Disruption from the Vantage Point of the Disrupted
Member Briefing #31 - 11/4/18
Read Time = 18.9 a$$-kicking minutes
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🗞News of the Week (6 Reads)🗞
1. Halloween Passes & Sears Becomes a Horror (Sh*t)Show (Long History).
ICYMI, last week — in connection with Sears Holding Corp. — we wrote a pretty pointed bit about the unsecured creditors’ committee hiring process.
In response, Dan Dooley, the Principal and CEO of MorrisAnderson wrote us as follows:
Some comments on Ethical Issues with Creditors Committees as you discussed in this edition:
1. If Committee professionals in the middle market work, where I work, had to justify their fees as a percentage of money distributed to unsecured creditors, the cost/benefit of having credit[ors] committees would be dubious in many cases. Middle market committees have become a game of feeding professionals vs getting returns for unsecured creditors. Perhaps committee professionals should be paid on contingency basis measured against unsecured creditor recoveries.
2. 5 and 10 cent unsecured creditors recoveries distributed 3 to 5 years after a bankruptcy case is filed is not meaningful to virtually all trade creditors. I have seen creditors receive those checks for a few hundred dollars and rip them up. It almost adds insult to injury to get a small dollar check to remind them of their loss of years ago. Generally speaking it’s often only a small number of large dollar unsecured creditors and the claim traders who have bought millions of dollars of claims for pennies who find any value in these token distributions.
3. The Committee professional game has become riddled with undisclosed relationships between professional firms and the creditor committee members (some in the bankruptcy game and some getting personal benefits, and some being simply naive participants in the professional selection process). The serial committee members working for large companies who have lots of bankruptcies are the most susceptible to being taking care of in ways that appear to be ethically dubious. The FAs work on the likely committee members to get the Attorneys hired and the hired Attorneys work to get the FA hired. An example- I recently got a chance to pitch a restaurant committee case (a have lots of restaurant case experience). I got to pitch because I had a positive case experience with one of the three committee members, so he got me an interview after the selected attorney nixed me from the FA interview list. During the phone interview, the selected attorney asked me three questions designed to torpedo my potential selection as committee FA, so he could have a pretext to disqualify me and then direct the work to his partner FA.
4. Being cynical- it seems to me that some attorneys and FA have adopted what I view as the Investment Banking Code of Ethics of “Their Ain’t No Conflict of Interest We Can’t Ignore”.
5. The Chapter 11 game has less and less fee professional discipline as the size of the case increases. It’s the only game in town where multiple parties negotiate and one party throws a monkey wrench into the negotiation and chips rain down in all directions to pay the professionals out of the DIP pot (aka the unsecured creditors potential recoveries). The professional incentives in bankruptcy are all wrong. Many people say you can’t do bankruptcies on a project fee basis vs an hourly basis. I disagree. You can but the system would sure work better if all bankruptcy professionals had the same incentive with fixed fee deals including the lender professionals.
On Thursday night, we wrote the following:
As we thought about it, however, we realized that Inception is the wrong analogy. Sure, this seems like a conflict within a conflict within a conflict kind of scenario but, in actuality, this is more like Game of Thrones. We mean…you’ve got to hand it to bankruptcy folks. They are some smart cookies. And some real students of (recent) history (and pop culture).
Let’s take a little journey back in time, shall we?
Back in June 2017, in “Dividend Recaps Under Attack in Payless Holdings Case,” we summarized the official committee of unsecured creditors’ (UCC) efforts to hire expert consultants to assist them in their review of potential claims against Payless Holdings LLC’s private equity overlords. The issue centered around multiple dividend recap transactions undertaken within the years leading up to Payless’ chapter 11 bankruptcy filing. Please read it. It will provide some helpful context.
The upshot was, however, that ultimately — thanks, in part, to some serious signaling from the bench that they were DOA — the UCC got bent. They settled and didn’t pursue the claims they had to the fullest extent possible. The PE firms walked away virtually unscathed and the independent directors were freed from scrutiny.
