🚛Dump Trucks🚛

Manufacturing, Trucking & the Ports

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We’re old enough to remember a narrative that went something like this:

  • Amazon Inc. ($AMZN) is dominating retail with 2-day (now 1-day) shipping +

  • Traditional brick-and-mortar retailers are converting to e-commerce +

  • Digitally-native-vertical-brands are cutting out brick-and-mortar and going direct-to-consumer =

  • Increased need for logistics and shipping capabilities.

Because of these developments, among others, this country — it was said — was suffering from a trucking shortage relative to the demand and so wages rose rapidly and seemingly every retailer reported that rising shipping expenses were harming the bottom line. Given this, you’d think truckers would be crushing it.

Maybe…not? At least anymore.

In August we noted the following:

ACT research reflects two straight quarters of negative sector growth and DAT reported a 50% decline in spot market loads, with no category immune to the declining trend. Van load-to-truck is down 50%, flatbed load down 74.5% and reefer load down 55.5%. Some fear this may be a leading indicator of recession. Alternatively, it may just be the short-term effects of tariffs and the acceleration of orders into earlier months to avoid them. 

Still, the trucking industry is worried. 

Van spot rates were down 18.5%, flatbed spot rates down 18.4%% and reefer spot rates down 16.8%. The word “bloodbath” is now being bandied about. Per Business Insider:

“There has been a spate of trucking companies declaring bankruptcy this year, too. The largest was New England Motor Freight, which was No. 19 in its trucking segment. Falcon Transport also shut down this year, abruptly laying off some 550 employees in April.

"We have become increasingly convinced that freight is likely to remain weak through 2019 followed by falling truckload and intermodal contract rates in 2020," the UBS analyst Thomas Wadewitz wrote to investors in a June 18 note.

Trucking's biggest companies have been slashing their outlooks. Knight-Swift and Schneider both cut their annual outlooks earlier this year.”

Will this trend continue as manufacturing numbers continue to slip?

That was a good question. And, indeed, manufacturing does continue to slip — at least according to the ISM Manufacturing PMI report:

With the foregoing context, take some more recent news:

1. Hendrickson Truck Lines Co.

The family-owned trucking company recently filed for bankruptcy in the Eastern District of California (a chapter 22, actually). The company is on the smaller side: liabilities between $10-50mm; roughly 90 trucks and 100 drivers; operations in 10 states. Per FreightWaves:

“The company said its financial problems started in January with a sharp decline in overall freight tonnage. This, combined with excess truck capacity, resulted in a 21% rate drop compared with 2018, resulting in a $400,000 per month revenue drop, according to its petition.  

Two of the carrier’s top customers, which accounted for nearly 50% of its business, switched to lower-cost providers, the company said.” (emphasis added)

The company also blamed a poor truck leasing deal for its filing.

2. Truck Orders Are Down

The Wall Street Journal recently reported:

Order books for heavy-duty truck manufacturers are thinning out as a weaker U.S. industrial economy pushes fleet operators to put the brakes on plans to expand freight-carrying capacity.

Trucking companies in November ordered 17,300 Class 8 trucks, the big rigs used in highway transport, according to a preliminary estimate from industry data provider FTR. That was down 39% from November 2018 and a 21% decrease from October, providing a weak start for what is typically the busiest season for new-equipment orders.

The orders last month were the lowest for a November in four years, and analysts said they expect a backlog at factory production lines that has been dwindling this year to pull back even more.

It continued:

Truck-equipment makers have started scaling back production and laying off workers this year as demand for new trucks has weakened.

Daimler Trucks North America LLC said in October it planned to lay off about 900 workers at two North Carolina Freightliner plants as “the market is now clearly returning to normal market levels.”

Engine-maker Cummins Inc. cut its annual revenue forecast in October and the company last month said it plans to lay off about 2,000 workers early next year. “Demand has deteriorated even faster than expected, and we need to adjust to reduce costs,” the Columbus, Ind.-based manufacturer said in a statement.

What’s going on here? Well, yes, manufacturing is down. But “global trade tensions are weighing on transportation demand.” More from the WSJ:

U.S. factory activity contracted in November for the fourth straight month, according to the Institute for Supply Management.

