🔥Massive Bellyflop🔥
Leslie's Inc. ($LESL) Drowns, PJT Partners LP ($PJT) Charges, Linqto & Wellmade.
⚡️Update: Leslie’s Inc. ($LESL)⚡️
It’s summer time (cue Will Smith!) …
… pools are on our mind, and that has us thinking about our fave pool supply retailer, Leslie’s Inc. ($LESL)(“Leslie’s” or the “company”), which reported 3Q25 (ended 6/28/25) earnings on August 6, 2025.
When we last covered Leslie’s …
… it was preparing for the all-important “pool season” with a new CEO, Jason McDonnell, and had high hopes for a turnaround after several years of bellyflops operational missteps, declining sales, and collapsing margins.
In 2Q25 (ended 3/31/25), the company posted a slight miss on the top line, attributed to lower traffic and colder weather, but still met its EBITDA target. When asked what the weak revenue number said about the underlying fundamentals of the business, McDonnell proffered:
“We’ve done some work from an analytic standpoint on leveraging data tools on the weather trends that took place in January, February. We would actually, you know, we looked at it and said it actually would show that if the weather wasn’t an impact, we would have hit the center of the guide in terms of what we had in top line.”
We love a model that strips out the bad stuff and tells us everything is right on track.
Lauren Ng at Morgan Stanley proved prescient in asking, “Over the last few years, the slow start to spring did not result in pent up demand and a stronger selling season. How do you plan for a scenario in which trends maybe stay more depressed?”
Management did not respond directly to Ng’s question, but instead gave another rendition of their turnaround strategy stump speech. Leslie’s was confident enough after 2Q to reaffirm its full year guidance of $1.304–1.370b FY25 Revenue and $96–116mm Adj. EBITDA.
Which brings us to 3Q a.k.a the start of pool season. And it went over about like this:
3Q25 Revenue was $500mm, down 12% YOY, which McDonnell again attributed to bad weather and “competitive pricing dynamics that were magnified in a compressed demand period.” The weather does have meaningful impact on demand for pool products – cooler temps and rainy weather delay pool openings in northern regions where pool use and maintenance is only seasonal, and across geographies, it reduces the need for certain chemicals to combat pool problems that only occur with warmer water temperatures (e.g., algae growth). But bad weather affects the whole industry, and Leslie’s also lost share in the quarter to competitors offering lower prices.
3Q25 Adjusted EBITDA was down 26% YOY to $82mm, with margins compressed by almost 300bps. The steep decline in EBITDA is in spite of actions taken during the quarter to reduce labor hours in stores after seeing lower traffic and demand. Over the last year, Leslie’s has seen its store occupancy costs increase and has taken on new expenses to establish a new local distribution center model.
The company struggled in past years to maintain stock levels of popular, traffic-driving products like easy-to-use chlorine tablets, and then struggled with excess inventory arriving too late. Leslie’s now has a dual mandate to improve stock rates and ensure certain products are never out, while also managing down working capital used for inventory. Solving this dilemma is a core part of its turnaround strategy.
Whether due to the revamped distribution model or just declining sales, Leslie’s in-stock levels have improved while it has still reduced inventory, but this “customer convenience” has not translated into revenue or earnings.
With one quarter remaining in the year, Leslie’s cut its full year revenue and Adj. EBITDA by 9% and 48%, respectively, and is now expecting full year revenue of $1.2b and Adj. EBITDA of $55mm.
Damn. F*ck Will Smith, cue Lana Del Rey.
The company ended the quarter with $43mm of cash on hand and $218mm of revolver availability (after accounting for $20mm drawn and $12mm of outstanding standby letters of credit). Leslie’s $250mm ABL revolver (S+125-175) has a springing maturity* and is due three months inside of the term loan due March ‘28. After quarter end, Leslie’s paid down the $20mm outstanding under the revolver.
Leslie’s also has $757mm outstanding under its senior secured term loan (S+250-275) due March ’28 (the “Leslie’s TL”). The Leslie’s TL has been getting absolutely napalmed; it was down over 32% in July ‘25 (down from ~70c on the dollar to 47.5c on the dollar) and the bloodbath continued into August ‘25, with the loan continuing to spiral down an additional 10% to 42c on the dollar for the week ended August 8, 2025. The term loan comes with roughly $13.6mm in quarterly interest costs, but no further amortization payments after Leslie’s made a $25mm prepayment in December ’24.