Subsequently, in May 2018 in “⚡️“Independent” Directors Under Attack⚡️,” we highlighted how Akin Gump Strauss Hauer & Feld LLP was going after the independent directors in the Nine West case. We wrote:
In other words, Akin Gump is pushing back against the company’s and the directors’ proposed subjugation of its committee responsibility. They are pushing back on directors’ poor and drawn-out management of the process; they are underscoring an inherent conflict; they are highlighting how directors know how their bread is buttered. Put simply: it is awfully hard for a director to call out a private equity shop or a law firm when he/she is dependent on both for the next board seat. For the next paycheck.
Query whether Akin continues to push hard on this. (The hearing on the DIP was adjourned.)
The industry would stand to benefit if they did.
Spoiler alert: they have continued to push. More on this below…
Having seen the Payless movie, the directors in Nine West fortified their defenses. In addition to hiring Munger Tolles (the same law firm that rep’d the directors in Payless), they also hired a financial advisor — something the directors in Payless hadn’t done. Surely having a bevy of professionals to conduct any and all investigations into wrongdoing would satisfy everyone involved, right? Um, not even close. Again, insert Akin Gump here.
Now, six full months later, Akin continues to hunt for prey. We noted this back on October 10 in “💰All Hail Private Equity💰.” Therein we wrote:
…counsel to the Nine West committee, Akin Gump Strauss Hauer & Feld LLP, filed a motion under seal (Docket 717) seeking standing to prosecute certain claims on behalf of the Nine West estate arising out of the leveraged buyout of Jones Inc. and related transactions by Sycamore Partners Management L.P. This motion is the culmination of a multi-month process of discovery, including a review of 108,000 documents. Accompanying the motion was a 42-page declaration (Docket 719) from an Akin partner which was redacted and therefore shows f*ck-all and really irritates the hell out of us. As we always say, bankruptcy is an inherently transparent process…except when it isn’t. Which is often. Creditors of the estate, therefore, are victims of an information dislocation here as they cannot weigh the strength of the committee’s arguments in real time. Lovely.
Subsequently, on October 22, Akin filed its standing motion to prosecute claims on behalf of the estate that includes a barnburner of a complaint [Docket 757]. It is mostly unredacted (thankfully). They wrote:
Which, naturally, has outlets like the New York Post salivating.
The complaint continues:
This past week, The Wall Street Journal wrote:
Nine West Holdings Inc.’s independent directors find themselves in a quandary, caught between creditors of a bankrupt retailer and the private-equity owners accused of sinking its business.
See, Nine West recently proposed a deal that would let Sycamore Partners, its private equity sponsor, off the hook on all of the above in exchange for a $105mm payment. Akin’s UCC — which, we should point out, features the non-litigious Aurelius Capital Management LP — immediately started wagging their fingers like Dikembe Mutombo under the rim. Why? Well, $105mm appears to be a pittance when looking at the chart above. And because they’ll want their litigation trust. Per the WSJ:
In broad strokes, creditors have accused Sycamore of stripping assets out of Nine West between a 2014 leveraged buyout of Jones Group, which later became Nine West, and the April bankruptcy filing. Along the way, the buyout firm sold off many of its biggest brands, including the apparel line Jones New York and footwear and handbag brands Stuart Weitzman, Kurt Geiger and Easy Spirit.
Nine West’s independent directors have resisted the idea of filing lawsuits alleging those segments were sold to Sycamore affiliates at below-market prices because it would implicate the interests of higher-ranking creditors whose support is needed to exit chapter 11.
The judge presiding over the bankruptcy has sent Nine West and its creditors to mediation in hopes of avoiding a costly legal clash.
In addition, an ad hoc group of unsecured noteholders that includes the likes of Whitebox Advisors LLC, Scoggin Management LP, Old Bellows Partners LP, and Wazee Street Opportunities Fund are reportedly also pushing the directors to sweeten the pot. Per the WSJ:
The bondholders said the independent directors should “reconsider the plan and view it from the perspective of the creditors to whom they owe duties,” according to a copy of a letter signed on Monday by lawyers at Willkie Farr & Gallagher LLP and reviewed by The Wall Street Journal.
What. A. Hot. Mess.
