Vulture investors are swarming all around distressed Houston real estate. Because of course they are. Elsewhere, folks are beginning to worry about the effect of Amazon's ($AMZN) increased push into fashion: will it rock retail real estate even more than it has? With seven private labels now, Amazon is rumored to expand into sportswear, going directly after Nike ($NKE) and Under Armour ($UA). Query what level of data Amazon can leverage from usage of its AWS to crush its (new) competitors.
All Hail Gwyneth Paltrow and Kim Kardashian
So, we're not all too impressed with Gwyneth Paltrow or Kanye West: the whole idea that those two vapid degenerates are influencing anything gives us concern for the future of this great nation. And we thought that the utter dumpster fire known as the Fyre Festival would at least temporarily stick a fork into the whole concept of influencer marketing. Alas, we were wrong. Turns out that Adidas' rise and Under Armour ($UA) and Nike's ($NKE) fall is somewhat attributable to this phenomenon. "Experiential" retail is all the rage right now and not a day goes by where we don't hear some tunnel-visioned advisor mention the concept - always in the abstract we might add - as the panacea for ailing retail (see Toys "R" Us). But, maybe part of the issue was Toys' marketing strategy. Maybe, just maybe, Geoffrey the Giraffe isn't influencing much of anything. Beyonce and Serena have babies now: maybe Toys ought to take that $3 billion of new liquidity and hire one or both of them as a spokeswoman. It has worked for Weight Watchers ($WTW); it has an insane 1-year performance. This may buy some time for Toys' execs as they try and figure out what the hell "experiential retail" ACTUALLY means.
- Busted Tech. Ok, not yet. But soon. Faraday Future has cancelled its plans to build a Vallejo California assembly factory - shortly after scaling back its original Nevada facility. This Techcrunch piece says that "it's unclear where the future will lead for Faraday." Seems pretty clear to us that it will lead to bankruptcy court. And, quietly, a number of (once) high-flying startups are laying people off including, notably, Postmates and Zozi ($60mm VC - Richard Branson and others). Finally, Munchery, often hailed as a top food-delivery startup, required a recap this week to survive.
- China. National debt is 264% of GDP and "it's gonna blow up." Which would explain why the distressed investors are circling.
- Coal. #MAGA!!!!! Westmoreland Coal ($WLB) was downgraded by S&P Global Ratings this week. Headwinds to coal are worldwide as renewables are breaking records.
- Grocery & Sun Capital Partners. We SWEAR we are not picking on SCP here but c'mon already: now it looks like Marsh Supermarkets is in trouble as the company falls behind on rent and quietly - well, not so quietly anymore - shuts locations. So, let's recap: in the past 6 months, SCP has seen the following portfolio companies file for bankruptcy: Garden Fresh Restaurant Intermediate Holdings LLC, Limited Stores Company LLC, Gordman Stores Inc. Maybe this will be the next?
- High Yield. Remember a few years ago when Chobani was distressed? Now you can get in on a new offering at a premium to par, it seems. Semi-related, the bidding to lend to Westinghouse in bankruptcy was reportedly pretty intense, with Apollo Investment Corporation duking it out with Goldman Sachs, Highbridge Capital, and Silver Point Finance for the privilege to finance the nuclear power company while it figures out how to restructure its business and address two incomplete installations in Georgia in South Carolina. Yield, baby, yield.
- Media. A review of the proposed deleveraging transaction in iHeartMedia, which Fitch Ratings has recently identified as a near-term default candidate ("welcome to the party pal"). (Heads up: you may want to click on the link to see the 6 other non-bankrupt companies Fitch identified as well).
- Private Equity. Apparently it's "news" that PE shops, e.g., Ares Management LP, Thomas H. Lee Partners, Bain Capital, and Apollo Global Management LP like to play in various parts of the capital structure to preserve optionality.
- Oil&Gas. That was fast. Like super fast. Seems the new owners of Samson Resources II, LLC don't share a very "long" view of the oil and gas space - despite "having discharged approximately $4 billion of debt and nearly $300 million of annual interest expense from Samson Resources Corporation," aka the previously bankrupt entity that filed in mid-2015. And distressed investors wonder where the term "vulture" comes from. PJT Partners LP was the previous banker for the company but with the Board being what it is, there's no surprise Houlihan Lokey has a piece of the action.
- Retail. Finish Line added itself to the long line of retailers that reported dogsh*t numbers with earnings down, same store sales down, blah blah blah. Right, and approximately 40 store closures. Naturally. Also, David's Bridal was downgraded this week. The CD&R LLC owned retailer has a $520mm term loan due in 2019 and if millennials continue to flick off conventional marriage, there's no way they'll be able to sell enough gaudy wedding dresses to manage the interest expense. And, uh oh, now there appears to be a glaring hole in the "fast fashion" narrative as H&M missed expectations with declining net profit.
- Fast Forward. Looks like Armstrong Energy - another coal company - is a strong prepack bankruptcy candidate. #MAGA for clean coal!!
- Rewind I: 3-D Printing. Not to be a broken record about this, but it is totally real. Last week we noted Adidas' plans for it and this week Under Armour followed suit. The implications for those in the supply chain can't be underestimated.
