Notable (Gaming, Guns, Fees and More)

Activist InvestingA deep dive into what has made Elliott Management successful. 

Casinos & Gambling: The Supreme Court is considering arguments that will dictate the future of sports betting at casinos and racetracks around the country - a potential lifeline to an industry that has been plodding along. New Jersey is getting ready for some positive nows.

Guns (Long Irony)Donald Trump hasn't threatened the gun industry enough. Without the fear of increased regulation (which, of course, is mind-boggling after Las Vegas, but we digress), gunmakers are heavily discounting product and their stock is going in the sh*tter. American Outdoor Brands Corp. ($AOBC) and Sturm Ruger & Co. ($RGR) both saw stock declines this week on the news of slashed profit targets.

HealthcareA running tally of all of the bankruptcies in 2017. The performance improvement consultants must also be at high capacity. Scripps Health, for instance, announced $30mm in cost cutting this week. And community health centers are apparently suffocating without federal funding from Congress.

Professional FeesCaesars Entertainment Operating Co. is primed to pay $160mm in legal fees. Importantly, this number does not include the fee totals paid to financial advisors, investment bankers and the company's claims agent. Apples to grenades, we admit, but considering the fees seen in bankruptcy, Robert Mueller's $6.7mm nut over five months of investigation seems pretty lean and efficient to us. Just saying.

Retail (The Rise of Clicks to Bricks)Everlane is the latest digitally-native vertical brand that is embracing physical locations. Relating to the company's CEO, "He started the company understanding stores as albatrosses on the bottom line; now, he sees the value in them as temples to the brand." Meanwhile, FAO Schwarz is attempting yet another brick-and-mortar comeback in NYC.

Professional Fees (Long Cannibalization)

$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.

The DOJ Is Looking at Restructuring Bankers

Woah, this. Choice quote: "A major ongoing project of the Program is to issue similar large case guidelines pertaining to the fees of financial advisors, investment bankers, and other professionals. The role and costs of these financial professionals in bankruptcy cases have grown dramatically in recent years. Furthermore, financial professionals, especially investment bankers, have not submitted descriptions of the work performed in the detail generally required of attorneys." This ought to be interesting: it sounds like the UST is looking for bankers to line-item their work in six minute increments - like lawyers do. Good luck with that. Still, bankers ought not fear: pre-filing line-items won't be necessary. So, no "1.1 hours - bull-sh*ted management about ability to tap capital markets and avoid bankruptcy filing despite challenges." 

Puerto Rico (Our Word is Our Bond)

Talk about well-earned fees (good luck chasing the Virgin Islands, ya'll). After tens of millions of dollars of fees spent to get the Puerto Rico Electric Power Authority ("PREPA") and its bondholders to agree to a consensual out-of-court deal, that deal is now worth bupkis and the entity has joined a variety of other Puerto Rican entities in Title III bankruptcy. What a joke. Choice quote from Bill Fallon, the chief executive of National Public Finance Guarantee Corporation, saying that the Title III filing "would leave Prepa years away from attracting the private investment necessary to modernize." Clearly Bill Fallon's memory is so short that he doesn't remember that memories are short. This line of argument is so old and tired that it has zero credibility at this point. We're calling it now: PREPA will issue a 100-year bond within the next three years and, depending on where interest rates and yields stand at the moment, may even make Argentina look good while its at it. C'mon dude.

Notable (Loan Defaults, Oncor, Staples, Takata Corp)

Loan Deficiencies. Some interesting numbers here.

Oncor. Warren Buffett to the rescue? Perhaps, perhaps not. It seems there may be competition for the asset. It looks like Kirkland & Ellis LLP and Gibson Dunn & Crutcher LLP stand to make good fees on the transaction if it goes through.

Staples. Details on Sycamore Partners' proposed LBO financing here.

Takata CorpMore professionals with a seat at the table.

Short Restructuring Professionals Who Suck at Marketing $FCN

We get the old adage that all publicity is good publicity. That said, we have to question the prudence of trying to promote your brand in a piece that says that "[r]estructuring advisors are short on work and long on time." Of acknowledging that you're overstaffed. Of stating that you're trying to do anything you can to keep bodies billing. Of noting that investment bankers and financial advisors are crossing over and creating even MORE competition for (the limited amount of) restructuring mandates. So, if we were on a management team and we found, say, FTI Consulting Inc. ($FCN), on the other side of the table pitching us, we'd be waving the above-linked article in the air like a crazed lunatic - all the while negotiating down hourly fees, success fees, tail length, and expense allocations into bargain basement territory. Then, after we get the bill and see body upon body stacked up on the engagement, we'd negotiate the bill down even more - knowing full well the shenanigans that are being pulled. After all, what do you do when you've got bodies on payroll? You "staff" them damn it, that's what. Because 900 people is a lot of mouths to feed. So, thanks for making all of that so bloody obvious, ya'll. Solid move. But PR!! And personal branding!!