Which gets us right back to Game of Thrones, Akin Gump and Sears. Sears/Eddie Lampert (Cersai Lannister) saw Akin Gump (the Stannis Baratheon in this scenario) barreling towards the gates of King’s Landing with a long history of battle notches on their swords and said, “oh f*ck, we need some reinforcements.” They, aka Sears/Lampert — and, yes, we’re using “they” interchangeably with ESL because well, they kinda are, aren’t they? — dusted off the Nine West playbook and decided that if the directors in Nine West had lawyers and financial advisors and STILL fell under siege from Stannis (again, Akin…stay with us here), they really need to up the ante. And that means a partnership with the Tyrell family. Enter Paul Weiss here.
Except, based on the lessons taken from Payless and Nine West, the Tyrells alone won’t do. And so they also needed Alvarez & Marsal LLC (Sir Gregor Clegane), Evercore (the Iron Bank) and Young Conaway Stargatt & Taylor LLP (some wildfire, i.e., conflicts counsel to the conflicts counsel) to lend a hand (not of the king). Better off, the thinking presumably goes, hiring a full battery of professionals and head-faking the court into thinking that the independent directors are serious about running the investigation/show than let Akin Gump sack the city. Which, if Nine West is any indication, they may do anyway.
So, now back to Mr. Dooley’s comments. They are very valid. With respect to his fifth point, however, there’s something to be said for the fact that a debtor and its independent directors often attempt to subjugate the UCC function in the first place. As we’ve seen now in the three aforementioned cases, the UCC has had to scratch and claw for its seat at the table to engage in an earnest effort to enhance creditor recoveries and, most significantly, to go after potentially shady prepetition transactions effectuated by sponsors. Ridiculous fees accrue in that fight. Are some of those fees attributable to ridiculous staffing policies and inefficiencies? Sure (which raises the question: where is the UST in all of this?). But that heinousness isn’t monopolized by UCCs.
All of which makes this whole dynamic just utterly bonkers. Creditors need the UCC to police against debtors who delegate authority to the “independent” directors who purport to police the debtor and investigate private equity sponsors in furtherance of their duties but, in reality, are being called out left and right for being conflicted and failing to do so (cough, see Exhibit C of the Akin complaint). And so the debtor — the unsympathetic Sears in this latest instance — gets the pleasure of paying for all of it. Who loses? The creditors and employees of the estate. Meanwhile, the directors, private equity sponsors, and professionals — “given the administrative burn” (cough, see Exhibit P of the Akin complaint) — generally win. Onwards and forwards.
On a macro level, something needs to give here before, in the end…sometime…somehow…more attention focuses on these issues and everyone loses.
2. Aftershocks Appear Post-Sears. Part II.
We previously discussed VF Corp ($VFC), which, after getting battered on the heals of Sears’ bankruptcy filing, has actually rebounded quite nicely: the stock is up approximately 10% since we wrote about it. But is still down since the bankruptcy filing. It isn’t the only company feeling the effects of Sears’ chapter 11.
As multitudes of Sears suppliers file 546(c) reclamation demands in bankruptcy court and reserve their 503(b)(9) rights given millions of dollars of exposure, more companies are reporting the effects of Sears’ situation.
Hanesbrands Inc. ($HBI) suffered a stock decline this week after cutting its Q4 revenue guidance by $15mm and operating profit outlook by about $5mm. Why? Sears. Obvi.
Who knew so many people were buying their underwear at Kmart and Sears?
Well, not to be even more obvious, but clearly Hanes did and, yet, they didn’t seem to do enough to protect themselves — something analysts and stockholders should hold management accountable for. Spoiler alert: the analysts didn’t ask a single question about risk management and Sears. Surprisingly.
Hanesbrands also set aside $14 million for what it expects to lose as a creditor of Sears. The company said Sears and Kmart accounted for only about 1% of its sales - it still expects fourth quarter sales of $1.7 billion.
Unlike the analysts, the market did act unfavorably. The stock collapsed and now is nearly at a 52-week low, down 23% on the year (with, if correctly reflected below, an earth-shattering PE ratio).
