Ugly chart here. Clearly the business traveler has embraced non-taxi options.
Natural gas price projections.

Natural gas price projections.

News for the Week of 01/08/17

WHAT YOU NEED TO KNOW FROM THE PAST THREE WEEKS (PLAYING CATCH-UP EDITION)

  • Distressed Investing Hindsight. Avaya. Phone systems? Who would've guessed this could go wrong? Psssst: don't tell anyone but apparently Avaya and Goodman Networks are apparently in 30-day grace periods.
  • Fintech. Cracks in P2P lending by way of bankruptcy (Argon Credit).
  • Fraud. Theranos announced that it's letting go 41% of its work force - which we believe is a precursor to bankruptcy. Why file? To sell IP. If they actually even have any. And address litigation. Meanwhile, Snapchat, on the heals of a possible IPO, is being sued for misleading investors. Toss in ethical issues around Hampton Creek and others and we may start seeing some fraud-related bankruptcies a la 2001.
  • Grocery. Is Kroger's buyout announcement another leading indicator of future distress?
  • Media. Ev Williams, founder of Twitter and Medium, acknowledges that the ad-supported media model is broken while significantly cutting headcount. It seems that $150mm VC funding can't help produce a new business model. 
  • Retail. It looks like the Trump Job Preservation Tour forgot to schedule stops at KMart, Sears and Macy's (meanwhile Sears unloaded Craftsman and JC Penney shed its HQ). Next up: Kohl's? Ugly 20% drop after a nasty comp store sales drop and forecast cut. Apparently, omnichannel customers are the key to the riddle. Meanwhile, Amazon is sniffing around American Apparel (as is Forever 21, reportedly) and Boohoo is focused on Nasty Gal. Gap - mostly due to a 12% comp sales increase at Old Navy - showed positive signs while Neiman Marcus cancelled its IPO, a clear negative.
  • Taxi Companies. Uber is the death of traditional taxi companies and new tech companies that support the taxi companies (Karhoo). Which means those companies must really suck since Uber burned $3b in '16.
  • Wearables. Pebble. "Acquired." Vinaya. Bankrupt. Does someone want to raise us a Jawbone?
  • Fast Forward: With Amazon and Apple in the mix, music streaming services are struggling to make money and Soundcloud may be the closest victim. Restructuring professionals will remember that Rdio already went through bankruptcy and sold to Pandora.
  • Fast Forward II: Remember Exco?
  • Rewind IPlatinum Partners. It's amazing how funds get away with this nonsense: 17% returns for 13 years.
  • Rewind IIAthleisure. Financials-related Uh oh (Finish Line). And bankruptcy-related uh oh (Yogasmoga). But like most things, Amazon gives zero $&%s.
  • Rewind IIICoal. Maybe Trump will help the "clean coal" industry after all. And yet solar continues to progress, as does wind (in the UK and elsewhere). Ps, $361 billion is an awfully large number. And now things are progressing on the storage side thanks to Elon Musk.
  • Chart of the Week

News for the Week of 12/18/16

  • Distressed Debt. More focus lately on Africa and the Middle East. Meanwhile, New Jersey is issuing transportation debt directly to state pension funds, cutting out middlemen in the issuance and driving down issuance costs. 
  • Hertz. Despite Carl Icahn's best efforts, this company has shown nothing but decline in the face of Uber and Lyft stealing revenue from the consumer-facing rental car business.
  • Renewable Energy. Wind and natural gas are on the rise in the United States: there's no holding it back. Interestingly, Statoil announced this week that it - like many others - is abandoning the Canadian oil sands to the tune of a $500mm impairment; meanwhile, Statoil paid $42.4mm for a lease to develop a wind farm 79k acres southeast of New York City. There were 33 rounds of bidding: the longest auction the agency has ever had for offshore wind. Earlier this week the wind farm offshore of Rhode Island went on-line.
  • Shenanigans. JCrew transferred its IP to a Cayman subsidiary triggering significant downward trending term loan activity; IHeartMedia elected not to pay $57mm of senior notes due to an affiliate upon maturity which may or may not be a CDS credit event; Cumulus Media launched a lawsuit against JPMorgan for allegedly unreasonably withholding consent to a proposed refinancing transaction that would significantly delever its balance sheet. 
  • Takata. The airbag recall keeps spreading - now to McLaren, Ferrari and Tesla. Chances are the company is looking on at the General Motors situation with great interest.
  • Twinkies. An interesting summary of the company's history - including stints in bankruptcy.
  • Fast Forward: Forbes Energy Services' fifth forbearance expires on 12/23, Stone Energy's equity committee hearing is 12/21, and CHC Group Limited may get its PSA ruling from Judge Houser this week.
  • Rewind I: Neiman Marcus reported dog-sh*t numbers this past week blaming a strong US dollar and general retail headwinds for a widened $23.5mm loss. Headwinds persist for retailers: here are top trends affecting retail go-forward.
  • Rewind II: For-Profit Education. The US FTC announced a $100mm settlement with DeVry University, capping a BRUTAL two years for for-profit education. Some highlights: ITT Technical Institute already shut down earlier in the year, the infamous Trump University recently settled a suit for $25mm, and last year Education Management Corporation paid a $95.5mm settlement and Corinthian Colleges filed for bankruptcy.
  • Rewind III: We discussed Amazon Go last week. Here are some more takes on the technology.
  • Chart of the Week

Tweet of the Week

News for the Week of 10/2/16

NEWS FOR THE WEEK OF 10/2/16

  • Apparently the 400-pound trolls of the interwebs are responsible for a 4.1% comparable sales drop at Ares and Canada Pension Plan Investment Board held Neiman Marcus.  Well, AND pain in Texas.  AND tourist spending being down because of the strength of the dollar. Related, Fitch takes a bearish view on a number of retailers while others look at Nine West and Weight Watchers and ask, "Remember Cov-Lite?".  
  • Meanwhile, is it possible for Sears to kill malls when they're already dead?
  • Consumer bankruptcies in Alberta Canada are soaring as unemployment hits a 22-year high of 8.6%.  
  • Takata faces the rare mass-litigation-based bankruptcy filing.
  • Chart of the Week: