š„Our "Matter of the Year"š„
ā”ļøAnnouncementā”ļø
We have taken no real breaks this year (thanks COVID) and now is as good a time as any to recharge the batteries and start fresh going into 2021. We want to take this opportunity to thank all of our readers ā especially those of you who pay for all-access Membersā-only content ā for all of your support. Each year we get bigger and better and we canāt wait to grow and improve in 2021.
With that in mind, weāve got some changes in store for 2021:
Starting in January, weāre going to reward our Members for their support with more Membersā-only content. Freemium subscribers (read: those who donāt pay) will no longer get every Wednesday edition.
We will also be introducing quarterly āAsk us Anythingā discussion threads where Members will have an opportunity to pepper the PETITION team with questions, provide feedback, or suggest matters that we ought to spend more time on.
We will also (hopefully) be launching Q&A sessions ā live and via our old school āNotice of Appearanceā feature ā where you can get perspective from the various investors, lawyers, bankers, advisors and others in the space.
We are experimenting with technology to power the first ever Membersā-only PETITION-style conference. If we can get our sh*t together and make this happen, it will be a canāt miss. It really just depends on whether we can ensure that the technology can deliver on the quality that you all deserve: not some schlocky-a$$ sh*t like others are doing.
And thatās not all. We have a ton of exciting stuff on our roadmap but itās only possible if more of you get off the fence, stop free-loading, and become all-access Members. If youāve been enjoying our free content for months ā years, even ā now is as good a time as any to get in the game.
We do group Memberships. If your firm wants to join the scores of other private equity firms, hedge funds, law firms, investment banks, restructuring advisory shops, PR firms, media outlets, management teams and students who leverage our insights to be better professionals, email us and letās get ā21 off on the right foot: petition@petition11.com.
Students. If youāre a student, email us for special rates: petition@petition11.com.
And now, for PETITIONās āMatter of the Yearāā¦
š„NEIMAN! A hot mess part 3.š„
Honestly, weāre surprised this was even close:
Weāve covered the dumpster fire that was Neiman Marcus at length this year and we highly recommend you revisit those pieces to get the full flavor:
The subtitle for that last piece was āAnd yet the company achieves confirmation in 4 months.ā Thatās right. All things considered, the case breezed through to confirmation notwithstanding the drama that unfolded at the 11th hour with ā¦ you know ā¦ a smattering of potentially criminal activity. Just your ordinary day in bankruptcy court, ladies and gentlemen (we kid, we kid).
On December 10, 2020, Judge David Jones of the United States Bankruptcy Court for the Southern District of Texas held a special hearing to consider a joint motion filed by the reorganized Neiman debtors, the liquidating general unsecured creditor trust, Daniel Kamensky and Marble Ridge Capital LP seeking approval of a 9019 settlement resolving the debacle that we well documented in parts 1 and 2 linked above.
The hearing was on brand for the case: in other words, it was a bit of a sh*t show.
Before we go there, letās discuss the substance of the settlement. Mr. Kamensky agreed to:
Accept personal responsibility for his actions and pay $1.4mm to the estate as recompense for fees incurred in connection with his actions;
Steer clear of Neiman Marcus or any affiliates (other than through his participation in the plan of reorganization);
Subordinate his personal interests and claims in the cases;
Contribute $100k to charity;
Never serve on any official committee in any future chapter 11 bankruptcy case in any court of competent jurisdiction;
Complete 15 hours of continuing legal education focused on bankruptcy/ethics; and
Perform 200 hours of community service.
In exchange for the above, heāll receive a release from the debtors (though that release does not extend to the investment vehicles formerly under his control nor does it affect criminal and civil actions brought against him by the US Attorneyās Office for the Southern District of New York and the Securities and Exchange Commission). We should note that in addition to the formal settlement, Mr. Kamensky is, according to his counselās statements on the hearing record, working with professors at both NYU Law School and Harvard Business School on information/case-studies so that students can learn from Mr. Kamenskyās mistakes here.