Meanwhile, the company is also raising prices. In its investor call, management said:
You're right that we will be passing through the pricing. That's all been communicated and is in place, it will go into effect in February, so we feel very good about that. That will help offset the raw material inflation we've been absorbing this year. Those increases are kind of average 4% to 5% across the majority of our U.S. Innerwear business.
Inflation certainly seems like it’s becoming the real deal.
3. Private Equity Hiring (Long PETITION).
Previously in September 2017’s “M*therf*ckers Have Lost Their G*d-damned Minds” we wrote:
There is so much to unpack in this stupid piece about the annual private equity recruiting frenzy. First, let's stop calling kids who are weeks out of college "talent" merely because they got a job in an investment bank trainee program. They haven't proven that they're talented at anything just yet. Going to an ivy league school, having a trust fund and being a douche isn't dispositive of anything. So, everyone chime the f*ck down please. Second, these folks get paid $200k? And people say there's no wage inflation? Third, the idea that an ibanker trainee is going to be appreciative for the two years of training a bank has given them and, in turn, give later private equity business to said bank is ludicrous. As a practical matter, his/her connection to that bank lasts a mere few weeks prior to them securing the next bigger, better and more Tinderable gig with which they prefer to identify. This seems like an outdated model with bad assumptions baked into it. The only sure thing seems to be that no matter which one of the PE firms these trainees land at, they'll be hiring Kirkland & Ellis LLP as bankruptcy counsel for one of their busted portfolio companies. Fourth, we love this bit about recruiting being earlier than ever "after an agreement to hold back fell apart." Hahahaha. So, private equity firms - KNOWN FOR DEAL-MAKING - couldn't even come to a deal amongst themselves?? This is like mutually assured destruction among KKR, Warburg Pincus, Carlyle Group LP, Apollo Global Management LLC, Bain Capital, Blackstone Group LP, TPG and Golden Gate Capital. Here's a great idea: lets trip over ourselves - and each other - to hire people with literally "no work experience." Those interviews must be PAINFUL AF. And, oh, hey you Managing Director. We love that you're "often forced to cancel business meetings last-minute to interview candidates." We're sure a multi-billion dollar transaction can wait for some piss-ant Harvard bro who inexplicably and unnecessarily writes equations on glass to regale everyone with his rad math skills. So lit. On what basis are these kids REALLY getting hired then? We think its probably pretty obvious. And its questionable how this BS still flies. What does any of this have to do with disruption? Well, when you're competing with venture capital and tech to acquire "talent," desperate times seemingly call for desperate measures. Logic has been disrupted.
It’s that time of year again. On Halloween — appropriately — The Wall Street Journal published a ghastly article entitled, “No Experience? No Problem. Private Equity Lures Newbie Bankers With $300,000 Offers.” They write:
Private-equity titans are used to competing for billion-dollar buyouts. Now they are squaring off for 22-year-old spreadsheet crunchers.
An industrywide scramble is under way this week to hire young investment bankers.
The instigator was Thoma Bravo LLC, which extended its first job offers this past weekend, according to people familiar with the matter. Word spread quickly to rivals, and by Monday interviews were under way at nearly every big firm, including Blackstone Group LP, Apollo Global Management LLC, Carlyle Group LP and TPG.
Thanks Thoma Bravo LLC.
“It’s crazy,” said Patrick Curtis, who runs Wall Street Oasis, a financial careers website. “This timing definitely caught a lot of people by surprise.”
Wait. Only the TIMING is crazy?? There’s an entire article about this hiring frenzy and, aside from the headline, there’s not one mention that 22 year-olds with two weeks of experience are getting offers for $300k(!) two years out (PETITION Note: these darlings had better hope that no downturn occurs between now and then and ought to budget accordingly. We can’t wait for the inevitable puff piece entitled, “Wall Street Bro Who Thought He Had $300k Guaranteed Salary Sh*t-Canned Before Starting.” with a subtitle like “Has $16,700/month Rent And $6,800/week Blow Habit” Sh*t. We may write it ourselves and just stash it for later use. We’ve never seen a safer bet.).
But wait. There’s more:
“There is an element of nobody wanting to be late,” said an executive at a midsize firm, which hires five to six new associates each year. “We’re reaching the natural limit of how early you can get.”