Freight volumes and trucking prices have been on the decline. U.S. domestic freight shipments fell 5.9% in October compared with the same month last year, while truckload linehaul rates were down 2.5% year-over-year, according to Cass Information Systems Inc., which handles freight payments for companies.


3. Trade, Declining Truck Orders, and Imports (Short the Ports?)

We’re curious: if tariffs and trade wars are trickling down to trucking, what must this mean for ports in this country? Per Transport Topics:

Three West Coast ports saw significant drop-offs in cargo volume last month, the latest indication that the United States’ long-simmering trade dispute with China is impacting operations at the nation’s ports.

The Port of Los Angeles, the nation’s busiest facility, saw a 19.1% decline in 20-foot-equivalent units (TEUs) container volume, moving 770,188 compared with 952,553 in the same period a year ago. Imports and exports were both down 19%. The drop-off also means the Los Angeles port is 90,697 TEUs behind last year’s record pace, having processed 7,861,964 TEUs through the first 10 months, compared with 7,723,159 at this point last year.

Port Executive Director Gene Seroka and other officials were in Washington on Nov. 12, and he is sounding the alarm over the damage being done to the economy because of the ongoing trade battle and the resulting tariffs on hundreds of billions of dollars worth of products.

And this, apparently, isn’t isolated to the West Coast:

Will we start seeing some port distress in the near future? Fewer trucks and fewer trains mean lower revenue. 🤔

4. Celadon Group Files for Bankruptcy

Indianapolis-based Celadon Group Inc. ($CGIPQ) is a truckload freight services provider with a global footprint. Founded in 1985, the company professes to have pioneered the commerce trail between the United States and Mexico. Thereafter, it IPO’d and used the proceeds for growth capital, expanding its freight-forwarding business with the acquisition a UK-based company and another 36 companies thereafter. Not only did these acquisitions expand its geographic footprint, but they also expanded the company’s freight capabilities, opening up revenue possibilities attached to refrigerated and flatbed transportation. In all, today the company operates a fleet of 3300 tractors and 10000 trailers with 3800 employees. Its primary focus continues to be NAFTA countries; its customers include the likes of Lowes Companies Inc. ($LOW), Philip Morris International Inc. ($PM), Walmart Inc. ($WMT), Fiat Chrysler Automobiles NV ($FCAU), Procter & Gamble Inc. (($PG) and Honda Motor Co Ltd. ($HMC).  

All of the above notwithstanding, it is now a chapter 11 debtor. Worse yet, it will, in short order, wind down and no longer be in existence. In an instant, the aforementioned 3800 employees’ livelihoods have been thrown into disarray.

Not that the signals weren’t there. The company has been in trouble for some time now. In addition to macro woes, it has a large number of self-inflicted wounds. 

Back in July, the company teetered on the brink of bankruptcy but it bought itself a short leash. On July 31, 2019, the company refinanced its term loans held by Bank of America NA ($BAC), Wells Fargo Bank NA ($WFC) and Citizens Bank NA ($CFG) with a new facility agented by Blue Torch Finance LLC* that counted Blue Torch and Luminus Partners Master Fund as lenders.** The new lenders provided $27.9mm of new term loans and, in exchange, received $8mm in original issue discount and fees. The banks, it appears, got out just in the knick of time. Indeed, the company and its lenders have been engaged in an endless stream of negotiations, concessions and waivers ever since: the credit docs have been amended ad nauseam ever since the initial transaction because the company was in constant danger of breaching its covenants.

Why so much drama? Per the company:

“The need to file these chapter 11 cases was a result of a confluence of factors including industry-wide headwinds, former management bad acts, an unsustainable degree of balance sheet leverage and an inability to address significant liquidity constraints through asset sales and other restructuring strategies. In mid-2019, the trucking freight market began to soften. The combination of a decline in overall freight tonnage and excessive truck capacity in the market led to a significant decline in freight rates, and customers began to take bids at lower freight rates. Compared to the year immediately prior, 2019 showed a steady decline in freight rates, including spot freight rates and contractual rates. In addition to declining freight rates, volumes of loads in freight have experienced decreasing numbers for a significant portion of 2019.”

