Grocery (Short Mom & Pops; Long Dollar Stores & Judges)

This is a good example of what happens when a Walmart ($WMT) rolls into town, prices compresses like a boss, and puts local shops out of biz. People have to drive 40 minutes to go grocery shopping. That's bananas. Which explains Dollar General Corp's ($DG) strategy to, as the Wall Street Journal put it, "build thousands more stores, mostly in small communities that have otherwise shown few signs of the U.S. economic recovery."Which, in turn, illustrates, in part, the juxtaposition between what is happening in various communities across the country and the macro-economy generally. On one hand you have a record 86th straight month of nonfarm payroll expansion and unemployment at 4.1%. On the other hand, you have job and resource drain. Apropos, Todd Vasos, CEO of DG is quoted"The economy is continuing to create more of our core customer." Speaking of jobs, we now have two precedents for judges ordering shuttered/shuttering retailers to, uh, not shutter. Last week we noted that Starbucks' ($SBUX) plan to shut Teavana locations down got blocked by a judge siding with Simon Property Group($SPG). Now Whole Foods has run into the same problem. Landlords 1, failed retail 0? Seriously...are there ANY winners, here, really?


Already-distressed grocers like Bi-Lo Holdings and Fresh Market were already dealing with the threat of increased competition from Amazon when Hurricane Irma swept through and hammered them. Apollo Global Management reportedly has extended a 6% unsecured $50mm bridge loan to Fresh Market to help keep it afloat. Meanwhile Bi-Lo is advisored to the hilt and seems headed towards some kind of restructuring. Tops Friendly Markets also has secured debt trading at distressed levels. While Kroger announced somewhat flat guidance going forward, it acknowledged an expected fall in earnings as price wars heat up with Amazon and foreign encroachers like Aldi and Lidl; it also announced that it hired Goldman Sachs to explore a sale of its convenience store business. While the stock traded up on the news, it is still down nearly 37% since the WholeFoods news. There will be winners and losers in this space and it seems increasingly likely to shake out quickly. 

Amazon > Costco

Costco Has Some Work to Do

Amazon (Getting its Own Category). As this point, Amazon merely needs to hint that it may enter a vertical and market caps will get sliced by 30%. It doesn't matter whether that's logistics (see UPS and Fedex) or pharma. The idea that Amazon Prime will affect wholesale retailers like Costco? Well, Costco's CEO said, "As it relates to the publicity and the news and the noise around Amazon and Whole Foods, all we can do is perform." That's not a confidence-inspiring answer by any stretch of the imagination. And the market reacted by sending shares down nearly 10%. Why? Membership renewals and margins were down. Revenue? Up. Net income? Up. That's what makes this market move so intriguing. The report actually wasn't terrible. But Amazon!

Amazon is Coming After Liquor Delivery

Short the "Three-Tier System" for Liquor Sales

On the heels of Amazon's Whole Foods acquisition, the company is launching liquor delivery in more parts of the United States. Bezos seems to be laying off the liquor on his way to getting jacked but he sure AF wants you boozing like a frat boy. And he's doing everything he can to make that easier: including allowing you to order a six-pack through Alexa. Whoa. 

Liquor delivery is no easy thing. But complex problems haven't stopped Bezos before. The entire liquor supply chain ought to be very concerned - and that includes startup delivery services like Postmates, who are increasingly counting on booze delivery to grow. 

Jacked Bezos.jpg

Food CEOs Biting the Dust

So Travis Kalanick is out and those of you who actually cared can now switch your corporate accounts back to Uber from Lyft. Congrats. Starwoodspoints! Anyway, ICYMI, mere days after the Amazon/WholeFoods announcement, the CEOs of both Fresh Market and Bi-Lo were replaced. Clearly the Board of Directors at both felt like a shape up was needed for the bloody war to come. 

Notable (Amazon, Energy XXI, Key Energy, Penn Virginia Corp.)

Amazon. Patent activity tipped off designs on fulfillment and logistics aspirations now closer to reality with the Whole Foods transaction. Elsewhere in Amazon land, the company is becoming a massive lender and most people are walking around with Amazon plastic in their pockets too.

Australian Distress. Anchorage Capital Group is sniffing around Ten Network Holdings.

Energy XXI Gulf Coast Inc. ($EXXI). Fired a bunch of people.

Key Energy Services ($KEG) sold frac stack and well testing assets for $23.7mm. 

Penn Virginia Corp ($PVAC) has hired Jefferies to explore a potential sale one year after emerging from bankruptcy. The current owners (here, Strategic Value Partners LLCAnchorage Capital Group LLC and Contrarian Capital Management LLC) of all of these restructuring oil and gas players are, seemingly, running for the hills creating a glut of sell-side engagements for bankers.

Private Equity. The House of Representatives just passed legislation that would loosen regulations on the private equity industry - including the need to register with the SEC. Suffice it to say, many large institutional PE investors like CalSTRS expressed opposition to the new legislation. 

THL Credit ($TCRD) has closed its third direct lending vehicle with $511mm of AUM.

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 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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