Maybe not: Mr. Curtis said he expects private-equity firms to start recruiting college seniors who have already lined up investment-banking jobs and offering them positions more than two years in the future. “It’s the next logical step,” he said.
We have a better idea. Why not pay some dubstep-listening tech bro to code an algorithm that scrapes websites for baby announcements and the like? If the parents, say, met at Harvard Business School and ended up at, say, Goldman Sachs or Morgan Stanley, you can then partner with Goldman Sachs or Morgan Stanley and give the parents an offer guaranteeing their kid a banking job in 2040 and a private equity gig in 2042 — all in exchange for a small annual stream of payments to solidify the commitment and maintain the validity of the offer. In other words, why even wait for the kid to get the investment banking offer? Surely there’ll at least be some inkling of modeling talent baked into the genetic code of this future master of the universe, right? You can make the offer based on all kinds of contingencies and then watch as the kids duke it out over the next 22 years, stressed over whether they’re smart enough to live up to the expectations hoisted upon them by the financial gods. There’ll be no depression in sight, wethinks (long therapists). It’ll be awesome. Maybe, in turn, the investment banks can then securitize the stream of payments, tranched by which business school the parents went to (HBS, the A tranche, NYU, the C tranche). That would be so…Wall Street-y. And just as logical as the rest of it.
Meanwhile, if you’re a college student and you’re reading this, take heed. You can go into investment banking and make $300k two years later or you can go to law school, get crushed by tens of thousands of dollars of student loans and then…well…this:
4. New Chapter 11 Bankruptcy Filing - Gastar Exploration
The fallout from the oil and gas downturn appears to have a long tail.
Gastar Exploration Inc. ($GST), an oil and natural gas exploration and production company focused on shale resource plays in Oklahoma filed a prepackaged bankruptcy in the Southern District of Texas earlier this week.
For anyone looking for a short primer on what exactly transpired in oil and gas country upon the 2014 downturn in commodity prices is in luck: the company provides a succinct explanation in its bankruptcy filings. It notes:
The market difficulties faced by the Debtors are consistent with those faced industry-wide. Oil and gas companies and others have been challenged by low natural gas prices for years. Since January 2014, natural gas prices fell from a peak of $5.39 per MMBtu in January 2014 to $1.73 per MMBtu by March 2016, and remain at approximately $3.17 per MMBtu. The price of crude oil has similarly plummeted from a high of $107.26 per barrel in June 2014 to a low of $29.64 per barrel in January 2016. Crude oil prices remain at approximately $67 per barrel. Additionally, NYMEX futures curves for both natural gas and crude oil are backward dated, indicating an expectation among real-money traders in the derivatives market that these commodity prices are expected to decline over the next several years.
These market conditions have affected oil and gas companies at every level of the industry around the world. All companies in the oil and gas industry (not just E&P companies) have felt these effects. However, independent oil and gas companies have been especially hard-hit, as their revenues are generated from the sale of unrefined oil and gas. Over 160 oil and gas companies have filed for chapter 11 since the beginning of 2015. Numerous other oil and gas companies have defaulted on their debt obligations, negotiated amendments or covenant relief with creditors to avoid defaulting, or have effectuated out-of-court restructurings.
The Debtors were not immune to these macro-economic forces.
With hundreds of millions of dollars of debt, the company managed to avoid a bankruptcy filing during that time. This is primarily due to a 2017 refinancing transaction that it consummated with Ares Management LLC pursuant to which the company took on new first lien term loans, new second lien converts, and obtained a $50mm equity investment from Ares. The capital structure, at the petition date, is comprised of these term loans and converts. The company intended the new financing to help it weather the downturn and bridge it to a more favorable operational performance and capital markets environment. Alas, it’s in bankruptcy. So, we guess we know how those intentions played out in reality. Indeed, the company experienced significant operational challenges that resulted in a decrease in well production performance — a result that came to pass only after the company incurred the costs of production. Sheesh.