Sound familiar? Well, these issues alone should have been enough to present problems but they were accentuated by the fact that the company’s prior senior management allegedly engaged in some shady a$$ sh*t. That shady a$$ sh*t ultimately led to a Deferred Prosecution Agreement and a $42.2mm fine. While only $5mm has been paid to date, that $37mm overhang is substantial.

With all of these issues piling up, the company ultimately defaulted on its revolver. Consequently, MidCap Financial Trust, the company’s revolver lender, froze lending and the company’s already-growing liquidity problem became a wee bit more problematic. With barely enough money to fund payroll and payroll taxes, the company had no choice but to file for chapter 11. To put an exclamation point on this, the company had merely $400k of cash on hand when it pulled the trigger on bankruptcy. 

So what now? The company ceased operations and will commence an orderly wind down of its businesses, preserving only Taylor Express Inc. as a going concern. Taylor Express is a NC-corporation that the company acquired in 2015; it is a dry van and dry bulk for-hire services provider, operating principally for the tire and retail industries and primarily in the South and Southeast regions of the US. To fund the cases, the debtors secured a commitment from Blue Torch for $8.25mm in DIP financing. The DIP mandates that any sale order relating to the liquidating business be entered by January 22. 

As for the employees? Well: 

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Yeah, they’re understandably pissed. For starters, they were laid off en masse with no notice. One employee, on behalf of all employees, filed an Adversary Complaint alleging a violation of the WARN Act, which requires 60 days’ advance written notice of a mass layoff and/or plant closing. In response, the truckers have formed a “Celadon Closure Assistance and Jobs” group on Facebook. It has 1300 members. Per Fast Company

“Truckers in [a] Facebook group are posting about having 20 minutes to clear out their trucks and go. CBS also reported that some drivers “were stranded when their company gas cards were canceled.”

YIKES. All told, this is a hot mess. Per SupplyChainDive:

“’This is noteworthy because of the size of the fleet,’ Donald Broughton, the principal and managing partner at Broughton Capital, told Supply Chain Dive in an interview.  ‘It’s noteworthy because less than 10 years ago Celadon was known as one of the most active, prolific and successful at salvaging small fleets that were struggling and in trouble.’

The failure of Celadon represents the largest trucking failure this year and ‘certainly one of the largest in history,’ Broughton said.”  

“Largest [insert industry here] failure” is not an honor that anyone wants.

*Blue Torch Finance LLC was also active in another DLA Piper LLP bankruptcy, PHI Inc., as DIP lender. 
**Blue Torch hold a priority right of payment on the term loan collateral with Luminus second and revolver lender, MidCap Financial Trust, third. 

⚡️Notice of Appearance — Sean O’Neal, Cleary Gottlieb⚡️

This week we welcome a notice of appearance from Sean O’Neal, a Partner in the Restructuring Group in Cleary Gottlieb’s New York office.

PETITION: Sooooo…Sears. You represented ESL Investments Inc. (Eddie Lampert) in the lead up to and during the chapter 11 cases. You now represent Transform Holdco LLC, the successor entity that bought the company in bankruptcy and is operating (and closing) Sears locations today. We understand you’re probably limited in what you can say about this but, looking back, is there anything that could have been done to avoid all of the fighting that’s transpired in the case? Could the case have afforded a few more hours to iron out out the confusion surrounding the APA before seeking approval?

You are correct—I am limited in what I can say given pending disputes.  If people just agreed with us, there would be no disputes. Easy!

PETITION: Cute, Sean, cute.

PETITION: In late 2016, Key Energy Services ($KEG) emerged from bankruptcy with a de-levered balance sheet and quickly relisted on the NYSE. You represented a group of crossover holders in that case. A few days ago, the stock was delisted. The company is in trouble again. Are we setting up for another wave of oilfield services bankruptcies, including chapter 22s? And, if so (and, yes, the question presupposes an answer), WTF?!?

Without addressing Key Energy, we are all seeing increased distress in the oil and gas situations. We are involved in a few. There will be repeat players. Why stop at 22? This is America, a nation of Debtors. Sometimes you just have to keep trying until it works. There’s nothing inherently wrong with using the Bankruptcy Code to do that especially when you have the support of creditors. 