- Rewind II: Glass Half Full. Looks like Gordmans Stores won't be a complete liquidation after all: Stage Stores stepped up and, as part of a joint venture with Tiger Capital Group and Great American Group, will acquire roughly 50 stores with an option for a handful of others. The remainder will be liquidated but this presumably means that, for now, a couple of dozen will continue to operate. At least until the inevitable Chapter 22 that occurs after next holiday season. Kidding! (Or are we?)
- Chart of the Week:
- Athleisure. Start the funeral dirge. Under Armour reported dreadful numbers and guided poorly, citing the Sports Authority bankruptcy as a reason for decreased exposure to product. Then S&P kicked UA while it was down, downgrading its corporate credit rating from investment grade to high yield. It's not a restructuring candidate with double-digit growth but its results don't bode well for retailers, generally. Good thing J.Crew is NOW starting to focus on athleisure.
- Avaya. Doing a little damage control.
- Cumulus Media. What the public is learning.
- Europe. Some expect a bigger year for restructuring in 2017.
- Private Equity. Some doubts about portfolio quality.
- Solar. The technology continues to take hold and grab share but there'll be a lot of carnage along the way. Meanwhile, Exxon got pummeled, noting over $2b in writedowns.
- Retail. As distressed investors and bankruptcy professionals lick their chops over the possibilities with rue21, True Religion, Claire's Stores, J.Crew and others, "fast fashion" gets a second look as a culprit in the demise of retail (adding to the typical Amazon narrative). Still, even H&M and Uniqlo have announced intentions to scale back growth plans and/or close stores in the US.
- More Retail. The Finish Line Inc. announced its sale of Jack Rabbit Sports this week (66 locations) for undisclosed terms. "Undisclosed terms" = GU gels and a jock-strap. Peter J. Soloman served as financial advisor. The quote, "The acquisition eases fears that the chain would face liquidation with no strategic buyers for the business"...basically sums up specialty retail. Reasons for the company's struggles are particular to specialty running stores, including, notably a marked decline in marathon participation. It's just not that easy to take a selfie while running 26.2.
- Morer Retail - Canada. Once high-flying e-commerce startup Shoes.comcapitulates under the weight of multiple lawsuits, thwarting an IPO. In addition to shutting down the e-comm channels, the Vancouver-based company will shut down two brick-and-mortar locations - effectively flushing $45mm of PE down the toilet. Still, that URL seems like it would fetch some value...
- Fast Forward: Walmart is looking to disrupt Amazon while Amazon is looking to disrupt Alphabet and Facebook. And UPS. In other words, Amazon is after EVERYONE.
- Rewind I: Usually we reserve "rewind" for topics we've discussed in previous weeks but we're making an exception here: apparently HMV still exists in Canada. Or did. What a major blast to the past. What were they selling, exactly, 8-tracks?
- Rewind II: Payless Shoes. 4400 stores? Wow. Apropos, retail now the sector with the most distressed debt. In other retail news worth a rewind, Sports Direct is reportedly in talks to acquire Eastern Outfitters, the parent company of Bob's Stores and Eastern Mountain Sports from Versa Capital Management out of bankruptcy. If those names sound familiar, it's because Versa literally just bought them in bankruptcy last year in the Vestis Group case. So, add this to the growing list of Chapter 22 cases.
- Rewind III: Given our revelation last week of the connection between Puerto Rico-Dentons-New Gingrich, its intriguing that Greenberg Traurig is distancing itself from another Trump supporter.
- Chart of the Week: Sometimes to disrupt the incumbents, you have to bleed cash like nobody's business...
- Argentina. Lawyers get credit for a break in the 15-year impasse.
- Distressed Legal Debt. Wait, say what? Anchorage Capital purchased Citi's debt in law firm Slater & Gordon for $0.38/on-the-dollar.
- Solar & Wind. In the wake of La Paloma Generating and Illinois Power Generating Company (Genco) both filing for bankruptcy (see below), solar seems to be gaining momentum with measurable progress in Florida and California (San Diego). But not just solar: this week Google announced that its reducing its carbon footprint with direct purchases of renewable (wind) energy. See Chart of the Week II below.
- Fast Forward: UnderArmour announced this week that, starting in 2020, it has exclusive rights to produce Major League Baseball's uniforms. While this is a way off and numbers for MLB fanhood may be even weaker than today, this is a big deal for them and a major loss for Majestic Athletic. Cause and effect: we're wondering what this will mean for Majestic's business go-forward...
- Rewind I: Dead Malls. People can't seem to talk about this enough: here, some ways to invest it.
- Rewind II: Dallas. We previously mentioned the pension issues there and talk of Chapter 9. This week Moody's released a report highlighting that Texas' four largest cities have a combined $22.6 billion in underfunded pension liabilities. Yikes.
- Rewind III: Last week we noted the injunction in place delaying, for now, a mandated overtime pay rule that is thought to endanger retail profits further. Some companies have decided to implement the change preemptively.
- Chart of the Week: When viewed in tandem with last week's chart about peak oil, the rise of battery-powered cars is marked.
Renewable energy use...this is changing rapidly: