Thanos Snaps, Retail Disappears👿

Long CMBX.BB6 CDS?!? Short $CBL.

⚡️Announcement⚡️

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Cracks in Malls Grow Deeper (Long Thanos, Short CMBS)

Talk of retail’s demise is so pervasive that the casual consumer may be immune to it at this point. Yeah, yeah, stores are closing and e-commerce is taking a greater share of the retail pie but what of it?

Well, it just keeps getting worse.

Consider 2019 alone. The Payless ShoeSource, Gymboree, Charlotte Russe, Shopko, and Samuels Jewelers* liquidations constitute thousands of stores evaporated from existence. It’s like Thanos came to Earth and snapped his fingers and — POOF! — a good portion of America’s sh*tty unnecessary retail dissipated into dust. Tack on bankruptcy-related closures for Things Remembered, Beauty Brands and Diesel Brands USA Inc. and you’re up to over 4,300 stores that have peaced out.

That, suffice it to say, would be horrific enough on its own. But “healthy” (read: non-bankrupt) retailers have only added to the #retailapocalypse. Newell Brands Inc. ($NWL) is closing 100 of its Yankee Candle locations to focus on “more profitable” distribution channels. Gap Inc. ($GPS) announced it is closing 230 of its more unprofitable locations and spinning Old Navy out into its own separate company — the good ol’ “good retail, bad retail” spinoff. Chico’s FAS Inc. ($CHS) is closing 250 stores. Stage Stores Inc. ($SSI) — which purchased once-bankruptcy Gordmans — is closing between 40-60 department stores. Kitchen Collection ($HBB) is closing 25-30 stores. E.L.F. Beauty ($ELF) is closing all 22 of its locations. Abercrombie & Fitch Co. ($ANF)? Yup, closing stores. Up to 40 of them. GNC Inc. ($GNC) intends to close hundreds more stores over the next three years. Foot Locker Inc. ($FL)? Despite a strong earnings report, it is closing a net 85 stores. J.C. Penney Inc. ($JCP)…well…it didn’t report strong earnings and, not-so-shockingly, it, too, is closing approximately 27 stores this year. Victoria’s Secret ($LB)? 53 stores. Signet Jewelers Ltd. ($SIG)? Mmmm hmmm…it’s been closing its Zales and Kay Jewelers stores for years and will continue to do so. As we noted on Sunday, The Children’s Place Inc. ($PLCE) also intends to close 40-45 stores this year. Build-A-Bear Workshop Inc. ($BBW) will close 30 stores over the next two years. Ascena Retail Group Inc. ($ASNA) recently reported and disclosed that it had closed 110 stores (2% of its MASSIVE footprint) in the last quarter. Even the creepy-a$$ dolls at American Girl aren’t moving off the shelves fast enough: Mattel Inc. ($MAT) indicated that it needs to rationalize its retail footprint. There’s nothing Wonder Woman — or even a nightmare-inducing American Girl version of Wonder Woman — can do to prevent all of this carnage.

As a cherry on top, EVEN FRIKKEN AMAZON INC. ($AMZN) IS CLOSING ALL 87 OF ITS POP-UP SHOPS! Alas, The Financial Times pinned the total store closure number for 2019 alone at 4,800 stores (and just wait until Pier 1 hits). Attached to that, of course, is job loss at a pretty solid clip:

All of this begs the question: if there are so many store closures, are the landlords feeling it?

In part, surprisingly, the number appears to be ‘no.’ Per the FT:

“Investors in mall debt have also shown little sign of worry. The so-called CMBX 6 index — which tracks the performance of securitised commercial property loans with a concentration in retail — is up 4.4 per cent for 2019.”

Yet, in pockets, the answer also appears to be increasingly ‘maybe?’

For example, take a look at CBL & Associates Properties Inc. ($CBL) — a REIT that has exposure to a number of the names delineated above.

On its February 8th earnings call, the company stated:

“We are pleased to deliver results in line with expectations set forth at the beginning of the year notwithstanding the challenges that materialized.”

Translation: “we are pleased to merely fall in line with rock bottom expectations given all of the challenges that materialized and could have made sh*t FAR FAR WORSE.

The company reported a 4.4% net operating income decline for the quarter and a 6% same-center net operating income decline for the year. The company is performing triage and eliminating short-term pressure: it secured a new $1.185b ‘23 secured revolver and term loan with 16 banks as part of the syndicate (nothing like spreading the risk) to refinance out unsecured debt (encumbering the majority of its ‘A Mall’ properties and priming the rest of its capital structure in the process); it completed $100mm of gross dispositions plus another $160mm in “sales” of its Cary Towne Center and Acadiana Mall; it reduced its dividend (which, for investors in REITs, is a huge slap in the face); and it also engaged in “effective management of expenses” which means that they’re taking costs out of the business to make the bottom line look prettier.

Given the current state of affairs, triage should continue to remain a focus:

“Between the bankruptcy filings of Bon-Ton and Sears, we have more than 40 anchor closures.”

“…rent loss from anchor closures as well as rent reductions and store closures related to bankrupt or struggling shop tenants is having a significant near-term impact to our income stream.”

They went on further to say:

“Bankruptcy-related store closures impacted fourth quarter mall occupancy by approximately 70 basis points or 128,000 square feet. Occupancy for the first quarter will be impacted by a few recent bankruptcy filings. Gymboree announced liquidation of their namesake brand and Crazy 8 stores. We have approximately 45 locations with 106,000 square feet closing.”

Wait. It keeps going:

We also have 13 Charlotte Russe stores that will close as part of their filing earlier this month, representing 82,000 square feet.

Earlier this week, Things Remembered filed. We anticipate closing most of their 32 locations in our portfolio comprising approximately 39,000 square feet.”

And yet occupancy is rising. The quality of the occupancy, however — on an average rental basis — is on the decline. The company indicated that new and renewal leases averaged a rent decline of 9.1%. With respect to this, the company states:

As we've seen throughout the years, certain retailers with persistent sales declines have pressured renewal spreads. We had 17 Ascena deals and 2 deals with Express this quarter that contributed 550 basis points to the overall decline on renewal leases. We anticipate negative spreads in the near term but are optimistic that the positive sales trends in 2018 will lead to improved lease negotiations with this year.