PETITION: You represented Crossmark Holdings Inc. in its out-of-court exchange transaction. Acosta filed its prepackaged case earlier this week, officially becoming the third distressed SMA to end up in a restructuring. What was it about Crossmark that enabled it to remain out of court while the others needed a filing? Is it just a function of a smaller and more concentrated capital structure?

Well, CROSSMARK had amazing lawyers and financial advisers!  But we also had a strong management team committed to preserving value through an out-of-court process. And the lenders and their advisors were smart and patient and gave us time and financing to work it out. Cross holdings between junior and senior lenders also helped, and it was very helpful that we didn’t have widely dispersed bond debt. Ultimately, everyone realized that in this industry, keeping the company out-of-court preserved value—not only allowing the company to keep and win new business but also to avoid the uncertainty and expense of a bankruptcy proceeding. 

PETITION: What are some concerns you’re hearing from clients that not enough people are talking about? What themes do you expect to prevail in 2020? Will it be more of the same, e.g., retail and energy, or will other industries be a notable trouble zone?

Aside from retail and energy, we are seeing increased activity in health care, pharma (not just opioids), real estate work-outs, and after-market auto parts. The short- and long-term impact of tariffs and political disruption across the globe remain to be seen but they could cause a lot of distress. Last year at about this time, we thought the market would turn.  It hasn’t done that just yet, at least more broadly, but things seem to be moving.  

One of the lingering issues that not enough people are talking about in the open is the high costs of bankruptcy. There’s a value transfer going on, where professionals are getting paid as suppliers and other creditors are not. It’s especially harsh in retail but it’s not limited to that sector. Another interesting development is the aggressive use of structures that reward first-moving consortiums of creditors.  Examples include more aggressive uses of rights offering backstop agreements (with related fees and direct investment rights) to generate recoveries as well as the innovative use of make wholes and other goodies in preferred instruments. 

PETITION: What is the best advice that you received that’s helped you in your career? Don’t give us any trite BS: we’re looking for some gems here!

Some of the best advice I’ve received is from one of my mentors, Tom Moloney, who has shown me that you can work hard and practice at the top of the profession, while enjoying life, being human and not losing yourself. And when things get tough as they almost always do, he likes to say, “Don’t worry, they can’t eat you.” 

PETITION: Have you read any books or listened to any podcasts that you think our community of investors, advisors, bankers, and lawyers would find interesting? What’s piquing your curiosity these days? Keep in mind: we have a lot of students who read us too.

Not really. When I read, I am usually trying to avoid work or to take a break from it.  I work long hours and my mind needs a rest. I like graphic novels because I like to draw so I’m re-reading The Watchmen and The Incal. Not the kind of stuff I can work into an oral argument.  I’m in the middle of “The Witches” (Stacy Schiff), a history of the Salem witch trials, which highlights our awful tendency to demonize groups of people through mass disinformation that caters to existing biases. That is a touching way to finish this interview!

PETITION: Thanks Sean.


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💰

McDonald Hopkins LLC, through its Chicago office, seeks an energetic and ambitious associate to join its Business Restructuring Services Department.  The ideal candidate will have up to 4 years of law practice experience; intelligence, drive, creativity, and adaptability; as well as an interest in bankruptcy and restructuring matters.  Interested candidates should apply here.


Looking for quality people? PETITION lands in the inbox of 1000s of bankers, advisors, lawyers, investors and others every week. Email us at petition@petition11.com to learn about posting your opportunities with us.

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


💥Good Retail Numbers. Bad Malls.💥

CBL Takes Extraordinary Step; Destination Maternity is Effectively Dead


We hope you and yours enjoyed the holiday, endured the deluge of sales emails (including from us, sorry!), and got some much-needed rest and relaxation. For those in the restructuring industry, now is a time that calls for balance. Balance of (a) the gazillion holiday parties that take place this time of year and (b) potential case filings that look to fall smack dab in the middle of a planned vacation! Living. The. Dream. Keep your heads up though: bonuses are (hopefully) right around the corner!

We wanted to thank you all for being subscribers to PETITION. Sure, a good number of you neglected our discount offers and decided to continue free-loading but that’s fine: you like our content enough to not unsubscribe and perhaps, later down the road, you’ll join us either as an individual or a group Member.

For those of you who are Members, we’re going to strive to push more Members’-only content this year. In the new year, there’ll be more paywalled Wednesday content. Why? Because you support us and we want and need to reward you. We’re thankful for you. Cheers!