  • Professionals Fees. The staggering amounts are getting increasing attention. This kind of attention on exorbitant costs can't be good for long-term viability of the industry.
  • Short junior associates. Casetext, a San Francisco-based AI-driven legal research product for lawyers raised $12mm in Series B funding.

What the Pros Say (3/19/17)

  • Professional Compensation. Whereas we would typically demerit a firm for reviewing a "recent" case from 4 months ago, we'll pass here for two reasons: 1) this DLP Piper LLP summary by Richard Chesley, Rachel Albanese and Adam Lanza is solid; and 2) there's no ridiculous attempt here to shield the bankers from a decision that ultimately came down in their favor. Sidebar: speaking of fees, SunEdison was in the spotlight this week and these fees are in bleacher seat territory.
  • Unrestricted Subsidiaries. Anyone interested in understanding the shenanigans taking place in iHeartMedia or J.Crew ought to read this strong coverage of the use of covenants to restructure their capital structure by Chapman & Cutler LLP's Michael Friedman, Simone Tatsch, and Nicholas Whitney.

News for the Week of 01/15/17

  • Canada. Predicting lots of doom and gloom.
  • CovenantsSome developments in the capital markets thanks to recent activity with makewhole provisions - including "the end of covenants?". 
  • Fees. It was only a matter of time before there was a new chapter in the always inevitable vilification of restructuring professionals due to fees. Instead of a front page story about Lehman or TXU in the WSJ, here the Houston Chronicle highlights oil and gas cases.
  • Fund Performance. Bloomberg does IR work for Brigade Capital Management, highlighting the asset management company's purported big '16. And for Mudrick Capitalnoting the fund's turnaround after a period of high profile poor performance.
  • Let's Get Technical. For you geeks who love worrying about CDS, high yield bonds and liquidity, this report is for you.
  • Municipal Trouble: we've talked about Dallas in the past and now Providenceis in the crosshairs.
  • North Dakota: In a shocking development, the state's forecasts did not account for the upheaval in the energy space: just a mere billion short.
  • Radio. Pros focused on radio-based media situations ought to take note of what is happening in Norway, which is now the first country to completely switch off its FM radio network and convert entirely to digital. Meanwhile, in the streaming music space, Soundcloud bankruptcy rumors continue to increase (we called it).
  • Sears. We're tempted to run a pool to gauge when this sucker FINALLY files for bankruptcy but like the villain in Die Hard, Lampert will probably find a way to keep the thing coming back.
  • Rewind IGarden Fresh Restaurant has sold to Cerberus Capital Management in bankruptcy. Sun Capital's pain is Cerberus' gain. Speaking of Sun Capital, it seems they made out okay with their Limited investment thanks to distributions and dividends. To summarize, they made 1.8x their initial $50mm investment. And 4000 people are losing jobs.
  • Rewind IIGilden Activewear Inc. will acquire American Apparel for $88mm, a premium to the original stalking horse bid. Meanwhile, Nasty Gal received approval to sell its brand and customer information for $20mm. Wet Seal, meanwhile, looks headed towards a Chapter 22 at best and a liquidation at worst - not long after Versa Capital bought it out of bankruptcy for $7.5mm.
  • Rewind IIIJawbone continues to struggle as the wearables space continues to consolidate.
  • Chart of the Week
  • Tweet of the Week

What the Pros Say (Week of 01/08/17)

  • Death Traps. Katharina Earle of Cole Schotz PC discusses the risks of proposing death traps in a plan.
  • Energy. The US Energy Information Administration has released its annual energy outlook with forecasts through 2050.
  • Lease Rejections. Kenneth Rosen of Lowenstein Sandler LLP articulates that BC 365(d)(4) is causing retail liquidations.
  • Makewhole. Gregory Horowitz of Kramer Levin reviews the EFIH decision.
  • Privacy. Shmuel Vasser of Dechert LLP discusses internet privacy issues in the context of international bankruptcies.
  • Professional Fees. Michael Cook of Schulte Roth & Zabel summarizes the recent In re Relativity Fashion LLC case relating to objections to investment banking transaction fees. In this instance, attempts to revisit 328-approved fees failed. For some inexplicable reason, Cook doesn't indicate whose applications were at risk - to the point of blatantly avoiding it even though the court makes no attempt to hide it. To spare you the suspense, it was Houlihan Lokey and PJT Partners LP that were attacked. 
  • Takata. Brendan Best of Varnum LLP writes about the implications of a Takata bankruptcy for trade creditors.