Ahhhhh…more misplaced optimism in retail (callback to this bit about Leslie Wexner). As a counter-balance, however, there is some level of realism at play here: the company reserved $15mm for losses due to store closures and co-tenancy effects on company NOI. In the meantime, it is filling in empty space with amusement attractions (e.g., Dave & Buster’s Entertainment Inc. ($PLAY), movie theaters, Dick’s Sporting Goods Inc ($DKS) locations, restaurants, office space and hotels. Sh*t…given the amount of specialty movie theaters allegedly going into all of these emptying malls, America is going to need all of those additional gyms to work off that popcorn (and diabetes). Get ready for those future First Day Declarations that delineate that, per capita, America is over-gym’d and over-theatered. It’s coming: it stretches credulity that the solution to every emptying mall is Equinox and AMC Entertainment Holdings Inc. ($AMC). But we digress.

All of these factors — the average rent decline, the empty square footage, etc. — are especially relevant considering the company’s capital structure and could, ultimately, challenge compliance with debt covenants. Net debt-to-EBITDA was 7.3x compared with 6.7x at year-end 2017. Here is the capital structure and the respective market prices (as of March 19):

The new Senior secured term loan due ‘23:

The Senior unsecured notes due ‘23:

The notes due ‘24:

The notes due ‘26:

Additionally, the company is trying to promote how flexible it is with its ability to pay down debt and invest in redevelopment properties. Here is a snippet of the company presentation that displays the debt covenants on its revolver, term loan and other unsecured recourse debt:

What is the real value of the mall assets that are left unencumbered? Recently, the Company has been slowly impairing a number of its assets and many of the Company’s tier 2 and 3 malls have yet to be revalued. If appraisers lower the value of these assets that are really supposed to be supporting the debt, what then?

And that doesn’t even take into consideration the co-tenancy clauses. As anchor tenants fall like flies, you’ll potentially see a rush to the exits as retailers with four-wall sales that don’t justify rents (and rising wages) exercise their rights.

So, given all of above, does the market share management’s (misplaced) optimism?

J.P. Morgan’s Michael W. Mueller wrote in a February 7, 2019 equity research report:

"While commentary in the earnings release noted some sequential improvement in 4Q results, we still see it being a grind for the company over the near to intermediate term."

BTIG’s James Sullivan added on February 20, 2019:

"We see no near-term solution for the owners of more marginal “B” assets like CBL & Associates. Sales productivity for such portfolios has shown little growth over the last eight quarters in contrast to the better-positioned “A” portfolios."

"The recent re-financing provides CBL with some near-term liquidity but limits future access to the mortgage market as only a small number of readily “bankable” assets remain unencumbered."

“We expect the challenging conditions in the industry to continue to create pressure on the operating metrics of mall portfolios with average sales productivity of less than $400/foot. More anchor closures are likely and in-line tenants are also likely to manage their brick-and-mortar exposure aggressively and close marginal locations. We reiterate our Sell rating and $2 price target.”

“With overall flat sales productivity in the portfolio, there is limited evidence that a turnaround in performance is likely in the next 24 months. Instead, we expect continued declines in SSNOI with negative leasing spreads and lower operating cost recovery rates.”

“CBL’s new facility which totals $1.185B is secured and replaces a series of unsecured term loans and a line of credit. Collateral includes 20 assets, of which three are Tier 1 Malls, 14 are Tier 2 Malls, and three are Associated Centers. As a result, CBL now has a much smaller number of unencumbered malls.”

“There are no unencumbered Tier 1 Malls (Sales exceeding $375/foot). There are nine unencumbered Tier 2 Malls (sales $300 -$375/foot) and those malls averaged $337/foot in 2017. The 2018 data is not available yet, but sales/foot for Tier 2 assets in 2018 declined by an average $5/foot. So assuming the law of averages applies, the average productivity of the unencumbered Tier 2 assets is $332/foot. Malls with that level of productivity cannot be financed in the CMBS market per CBL management.”

“With limited access to financing using their unencumbered malls, CBL has to look to its available capacity on its new line of credit, $265m, and projected free cash flow after paying its dividends, we estimate, of $155m in 2019 and $135m in 2020. CBL is currently estimating an annual capital requirement of $75m - $125m to redevelop closed anchor boxes. The per box range is $7m - $10m which we believe is low compared to peers whose cost per unit is closer to $17m. So CBL faces dwindling capital sources at the same time that its portfolio is suffering significant quarterly drops in SSNOI.”

Apropos, the shorts are getting aggressive on the name:

The historical stock chart is ugly AF:

Which brings us to commercial mortgage-backed securities (CMBS) — derivative instruments comprised of loans on commercial properties. Canyon Partners’ Co-Chairman and co-CEO Joshua Friedman is shorting the sh*t out of mall-focused CMBS (containing among many other things, CBL properties) via a well known CDS index: the Markit CMBX.BBB- (and lower Indices)to the tune of approximately $1b (out of $25b AUM). This is the mall-equivalent of the big short, except for commercial real estate. 🤔🤔

Here is a CMBX primer for anyone who wants to nerd out to the extreme. Choice bit:

CMBX allows investors to short CMBS credit risk across a wide array of vintages and credit ratings. Shorting individual cash bonds is difficult and rarely done, with the exception of a few very liquid names. The market for cusip level CMBS CDS used to exist, but the liquidity proved very poor and it was quickly replaced by trading of the synthetic indices.

And here is some color on what Mr. Friedman said regarding his trade:

Wowzers. Just imagine what happens to retail — including the malls — when the noise gets even louder.

*Samuels Jewelers filed chapter 11 last year but announced liquidation this year after failing to secure a buyer for its assets.

PHI is the Fourth and Latest Helicopter Company to Land in Bankruptcy (Short Bristow Group).

It’s pretty rare to see a company affected by macro factors in two industries. And, yet, Louisiana-based PHI Inc. ($PHI) and four affiliates filed for bankruptcy in the Northern District of Texas, marking the fourth bankruptcy fallout in the helicopter services space following Waypoint Leasing, Erickson Incorporated and CHC Group. The company is a leading provider of transportation services to both the oil and gas industry (including, for example, Shell Oil Company, BP America Production Company, ExxonMobil Production Co., ConocoPhillips Company, ENI Petroleum and the recently-bankrupt Fieldwood Energy) and the medical services industry. It operates 238 aircraft, 213 which are company-owned and 119 of which are dedicated to oil and gas operations and 111 of which are dedicated to medical services. The company generated $675mm in revenue in 2018 — with much of that revenue coming from fixed-term contracts.

The company strongly asserts that operational failures are not a cause of its bankruptcy — a clear cut message to the market which might otherwise be concerned about safety and reliability. The issue here, the company notes, is the balance sheet, especially a March 15 2019 maturity of the company’s $500mm in unsecured notes. Despite alleged efforts to address this maturity with the company’s (fresh out of the womb) secured term loan holder and an ad hoc group of unsecured noteholders, the company was unable to do so.