⚡️Update: CBL & Associates Properties ($CBL)⚡️

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We did a deep dive into Tennessee-based CBL & Associates Properties ($CBL) back in March’s “Thanos Snaps, Retail Disappears👿” and, in the context of Destination Maternity’s bankruptcy filing, followed-up in an October update. To refresh your recollection, CBL is a real estate investment trust (REIT) that invests primarily in malls based in the southeastern and midwestern US. At the time of the aforementioned “Thanos” piece, the REIT’s stock was trading at $1.90/share; its ‘23 unsecured notes were priced around $80 and its ‘24 unsecured notes around $76. In case you haven’t noticed — all Black Friday ($7.4b in online sales, $2.9b via mobile ordering) and Cyber Monday (a record $9.2b) talk about gangbusters retail sales notwithstanding — the malls haven’t particularly fared much better since Q1. To put an exclamation point on this, early reports are that brick-and-mortar stores saw an overall 6% decline in sales over Black Friday.

When it reported Q3 earnings at the end of October, CBL’s numbers weren’t pretty. Revenue fell approximately $20mm YOY, net operating income declined 5.9% YOY, and same-center mall occupancy, while up on a quarter-by-quarter basis, was down 200 basis points YOY.

On Monday, the company announced that “it is suspending all future dividends on its common stock, 7.375% Series D Cumulative Redeemable Preferred Stock and 6.625% Series E Cumulative Redeemable Preferred Stock.” The company’s CEO, Stephen Lebovitz said:

“We anticipate a decline in net operating income in 2020 as a result of heightened retailer bankruptcies, restructurings and store closings in 2019. Offsetting these declines by retaining available cash is necessary to maintain the market dominant position of our properties and to reduce debt. CBL has also made significant efforts over the past 18 months to reduce operating costs, including executive compensation and overall corporate G&A expense, as well as execution of a strategy to utilize joint venture and other structures to reduce capital expenditures. Ultimately, we believe these actions will allow the Company to return greater value to its shareholders.”

Given the above, it’s worth revisiting the alleged benefit of REITs to investors. Among them are that:

  • post 1960, REITs provided small investors with an opportunity to benefit from commercial property rental streams; and

  • they are, typically, high dividend payers — considering that by law, they must distribute at least 90% of their taxable income to shareholders as dividends.

WOMP. WOMP. Not so much these days, it seems. But, we bet you’re asking: how can it terminate its dividend while maintaining its REIT status? From the company:

“The Company made this determination following a review of current taxable income projections for 2019 and 2020. The Company will review taxable income on a regular basis and take measures, if necessary, to ensure that it meets the minimum distribution requirements to maintain its status as a Real Estate Investment Trust (REIT).”

Umm, that doesn’t portend well. The answer is: it may not have “taxable income.” B.R.U.T.A.L.

How did the market react?

The stock market puked on the news. The stock was down 6% with a general market drawdown, but after-hours, upon the announcement, the stock gave up an additional ~30% on Monday and closed at $1.02/share on Tuesday:

Meanwhile, the preferred stock also obviously traded down (lots of Moms and Pops chasing yield, baby yield, getting burned here), and the ‘23 unsecured notes and the ‘24 unsecured notes, at the time of this writing, last sold at $72.75 and $64.1, respectively.

The GIF above says it all about this story. And, worse yet: it may get uglier.

⚡️Update: Destination Maternity Inc. ($DEST)⚡️

Speaking of ugly…

In the aforementioned October CBL update, we wrote:

The last thing CBL needed — on the heals of the downgrade — was near-instantaneous bad news. It got it this week.

Yesterday, the bankruptcy court granted interim approval authorizing Destination Maternity Corporation ($DEST) to assume a consulting agreement with Gordon Brothers Retail Partners LLC. Gordon Brothers will be tasked with multiple phases of store closures. Among those implicated? CBL, of course:

CBL is landlord to DEST on 16 properties that are slated for rejection. Considering that DEST cops to being party to above-market leases, this ought to result in a real economic hit to CBL as (a) it will lose a high-paying tenant, (b) it will take time to replace those boxes, and (c) it is highly unlikely to obtain tenants at as favorable rents.

