Energy (Who Can Make Sense of it All?)

This headline about sums up the effects of tax reform on energy policy: weakened incentives for solar and wind development and 1.5mm acres of the Arctic will be opened to new oil and gas development. Because there's, like, a ton of demand. But, even Bob Murray of Murray Energy Corporation isn't happy, alleging that tax reform will lead to more coal bankruptcies. Wait, we thought there was a coal bailout afoot? So confusing. Elsewhere, the Interior Department's Bureau of Land Management is delaying an Obama administration regulation that restricts harmful methane emissions from oil and gas production on federal lands. This should inure to the benefit of frackers who haven't exactly had an easy time the last few years. The debate over solar tariffs is getting faster and furious-er: NextEra Energy Inc.'s SVP, as just one example, thinks tariffs will decimate new utility-scale solar projects. Yet, curiously, congressional Republicans in Texans are conspicuously absent from the list of opponents to the tariffs, despite Texas being the 7th largest adopter of solar capacity in the US. Wait. They're voting against their constituent's interests? We could swear we've heard that recently in another context too.

News for the Week of 2/19/17

  • Capital Markets. The return of the Holdco PIK Toggle bond - a precursor to the inevitable market collapse. Or so they say.
  • Coal. Plants are closing. Looks like some votes from coal country were misplaced.
  • Dead MallsInvesting. See, e.g., this piece on Macerich. We don't typically cite to Seeking Alpha's collection of vagabonds and yahoos, but we found this particular analysis of A Malls interesting.
  • Exploration & Production17 months after filing its prepackaged bankruptcy case(s)...or was it prearranged?*t, it's been so long that we can't even remember, Samson Resources Corporation finally has a confirmed plan of reorganization. We'd be curious to see what the professional fees are as a percentage of debt ($5.6b): perhaps this should be a new in-court ratio for courts to consider as part of 327(a) review. At least we got a new term of art out of it: "the Kirkland Prepack". So, there's that (2x if you consider EFH this week, too). 
  • Nuclear powerToshiba took a beating on Westinghouse this week. And now there are whispers of bankruptcy.
  • Retail. We have a Billions-style therapist in-house who keeps using bad sex metaphors to inspire us to be more positive about retail. Ok, no we don't: last we checked none of you are paying for this newsletter and so how the hell would we afford THAT?! Still, there are some positive signs for retail: Barron's, for instance, thinks Macy's stock has fallen too far and has upside. Meanwhile, specialty women's retailer J.Jill has filed its S-1 under the JOBS Act for an IPO which either means there's one retailer bucking recent trends or - more likely - TowerBrook Capital Partners LP is looking to dump this thing before Amazon gobbles it up like it has everything else. Damn...that was cynical and negative wasn't it?  Well, we tried. 
  • Retail II. This week we learned that Warren Buffett dumped his entire position of Walmart stock ($900mm) which, as this piece notes, ain't exactly a vote of confidence in retail. Perhaps Buffett would have reconsidered had he known about "Moosejaw Madness." You read that right: this week Walmart spent $51mm to purchase Moosejaw, a Michigan-based online retailer (with about a dozen B-and-M locations). Interestingly, the business is similar to Gander Mountain which, as we covered last week, is staring down the barrel of a liquidation. Oh, and hhgregg isn't exactly instilling confidence either (yes, its publicly traded). But, in an ironic twist, Amazon is upping to 8 B-and-M book stores.
  • Retail III. This won't help mall foot traffic: frustrated by a lack of options, start-ups like Dia&Co. are looking to tackle the plus-size market (with wholly-unoriginal Birchbox-style monthly mailings). And a fresh round of funding from well-known VC Sequoia Capital will aid the effort. Speaking of Birchbox, note that the business - despite being copied by a slew of other start-ups - isn't exactly a shining tower of success; it recently took on venture debt (and rif'd staff) and now it's exploring pricier options to juice revenues.
  • Shipping. A bloodbath in China for the shipbuilders and Hanjin Shipping = toast.
  • Uber. With $500 million of delinquent taxi medallion loans, NY state regulators seized the Melrose Credit Union. #disruption 
  • WindNo holding it back

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., or Macy' 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; 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 12/11/16

  • 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:

News for the Week of 10/30/16

“It’s not like it was 30 years ago, but it’s a good mall”...

  • Athleisure - Lululemon, Nike and Under Armour had all killed it in recent years by focusing on athletic wear but the trend is in decline. Jeans may be making a comeback -- so long as they're not uber-cheesy, e.g., True Religion. Meanwhile, J.Crew recently announced a shift towards athleisure. Are they too late to the party?
  • More Under Armour. The Company reported down numbers this quarter, continuing to exhibit the effect The Sports Authority's bankruptcy has on its business. This holiday season will be make-or-break for a large number of retailers and may be watched closely by those who invest in malls...
  • "Dead Malls"This really puts the disparity between "A" malls and "dead" malls in perspective: Schuylkill Mall in Frackville Pennsylvania filed for bankruptcy this week. Anchor tenants: Bon-Ton, Dunham Sports, KMart, Hess's, and Sears. The latter three closed in the last 24 months, contributing to a "large vacancy rate."
  • Fund Raising: Oak Hill Advisors raised $2.7b for its second distressed fund while Carlyle raise $1.5b for another distressed fund. Clearly folks are prepping for increased activity.

  • Last Week: To quote renowned bankruptcy expert, Keanu Reeves Esq., "Whoa". Last week we discussed the historic Saudi Arabian debt issuance in our piece about "yield." This week, a Saudi official noted that the country's continued busted budget deficit could lead to sovereign bankruptcy within a few years.
  • Last Week Part II: That Ryan Kavenaugh dude has nine lives. It looks like Relativity Media will avoid a Chapter 22 filing (or liquidation) in light of its announced $250mm sale to some Singaporean sucker. Clearly its the Netflix streaming rights that proved compelling given the whopping ~$6mm intake on "Masterminds."
  • "Captain Obvious" Headline of the Week: "Bankruptcies in Oil Field Services are Accelerating."
  • Chart of the Week: To put this in perspective, as recently as 2010, only three states had at least a 10% wind share. Think about that in the the broader oil and gas context: this energy downturn is not just debt-related. We are looking at the broad-based beginning of a secular decline.