The broader issue, however, is that the industry may be ripe for consolidation. Back in 2017, the company acquired the offshore business of HNZ Group Inc. This transaction expanded the company’s capacity to more international geographies. But given the dearth of offshore oil and gas production activity of late and intense competition in the space, there might be a need for more industry-wide M&A. The company notes:

As a result of this prolonged cyclical downturn in the industry, oil and gas exploration projects have been reduced significantly by the Company’s customers. Indeed, many customers have significantly reduced the number of helicopters used for their operations and have utilized this time instead to drive major changes in their offshore businesses, which have in turn drastically reduced revenues to PHI’s O&G business segment in the Gulf of Mexico. And while the price of crude oil slowly began to recover in 2018, the volatility in the market continues to drive uncertainty and negatively impact the scope and volume of services requested from service providers such as PHI.

This is simple supply and demand:

The effect of the downturn in the oil and gas industry has been felt by nearly all companies in the helicopter service industry. The downturn created an oversaturation of helicopters in the market, significantly impacting service companies’ utilization and yields. Indeed, this domino effect on the industry has required helicopter operators, like their customers, to initiate their own cost-cutting measures, including reducing fleet size and requesting rental reductions on leased aircraft.

Had these issues been isolated to the oil and gas space, the company would not have been in as bad shape considering that 38% of its revenue is attributable to medical services. But that segment also experienced trouble on account of…:

…weather-related issues and delays, changes in labor costs, and an increase in patients covered by Medicare and Medicaid (as opposed to commercial insurers), which resulted in slower and reduced collections, given that reimbursement rates from public insurance are significantly lower than those from commercial insurers or self-pay.

Compounding matters are laws and regulations that prohibit the debtors from refusing service to patients who are unable to pay. This creates an inherently risky business model dynamic. And it hindered company efforts to sell the business line to pay down debt.

Taken together, these issues are challenging enough. Tack on $700mm of debt, the inability to refi out its maturity, AND the inability to corral lenders to agree on a consensual deleveraging (which included a failed tender offer) and you have yet another freefall helicopter bankruptcy. Now the company will leverage the bankruptcy “breathing spell” and lower voting thresholds provided by the Bankruptcy Code to come to an agreement with its lenders on a plan of reorganization.

*****

That is, if agreement can be had. Suffice it to say, things were far from consensual in the lead up to (and at) the first day hearing in the case. To point, the Delaware Trust Company as trustee for the senior unsecured notes, filed an objection to the company’s CASH MANAGEMENT motion because…well…there is no DIP Motion to object to. “Why is that,” you ask? Good question…

The debtors levered up their balance sheet in the lead-up to PHI’s well-known maturity. The debtors replaced their ABL in September with the $130mm term loan provided by Al Gonsoulin, the company’s CEO, Board Chairman and controlling shareholder. Thereafter — and by “thereafter,” we mean TWO DAYS BEFORE THE BANKRUPTCY FILING — the company layered another $70mm of secured debt onto the company, encumbering previously unencumbered aircraft and granting Mr. Gonsoulin a second lien. This is some savage balance sheet wizardry that has the effect of (a) priming the unsecured creditors and likely meaningfully affecting their recoveries and (b) securing Mr. Gonsoulin’s future with the company (and economic upside). Making matters worse, the trustee argues that the company made no real effort to shop the financing nor actively engage with the ad hoc committee of noteholders on the terms of a financing or restructuring; it doesn’t dispute, however, that the company had $70mm of availability under its indenture.

So what happened next? Over the course of a two day hearing, witnesses offered testimony about the pre-petition negotiations and financing process (or lack thereof) — again, in the context of a cash management motion. We love when sh*t gets creative! The lawyers for the company and the trustee hurled accusations and threats, the CEO was called a “patriot” (how, even if true, that is applicable to this context is anyone’s guess), and, ultimately, the judge didn’t care one iota about any of the trustee’s witness testimony and blessed the debtors’ motion subject to the company providing the trustee with weekly financial reporting. In other words, while this routine first day hearing was anything but, the result was par for the course.

Expect more fireworks as the case proceeds. Prospective counsel to the eventual official committee of unsecured creditors is salivating as we speak.


📚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 of Appearance⚡️

This week we welcome a notice of appearance from Lance Gurley, a Managing Director on Stephens’ restructuring and special situations team.

PETITION: There has been a surprising increase in recent distressed activity in the oil and gas space. News abounds about professional retentions in E&P and companies correlated to oil and gas are filing for bankruptcy (i.e., most recently, PHI Inc.). What is this attributable to and what differences do you expect to see in the next go-around of oil and gas restructurings vs. the 2014-2017 period? What more should have been done in that first wave to ensure these companies didn't ultimately end up in (or back in, as the case may be) into bankruptcy court? Or was this just a failed option play on oil prices? 

The return of restructuring work in the energy sector is, broadly speaking, tied to companies that either (a) harbored denial about the need to restructure when the market turned a few years ago, or (b) restructured poorly the first time. In the first category, a lot of bondholders have learned to be comfortable with coupon clipping as they see Boards/CEOs continue to burn their furniture hoping for a recovery on the other side and preserved equity value. These companies tend to fall somewhere between hope as a strategy and outright recalcitrance.  Neither are great ways to run an enterprise with funded debt. But it’s difficult to get a board to understand that when their continued role depends on them not understanding it. In the second category, some companies restructured around a more aggressive (drilling dependent) business plan than some industry professionals saw as reasonable at the time, and never really fixed their strategy. They are more representative of the real issue in the market: many of these companies (and their new owners) had an imperfect understanding of what the market would reward in this new normal pricing environment — that cash flow is king. Just ask the average ‘back a management team’ PE investor how offloading that development play is going. Not a great time to be selling a development acreage in the supposed “core” of a new resource play.

PETITION: You're based in Texas. A significant amount of healthcare action has taken place down there. What do you make of all of the filings we're seeing in the continuing care retirement community and other specialty healthcare provider segments (e.g., behavioral health, etc.)?

Bad business models, frankly. The SQLC/Seniority filings were a great example of that: I’ve never been a fan of healthcare models that require elderly patients to, um, “move out”, in order to make way for a new dues paying member. The financial viability of the CCRC companies and the wellbeing of their patients/tenants seem to be in conflict. I’m not a healthcare professional, but playing real estate roulette with geriatric care in the balance is not an endeavor I could see working well for anyone involved (save for perhaps healthcare professionals?).

PETITION: Your firm is a middle-market oriented investment bank. What are some things you're seeing that are specific to the middle market space that give you the sense that distressed activity might pick up there? Or, alternatively, do you see a system awash with capital sparing the middle market from some needed fixes? 