Let’s pour one out for CBL, folks. The hits just keep on coming.

On Friday, Destination Maternity filed a motion seeking approval of a stalking horse bidder for its assets. In September’s “🤔Is it a "Destination" if Nobody Goes?🤔,” we concluded:

And so we’ll have to wait and see whether Greenhill can pull a rabbit out of their hats. Unfortunately, this is looking like another dour retail story. This looks like a liquidating ABL if we’ve ever seen one.

According to the motion, Greenhill dug deep. They reached out to over 180 potential buyers, executed 50 CAs, and granted due diligence access to nearly two dozen parties.* They also conducted 8 management presentations with potential bidders. If you’ve ever wondered why investment bankers make what they make, this ought to illustrate why: it can be a lot of work trying to garner interest and herd cats. Then again, they did accept a mandate where there was a questionable likelihood that the asset value would clear the debt. 🤔

Unfortunately, the result is not — as predicted — particularly stellar. To be clear, this isn’t a reflection upon Greenhill. This was a difficult assignment in a challenging retail environment: it’s a reflection of that.

And so Marquee Brands LLC** and a contractual joint venture between Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC (together, the “Agent”) entered into an asset purchase agreement (APA) with the debtors pursuant to which they will purchase “the Debtors’ e-commerce business, intellectual property, store-in-store operations, and the right to designate the sale of certain inventory and related assets” for an estimated $50mm (subject to adjustments). Repeat: an estimated $50mm. The Agent will liquidate the company’s inventory, fixtures and equipment and conduct store closing sales at the 235 stores where closing sales are not already in process. Said another way: the company’s retail footprint is going the way of the dodo. Clearly this isn’t credit positive for CBL and other landlords.

To refresh everyone’s recollection, here is what the company’s capital structure looked like at the time of its bankruptcy filing:

We previously noted when highlighting the aggressive milestones baked into Wells Fargo Bank’s consent to use its cash collateral:

Wells clearly wants this sucker off its books in 2019.

Rightfully so. The $50mm purchase price is subject to a $4mm holdback. In other words, the actual value transfer may be approximately $46mm. That puts the purchase price at riiiiiiiiiiiiight around Wells Fargo’s exposure. Its aggressive handling of the case appears to be warranted: this thing looks a hair away from administrative insolvency.

Apropos, the official committee for unsecured creditors — in a grasp for some sort of relevance here — filed a limited objection to the motion. The committee argued that the break-up fee (3.5%) and expense reimbursement (up to $750k) were unwarranted given the size of the bid and the lack of a going concern offer.

They were shot down. They did, however, wrestle some concessions. They apparently got the purchase price increased by $225k (in exchange for avoidance actions) and an additional $225k to be paid to 503(b)(9) admin claimants prior to Wells getting its money. A small victory but something for some creditors here.

And that ladies and gentlemen is what bankruptcy boils down to. Is there value? And if so, who gets it? Here, it’s hard to see any real winners. Not the company. Not Wells. Not CBL and the company’s other landlords. Not vendors. Or suppliers. Or employees. Or, really, even the professionals (for once). Time will tell whether Marquee can do something with this brand that makes it one of the rare winners. It’s not clear from the papers how much of the $50mm is attributable to them and, therefore, how much they’re putting at risk. Clearly nobody else was comfortable with the risk here. However you quantify it.

*At the time of filing, the numbers were 170 parties contacted and 34 executed CAs. So, there wasn’t much additional interest in the assets post-filing.
**Marquee Brands also owns BCBG which, itself, traversed the bankruptcy process not long ago.

😜Tweet of the Week😜

You know it’s true:

😎Notice of Appearance — Damian Schaible, Davis Polk😎

This week we welcome a notice of appearance from Damian Schaible, co-head of the Restructuring Group at Davis Polk & Wardwell LLP. Typically we ask our participants between four and six questions but we were particularly interested in Damian’s views on two critical topics:

PETITION: What are some themes in distressed/restructuring that deserve intensified focus in 2020?