That all sounds great, frankly. And, given that, and given all of the partiesā full support of the settlement, one mightāve expected a rudimentary hearing. Alas, this is Neiman Marcus so, like, of course not. š¤·āāļø
Letās start with the contrition. Mr. Kamenskyās lawyer apologized profusely on behalf of Mr. Kamensky, stating, in part:
Dan is, you know, in short, very acutely aware of the harm that resulted from all of these things that have occurred. First, to his family, who very much have experienced on the front lines what a bad mistake any person can make has had on him. It hurts his business, which is no longer managing the fund. Hurt his investors, who he had successfully guided for many years. And last, but certainly not least, he's aggrieved this Court and participants who he holds in high regard, and a process that he has lived in and lives and supports in all respects.
Call us crazy, but given the posture Judge Jones has taken vis-a-vis Mr. Kamensky in the case, we probably would have prioritized the court, the case participants, and the bankruptcy industry before turning to all of the personal effects. But thatās just us. Were we sitting on the bench, weād be like, āWTF dude.ā Not a good start.
Weād say that this affected the tenor of Judge Jonesā response to the presentation but that would be off base. Judge Jones clearly pre-meditated much of what he said in response. For your reading pleasure:
I saw the motion some time ago. I've read it multiple times. I had to put it down several times. I wasn't about to do this not on the record. The taint that has been caused by the actions in this case is something that reflects on us all, and there was no way that I was not going to do this in a public forum so that there was as much transparency as there could possibly be. (emphasis added)
Hold on to your butts peopleā¦with that as a preface, surely everyone knew there was about to be a new ahole ripped:
Mr. Kamensky, I know you better than you think I know you. I know exactly in your past how you have treated people that you think are beneath you. And despite the words that Mr. Melko may want to see, I don't think you're a good person. I don't think you're a nice person. And there is very much a side of me that wants to treat you exactly the same way that you have treated other people throughout your career and in your life.
But to do that, I would be lowering myself down to your level. I would be tarnishing the office that I took an oath to serve and I would be tarnishing a process that I took an oath to protect. So I'm not going to do that.
Hmmm. Youāre not? Because, weāre pretty sure you just did. Generally, in court, both sides get to put on character witnesses but whatevs. š¤·āāļø
It gets worse:
ā¦the Court believes you to be a thief, a person of the lowest character that attempted to steal, not based on need, not based on necessity, but out of pure greed. To make it worse, you attempted to steal from people that you had taken an oath to act as a fiduciary for. You then lied about it and you attempted to induce others to break the law to cover your transgressions. That's not an example of an exemplary life, in any shape, way, or form. The damage that you've caused in this case is not measured by the amount of fees. It's not measured by the amount of donations that you've agreed to make. The damage that you've caused will take a huge amount of effort and time to repair.
Donāt get us wrong. We agree, conceptually, with what Judge Jones is doing here. He wants people to read this very language; he wants it to be a STRONG deterrent to anyone who might be tempted to act like Mr. Kamensky acted. Itās an important message. Thereās too much nonsense that takes place in these bankruptcy cases and Judge Jones is right to want to level set things. Heās right when he says that Kamensky was ABSOLUTELY in the wrong, that those actions compromised the integrity of the bankruptcy process, tarnished the office of the US Trustee, affected reputations,* and overshadowed a rarity in bankruptcy: an actual retail restructuring. No doubt. We understand his anger. Itās 100% warranted.
But then Judge Jones goes off on a tangent about second chances, tells a self-congratulatory story about how magnanimous heās been in the past and will be here by providing a second chance and continues to rip into Mr. Kamensky in the process. Itās overkill. Most people will likely agree that theyād like to see Mr. Kamensky punished, not curb stomped.