The middle market as we define it — $250mm to $2.5bn — seems to be turning towards malaise. More and more of the equities my research colleagues cover are trading under half of their 52-week highs; my capital markets colleagues are hearing major accounts talk of less and less deals in the market, etc. Does that mean we should all batten down the hatches for a bankruptcy bonanza? That would be wishful thinking.

Practically, that means we are using restructuring technology to solve issues a long way from the courthouse. We are seeing a deluge of liability management work, nipping and tucking balance sheets to fight for another day. Some companies will recover and some will not, but until we have a meaningful catalyst (Interest rates? Recession? Vaping finally being declared bad for your health?), it’s unlikely to be the distressed wave we experienced in the last cycle. 

PETITION: We received a lot of feedback to our note in "Sears = Drama Queen. PLCE = Future Seer" wherein we noted "most of the retail chapter 22s we’ve seen have come about specifically because the restructuring were not, particularly, holistic. Similarly, we’ll see what happens in the oil and gas space: in many instances there, financial advisors weren’t even retained and in some where financial advisors were retained, the retention was for bankruptcy reporting purposes only." Where do you come out in this debate? In your view, have chapter 11 filings over the last few years accomplished all that they could in a holistic way or have they left issues lingering that should have been resolved?

I agree that many restructurings have not been as holistic as they could’ve been. Bankers and lawyers are driving deals with an intense focus on the balance sheet, and that’s healthy, but that’s left fundamental problems unsolved in many instances. Ch. 11 is a tool that can be transformative if it’s allowed to be but creditors and management teams are loathe to take their medicine on strategy when they are already justifying significant impairments to the balance sheet (especially if those strategy shifts result in further losses). That said, it’s tremendously challenging to enact change through Ch. 11 on the fly and without significant pre-planning — it’s not only too expensive, it’s too risky (like my grandfather used to say, “don’t try to clean a wood-chipper if it’s plugged in.”). If a debtor needs to reject a contract in order to implement a strategy shift, the debtor and plan support parties would be wise to put that in motion long before finding themselves past the bright line of a petition date.

At some point however, restructuring professionals have to rely on management teams that get MIPs to run companies well actually running companies well.

PETITION: Finally, for our younger readers, what book have you read that has guided you most in your career? 

The books that have “guided” me are all boring, so I’ll answer perhaps what has been most influential. Someone gave me a copy of “Barbarians at the Gate” when I was an undergrad and it opened up this crazy world we work in to me. I’d highly recommend it. But I tell young people coming to work for us to read Andrew Ross Sorkin’s “Too Big to Fail.” The financial crisis was so meaningful to so many of us, I can’t imagine starting a career that interacts with the markets and not appreciating it fully.


Nothing in this email is intended to serve as financial or legal advice. Do your own research, you lazy rascals.

F(+W)'d. Sears Strikes Back.

F+W Media Files for Bankruptcy; Sears Calls Out Eddie Lampert

🍿Sears = The Gift That Just Keeps Oooooon Giving🍿

Oh, Sears. We just can’t quit you.

On Sunday in “Sears is Such a Drama Queen (Long Contract Interpretation Issues),” we discussed how — SHOCKER!! — there are already problems brewing between Transform Holdco (ESL’s buyer entity) and the debtors’ estate (the seller). Transform Holdco delineated a laundry list of beefs it had with the estate and filed a motion seeking mediation — a thoughtful strategy given that White Plains already foreshadowed how it might come out on any APA interpretation issues. Knowing full well that we were only getting one side of the story — and Eddie Lampert being Eddie Lampert — we hedged a bit:

Given all of the evidence pointing towards administrative insolvency to begin with, any obstreperousness on the part of the sellers (if true, as alleged) is wildly counter-productive: again, the estate is more likely than not administratively insolvent!! It would seem, then, that mediation would be a no brainer (though we reserve judgment for when the sellers respond — which we’re sure will be an entertaining dig at how much they think Lampert is retrading on certain parts of the deal…time to ramp up those PR machines again!!).

Now was that an easy call or was that an easy call?

On Monday night, the debtors responded with a motion to enforce the APA (and the automatic stay) and compel turnover of estate property — the main crux of which is the debtors allegation that Transform Holdco is in breach “by refusing to deliver $57.5 million that are the property of the Debtors….” They allege:

The Buyer’s request for mediation is nothing more than an attempt to delay turning Estate property over to the Debtors by conflating unrelated post-closing disputes (to which the Debtors have fully responded) with the Buyer’s refusal to deliver $57.5 million that plainly belongs to the Debtors per the APA, despite the Debtors’ repeated demands.

And jab:

…the Buyer is well aware of the extent to which the Debtors have limited resources to engage in protracted litigation. The $57.5 million in funds improperly retained by the Buyer are critical to maintaining administrative solvency and the Buyer is jeopardizing the Debtors’ ability to timely file a chapter 11 plan by withholding these funds. Rather than simply turn over the Estate assets, or seek guidance from this Court (which is intimately familiar with the APA and its terms), the Buyer instead conflates its obligation to turn over Estate property with a litany of unsubstantiated claims of misrepresentations and breaches by the Debtors, and requests a mediation that would, at best, delay resolution of any of these issues by more than a month.

And jab, cross:

…if there is a dispute, the Debtors would prefer to keep these issues front and center with this Court, which is most familiar with the APA and the issues facing the Debtors and their Estates, as well as the dynamics currently affecting the Estates. The Motion to Mediate should be seen for what it is: the Buyer’s transparent attempt to delay the transfer of Estate assets to gain leverage in its ongoing effort to sidestep the liabilities which Buyer assumed under the APA, including the $166 million in assumed accounts payable that this Court previously indicated the Buyer would be very unlikely to avoid.

There it is: the ever-controversial $166mm in assumed accounts payable. Can someone please pass the butter for our popcorn?

Is there any wonder that the estate would like to keep any and all disputes in White Plains? The judge’s fingerprints are all over this deal; he’s incentivized to make sure that it proceeds without dispute, that a plan of reorganization gets filed, and that creditors get some sort of shot at a recovery — a shot that diminishes each day given the magnitude of fees that are accumulating in this case. Case and point:

Still, we can’t help but to question certain of the Debtors’ decisions here. This bit was…imprudent…maybe?:

Prior to the time of Closing, the Buyer advised that it had not done the work necessary to implement its own cash management system or to set up its own bank accounts. Meghji Decl. at ¶ 6. As a concession to the Buyer—in order to alleviate the risk to Closing and in an effort to help facilitate a seamless transition of the going-concern business in the interests of, among others, the Debtors’ employees and key stakeholders—the Debtors agreed to give the Buyer possession and control of the Debtors’ cash management system, including its bank accounts as of the Closing Date. Id. ¶ 7.

