Briefing - 2/25/18
(Read Time = 8.93 a$$-kicking minutes)
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Feature: Tops, Toys, Amazon & Owning the Robots
In a continuation of the recent grocery bloodbath, Tops Holding II Corporation, a northeastern grocer with 169 stores, filed for bankruptcy on February 21 in New York. As is customary, the company filed a “First Day Declaration” as evidentiary support for its bankruptcy petition which tells the company’s story, including how and why it ended up in bankruptcy court. Notably, the Declaration launches that story with union metrics - a not-so-swell sign for employees.
Tops has 14k total employees. 12.3k of them are unionized There are 12 different collective bargaining agreements. And, there is an ongoing dispute with pensioners:
"[T]he Company has been embroiled in a protracted and costly arbitration with the Teamsters Pension Fund concerning a withdrawal liability of in excess of $180 million allegedly arising from the Company’s acquisition of Debtor Erie Logistics LLC…."
The company continues,
"Utilizing the tools available to it under the Bankruptcy Code, the Company will endeavor to resolve all issues relating to the Teamsters Arbitration and address its pension obligations, and the Company will take reasonable steps to do so on a consensual basis."
(Shaking heads). Mmmmm. We bet it will “address its pension obligations.” For the record, the pension is underfunded to the tune of $393mm.
But that is not all. The company will also seek to deleverage its ballooning balance sheet and take care of some leases and supply agreements. The company has secured $265mm in DIP financing to fund the cases; it says that it "intend[s] to remain in chapter 11 for approximately six (6) months." We'll believe that when we see it. Anyway, WHY does Tops need to take all of these steps? Well, private equity, of course:
Despite the significant headwinds facing the grocery industry, over the past five years, the Company has experienced solid financial performance and has sustained stable market share. The vast majority of the Company’s supermarkets generate positive EBITDA and the Company generates strong operating cash flows. Transactions undertaken by previous private equity ownership, however, saddled the Company with an unsustainable amount of debt on its balance sheet. Specifically, the Company currently has approximately $715 million of prepetition funded indebtedness...."
Ah, private equity = a better villain than even Amazon ($AMZN). But hold on, you didn’t actually think Amazon would skate by unscathed did you? The company continues,
“The supermarket industry, including within the Company’s market areas in Upstate New York, Northern Pennsylvania, and Vermont, is highly competitive. The Company faces stiff competition across multiple market segments, including from local, regional, national and international supermarket retailers, convenience stores, retail drug chains, national general merchandisers and discount retailers, membership clubs, warehouse stores and “big box” retailers, and independent and specialty grocers. The Company’s in-store delicatessens and prepared food offerings face competition from restaurants and fast food chains. The Company also faces intense competition from online retail giants such as Amazon.”
In Bentonville, Arkansas some Walmart Inc. ($WMT) employee is sitting there thinking, “Why does Amazon always get the credit and free publicity? WTF.” Anyway, the company adds that food deflation, price wars and its higher cost structure (read: unions) compressed margins relative to the competition, furthering the need for a restructuring.
Now, the company notes that all but 21 stores are “currently generating positive EBITDA.” And in court, attorneys from Weil Gotshal & Manges LLP represented that there wouldn’t be a significant footprint reduction (note: a motion is on file to reject the leases of 3 “dark stores”). All of this seems right if the stores are EBITDA positive but we’d bet that (i) there’ll be some closures and (ii) the company will try to “consensually” squeeze its unions for some meaningful union/pension concessions. In other words, the little guy definitely isn’t getting out of this situation at par.
*****
Speaking of the affected little guy, it looks increasingly like Toys R Us is, in fact, an explosive dumpster fire. Consider this week’s news:
Toys R Us UK is on the ropes with more than 3k jobs at stake.
CNBC reported that Toys R Us is in danger of breaching a covenant in its $3.1b DIP credit facility. Like, already. Why? Because holiday sales were obviously abysmal.
The Wall Street Journal reported that Toys R Us may close another 200 stores AND renege on its previous promise to pay severance to those employees burdened with digging their own graves, so to speak. Note, though: a Toys R Us spokesperson claimed that talk of additional closures is premature. Premature but not necessarily inaccurate.
All of this noise will do nothing but create a negative cascading effect with those very parties who were supposed to take comfort from Toys’ massive $3.1b DIP financing package. Apropos, suppliers are contingency planning. Per USAToday:
“Industry analysts who attended Toy Fair said they saw manufacturer support for Toys R Us shift during the four days of the fair, with vendors signaling that they are preparing for life after Toys R Us.”