Now the company seeks, in partnership with Ares, to push through a speedy chapter 11 bankruptcy that would have the effect of deleveraging the balance sheet by approximately $300mm, handing all of the equity to Ares (on account of their second lien notes claims), and wiping out the holders of preferred and common equity — whom would only be entitled to warrants in reorganized Gastar if they don’t object to the restructuring or seek the appointment of an official committee of equity security holders. Which in the case of both common equityholders (Fir Tree Capital Management LP & York Capital Management Global Advisors LLC) and preferred equityholders…uh…is exactly what they’re doing. Clearly those warrants weren’t much of a carrot. And Judge Isgur happens to have previously demonstrated a soft spot in his heart for equity committees. See, e.g., Energy XXI.
Prior to the first day hearing, Fir Tree and York (by attorneys Quinn Emanuel - a sign of seriousness) filed an emergency motion seeking the appointment of an equity committee alleging, among other things, that the company’s plan is a pure Ares jam fest. They seek an investigation of Ares’ actions (including the refinancing transaction), citing the Energy XXI case, and noting in the process that with unsecured creditors riding through the plan, there is no viable adversary to the debtor other than the zeroed-out equity. Which makes this a private equity vs. hedge fund hootenanny!
Subsequently, an ad hoc committee of preferred stockholders filed a motion joining the arguments of Fir Tree and York, noting, however, that as preferred equity their liquidation preference trumps the interest of the common stockholders. They, too, want an investigation into Ares’ involvement in these cases.
A hearing is scheduled for later this week. We’ll get the popcorn ready.
*Click on the case names for links to case rosters.
5. New Chapter 11 Bankruptcy Filing - Dixie Electric LLC
As we said, “the fallout from the oil and gas downturn appears to have a long tail.”
Oilfield services company, Dixie Electric LLC, and its parent, FR Dixie Holdings Corp., have filed for Chapter 11 bankruptcy in the District of Delaware with a prepackaged plan of reorganization that eliminates $300mm of funded debt via a debt for equity swap. The privately-held (First Reserve) Houston-based provider of electrical infrastructure materials and services to the energy industry (primarily in the Permian and Bakken basins) has a commitment in hand for $17.5mm of DIP financing to fund the business in BK and $30mm in exit term loans to fund the business upon its emergence from BK.
For the nine months ended September 30, 2018, the unaudited and consolidated financial statements of the Company reflected revenue of $95.0 million and a net loss of $24.5 million. Given approximately $300mm in debt, these numbers presented the company with some serious challenges. The company also blames its bankruptcy filing on “decreased drilling and well completion activity, tightness in the skilled labor market and unprofitable lumpsum contracts.”
The company’s bankruptcy papers include a commentary about the state of the post-downturn oil and gas market reflecting, not-so-surprisingly, (i) some discipline by oil and gas drillers and (ii) macro concerns about the labor market. The company notes:
Operators have become increasingly focused on service costs and have pushed for rate cuts and reduced overtime and fixed-priced work. The Company was also increasingly bidding against other firms for work, further putting pressure on margins. As the oil and gas market has recovered, operators have remained focused on costs and, while the Company has been pushing for rate increases, there is still less overtime work and more fixed-price work than existed prior to the downturn. In addition, the Company is experiencing higher labor rates and has not been able to fully offset those labor rate increases with the additional pricing increases.
Accordingly, the company has shut down business lines and stream-lined operations. The hope is that with a near-full deleveraging, it will be better positioned for the future. Given the support of its secured lenders and other parties in interest, the company appears headed in the right direction. The company seeks confirmation of its plan on December 13.
*Click on the case name for a link to the case roster or professionals.
6. Fast Forward
Aegean Marine Petroleum Network Inc. ($ANW) is now subject to a fraud probe by international auditors. This thing will be in a bankruptcy court near you before too long.
Cloud Peak Energy Inc. ($CLD)’s bonds hit new lows this week as…uh…maybe people aren’t so optimistic about coal these days after all…? Wonder if a coal-bankruptcy-per-week has anything to do with that…? The ‘24 6.375% senior unsecured notes hit new lows this week with a print near 62. Just a shot in the dark here but the highlighted language below likely had something to do with the downward price action.
Community Choice Financial Inc. appears to have an out-of-court deal.