What is that old cliche about possession and the law? And that one about the road to hell being paved with good intentions? How is it that ESL hadn’t done the work necessary to set up bank accounts? HE HAD TEN FRIKKEN YEARS.

Anyway, to be fair to the debtors, they thought they had contracted around the issue, putting into place a protocol for the repayment of pre-closing-accrued funds that landed in the cash management account post-closing. Nevertheless, apparently ESL and their financial advisors, E&Y, be like:

And so money is apparently due and owing on both sides and the debtors want their money and ESL wants clarification on certain liabilities and trust has apparently broken down in the process. ESL — knowing that Judge Drain will be none-too-pleased — wants a mediator and all the while cash registers are ringing and the estate becomes more and more administratively insolvent.

Like we said on Sunday, “Like…does ANYTHING ever go easy for Sears?


📃F+W Media Inc Attempted to Combat Disruption. It Lost. (Short “Community”?)📃

WAAAAAAY back in September 2018, we highlighted in our Members’-only piece, “Online Education & ‘Community’ (Long Helen Mirren),” that esteemed author and professor Clayton Christensen was bullish about the growth of online education and bearish about colleges and universities in the US. We also wrote that Masterclass, a SF-based online education platform that gives students “access” to lessons from the likes of Helen Mirren (acting), Malcolm Gladwell (writing) and Ken Burns (documentary film making) had just raised $80mm in Series D financing, bringing its total fundraising to $160mm. Online education is growing, we noted, comporting nicely with Christensen’s thesis.

But we didn’t stop there. We counter-punched by noting the following:

Yet, not all online educational tools are killing it. Take F+W Media Inc., for instance. F+W is a New York-based private equity owned content and e-commerce company; it publishes magazines, books, digital products like e-books and e-magazines, produces online video, offers online education, and operates a variety of e-commerce channels that support the various subject matters it specializes in, e.g., arts & crafts, antiques & collectibles, and writing. Writer’s Digest is perhaps its best known product. Aspiring writers can go there for online and other resources to learn how to write.

For the last several years F+W has endeavored to shift from its legacy print business to a more digital operation; it is also beginning to show cracks. Back in January, the company’s CEO, COO and CTO left the company. A media and publishing team from FTI Consulting Inc. ($FTI) is (or at least was) embedded with new management. The company has been selling non-core assets (most recently World Tea Media). Its $125mm 6.5% first lien term loan due June 2019 was recently bid at 63 cents on the dollar (with a yield-to-worst of 74.8% — yields are inversely proportional to price), demonstrating, to put it simply, a market view that the company may not be able to pay the loan (or refinance the loan at or below the current economics) when it comes due.

Unlike MasterClass and Udacity and others, F+W didn’t start as an all-digital enterprise. The shift from a legacy print media business to a digital business is a time-consuming and costly one. Old management got that process started; new management will need to see it through, managing the company’s debt in the process. If the capital markets become less favorable and/or the business doesn’t show that the turnaround can result in meaningful revenue, the company could be F(+W)’d. (emphasis added)

Nailed it.

On March 10, 2019, F+W Media Inc., a multi-media company owning and operating print and digital media platforms, filed for chapter 11 bankruptcy in the District of Delaware along with several affiliated entities. We previously highlighted Writer’s Digest, but the company’s most successful revenue streams are its “Crafts Community” ($32.5mm of revenue in 2018) and “Artist’s Network” ($.8.7mm of revenue in 2018); it also has a book publishing business that generated $22mm in 2018. In terms of “master classes,” the bankruptcy papers provide an intimate look into just how truly difficult it is to transform a legacy print business into a digital multi-media business.

The numbers are brutal. The company notes that:

“In the years since 2015 alone, the Company’s subscribers have decreased from approximately 33.4 million to 21.5 million and the Company’s advertising revenue has decreased from $20.7 million to $13.7 million.”

This, ladies and gentlemen, reflects in concrete numbers, what many in media these days have been highlighting about the ad-based media model. The company continues:

Over the past decade, the market for subscription print periodicals of all kinds, including those published by the Company, has been in decline as an increasing amount of content has become available electronically at little or no cost to readers. In an attempt to combat this decline, the Company began looking for new sources of revenue growth and market space for its enthusiast brands. On or around 2008, the Company decided to shift its focus to e-commerce upon the belief that its enthusiast customers would purchase items from the Company related to their passions besides periodicals, such as craft and writing supplies. With its large library of niche information for its hobbyist customers, the Company believed it was well-positioned to make this transition.

What’s interesting is that, rather than monetize their “Communities” directly, the company sought to pursue an expensive merchandising strategy that required a significant amount of upfront investment. The company writes:

In connection with this new approach, the Company took on various additional obligations across its distribution channel, including purchasing the merchandise it would sell online, storing merchandise in leased warehouses, marketing merchandise on websites, fulfilling orders, and responding to customer service inquiries. Unfortunately, these additional obligations came at a tremendous cost to the Company, both in terms of monetary loss and the deterioration of customer relationships.

In other words, rather than compete as a media company that would serve (and monetize) its various niche audiences, the company apparently sought to use its media as a marketing arm for physical products — in essence, competing with the likes of Amazon Inc. ($AMZN), Walmart Inc. ($WMT) and other specialty hobbyist retailers. As if that wasn’t challenging enough, the company’s execution apparently sucked sh*t:

As a consequence of this shift in strategic approach, the Company was required to enter into various technology contracts which increased capital expenditures by 385% in 2017 alone. And, because the Company had ventured into fields in which it lacked expertise, it soon realized that the technology used on the Company’s websites was unnecessary or flawed, resulting in customer service issues that significantly damaged the Company’s reputation and relationship with its customers. By example, in 2018 in the crafts business alone, the Company spent approximately $6 million on its efforts to sell craft ecommerce and generated only $3 million in revenue.

Last we checked, spending $2 to make $1 isn’t good business. Well, unless you’re Uber or Lyft, we suppose. But those are transformative visionary companies (or so the narrative goes). Here? We’re talking about arts and crafts. 🙈

As if that cash burn wasn’t bad enough, in 2013 the company entered into a $135mm secured credit facility ($125mm TL; $10mm RCF) to fund its operations. By 2017, the company owed $99mm in debt and was in default of certain covenants (remember those?) under the facility. Luckily, it had some forgiving lenders. And by “forgiving,” we mean lenders who were willing to equitize the loan, reduce the company’s indebtedness by $100mm and issue a new amended and restated credit facility of $35mm (as well as provide a new $15mm tranche) — all in exchange for a mere 97% of the company’s equity (and some nice fees, we imagine). Savage!