And, rightfully so. JAKKS Pacific Inc. ($JAKK) reported earnings earlier this week and the company led with Toys R Us in its earning release:
“A number of factors contributed to a soft fourth quarter, including the bankruptcy of Toys R Us….”
Net sales were down $31mm YOY and gross margin decreased by 8.1%. The company reported a net loss per share of $1.33. Ouch. Better contingency plan faster, dudes.
*****
So back to Amazon. Tops blames Amazon. Toys R Us blames Amazon. Everyone blames Amazon. For bankruptcy. For job loss. And yet Amazon Prime subscriptions grow exponentially (to 64% of households). Amazon’s stock price hit $1500/share on Friday; Amazon may soon race past Apple in market cap. As Scott Galloway points out:
“Consider that Amazon, with a market cap of $591 billion, is worth more to the stock market than Walmart, Costco, T. J. Maxx, Target, Ross, Best Buy, Ulta, Kohl’s, Nordstrom, Macy’s, Bed Bath & Beyond, Saks/Lord & Taylor, Dillard’s, JCPenney, and Sears combined.”
Where does this take us? Columbia professor Tim Wu recently wrote in The New York Times,
“Americans say they prize competition, a proliferation of choices, the little guy. Yet our taste for convenience begets more convenience, through a combination of the economics of scale and the power of habit. The easier it is to use Amazon, the more powerful Amazon becomes — and thus the easier it becomes to use Amazon. Convenience and monopoly seem to be natural bedfellows.
Given the growth of convenience — as an ideal, as a value, as a way of life — it is worth asking what our fixation with it is doing to us and to our country.”
Yes. Yes, it is. Eric Newcomer writes in Bloomberg,
“And we haven't event talked about Amazon yet. Cities are prostrating themselves at the company's feet, trying to secure its second headquarters. Amazon can do no wrong in consumers' eyes. But if you talk to bankers or business people, Amazon is the one that strikes the most fear in their hearts. It controls more than two-thirds of the U.S. e-book market now. Amazon alone has the stock market's support to enter new industries, drive margins to zero and destroy rivals in search of more scale. It's great for shoppers and terrifying if you're in the grocery or pharmaceutical business.”
Galloway, in calling for the breakup of the “Big Four,” mind you, adds the following,
“Consider: Amazon has become such a dominant force that it’s now able to perform Jedi mind tricks and inflict pain on potential competitors before it enters the market. Consumer stocks used to trade on two key signals: the underlying performance of the firm (Pottery Barn’s sales per square foot are up 10 percent) and the economic macro-climate (more housing starts). Now, however, private and public investors have added a third key signal: what Amazon may or may not do in the respective sector.”
To his point, in the absence of some externality (and, to be clear, we’re not taking a position on regulation here), Amazon’s reach is astounding. Said another way: many more bankrupted companies are going to blame Amazon in First Day Declarations.
*****
Which brings us back to the viral Josh Brown “Just Own the Damn Robots” piece we’ve referred to before. As businesses are disintermediated and people lose their jobs, pensions, and employee stock plans (here, Appvion), its no wonder that the FANG stocks continue to shoot through the roof. Just. Own. The. Damn. Robots. But it’s not the people who are losing their jobs, pensions and employee stock plans that are buying Amazon stock at $1500/share. Significantly, Jeff Bezos is reticent to do a stock split. And so, more likely than not, those very same people are shut out from that equity growth story too. No job and no wherewithal makes ownership - of robots, of anything - pretty damn hard.
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News of the Week (7 Reads) - Sponsored by B. Riley FBR
1. Guns (Long Civil Division…and Professional Fees)
The Parkland situation is nothing short of heart-breaking: it has had us depressed all week. Looking for a positive, here, we’re as impressed by the composure of the Parkland students in the wake of that travesty as we are in the ability of parents to restrain themselves from tarring and feathering Marco Rubio during that CNN town hall. Were we in Westeros, homie would have gotten sh*t hurled at his face and his arms ripped out. Not that we’re advocating that. Just saying: it could’ve gotten ugly. The fact that we’re thrilled that this WASN’T the result just goes to show how low the bar is for civil discourse these days.
Other positives, Blackrock, the leader in the massive ETF space, is now saying that it wants to reach out to gun manufacturers “to understand their response” to the shootings. To quote Lester Freeman in the Wire, “follow the money.” Indexes, however, are complicated: Blackrock may be subject to index-oriented limitations that hinders its ability to take action against gun manufacturers. Still, any pressure is a positive development. Especially when coupled with the corporate response to the NRA.