Leverage has shot up to 13.1x gross and 12.4x net. Always one to pile on, S&P Ratings downgraded Leslie’s to CCC+ on August 8, 2025; Moody’s already rated the company Caa1 and has not issued any further downgrades following the latest earnings report. The stock market is treating Leslie’s like it’s a cadaver:
Despite having no near term maturities, performance is straight up sh*te, the Leslie’s TL is tanking, and there appears to be no end in sight to the company’s abysmal operating performance. We have to imagine the company is starting to line up its (RX) professional stack.
*Leslie’s is subject to a springing 1.0x minimum fixed charge coverage covenant, but it only applies when revolver availability is less than 10%, making the company unlikely to trip the covenant despite the sharp fall in EBITDA.
💰PJT Partners is Busy. Part II (+Moelis!)💰
With respect to last Wednesday’s edition in which we lauded PJT Partners LP ($PJT) for a strong 1H’25 …
… a loyal reader added the following:
“Re PJT… You didn’t factor in their engagement by the PREPA title III mediation team of Judge Chapman and Judge Shannon. They are earning millions in that role since March 2025.”
Good tip! Interestingly, the market doesn’t seem to care one bit about PREPA, a stellar quarter of earnings, a solid first half of the year or an accolade from your friends here at PETITION. The stock is completely flat since earnings.
You know who does care about how much money PJT makes, though? Or, to be more precise, intends to make? The official committee of unsecured creditors (“UCC”) in the Marelli Automotive Lighting USA LLC chapter 11 cases (which were filed in the District of Delaware and landed on Judge Goldblatt’s docket back in mid-June). Indeed, on August 6, 2025, the UCC — which is represented by Paul Hastings LLP as legal counsel and FTI Consulting Inc. ($FCN) as financial advisor — filed a heavily redacted objection to the Marelli debtors’ proposed retention of PJT in those cases, not because it had any beef with the need for a banker or PJT itself but because the members of the UCC think the $35mm “restructuring fee” component of PJT’s proposed fee structure is “…twice the median rate as established in both … PJT and FTI fee analyses” and is “…far in excess of market standards and is unreasonable.” Man, we’re catching some Rite-Aid 1.0 vibes on this one and we can’t wait to see what kind of haircut PJT agrees to in order to make this objection go away.
*****
While we’re on the topic of investment bankers in the RX industry, we figured we’d give some space to Moelis & Company’s ($MC) most recent earnings because, therein, the firm’s executives backed-up JPMorgan’s recent commentary about relatively depressed distressed activity (which we covered on Sunday here).
MC reported 2Q’25 revenues of $365.4mm, up 38% YoY (and representing the highest Q2 revenue for MC on record), adjusted pretax income of $64.4mm, up 194% YoY, and adjusted net income of $45.5mm ($0.53 per share), up 214% YoY. A big part of those results? You guessed it: LME. Here’s CEO Kenneth Moelis:
“…our capital structure advisory team continues to work on a steady amount of liability management engagements across a range of industries, and our investments in our creditor-side franchise are beginning to show results.”
“Investments in our creditor-side franchise,” huh? MC spent some money on some creditor-oriented bankers and a former hedge fund investor turned coverage guy and — ⚡️BAM⚡️— a few late nights in Miami and sunny mornings on the golf course later and Mr. Moelis’ juices are flowing. Except, this comment about general restructuring activity would seem to suggest that those nascent results may merely be replacing company-side revenue rather than supplementing it:
“It's — for this year, it's trended flattish to slightly down. My guess is it continues to trend slightly down. And I think part of it, by the way, is you're seeing the other side of that and the benefits in our capital markets and our M&A. So what happens in a really good market when the S&P 500 gets to 6,300, and private capital has just a tidal wave of liquidity coming into private credit is that the marginal company that would go through a liability management or restructuring gets purchased in an M&A deal or refinanced.
So I think we've always tried to put our capital markets kind of together with our restructuring business in the numbers because I do think it's sort of a choice. And I always say this, almost every CEO, everybody — every CFO I know would rather do a financing than a restructuring. And so given the opportunity and the availability of capital, I think some of it, that marginal amount that in a bad market would be reported as a restructuring or liability management revenues is now moving into capital markets or even M&A.”
This has been quite a choppy year, hasn’t it folks?
🏆Midseason Awards. Part IV (UCC Law)🏆
It’s mid-August. We’re really milking these “midseason,” lol, awards at this point. As we’ve said before: if y’all would’ve stopped filing sh*tcos, we would have gotten to this sooner. But here we are at long last with our final “midseason” accolade. For those keeping score, Kirkland & Ellis LLP (“K&E”) got the nod for company-side law firm of 1H25, while we went all in on FTI Consulting Inc. ($FCN) and PJT Partners LP ($PJT) as top financial advisor and i-banker.