As if the spend $2 to make $1 thing wasn’t enough to exhibit that management wasn’t, uh, “managing” so well, there’s this:

The Company utilized its improved liquidity position as a result of the Restructuring to continue its efforts to evolve from a legacy print business to an e-commerce business. However, largely as a result of mismanagement, the Company exhausted the entire $15 million of the new funding it received in the six (6) months following the Restructuring. In those six (6) months, the Company’s management dramatically increased spending on technology contracts, merchandise to store in warehouses, and staffing while the Company was faltering and revenue was declining. The Company’s decision to focus on e-commerce and deemphasize print and digital publishing accelerated the decline of the Company’s publishing business, and the resources spent on technology hurt the Company’s viability because the technology was flawed and customers often had issues with the websites.

What happened next? Well, management paid themselves millions upon millions of dollars in bonuses! Ok, no, just kidding but ask yourself: would you have really been surprised if that were so?? Instead, apparently the board of directors awoke from a long slumber and decided to FINALLY sh*tcan the management team. The board brought in a new CEO and hired FTI Consulting Inc. ($FTI) to help right the ship. They quickly discovered that the e-commerce channel was sinking the business (PETITION Note: this is precisely why many small startup businesses build their e-commerce platforms on top of the likes of Shopify Inc. ($SHOP) — to avoid precisely the e-commerce startup costs and issues F+W experienced here.).

Here is where you insert the standard operational restructuring playbook. Someone built out a 13-week cash flow model and it showed that the company was bleeding cash. Therefore, people got fired and certain discreet assets got sold. The lenders, of course, took some of those sale proceeds to setoff some of their debt. The company then refreshed the 13-week cash flow model and…lo and behold…it was still effed! Why? It still carried product inventory and had to pay for storage, it was paying for more lease space than it needed, and its migration of e-commerce to partnerships with third party vendors, while profitable, didn’t have meaningful enough margin (particularly after factoring in marketing expenses). So:

Realizing that periodic asset sales are not a long-term operational solution, the Company’s board requested alternative strategies for 2019, ranging from a full liquidation to selling a significant portion of the Company’s assets to help stabilize operations. Ultimately, the Company determined that the only viable alternative, which would allow it to survive while providing relief from its obligations, was to pursue a sale transaction within the context of a chapter 11 filing.

Greenhill & Co. Inc. ($GHL) is advising the company with respect to a sale of the book publishing business. FTI is handling the sale of the company’s Communities business. The company hopes both processes are consummated by the end of May and middle of June, respectively. The company secured an $8mm DIP credit facility to fund the cases.

And that DIP ended up being the source of some controversy at the First Day hearing. Yesterday morning, Judge Gross reportedly rebuked the lenders for seeking a 20% closing fee on the $8mm DIP; he suggested 10%. Per The Wall Street Journal:

Judge Gross said he didn’t want to play “chicken” with the lenders, but that he didn’t believe they should use the bankruptcy financing to recoup what they were owed before the chapter 11 filing.

Wow. Finally some activist push-back on excessive bankruptcy fees! Better late than never.


Not a Member yet? To get access to our (occasional) Wednesday and (every) Sunday Members’-only briefings, you must become one. Do so here:

Subscribe now


📚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💥.


💰New Opportunities💰

Conway MacKenzie is seeking senior-level professionals as part of a significant expansion of their Houston office. 

In addition to Restructuring candidates, they are seeking senior level practice leaders and support staff specializing in Transaction Advisory Services and Litigation Support Services.  Applicants are required to have 10+ years of relevant experience.  Strong preference will be given to those with Big Four and international consulting firm backgrounds.   Relocation packages for those from other markets will be considered.

Qualifying individuals should submit an experience summary to: nklein@conwaymackenzie.com.

*****

PETITION LLC, in conjunction with the one-year anniversary of our Membership launch, is looking to expand the team. Specifically, we are looking for a Chief Strategy Officer (or other commensurate title) to help take PETITION to the next level. The right candidate must be entrepreneurial, commercial, creative and, frankly, not too “corporate.” She/he must be willing to get her/his hands dirty in all aspects of the company, including, first and foremost, leading new strategic initiatives, but also engaging in sales, research/production, administration, etc. We will look at all candidates but financial advisory, legal, and/or journalism experience is preferred. Current Members will also get first look (logically, Members have a much better sense of what we write about and what we stand for). Email us at petition@petition11.com and write “PETITION CSO” in the subject line.


Nothing in this email is intended to serve as financial or legal advice. Do your own research, you lazy rascals.

⛽️Is Oil & Gas Distress Back?⛽️

Alta Mesa, Diesel Jeans, Purdue Pharma & Feedback

Oil and Gas Faces Headwinds Again (Long Flights to TX).

Restructuring in the oil and gas space has been quiet of late but we here at PETITION suspect that may change very soon. While oil has been on the rise (in the mid-60s at the time of this writing) — and there are both potential political and supply-side roadblocks growing domestically that may help push prices upward — there nevertheless appear to be cracks forming. We’ve already noted that Jones Energy ($JONE), Sanchez Energy Corporation ($SN), Southcross Energy Partners LP ($SXEE), and Vanguard Natural Resources all look distressed and headed towards chapter 11 bankruptcy filings (or a chapter 22 filing, as the case may be with Vanguard). Recent price action for several other companies also reflects some doubt about the oil and gas space.

Take, for instance, Alta Mesa Holdings LP ($AMR). Per The Houston Chronicle:

Houston oil and gas company Alta Mesa Resources is struggling to stay afloat, laying off roughly one-fourth of its employees and writing down the value of its assets by $3.1 billion because of admitted failures in its financial reporting.

The company's three top executives, CEO Hal Chappelle, Chief Operating Officer Michael Ellis and Chief Financial Officer Michael McCabe, resigned abruptly a few weeks ago.

The company disclosed in an SEC filing that the write-down stems from “ineffective internal control over financial reporting due to an identified material weakness.” We’re conjecturing here, but that sure sounds like diplomatic Texan for “we effed up pretty badly…perhaps even fraudulently.” Consequently, the plaintiffs’ lawyers are circling this puppy like vultures and, well, this:

Indeed, the bonds are getting “smoked.” The company’s $500mm 7.875% senior unsecured bonds due 2024 dipped down over 40% in a week and approximately 50% versus a month ago. This chart is BRUTAL:

We’ll take a deeper dive into Alta Mesa soon for our Members: if you’re not a Member well, we hope you revel in ignorance.

In the meantime, take a look at the price action of once-bankrupt Chaparral Energy Inc. ($CHAP): in the last week it saw its stock collapse over 20% and its $300mm 8.75% senior unsecured notes due 2023 fall nearly 17%. More debt chart BRUTALITY here:

Now, we’re not saying either of these companies are filing for BK next week. But, we are saying they are, at a minimum, ripe for some advising.

