💥Bankruptcy in Bulk?💥
💥Bankruptcy in Bulk?💥
Silvergate Capital Corporation, Boxed Inc., Hearthside Food, Retail Ecommerce Ventures, TOMS King & More
The data continues to point to aggressive Fed action.
Last week we learned that consumer spending was up 1.1% month-over-month in January versus December. We also learned that non-housing core services PCE inflation was high at nearly 0.6%. Early this past week we learned that US core capital goods orders and shipments in January exceeded expectations (nearly hitting a record of $75.2b).
On Wednesday we learned that initial jobless claims softened…
…and saw Q422 labor costs revised upwards. The data signals a robust job market. Consequently, Fed Governor Christopher Waller leapt aboard team-hike (“higher than the 5.1%-5.4% range projected by the majority of Federal Reserve policymakers as recently as December”); Raphael Bostic, the President of the Federal Reserve Bank of Atlanta, suggested that another near term 25 bps increase is appropriate (but, on the flip side, added that hikes may need to pause this summer … mixed signals much?); Boston Federal Reserve Bank President Susan Collins added an interview with Vermont Public, "I do believe that we will need to do some additional rate increases and exactly what the right amount is really needs to be dependent on a holistic review of the information that we receive….” The bond market reacted accordingly: prices fell and yields, therefore, went up. It seems a lot of people are placing a lot of stock in the data (should they be?) and the market is now focused on a higher terminal rate (it’s up 1% since February):
Higher rate projections were also supported on Friday by the service sector which expanded more than anticipated during the month of February (clocking in at 55.1, which, we’ve noted plenty of times previously, signals expansion).1 Former Treasury Secretary Larry Summers suggested that a 50-bps increase should be in the cards at the next Fed meeting (the market seems to think that a 25-bps raise is a fait accompli).
The equity markets could give a flying f*ck apparently (and counter-intuitively). The Nasdaq Composite rose 1.5% this week and the S&P 500 was up 1.3%. Bitcoin, on the other hand, dropped from $23.4k at midnight Friday to $22.3k as of last night. Just in time for that Core Scientific Inc. ($CORZQ) equity committee to be appointed (yes, it was approved)!
With rates on the rise, issuers are being opportunistic about refinancing loans. Per Fitch, the maturity wall of loans maturing before ‘26 has fallen from $529b a year ago to $388b now. Maturity wall…lol…in our experience maturity walls are fun to point to and talk about and maybe they’re even good if you’re a distressed investor pounding the pavement for those juicy LP checks but in reality the maturity wall is often wildly irrelevant. Yield, baby, yield. Per LevFin Insights:
There were seven defaults in February that collectively totaled $4.61 billion for Akorn Operating, Altisource Solutions, Avaya, KNB Holdings, Premier Brands, Riverbed Technology and West Marine, according to Fitch Ratings. The TTM default rate ended the month at 1.9% up from 1.7% during January and 1.6% at the end of 2022.
Of these, Avaya filed BK already. Akorn couldn’t even make it to a 22; it’s in chapter 7 (lol). Riverbed Technology appears headed towards a 22 of its own. The others are, for the most part, catching the “it” wave of the moment: amend to extend, baby! Premier Brands — more recognizable as the artist formerly known as Nine West — got a deal done pursuant to which it fed lenders more yield and collateral in exchange for a two-year maturity extension and a bumped up ABL. Similarly, Altisource completed an amend-to-extend that saw it term loan maturity pushed and amended its RCF, with the lenders putting in cash in exchange for warrants. Finally, West Marine’s sponsor, L Catterton, agreed to recap the company and subordinate first-lien paper it recently put in place with large groups of first and second lien paper agreeing to exchange into new super-priority paper. If you’re reading this and you’re thinking, “wow, it sure seems like a lot of deals are still getting cut,” you’re not wrong. There’s cash out there; there’s talk of a Fed pivot and rate hike pauses and cuts later in the year; there’s patience to play out an option for when that happens rather than spend money on a bankruptcy process.
There’ve been other deals cut too. Exela Technologies Inc. ($XELA) obtained incremental financing from B. Riley Financial Inc. ($RILY) which allowed it to cure its missed interest payments prior to the expiration of its grace period. The company’s stock was up 35% this week — penny stock lovers rejoice!
Still, the high yield default rate is poised to go up as everyone waits for the Diamond Sports Group shoe to drop (which would be Paul Weiss’ third big debtor mandate in a row following Revlon Inc. and Party City Holdco). Fitch Ratings raised its default rate projection to 3-3.5% for ‘23 with the possibility of hitting 4% in ‘24. Per LevFin Insights:
The supply of non-defaulted USD bonds yielding at least 15% numbered 143 bonds as of last Friday’s close, amounting to $101 billion of face value, up from 136 bonds the previous week, according to an ICE index of U.S. high yield bonds. Broadening the search to include bonds yielding at least 10% brings the total to 271 bonds, totaling $197 billion of face value, up from 254 bonds the previous week.
There are other names kicking around too. Like HIG Capital-backed Jenny Craig which, according to Bloomberg, hired Miller Buckfire & Co. to run a “strategic alternatives” process. And Belk which seems headed for a potential chapter 22. Silvergate Capital Corp. ($SI) is certainly drawing attention — the latest possible victim of the Crypto Winter.
On Sunday we wrote about REEF Technology which, according to sources, retained Akin Gump Strauss Hauer & Feld LLP and Alvarez & Marsal LLC to pursue potential restructuring options (subsequently confirmed by The Information). The former also has Loyalty Ventures Inc. ($LYLT) in its stable and all signals point to a near-term filing there. We discuss three other situations directly below. Things definitely seem busier out there. With more activity there’s gonna be a lot more opportunity for weird sh*t to go down (this re: Voyager Digital):
Stay safe out there.
⏩One to Watch: Boxed Inc. ($BOXD)⏩
“I don’t think the stock price reflects how exciting the current situation is for us.”
We really enjoyed our 2.4 second break from talking about busted SPACs.
Back in early December ‘22, Chieh Huang, the co-founder and CEO of NY-based Boxed Inc. ($BOXD) — a wannabe e-comm-Costco that operates three lines of business, (i) a B2C ecommerce arm that delivers groceries in bulk to consumers,2 (ii) a B2B ecommerce arm that delivers groceries to businesses, and (iii) software solutions for ecommerce (dubbed Spresso) that the company licenses to enterprise retailers — made the above-noted assertion in a webcast with the investment bank UBS. The context was (a) the stock trading like dogsh*t, (b) the stock, as of November ‘22, under risk of delisting from the New York Stock Exchange, and (c) a dire need for financing. Huang added that the company was “aiming for the end of the year to announce something” related to financing and “[a]ssuming we get that done … if we’re able to bridge us to profitability using those funds, things get really, really exciting.” The company had reported a Q322 loss of $26.4mm on revenue of $41.7mm. That revenue total was down $7.4mm or 15% YOY. The net loss was also up by nearly $20mm YOY.
If those numbers don’t excite you, perhaps this stock chart will get your juices flowing:
Seriously, this is prettier than that stock chart:
A quick digression: we really ought to thank those SPAC sponsors for availing Moms and Pops of the opportunity to get in on these super-exciting growth companies (that all seem to be piling into bankruptcy court!). Glass half full? At least this one lasted more than a year, lol.3
Interestingly, the company did get its financing done. But the devil is in the details….