Which only leaves our pick for top law firm repping official committees of unsecured creditors (“UCCs”). Admittedly, this one was much, much closer, but without further ado, here goes:
UCC Law Firm MVP of the half-year: Willkie Farr & Gallagher LLP (“Willkie”)
Again, tough decision, y'all, but ultimately, we gave the nod to Willkie on big case name recognition alone. We’ve got a massive (failed) pharmacy, a large Brazilian airline, and a big (failed) solar company for a cool $7.2b – ~14.3% of all funded debt.
And while New Rite Aid LLC (“Rite Aid”) and Sunnova Energy International, Inc. (“Sunnova”) aren’t really interesting cases — they’re either a liquidation or tantamount to one — the cash they’ll generate is every bit as green.
Indeed, if Rite Aid is any indication, the folks over at Willkie are having a grand ol’ time: for the 1.5 months between May 16 and June 30, 2025, that case yielded $1.4mm in estate-funded billings, at an average hourly rate of ~$1.4k. And we can’t imagine Brett Miller and his compadres haven’t been spending similar amounts of quality time with Sunnova and Azul S.A.*
Honorable Mention(s): McDermott Will & Emery Schulte LLP and Pachulski Stang Ziehl & Jones LLP for their very strong and respectable seven UCC reps each (albeit relatively smaller matters).
*We wish we could better understand how much Mr. Miller and Co. are making on all three mandates but, 😔, there’s only a single Willkie fee statement across all three cases as of the time of this writing.
⚡Update: Linqto Texas, LLC⚡
Recall that, back on July 7, 2025, Linqto Inc., Linqto Texas, LLC (“Linqto Texas”), and three affiliates (collectively, together with Linqto and Linqto Texas, the “debtors”) filed chapter 11 freefall cases in the Southern District of Texas (Judge Perez). You can find our initial coverage of the filing here:
We ended that prior coverage noting that, prior to the August 5, 2025 second-day hearing:
“… [t]here may be fireworks … because a coalition of Linqto shareholders has formed, engaged counsel, and is considering options, including ‘… potentially challenging the bankruptcy filing.’ And while there’s no shot the cases are dismissed, perhaps venue transfer is in the cards? Debtor Linqto Texas, LLC is the Texas hook … and it was registered in April ‘25.”
Hot damn, that’s exactly what happened. On July 16, 2025, pref and common shareholder Sapien Group USA LLC (“Sapien”) filed a motion to kick the cases on over to Delaware premised on the debtors’ shamco venue manufacturing.*
Of course, the debtors had a response, which they filed on August 4, 2025, arguing:
“The Debtors have substantial connections to Texas, including the following:
5 of the Debtors’ assets are domiciled in Texas;”
… absolutely *staggering* figure in a 13k+ customer bankruptcy …
“1,026 of the Debtors’ Customers [] reside in Texas;”
… which, um, ain’t assets of the estates …**
“One employee resides in Willis, Texas;”
… see last point ☝️ …
“76 of the Debtors’ 111 issuing companies have headquarters, offices, or operations in Texas; and”
… aka non-debtor subsidiaries …
“The Debtors maintain 2 Texas bank accounts.”
… which hold a collective ~$25.4k.
Not compelling. At all. But the debtors filed in the Southern District of Texas, and regardless of how shoe-horned into it the cases are, ain’t no sheriff there gonna give ‘em the boot. After a 1.5-hour hearing on August 5, 2025,*** Judge Perez delivered his ruling. Let’s turn it over to him:
“… in the interest of justice, the two main arguments that [are] tendered by the movant are, one, that the Delaware Court would be more suited to deal with … Delaware Court issues and, secondly, that there was a forum shopping although that they were not able to identify the reason for this forum shopping or the advantage that would be obtained by the forum shopping.”
On the first, Judge Perez got high off his own supply:
“I think that this court is perfectly capable of determining Delaware law issues if and when they arise. And that in fact, this court deals with Delaware issues all the time. And I think it's well equipped to do that.”
Easy call. Didn’t Sapien know that Alfredo Perez holds Alfredo Perez’s legal acumen in the highest regard?!
But what about forum shopping? Back to the court:
“Here, I haven't … no one has articulated a reason for the forum shopping.”