Community Health Systems ($CYH) continues to shrink.
Destination Maternity Corp. ($DEST) is shuttering stores like a boss as it continues with its operational restructuring.
Ofo is rumored to be but maybe…isn’t…#BustedTech? If the major bike-sharing company — which has raised $2.2b in funding from the likes of Alibaba Group Holding Ltd. ($BABA) and Didi Chuxing — is collapsing, that is a bad sign for micromobility in China. And maybe generally.
Weatherford International LLC’s ‘25 9.875% senior unsecured bonds got annihilated this week. The CDS spread differential increased by over 300 bps.
Want to tell us we're morons? Or praise us? Cool, either way: email us at email@example.com
📉Tweet/Charts of the Week📈
Asset Stripping. Otterbourg P.C.’s David Morse discusses Petsmart/Chewy.com and the ongoing lender litigation there over the company’s maneuvers.
Deals. PwC released their Q3 2018 update. They report that overall US deal volume is down 15% for the year through September. Foreign investment, however, in US assets is up.
Directors. Sun Capital Partners’ Senior Managing Director, Bruce Robertson, discusses the role of a board director.
Markets/Restructuring. Guggenheim Securities’ Jim Millstein speaks with Barry Ritholtz of Ritholtz Asset Management (audio) about the financial crisis, a coming wave of bankruptcies on the horizon, sovereign and municipal debt (where he says there’ll be a reckoning thanks in large part to pensions…right, pensions) and more. Therein, he recommends several books: “Can Capitalism Survive?,” “Crashed: How a Decade of Financial Crises Changed the World,” “Capitalizing on Crisis: The Political Origins of the Rise of Finance,” and “Sapiens: A Brief History of Humankind” (which really appears to be one of the ‘it’ books of the moment). Also, speaking of munis:
How far behind is New York (read: is New York City F*cked?)?
Empire Center@empirecenterAt this rate, in a few more years, enrollment in NY schools could fall to levels last seen in the late 1950s. https://t.co/4rI9wvr1wg https://t.co/djTB4fRbcx
Meanwhile, speaking of sovereigns, there’s been activity in Uruguay.
Finally, we’d be remiss if we didn’t note the fact that, contrary to the YouTube video noted above and all the talk of $300k salaries for 24 year-olds, Mr. Millstein actually suggests going to law school over getting an MBA on the basis of learning critical analysis skills. 🤔
Professional Retentions. Cole Schotz P.C.’s J. Kate Stickles writes about a recent decision in the Heritage Home Group matter relating to the retention of liquidation consultants.
Trademarks. Cole Schotz P.C.’s Jacob Frumkin writes about how the U.S. Supreme Court will hear a case relating to the rejection of trademark license agreements.
ABI Mid-Level Professional Development Program, 11/6, NYC
ABI Cross-border Insolvency Program, 11/7, NYC
TMA Houston Breakfast Meeting, 11/7, Houston
National Bankruptcy Conference Annual Meeting, 11/8, Washington DC
ABI 15th Annual Corporate Restructuring Competition, 11/9, Chicago
⛓Notable: What We're Reading (8 Reads)⛓
1. Breakfast (Short Cap’n Crunch). Apparently people don’t eat gobs of sugar for breakfast anymore. We can’t imagine why. Kellogg Company ($K) got hammered this week.
2. Earnings (Long Anxiety). Despite gangbusters earnings across most parts of the equity market, volatility is in vogue. The Financial Times cites tariffs, rising costs, decreased capex, and the slower pace of buybacks as causes.
3. Housing (Long #MAGA!). America isn’t as great for those accustomed to taking the SALT deduction. Sales of new single-family houses are predictably down thanks, in part, to the new tax reform.
4. McKinsey (Long Bad Press). The hits just keep on coming. Now…Saudi Arabia dealings.
5. Personal Bankruptcy. What the hell happened to Darius Miles? A must read by…Darius Miles.
6. Rats. Why’d it Have to Be Rats (Long Private Equity). The sad sad tale of New England Confectionary Company (Necco), another private equity success story. And speaking of private equity, both The Carlyle Group and Apollo Global Management’s earnings reports fell short of analyst expectations. Finally, a #longread hit piece on private equity’s role in the demise of grocery chains.