Long trips to Texas.

*****

Meanwhile, last week Weatherly Oil & Gas LLC, an oil and gas acquisition and exploration company focused on Arkansas, Louisiana and Texas filed for bankruptcy in the Southern District of Texas; it operates over 800 well bores (over half shut-in or non-producing) on 200k net acres. The company blames continued low commodity prices and fundamentally changed lending practices for its bankruptcy. Specifically, the company notes:

Lending practices moved from a reserves-based approach to a cash-flow based approach, limiting access to capital growth and forcing the Debtor to utilize free cash flow to pay down senior debt instead of making other capital expenditures.

In other words: banks have finally gotten smarter and no longer defer to wildcats as much as they used to. It’s amazing what dozens of bankruptcies and billions of lost dollars over a commodity downturn will do isn’t it? Anyway, without capital and with an expensive production focus, the company struggled in the face of a glut of competition.

The company has a transaction support agreement pursuant to which it intends to sell its assets to multiple purchasers and then pursue a plan of liquidation. Angelo Gordon Energy Servicer LLC, the company’s pre-petition lender, will provide a $1mm DIP to fund the cases (asset sale proceeds will also apply towards funding the cases).

This was the first E&P filing in a while. It won’t be the last.


Diesel USA Inc. Files for Bankruptcy (Short Misplaced Self-Image)

Three things immediately occurred to us when we saw the news that Diesel USA Inc. filed for bankruptcy in the District of Delaware:

  1. That makes perfect sense — Jersey Shore went off the air a long time ago;

  2. This is “The Mattress Firm Effect” in action — a retailer using a quick trip in bankruptcy to, on an expedited basis, flush out some burdensome leases and otherwise leave parties in interest unimpaired; and

  3. More surprising than the company filing for bankruptcy is the law firm filing it for bankruptcy. Arent Fox LLP, while a fine firm for sure, isn’t exactly known for its debtor-side chops. Just saying.

The numbers around this one are…well…interesting. The company’s brick-and-mortar retail operations consist of 28 retail store locations in 11 states, comprised of 17 full-price retail stores and 11 factory outlet stores. Net sales were:

  • In 2014: $83mm for full-price retail and $42mm for outlet (Total: $125mm); and

  • In 2018: $38mm for full-price retail and $34.5mm for outlet (Total: $72.5mm).

In terms of percentages:

  • In 2014: brick and mortar represented 64% of net sales; and

  • In 2018: brick and mortar represented 70% of net sales.

We see a couple of significant problems here.

Despite the superlatives that the company’s CRO generously uses to describe the company, i.e., “cutting-edge,” and “cultural icon,” the numbers reflect a BRAND — let alone the business — in significant trouble. Sure, net sales are down generally, but the distribution has gotten wildly askew. The numbers reflect a bare reality: Diesel simply isn't a brand people will pay full price for anymore. This couldn’t be more stark. And that’s a big problem when the company is (or was) party to expensive height-of-the-real-estate-market leases in prime locations like Manhattan’s Fifth Avenue. Diesel, quite simply, isn’t “Fifth Avenue,” let alone “Madison Avenue.”* We’re not convinced the company is being realistic when it says that it has “retained a loyal customer base.” The numbers plainly say otherwise. Moreover, in an age where digital sales are increasingly more important, the business has become MORE dependent on brick-and-mortar as opposed to its wholesale and e-commerce channels.**

But don’t take our word for it. Here’s the company’s CRO:

…in 2015 prior management implemented a strategic initiative that was focused on repositioning Diesel stores and products in premium locations and with premium customers so as to place them side-by-side with other premium fashion brands across the retail, online, and wholesale platforms. Unfortunately, since its implementation, the Debtor’s net sales have significantly decreased while its losses have significantly increased.

The market has spoken: Diesel is, according to the market, simply not “premium.”

And by “market” we also mean wholesalers. The company opted to stop distributing its products to wholesale partners “that were deemed not to fit the premium image.” Now, we can only imagine that included discount retailers. Basically, SOME OF THE RETAILERS WHO HAVE PERFORMED THE BEST OVER THE LAST SEVERAL YEARS. But wait: it gets even worse: the wholesale customers the company DID retain pursued voluminous “chargebacks.” Per the company:

As is common in the retail industry, the Debtor provides certain customers with allowances for markdowns, returns, damages, discounts, and cooperative marketing programs (collectively, the “Chargebacks”). If the Debtor’s customers fail to sell the Debtor’s products, they generally have the right to return the goods at cost or issue Chargebacks, which are netted against the Debtor’s accounts receivable. Due to mounting Chargebacks from wholesale customers, the Debtor was forced to significantly reduce its wholesale activities in recent years.

Basically, nobody is buying this sh*t. Not in stores. Not in wholesale.

And, yet, the company holds premium leases:

The primary means of implementing the 2015 strategy was to reposition the Debtor’s full-price retail and outlet stores to “premium”, high-profile, and high-visibility locations, which was executed by opening certain new stores and relocating others to “premium” locations while closing others deemed not to fit the new strategic positioning model. The result was, despite the losses suffered in connection with the Fifth Avenue store, management’s negotiation and entry into several expensive, long-term leases for certain of the Debtor’s retail locations, such as the Debtor’s “Flagship” store on Madison Avenue, which do not expire by their terms until 2024-2026. Of course, it was then (and remains today) an inopportune time to make long-term commitments to costly retail leases and the significantly increased lease expenses have not been offset by increased sales, which, in fact, have dropped precipitously.

…numerous of the Debtor’s stores are producing heavy losses. The Debtor’s unprofitable stores combined to produce negative EBITDA of approximately $10.7 million in 2018, nearly all of which flowed from full-price retail stores. The Debtor’s profitable stores are not enough to off-set the losses, as the 17 fullprice stores combined to produce negative EBITDA of approximately $8.7 million in 2018.

Now, the company does indicate that certain (seemingly outlet) stores remain profitable, as do the wholesale and e-commerce operations.*** So, there’s that. New management is in place and their plan includes (a) using the BK to negotiate with landlords, shutter some locations, shutter and relocate others, opening new smaller stores and refit existing locations; (b) deploying influencer marketing generally and aiming more efforts towards females (and hoping and praying that athleisure — a term we didn’t see ONCE in the entire first day declaration — doesn’t continue to hold sway and steer people away from jeans, generally);**** (c) growing e-commerce; and (d) revitalizing the wholesale business with key selective wholesale partners. This plan is meant to take hold in the next three years and “will require significant capital investments.” (PETITION Note: cue the chapter 22 preparation). The company intends to effectuate its new business plan via a plan of reorganization pursuant to which it will reject certain executory contracts. All in, the company hopes to be confirmed in roughly 5 weeks. Aggressive! But, like Mattress Firm, trade creditors are “current” and there’s no debt otherwise, so the schedule isn’t entirely out of the realm of possibility.