Because no one wants to say the quiet part out loud … at least in open court. But to clear it up for Judge Perez, here’s the reason:
And, well, Judge Lopez too. Debtors loooooooooove Texas because the “complex case panel,” composed entirely of those two, will bend over backwards to appease ‘em, keep filings a-comin’, and — we’re sure as sh*t this isn’t lost on anyone — steamroll the f*ck out of creditors along the way. We may have, uh, alluded to it … when (now-former) Judge Jones oh-so-deliciously embarrassed himself nearly two years ago:
“We have nooooooooooo view whatsoever on whether the Texas panel established a few years ago was in-your-face facilitation of venue shopping openly embraced by (i) an entire Circuit and district, (ii) two judges hungry for power and sick of seeing, in particular, TX-based companies taking their filings elsewhere, (iii) local lawyers hungry to steal ‘market share’ from DE and NY, and (iv) NY lawyers sick of getting pounded by judges in DE over fees. Nor do we have any view on whether all of this dramatically affected creditor rights in bankruptcy …”
Or when Fifth Circuit’s absolutely demolished his’ matter-of-vibeslaw “open market” Serta decision.
In any event, on August 6, 2025, the court entered an order summarily denying the motion, so folks are gonna continue chillin’ in Houston.****
Separately, the debtors’ docket is getting peppered with customer objections to the their attempt to use ~$19.2mm in cash generated from the disposition of shares in prior investment Ripple Labs, Inc. The debtors are looking to use it to avoid drawing on their 20%-fee-riddled DIP, but those customers aren’t so keen on getting f*cked over twice.
The argument itself is straightforward: customer money was never meant to fund the debtors’ operations and the proceeds should be held in trust. But we’ll have to wait a little while longer on that: the hearing on the ask and final approval of the DIP, which would encumber cash and other debtor securities, was booted out to August 19, 2025 at 9am CT.
Not that we don’t already know where both will land.
*Y’all creditor (or here, shareholder) lawyers *need* to drop the 28 U.S.C. § 1408(1) argument. It does you no favors. Whatever shamco the company sets up ahead of the filing strictly complies with the statute – if it’s existed for a single day, it’s been in the district “… for a longer portion of [] one-hundred-and-eighty-day[s] …” than anywhere else.
**The debtors really harped on this point, noting Texas had the third-highest number of customers after California and Florida. Which isn’t surprising considering they’re, um, the three most populous states.
***Shout-out to the lady who didn’t mute her phone and let everyone know the debtors “… did hire probably the better attorney than Sapien did,” 🤣.
****If this sounds all-too-familiar, that’s because a similar venue challenge in the Corvias Campus Living - USG LLC chapter 11 case had a similar result, with Judge Silverstein of the District of Delaware denying transfer to Georgia despite all kinds of debtor connections to the state.
💥New Chapter 11 Bankruptcy Filing - Wellmade Floor Coverings International, Inc.💥
Here’s a small-debt-but-f*cked-up bankruptcy for y’all. On August 4, 2025, Wellmade Floor Coverings International, Inc. and Wellmade Industries MFR. N.A LLC (together, the “debtors”) filed chapter 11 sale cases in the Northern District of Georgia (Judge Sigler). Founded in ‘01 by bros Ming “Allen” Chen and Zhu “George” Chen* in Nanjing, China, the debtors “… specialize[] in the design, production, and distribution of market top-line hard surface flooring collections.” Or, you know, “flooring”:
That same year, Allen popped over the Pacific to Portland, Oregon to establish a US sales office for their then-bamboo-based products, and after hovering at $2-5mm per year in business, the debtors “… landed a very high-profile, large channel retailer’s business in 2005,” which grew them to $15mm by ‘09.
![ezgif-32eed6b508df67.gif [add-text output image]](https://substackcdn.com/image/fetch/$s_!h3Nc!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fc2f7b252-044f-4914-b3f3-d4f9c87dcee7_480x270.gif "ezgif-32eed6b508df67.gif [add-text output image]")
As they continued to grow, the debtors diversified and expanded, including into stone plastic composite (“SPC”), before, in ‘15, inventing “… High-Density Polymer Composite Core (HDPC), a rigid core topped with a vinyl wearlayer,” which provides “… complete waterproofing, enhanced heat resistance, and increased density while providing superior flexibility.”
In ‘20, the debtors kicked it up another gear and constructed a state-of-the-art, 328k ft² manufacturing facility in Cartersville, Georgia, which they subsequently expanded to produce more than 200mm ft² of product a year, allowing ‘em to reduce inventory investment and increase product turnover. Today, the debtors produce ~50% of all US-made SPC flooring.
So, um, what went wrong? For that, we go to CRO and first day declarant David Baker (of Aurora Management Partners):
“On March 26, 2025, U.S. Immigration and Customs Enforcement (“ICE”), in collaboration with the FBI and the Georgia Bureau of Investigation, executed a search warrant at Wellmade. George Chen, and his nephew, Jiayi Chen, were arrested on charges for trafficking persons for labor servitude.”