7. Restaurants (Long Delivery). There are too many restaurants. And as people order more food, restaurants are shrinking, giving up square footage in the process. Short commercial landlords. Choice bits:
People are still eating restaurant food-- they're just not doing it at restaurants as much. Delivery apps from DoorDash Inc., Postmates Inc., GrubHub Inc. and UberEats have made ordering in easier, and have changed the way food chains think about their business. The number of food delivery app downloads is up 380 percent compared with three years ago, according to market-data firm App Annie, and research firm Cowen and Co. predicts that U.S. restaurant delivery sales will rise an average of 12 percent a year to $76 billion in the next four years.
"The impact from delivery is the greatest shift we've seen yet," said Fox, who has been at Firehouse for 15 years. "We're investing in where the business is going, which is off site.” Since January, orders for pickup and delivery have made up 60 percent of Firehouse Subs' revenue.
…there is an overall downsizing of restaurant seating space as chains experience less foot traffic and more online and mobile-ordered pickups.
Nimble restaurants with leverage over landlords can negotiate square foot reductions (or price reductions). If they can, they should. Now. Before rising costs continue to take hold.
8. WeWork (Short Beer). The omni-present co-working space provider announced a trial whereby it will limit its heretofore-unlimited-beer-policy to four drinks per-day per WeWorker between the hours of 12 and 8 pm. Now that’s some community-adjustment for you. The policy comes on the heals of a sexual harassment lawsuit filed by…wait for it…the director of culture…alleging harassment at two company events. Per CNN:
"In both cases, the company interviewed no witnesses other than the male employee in question. In both instances, the male employee professed to be too drunk to remember the incident," the complaint reads.
Hence, alcohol limits.
Though, color us cynical, this does happen to double as a pretty solid cost reduction move as well….
David Forsh (Partner) has joined Thompson Hine LLP from Pillsbury Winthrop LLP.
Mark Desgrosseilliers (Partner) has joined Chipman Brown Cicero & Cole LLP from Womble Bond Dickinson (US) LLP.
Matthew Roose (Partner) has joined Ropes & Gray LLP from Fried Frank Harris Shriver & Jacobson LLP.
Sachin Lulla (Managing Director) has joined Stephens Inc. from Evercore.
Carrianne Basler of AlixPartners LLP on being named Chair of the International Women’s Insolvency and Restructuring Confederation (IWIRC).
James Ktsanes of Latham & Watkins LLP on his promotion to Partner.
Ted Dillman of Latham & Watkins LLP on his promotion to Partner.
The following professionals acknowledged as Who’s Who Canadian restructuring & insolvency experts: Doug McIntosh, Al Hutchens and Michael Stewart from Alvarez & Marsal, Paul Bishop and Greg Watson from FTI Consulting, Gregory Prince at PwC, and Murray McDonald at Ernst & Young. What? No women in restructuring in Canada?
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find it here💥.
Carl Marks Advisors, a nationally recognized investment bank providing operational and financial advisory services, seeks professionals with 4+ years of transferable restructuring and turnaround and experience. These individuals will work in an integrated team environment on a diverse range of engagements in restructuring, turnaround, bankruptcy, valuation analysis and financial performance assessments. Key attributes include strong accounting & financial modeling skills, independent judgment, resourcefulness, and creativity. NYC based position with substantial travel. Interested candidates should click here https://carlmarksadvisors.com/jobs/ to submit their CV and cover note.
Evercore (EVR) is a leading global independent investment banking advisory firm. Evercore advises a diverse set of investment banking clients on a wide range of transactions and issues and provides institutional investors with high quality equity research, sales and trading execution that is free of the conflicts created by proprietary activities. Evercore seeks to hire the following for its NY office:
Associate with relevant experience. For requirements and other specifications, please click here.
Analyst with relevant experience. For requirements and other specifications, please click here.
If your firm has job opportunities, please email us at firstname.lastname@example.org.
Nothing in this email is intended to serve as financial or legal advice. Do your own research, you lazy rascals.