All of which brings us back to Remington Outdoor Company. As we previously snarked in our mock First Day Declaration, well…f*ck them. Note that the lenders are putting $145mm of fresh capital into the thing. The term lenders will own the majority of the company and the third lien lenders will own the rest (plus warrants for upside…you know, in case more people die, regulators threaten to curb gun access, and 2nd Amendment fanatics need to run out and stock their 16-deep arsenal with another AR). Who are these lenders? According to Felix Salmon, they include Franklin Templeton and JPMorgan Asset Management. Marinate on that. Can’t imagine that all of the fine folks at Alvarez & Marsal and Milbank Tweed feel great about making fees on the mandate either…?
2. Berkshire Hathaway (Long Inflated Asset Values)
The Oracle of Omaha released his investment letter yesterday and, as always, its replete with wisdom for anyone interested in fundamental value investing. And the prospects for M&A. In Warren Buffett’s words:
“In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.
That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers.
Why the purchasing frenzy? In part, it’s because the CEO job self-selects for “can-do” types. If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.”
Interesting analogy but, ok, sure. Buffett continues with thoughts that ought to resonate with pros in the distressed space who, far too often, see leveraged acquisitions premised on synergies that never come to pass:
“Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. Subordinates will be cheering, envisioning enlarged domains and the compensation levels that typically increase with corporate size. Investment bankers, smelling huge fees, will be applauding as well. (Don’t ask the barber whether you need a haircut.) If the historical performance of the target falls short of validating its acquisition, large “synergies” will be forecast. Spreadsheets never disappoint.
The ample availability of extraordinarily cheap debt in 2017 further fueled purchase activity. After all, even a high-priced deal will usually boost per-share earnings if it is debt-financed. At Berkshire, in contrast, we evaluate acquisitions on an all-equity basis, knowing that our taste for overall debt is very low and that to assign a large portion of our debt to any individual business would generally be fallacious (leaving aside certain exceptions, such as debt dedicated to Clayton’s lending portfolio or to the fixed-asset commitments at our regulated utilities). We also never factor in, nor do we often find, synergies.”
So, affirmation of a number of macro themes that ought to portend well for distressed players in a few years: (i) excess capital supply, (ii) resultant inflated asset values, (iii) lack of discipline, and (iv) over-leverage.
3. Pensions (Long Slow-Burning Crises?)
Corporate pensions are again an issue in bankruptcy court after a slew of filings riddled with underfunded programs and vociferous constituencies, e.g., Tops Holdings, Cenveo Inc., Appvion Inc. Outside of bankruptcy, underfunded public pensions are also getting increased attention. In Kentucky, state Senator Joe Bowen filed a new pension plan “designed to save the Bluegrass State’s public pension system” and address the state’s $60b unfunded liability. And its a whopper. The plan (i) requires a subset of teachers and government workers to put in an additional 3% toward health benefits (PETITION NOTE: there goes those tax reform benefits), (ii) eliminates cost of living adjustments for new teachers and cuts current teachers in half, (iii) unused sick days will no longer be eligible as an early retirement credit, and (iv) benefit calculations (read: how much you get paid upon retirement) will be rejiggered to require more service time to get paid a pension based on the “highest three years” of salary.
Elsewhere, in California, the California Public Employees Retirement System made a change to its amortization policy requiring the recoupment of future investment losses in 20 rather than 30 years. What does this mean? It means the state government and thousands of local government agencies and school districts will have to accelerate their mandatory contributions to the trust fund. Critics are b*tching that this accelerated schedule will push cities into Chapter 9. Assuming the pension’s 7% investment earnings target is realistic, the system is STILL underfunded by 33%. Choice quote,
“So on one hand, CalPERS is doing what it has to do to remain financially solvent, but on the other hand its self-protective steps threaten local government solvency. That’s the crisis in a nutshell.”
3. Retail (Long Sheep Farmers & Footprint Consolidation, Short Mozzarella Sticks)
When Allbirds opened its SoHo location late last year, we were convinced that it would be a short-lived hype storm. Maybe we were, gulp…wrong? The footwear startup is now credited for launching a wool fad, with Adidas, Lululemon ($LULU) and Under Armour ($UA) all adding wool to its product line. The result? Supply issues. The sheep population in Australia and New Zealand is at a 100-year low and, therefore, wool prices are on the rise. Are consumers seeing price increases? Not yet. But it looks imminent.