But this is the part that REALLY gets us. If you’ve been reading PETITION long enough — particularly our “We Have a Feasibility Problem” series — you know by now that you ought to be AWFULLY SKEPTICAL of management team’s rosy projections. Per the company:

The Debtor’s projections indicate that the Reorganization Business Plan will return the Debtor to stand-alone profitability by 2021 assuming successful store closures through this Chapter 11 Case, thereby ensuring its ability to continue operating as a going-concern, saving over 300 jobs, and creating new ones through the new store openings.

Generally, we’ll take the under. Though, we have to say: at least they’re not audaciously projecting a miraculous profit in 2019.

How will they achieve all of these lofty goals? The company’s foreign parent will invest $36mm over the three-year period of the business plan because…well…why the hell not? Everyone loves a Hail Mary.

*The company suffered from an ill-advised and poorly-timed real estate spending spree. Between 2008 and 2015, right as brick-and-mortar really started to decline and e-commerce expand, the company expended $90mm on leases. As for Fifth Avenue, per the company, “the Debtor’s store on Fifth Avenue in Manhattan, which opened in 2008 and closed in 2014, by itself received approximately $18 million in capital expenditures during its tenure while generating substantial losses.
**The company doesn’t appear to have put much into its e-commerce growth. While e-commerce now represents 12% of net sales, sales are only incrementally higher in absolute numbers (from $8mm in 2014 to $12mm in 2018). The wholesale channel, on the other hand, has gone in the opposite direction. Net sales went from $61mm (2014) to $19mm (2018) and now represent only 19% of net sales (down from 32%).
***It seems, though, that outlet stores, wholesale and e-commerce resulted in negative $2mm EBITDA if the math from the above quote is correct. Curious.
****Score for Facebook Inc. ($FB)!

Purdue Pharma Inches Closer to Bankruptcy (Long Opioid-Related BK Activity).

Back in August 2018 in “Opioids (Long Legal Risk),” we wrote:

We’d been watching the news surrounding opioids — particularly that about a wave of lawsuits that have been pouring in — and have wondered: “at what point do the restructuring professionals get put on notice given the litigation risk and attendant liability?” 

We then wrote about how Purdue Pharma looked like a prime candidate for bankruptcy. The manufacturer of Oxycontin is generating more and more press these days.

Earlier this week both Reuters and The Wall Street Journal reported that the pharmaceutical company hired AlixPartners to complement its earlier hire of Davis Polk & Wardwell LLP and is prepping for chapter 11 bankruptcy (PJT Partners is also involved). FA pitches were roughly two weeks ago. The company confronts serious opioid-related liability, besieged all across the country by lawsuits that, for the most part, allege misleading sales practices. This piece — also from earlier this week — notes the company’s tactics in Massachusetts trying to dismiss lawsuits against it.

Why is a bankruptcy becoming more likely? Well, for starters, because restructuring professionals apparently can’t keep their mouths shut. But also, note this passage from a recent New York Times article about the epidemic of opioid-related lawsuits:

The defendants want a global settlement — a comprehensive agreement that will indemnify them against further lawsuits. The multidistrict litigation, with all the federal cases, is positioned for that goal.

But to achieve it, Judge Polster needs cooperation from state courts. There are about 332 other cases that have been filed in state courts. Coordinating data sharing between the state and federal cases is a feat unto itself. Indeed with Purdue documents from the federal litigation, Massachusetts has moved ahead with its own case; over Purdue’s objections, the Massachusetts judge has made public far more than Judge Polster has.

So there’s an ongoing baroque court dance between Judge Polster and the states. He cannot be perceived as a big-footer. The state judges must be seen as independent. And yet Judge Polster needs cooperation from the states to achieve that global settlement.

Seems to us that one court with jurisdiction — say, we don’t know, A BANKRUPTCY COURT! — might be the best way to accomplish this (let alone a channeling injunction of all claims).

But the benefit of bankruptcy may also extend to creditors. Per The Wall Street Journal:

In late 2018, information shared with parties in the multidistrict litigation revealed that Purdue’s assets may not be enough to resolve the company’s potential liability, in part because most of its profits had been regularly transferred to members of the company’s controlling family, the Sacklers, according to people familiar with the matter. Sackler family members still own the company through trusts and for years controlled its board of directors and held senior management positions.

This could be a juicy mandate for both an unsecured creditors committee and a tort plaintiffs committee. Let the bankruptcy dollars flow!!

And not just for Purdue Pharma…


📚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💥.


⚡️Feedback⚡️

Relating to last Wednesday’s segment entitled “We (STILL) Have a Feasibility Problem (Long the “Two-Year Rule”)” about Payless ShoeSource’s unfortunate second rendezvous with bankruptcy, one biglaw associate wrote in:

Your fee listing from Payless look[s] like estate professionals only.  Don’t forget about the litany of RSA parties that got paid their fees including success fees. 

And “Silly Rabbit” (@SillyRa90277261) from the Twittersphere wrote us:

While we DID drop a footnote acknowledging that we were merely providing a snapshot of the extent of fees in that case, both commenters have fair points.


💰New Opportunities💰

Conway MacKenzie is seeking senior-level professionals as part of a significant expansion of their Houston office. 

In addition to Restructuring candidates, they are seeking senior level practice leaders and support staff specializing in Transaction Advisory Services and Litigation Support Services.  Applicants are required to have 10+ years of relevant experience.  Strong preference will be given to those with Big Four and international consulting firm backgrounds.   Relocation packages for those from other markets will be considered.

Qualifying individuals should submit an experience summary to: nklein@conwaymackenzie.com.

*****

PETITION LLC, in conjunction with the one-year anniversary of our Membership launch, is looking to expand the team. Specifically, we are looking for a Chief Strategy Officer (or other commensurate title) to help take PETITION to the next level. The right candidate must be entrepreneurial, commercial, creative and, frankly, not too “corporate.” She/he must be willing to get her/his hands dirty in all aspects of the company, including, first and foremost, leading new strategic initiatives, but also engaging in sales, research/production, administration, etc. We will look at all candidates but financial advisory, legal, and/or journalism experience is preferred. Current Members will also get first look (logically, Members have a much better sense of what we write about and what we stand for). Email us at petition@petition11.com and write “PETITION CSO” in the subject line.


Nothing in this email is intended to serve as financial or legal advice. Do your own research, you lazy rascals.

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