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

Commodities (Long Regulatory Risk! Short Aluminum?)

Per ReutersZhongwang 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.

This Week With Puerto Rico

Hot Mess

What a disaster. Lots of noise on this and so here goes PETITION stream-of-consciousness mode. Trump spoke and Lawrence Summers agreed about wiping out PR's debt. But, wait! Maybe, just maybe, the process has to play out ("Hello, right hand. Meet left hand."). The bond bloodbath that wasn't. Choice quote, "There were, quantitatively speaking, twice the number of buyers than sellers, of Puerto Rico’s benchmark security, the 8 percent general obligation bonds." Sounds like one of those sellers may be MatlinPatterson which likely isn't the last hedge fund to close its doors due, at least in part, to the Puerto Rico morass. Paulson & Co. continues to sh*t away the glow it gained during the financial crisis. The Baupost Group, a Boston-based hedge fund managed by billionaire Seth Klarman, has significant exposure. As do some others. And some think that exposure will equate to 10-to-20 cents-on-the-dollar (video). And, many think Washington is to blame for a lot of this mess. Finally, a special report from Reuters on the situation.

Go F*ck Yourself, Amazon

The Claws are Starting to Come Out

More or less the gist of this letter from Birkenstock Americas CEO, David Kahan. We're sure many a bankrupt retailer shares in his sentiments about the purportedly shady shenanigans practiced by the behemoth e-retailer. Speaking of distressed retail, Aerosoles Group, the NJ-based women's shoe retailer with 80 US-based locations is reportedly exploring strategic alternatives. Per Reuters,Piper Jaffray Companies ($PJC) and Berkeley Research Group have been hired to help the company assess its options. 

Fast Forward (Music, Music, Music)

More on Soundcloud: apparently the company only has runway through Q4 - though Chance the Rapper appears to havean opposing view. Did he put money in the company? May we now comfortably call him a distressed investor? WEST. COAST. Meanwhile, the fine folks at Reuters this week reported what many have known for a long time: Guitar Center Inc. is collapsing under the weight of its debt and may need to restructure its balance sheet. The Ares Management LP owned company has $1.3b of debt and consumers are increasingly purchasing their musical instruments on line. Tellingly, Fender Music released it's online music instruction platform this week in an effort to prevent aspiring guitar players from giving up so easily (and not spending money later on).