Looks like Stride Rite could’ve used some wool shoes in its stocks. Parent company, Wolverine Worldwide Inc. ($WWW), announced earlier this week that the children’s shoe seller closed 215 stores (leaving only 80 remaining). There are heaps and heaps of “#retailapocalypse” lists out there: query whether they’re taking into account all of the non-bankruptcy closures…?
Speaking of non-bankruptcy retail closures, in entertainment retail, Fye has quietly shed stores. Yes, Fye still exists to satisfy all of your CD buying needs (apparently they didn’t get the memo that cds are being discontinued all over the place). They shed 30 stores since last year and 14 since last quarter.
In the search for a penny here and a penny there in retail finances, the latest hot topic - in the wake of L.L. Bean’s criticized decision to scrap its endless and uber-forgiving return policy is…wait for it…return policies (frankly, we, also, wondered by L.L. Bean didn’t simply implement a registration policy). While we feel as if the issue is a bit over-blown - what percentage of people make buying decisions based on the return policy (serious question: email us if you have a view)? - this is yet another consideration that retailers are grappling with in real time.
Interestingly, while incumbent retailers wrestle with all of these challenges, Snap Inc. ($SNAP) just auditioned its “discovery” chops with a Nike Inc. ($NKE) partnership showcasing the new Air Jordan kicks. Here’s the kicker via ReCode:
“Guests were then able to purchase the sneaker right within Snapchat with the help of technology from the e-commerce software company Shopify. And most of the kicks were delivered to customers on the same day, thanks to a logistics startup called Darkstore.”
Order in app. Seamless payment with Shopify (which accepts ApplePay - just a thumbprint). Same day delivery via Darkstore (address already embedded thanks to ApplePay). Retailers are so effed.
And, finally, as yet another example of the casual dining space spiraling downward, Dine Brands Global ($DIN) indicated earlier this week that it intends to shutter 80 Applebee’s locations, on top of the nearly 100 it shut last year.
4. Soda (Long the Innovator’s Dilemma)
We had to put down our LaCroix just to type this next bit (kidding: we can’t afford LaCroix until more of you become Members, hint hint). We’re a newsletter about disruption and so we’d be remiss if we didn’t highlight what’s happening with Coca-Cola ($KO). What’s happening, you ask? Look at this chart:
While Coca-Cola is obviously one of the best brands in the world and certainly not going anywhere near bankruptcy court, it is - flat stock price reflected - also clearly a brand under siege on a variety of fronts. Take a look at this chart:
Bottled water consumption has tripled since 2000 and volume surpassed soda in 2016.
“Value-added” water, like, flavored waters, have grown by 3000% since 2000. The flavored seltzer market grows 10% a year. Here is the chart for LaCroix’s parent company, National Beverage Corp. ($FIZZ):
We’re all addicted to coffee. Coffee is trending towards passing soda in sales sometime in the early 2020s.
Yo. What up, bro? Energy drinks have grown by 5000% since 2000.
All of which goes to show that an incumbent is never to big to flail. Anyway, KO seems to believe that these are all things a good design team can address. We’ll see.
One thing to note: Warren Buffett owns 400 million shares of Coca-Cola, representing 9.4% of the company; he doesn’t seem overly nonplussed by these trends.
5. Fast Forward
Distressed Healthcare (Long Assists to Assisted Living). Nursing home and assisted living operator, Genesis HealthCare ($GEN), announced this week that it secured (i) a new $555mm asset-backed lending facility to pay down its existing $525mm facility and (ii) a new $40mm term loan extension - a $70mm enhancement to the company’s liquidity profile. As restructuring professionals circle around healthcare looking for some big action (and not really finding any), this was pretty big news. Meanwhile, Signature HealthCARE is looking to restructure its situation - a sitch that includes missed rent payments to landlords Omega Healthcare ($OHI) and Sabra Health Care REIT ($SBRA). Bankruptcy remains a possibility. Assisted living chain, HCR Manorcare ($HCR), won’t be so lucky; sources indicate that it is likely to file a prepackaged bankruptcy in the next week.
FirstEnergy Solutions. Tick tock, tick tock, tick tock.
Nordstrom ($JNW). The founding family hopes to announce a go-private transaction prior to announcing its earnings on Thursday. No financing package is in tow, yet.