He goes on:
“The FBI and ICE are investigating allegations that George Chen and Jiayi Chen engaged in labor trafficking in connection with the recruitment of Chinese residents to come to the U.S. on L-1 Visas to work for the Debtors.
A related lawsuit was filed by Chinese nationals Yu Cong Liu, Yixiang Zhang, and Can Gen Han against the Debtors alleging violations of the Trafficking Victims Protection Act, Fair Labor Standards Act, and Georgia’s Racketeer Influenced and Corrupt Organizations Act.”
Welp …
The next month, in April ‘25, the debtors’ prepetition lender Northwest Bank (“NWB”) called a covenant default on its aggregate $18mm+ term loan and revolver.**
Not that it stuck around for the aftermath. About a month later, on May 20, 2025, NWB noped the f*ck out …
… by assigning its debt to AHF IC, LLC (“AHF”), an affiliate of a “significant” customer of the debtors that has expressed (continuing) interest in owning their assets. And we believe ‘em because AHF scheduled a foreclosure sale four separate times during July and early August ‘25 before the debtors pulled the trigger on their filing.
But regardless of who it is, that’s the goal of the BK: find a buyer that wants to own this thing and close a sale. Prepetition, the debtors hired Hilco Corporate Finance, LLC (“Hilco”) to lead the charge, but “… the marketing process for the Debtors’ businesses at that time did not result in any viable transactions.” And we guess a foreclosure wasn’t good enough for the profs’ wallets.
To finance the bankruptcy, the debtors are going with SummitBridge National Investments VIII LLC (“Summit”), which is providing a priming $4mm DIP term loan. But AHF — which ain’t a financier — is signed off on that arrangement, so there ain’t gonna be any theatrics. In any event, the interim draw was initially $120k, but apparently Summit got comfortable funding the full amount during the interim period so long as the debtors designate a stalking horse and execute a DIP credit agreement. The DIP bears interest at 12% (with a 5% default rate!) and features a 2% origination fee (cash, payable on interim order), 1% underwriting fee (same), a 2% exit fee, and, in case someone else steps in to provide the final DIP, a $120k “break-up fee.”
The court held the first-day hearing on August 6, 2025, at which all requested relief was granted, and scheduled the second-day for August 21, 2025 at 10am ET. A bidding procedures motion landed on the docket on August 8, 2025, and what do you know, AHF is the proposed stalking horse.***
The debtors are represented by Greenberg Traurig LLP (John Elrod, Jake Evans, Allison McGregor) as legal counsel, Aurora Management Partners (David Baker) as financial advisor and CRO, and Hilco (Teri Stratton) as investment banker. AHF is represented by King & Spalding LLP (Austin Jowers, Christopher Coleman) as legal counsel. Summit is represented by Rountree Leitman Klein & Geer LLC (William Rountree, Will Geer, and Ceci Christy) as legal counsel.
*Allen owns 51% and George owns 49% of the debtors’ equity.
**The Chen bros guarantee NWB’s debt too. The debtors otherwise only have ~$1.0mm in prepetition trade claims.
***AHF’s bid is $40mm cash minus a credit bid of the ~$18mm in prepetition debt minus amounts needed to pay off equipment at the Cartersville facility.
📚Resources📚
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find it here💥.
📤 Notice📤
J.D. Kearney (Partner) joined Oliver Wyman from AAI Partners.
Michael Kwiatkowski (Counsel) joined Moritt Hock & Hamroff from Cullen and Dykman LLP.
🍾Congratulations to…🍾
FTI Consulting Inc. (Andrew Scruton) for securing the financial advisor mandate on behalf of the official committee of unsecured creditors in the Marelli Automotive Lighting USA LLC chapter 11 bankruptcy cases.
FTI Consulting Inc. (Narendra Ganti) and Houlihan Lokey Capital, Inc. ($HLI) (Andrew Turnbull) for securing the financial advisor and investment banker mandates on behalf of the official committee of unsecured creditors in the Genesis Healthcare, Inc. chapter 11 bankruptcy cases.
Lowenstein Sandler LLP (Eric Chafetz, Daniel Besikof, Gianfranco Finizio, Eric Seltzer) and Munsch Hardt Kopf & Harr PC (Brenda Funk) for securing the legal mandate on behalf of the official committee of unsecured creditors in the Desktop Metal Inc. chapter 11 bankruptcy cases.
Province LLC (Paul Navid) for securing the financial advisor mandate on behalf of the official committee of unsecured creditors in the Meyer Burger (Holding) Corp. chapter 11 bankruptcy cases.