Itās also a bit ironic. Here he is in an interview with Reuters published the very next day talking about how, early in his tenure, he had some transition issues (from practitioner to judge) and āā¦there are certainly some hearings where I was stronger than I needed to be. And so I, again, if I could take those back to be less strong but get to the same result, absolutely, I would.ā Um, okay. Query whether heāll eventually categorize this blatant curb stomping of Mr. Kamensky into that category?**
To summarize, Neiman Marcus is PETITIONās āMatter of the Yearā because itās emblematic of so many things that are important to the industry. First, that retail restructurings are possible; that not all retailers have to be sold for parts to some brand aggregator and/or mall operator. Hopefully this one doesnāt break PETITIONās āTwo-Year Rule.ā Second, that bankruptcy affects so many innocent bystanders and, consequently, thereās absolutely no room for shenanigans ā whether those are independent directors doing the bidding of a private equity sponsor (and/or themselves) or a committee fiduciary looking out for ānumero unoā rather than the constituency he swore an oath to represent. Every day and every dollar matters ā especially now amidst a pandemic. The more actors engage in bullsh*t like this, the greater the negative effect bankruptcy will have on the people who struggle while professionals get paid. Third, that thereās a need for more self-awareness and humility ā in front of and on the bench. And, finally, that second chances are at the center of what chapter 11 bankruptcy represents. Bankruptcy is all about a ābreathing spellā that ultimately leads to a āfresh start.ā
Hereās to hoping that neither Neiman Marcus nor Mr. Kamensky squander theirs. š„
*We do take exception to this bit:
You enticed a lawyer at the Brown Rudnick firm to participate in your wrongful actions that has resulted in the total loss of his credibility, a commodity so valuable and so rare that it simply can't be restored.
Wait. What? Come again? This may prevent us from getting any future revenue from Brown Rudnick in the future but frankly we donāt give a flying f*ck: to absolve Brown Rudnickās lawyers by diluting their actions down to being āenticedā is bullsh*t. The lawyer at issue here is a professional who has been in the bankruptcy business for decades. He shouldāve known better. He shouldāve diligenced what happened and told Mr. Kamensky to f*ck off. Under NO circumstances should he have filed an affidavit. Framing these actions in this way provides cover for Brown Rudnickās attorneys. That cover isnāt deserved.
**This is one of our faves in that likely falls into that category.
ā”ļøFeedback: PETITION can make you money. Maybe.ā”ļø
One reader wrote us:
Team Petition!
Congrats on your great call on the Broadvision common stock back on April 1st!!!Ā Final payment is pending for total proceeds of $4.98/share vs $4.375 originally forecastā¦.Ā From your recommendation back on April 1st, this trade generated a gross return of 26.7% and annualized IRR of 97.1%!Ā That should pay for a lot more Substack subscriptions!Ā
Aw shucks. We caveated the hell out of that piece so youāre giving us way too much credit but we appreciate the recognition nonetheless (reminder: PETITION is neither investment nor legal advice). That said, weāre happy to see that it turned out as advertised. Also, nothing you read here is legal or investment advice. Just sayin.
š Boards of Directors (Long Truth to Power)š
He looks quite reflective and peaceful in this ā¬ļø photo but back in October Anand Giridharadas participated in a discussion at the National Association of Corporate Directorsā annual summit and, suffice it to say, he ruffled some feathers. Here it is. Now, as noted above, weāve been critical of āindependent directorsā ourselves but Mr. Giridharadas has the luxury of calling out BS to their (virtual) faces. And itās amazing. Referring to the 2019 Business Roundtable declaration, he asks:
This is ā I have described it elsewhere without mincing words ā a hijacking of the public good by big corporations. And I do not think the corporate equivalent of New Year's resolutions is going to fix it. This being a group of corporate directors, I ask again: Where were you? Where were you in the run-up to the climate crisis? Where were you during widening inequality over the last four decades? Where were you in the run-up to the subprime crisis? Where were you in the run-up to the opioid crisis? Where were you?