6. Previously on PETITION
In “High Yield Investors May be Underestimating Tax Reform,” we highlighted how Guggenheim predicted a recession in late 2019 or early 2020. KKR has weighed in and they think there’s a 100% chance of a recession in the next 24 months.
****
In “#MeToo in Finance?” we noted how, weeks after tech and entertainment, the media started focusing on finance. Subsequently, a Managing Director at TCW Group filed a lawsuit in New York state court alleging discrimination and harassment. TCW has filed a response.
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In “The U.S. Postal Service Could Use Bankruptcy,” we discussed the unmitigated disaster that is the USPS. This week, JP Morgan ($JPM) analyst Brian Ossenbeck indicated that Amazon’s announced foray into B2B shipping is going to suck even more of the life out of the USPS. He wrote,
“We believe the headline overlooks the primary company at risk, which is the U.S. Postal Service. We estimate the USPS is Amazon's largest carrier so not only does it stand to lose volumes from Shipping with Amazon, but it generally lacks the same labor flexibility and service offerings; postal workers are unionized and Amazon Flex drivers can also provide premium products and services such as perishable goods and same day deliveries."
Maybe some of Facebook’s ($FB) planned verification postcards would help offset the loss (tisk tisk).
****
Speaking of owning the robots, we suggested in “Is Spotify Ultimately the Death of Music?” that Liam Gallagher and other creatives ought to be stoked about Spotify’s imminent direct listing, as it will give them the ability to exercise some (ownership) control over their own fates. We apparently under-estimated Daniel Ek: like Evan Spiegel and Mark Zuckerberg before him, the entrepreneur is positioning Spotify to be a dual-class issue. Which means he’ll maintain control via super voting power (even if that means some stock price suppression from lack of inclusion in index funds). Sorry to get your hopes up Liam.
Chart of the Week
The percentage of loans that are “stressed” in the portfolios of business development corporations (BDCs) is back on the upswing. Investors drawn in by the appeal of high dividend yield may get a surprise as lots of BDC money chases limited opportunity.
Resource Recommendations
It was clear from our survey results that people are hungry for a$$-kicking resources on the topics of restructuring, tech, finance, and disruption. We started compiling a "reading list," of sorts for your benefit. You can find it here. The list is expanding regularly.
Pros Say
Decentralization/Cryptonetworks. Chris Dixon drops some serious knowledge here on “Why Decentralization Matters.”
Retail. Tiger Group’s Michael McGrail expounds about the state of retail in 2018. While we don’t typically highlight bits of content in this section, there are some real gems in here that warrant extra attention:
“The trend toward retail bankruptcies, in other words, shows every sign of continuing this year and will probably be a fact of life into 2019. While some analysts see things differently—they predict either a slowdown in bankruptcies and store closures or even an outright reversal of fortunes—we do not find their arguments persuasive. The safest bet, as we see it, is that today’s generally positive economic trends will not be enough to save many of the decades-old chains that are nearing the end of their lifecycles.”
“Historically, when you analyzed the profit-and-loss statements of retailers’ individual stores, you could always count on roughly a third of them being unprofitable, while another third would merely break even on their four-wall expenses. Located in top-performing markets and malls, the remaining locations would make all the money. With the ongoing shift in consumer spending, it is increasingly the case that those middle stores—the ones that used to break even on their expenses—are now losing money.”
Of course we’re gonna cherrypick a conclusion that we’ve been harping on since our inception:
“Given the ongoing contraction of sales in U.S. brick-and-mortar retailing, the generally lower profits at such expansion stores are now a liability for those chains that chose to grow. This is particularly true of locations in struggling “B” and “C” malls and shopping centers. However, because of the high rents that prevail in urban “A” malls, even stores in these generally healthy properties can suddenly fall into the money-losing bucket if their sales take a hit.”
We’ll come back to this. But, wait, there’s more:
“The shift in consumer spending patterns is visible on a number of fronts. In the past, national retailers routinely signed leases running anywhere from 10 to 20 years. Today, some of these same chains are asking for short-term leases with 5-year renewal options. You also see it in the reduced recovery values for certain retail segments. In furniture, hanging a going-out-of-business sign no longer results in the same level of traffic and sales it once did. The same is true of GOBs for mall-based retail stores due to less foot traffic. Smartphone-addicted tweens, once the prime sales target, now barely acknowledge the existence of malls, much less go to them. As a result, U.S. mall traffic decreased 5.5% year-over-year in 2017 alone.”