The importance of being “at the table.” As a wise man once said, when there is no yield in the market, investors eat each other.  In the past couple of years, non-pro rata transactions have become more and more frequent in restructurings. RSAs, rights offerings, DIPs, exit financings, preferred stock raises, private exchanges, open market repurchases, layering transactions, direct investments, the list goes on and on, and both the technology and the terms have continued to develop over the past few years. There are examples, of course, of courts and/or minority holders pushing back successfully, but the trend line has largely been in one direction, and the loose documents put in place over the past five years permit and encourage the transactions. Of course, the key to making sure you are “at the table” is size – a real premium is being put on larger check sizes and more sophisticated, early organization among holders.

And early organization among holders is increasingly required, as the sponsor community more broadly gets more and more comfortable taking aggressive reads and actions under their portfolio company debt documents. Historically, there was a belief that only a few sponsors would be willing to make the really aggressive moves to buy runway and get cheaper deleveraging, but that is changing.  Lenders are now increasingly forced to not only underwrite a business and a collateral package but also whether that business and/or collateral package would still be there in a restructuring scenario. So you might say that while investors may be eating each other, sponsors are eating their lenders….? 

PETITION: What else?

CLOs playing an increasingly important role in restructurings. CLOs raised and deployed never-before-seen amounts of capital in recent years; and because the CLOs are no longer just selling early, as debt comes under pressure, terms of restructurings are being molded by the fund requirements of many CLOs. Equitizing is not always the preferred option, and there is more and more pushback on rights offerings and other equity raises. Governance is also getting more complicated. However, significant risk remains for CLOs that end up in restructurings driven by larger hedge fund holders: disfavored transactions and capital raises can lead to real value destruction for, and forced selling by, CLO holders. And while CLOs are sticking with troubled names longer, they still have fund limitations that may well start to kick in en masse in 2020.  As CLOs push up against their basket capacity for B3/CCC-rated debt, they will start trapping cash, cutting distributions and be forced to start selling. Given the huge numbers of distressed issues dominated by CLO holders, forced selling could potentially cause real volatility in the market with little warning.

PETITION: We noted this theme in an October Members’-only deep dive entitled,💥CLO NO!?!?💥, with a short follow-up in “😬We Have Our Answer😬.” We’re 100% sure that CLO dynamics will continue to be a huge factor in restructurings going forward.

PETITION: Anyway, is that all Damian? Sheesh: have some thoughts on something, will you?? Any other topics?

Increasingly complicated post-reorg governance. Given the trends above, and the bloodbath that has been post-reorg equity over the past couple of years, governance negotiations have become increasingly complicated and at times adversarial. Minority holders seek information rights, liquidity and general protection from larger holders. Larger holders generally seek the opposite in order to limit post-reorg volatility as smaller holders buy and sell. Also, more frequent voting constructs to address regulatory and foreign holder issues skew governance and require twists and turns and heavy negotiation. When you put all of this together, it makes corporate lawyers’ heads spin!

PETITION: Thanks for that. Now, more critically: you’re always good for some crazy holiday gift recommendations. What are your top picks this year?

As you might expect from a guy who has spent most of the last five years representing creditors in oil & gas and coal restructurings, I am a big fan of electric vehicles.  I drive an electric car, and I have a fleet of electric scooters and go karts, you know, for my kids….

  • The Razor Crazy Cart XL – super fun, skidding and sliding go kart. One key design flaw makes it even more adventurous – believe it or not, there are no brakes….

  • Segway Ninebot Go Kart – my personal favorite, it’s fast, it handles very well and it runs forever on a charge.

  • Ninebot Kickscooter Max – new this year, this thing is really fast, very maneuverable and a lot of fun.

And to mix it up for those who don’t live in the suburbs with copious garage space, I love this smoking box for cocktails.  Adds a terrific smoky flavor to bourbon cocktails and also adds an air of sophistication for otherwise low brow restructuring professionals…. 

PETITION: Ha. And low brow newsletter authors!! Cheers!


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💰

MorrisAnderson, a leading middle market debtor-focused financial and operational advisory firm, is seeking associate director applicants in Chicago. Candidates should have two to five years of experience, an operational mindset, and a desire to learn and grow.  To apply, please visit here.


Looking for quality people? PETITION lands in the inbox of 1000s of bankers, advisors, lawyers, investors and others every week. Email us at petition@petition11.com to learn about posting your opportunities with us.

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

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💥Juno. Chesapeake. Tuna. KKR💥

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