Itās a stinging rebuke. But he doesnāt stop there:
A lot of your children and grandchildren do not respect your work. Some of them say this to you; some of them don't. But we know this from public attitudes. You know this from survey data. There is a sense among younger people coming of age in the most diverse, open-minded generation in American history that what their parents and grandparents did in corporate boardrooms near broke America.
Now thatās some truth right there.
Thereās a generational shift happening right now and too many seem far too intent on keeping their own power to recognize it.
š New Chapter 11 Bankruptcy Filing - Renovate America Inc.š
California-based Renovate America Inc. (f/k/a Powerhouse Service Inc.) and affiliate Personal Energy Finance Inc. (together, the ādebtorsā) filed for bankruptcy earlier this week (December 21) in the District of Delaware. The company has two business divisions:
HERO* ā which, up until October 2020, provided āProperty Assessed Clean Energyā (PACE) assessments for local projects as a lead-in to financing residential and commercial renewable energy and efficiency improvements (e.g., solar power, energy efficient windows, HVAC system units). Legislation in 2018 purportedly tightened credit underwriting criteria making it much harder for the debtors to underwrite programs for contractors seeking to leverage the program. This division also became the subject of considerable litigation with legal services agencies filing class actions predicated upon predatory assessments that people couldnāt afford to pay.** The debtorsā second largest unsecured creditor is the Office of the District Attorney for the State of California to the tune of $2.7mm. The list of top 30 unsecured creditors is chock full of law firms that provided āprofessional servicesā to the debtors. We reckon most didnāt realize that was pro bono work.
BENJI ā which provides home improvement financing to contractors and homeowners.
The aforementioned legislation and litigation created liquidity issues for the debtors ā issues that were only compounded by the onslaught of COVID-19. While BENJI enjoyed recent YOY gains, that improvement was not enough to offset the drag from HERO. And, thus, here we are. This bankruptcy filing is meant to achieve two primary objections: first, to avail the debtors of some much needed liquidity in the form of a DIP credit facility; and, second, consummate a sale process. An entity called Finance of America Mortgage LLC will serve as both proposed DIP lender ($50mm at 7% with $175k origination fee) and stalking horse purchaser. Judging by these trends, the juice appears to be in the BENJI business:
And that is precisely what the buyer is interested in. Per the debtors:
Specifically, the Debtors and the Stalking Horse Purchaser entered into the Stalking Horse Purchase Agreement, whereby the Stalking Horse Purchaser proposes to purchase substantially all of the Debtorsā Benji assets for cash consideration of approximately $5 million, which will serve as a competitive baseline of recovery for the Debtorsā stakeholders. The proposed transaction, if approved, will generate significant value for the Debtorsā estates, and among other things, is expected to satisfy a significant portion of the prepetition claims against the Debtors and pave the way for confirmation of a chapter 11 plan.
So there you have it. Weāll have to wait and see whether the auction generates additional interest such that the word āsignificantā above can actually apply (there is over $100mm in liabilities).
*Home Energy Renovation Opportunity.
**The debtors are currently involved in 56 cases and three class action lawsuits.
šResourcesš
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption.Ā š„You can find it hereš„.
š© Notice š©
Jason Ben (Partner) joined Freeborn & Peters LLP from Goldstein & McClintock LLP.
šCongratulations to:š
Brian Bolin on his promotion to Partner at Paul Weiss Rifkind Wharton & Garrison LLP.
Brian Morgan on his promotion to Partner at Faegre Drinker.
Ian Bambrick on his promotion to Partner at Faegre Drinker.
Jared Berheim on his promotion to Principal at The Carlyle Group.
John Weber on his promotion to Partner at Paul Weiss Rifkind Wharton & Garrison LLP.
Mike Gustafson on his promotion to Partner at Faegre Drinker.
Victor Noskov on his promotion to Partner at Quinn Emanuel.
William Schrag on his retirement from Thompson Hine LLP. We wish you luck in the next chapter.
Nothing in this email is intended to serve as financial or legal advice. Do your own research, you lazy rascals.
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