And finally,
“In furniture, meanwhile, multi-region chains such as Ashley Furniture and Bob’s Discount Furniture are putting heavy pressure on regional, mid-tier players. The latter chains tend to rely on an old-school model in which young couples order furniture that takes six or seven weeks to arrive. But Millennials, who are accustomed to instant gratification and the fast-paced world of ecommerce, want to buy a couch for $799 and have it delivered the next day. We will likely continue to see filings in the home furnishings sector in 2018.”
On an aside, National Real Estate Investor spoke with Andrew Graiser, co-president of A&G Realty Partners, which is involved in Toys R Us, among many other distressed situations. He states,
“However, there are certain parts, even within an A center, where the location is just not that great and some retailers are still not doing well there. But overall, the A, A-plus centers are doing fine. You have to also look at how many malls are in the marketplace.”
Seems a bit equivocal on the A piece to us but we may be engaging confirmation bias.
Events
JPMorgan 2018 Global High Yield & Leveraged Finance Conference, 2/26, Miami
Houlihan Lokey’s Annual Energy Conference, 2/27, NYC.
Latham & Watkins Cocktail Reception, 3/1, NYC
IWIRC at the Shore, 3/1-3/2, Atlantic City NJ
Notable: What We're Reading (9 Reads)
50 Most Innovative Companies. Fast Company released its list. Spoiler alert: shockingly, Amazon ($AMZN) is not #1.
Busted Tech (“Failing fast isn’t failure, it is accelerated learning”). Hardware is hard. Wearables are hard. And digital health is hard. Apple ($AAPL) moved 18mm Apple Watch units in 2017, a 50% increase from the prior year. It sold 8mm watches in Q4 alone - more than Rolex, Omega, and Swatch combined. It’s no surprise, then, that Nokia ($NOK) is performing a strategic review of its digital health business (read: considering shuttering its digital health business), a unit that subsumes its $190mm acquisition of French startup, Withings. Nokia had previously written down the Withings purchase by $164mm, a significant haircut. Like we said, hardware is hard - unless you’re Apple (someone please tell Spotify).
Faraday Future. We missed this a week ago but the company has apparently found some sucker…uh, investor…to write it a $1.5b check, a bananas sum for a company embroiled in all sorts of drama including a lawsuit against its former CFO.
FTI Consulting Inc ($FCN). Restructuring revenue came in at $130.5mm for 2017, a 15.2% increase.
Gawker (Long Quid Pro Quos). Man, this story gets better and better with age. Per Buzzfeed, it now appears that some mysterious mastermind pitched Peter Thiel the idea to sue (and ruin) Gawker, and subsequently arranged it, in exchange receiving, seemingly, some capital for the launch of a new asset management company. Salacious AF.
Grocery (G-d Bless America). In the same week that ANOTHER supermarket chain filed for bankruptcy and Walmart Inc. ($WMT) reported underwhelming numbers, Cerberus Capital Management LP’s Albertsons scoops up a piece of Rite Aid Corp. ($RAD) in what many view as a precursor to going public.
Hedge Funds. Dealbreaker sh*ts on David Einhorn of Greenlight Capital. And Elliott Management’s Paul Singer sh*ts on Bitcoin.
Oil & Gas (Consolidate Baby, Consolidate). Borr Drilling Ltd. has agreed to acquire Paragon Offshore Ltd. for $232.5mm in a positive sign for post-reorg industry consolidation. Meanwhile, SandRidge Energy ($SD) paid a $3.7mm termination fee after walking away from Bonanza Creek Energy ($BCEI) at the behest of Fir Tree Partners and Carl Icahn. Midstates Petroleum ($MPO) remains in play.
Private Equity (Size Matters). Apollo Global Management, KKR, Blackstone & Carlyle are getting even MORE massive. Enter Goldman Sachs Group Inc. ($GS) to made said PE shops even MORER massive (existing investments include Accel-KKR, ArcLight Capital Partners and Riverstone Holdings). And, here, the state of private equity generally. Choice bit,
“In 2007, private equity debt levels reached 5.2x ebitda. Today, they are at 5.8x ebitda, and they have been above 5.2x every year since 2013. The 2007 vintage deals did not end well for investors. Today’s higher-priced and more leveraged deals could end even worse.”
Yes, they could.
Notice and Congratulations
Notice:
Keith McGregor (Senior Managing Director) has joined FTI Consulting Inc. from EY.
Congratulations:
To Southpaw Asset Management for breaching the $3b threshold.
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