Chart of the Week: China's Mobile Internet Usage

in

For context, there are more millennials in China than there are citizens in the United States. This screams "opportunity," which is why Apple Inc. ($AAPL) and so many others are looking to play ball there. Starbucks ($SBUX), for example, is fusing tech with retail to appeal to the Chinese consumer. The IMF, however, is concerned (must read). 

unnamed (13).png

Fear of Chinese Sinks PE Exit of US-based Aluminum Company

in

Commodities (Long Regulatory Risk! Short Aluminum?)

Per Reuters, Zhongwang USA announced earlier this week that it had called off its proposed $2.33b acquisition of once-bankrupt U.S. aluminum company, Aleris Corporation, after facing opposition from Wilbur Ross and the U.S. Committee on Foreign Investment in the United States. The issue is China, of course, which has used its competitive manufacturing advantage to effectively decimate America's aluminum capacity. It also doesn't help - for obvious reasons - that Aleris supplies America's largest combat aircraft manufacturers. Elsewhere in the world of aluminum, publicly-traded REAL ALLOY ($RELY) filed for bankruptcy this week after succumbing to its over-levered balance sheet. Why so much debt, you ask? The debtor levered up in 2015 to fund the $554.5mm purchase of aluminum recycler Real Industry Inc. from...wait for it...Aleris Corporation. Aleris is owned by Oaktree Capital Management LP ($OAK) and Apollo Management LP ($APO), which appear to have shed Real Industry Inc. at an opportune time. You win some, you lose some.

Suniva & SolarWorld May Land Their Hail Mary

in

A Critical Decision on Solar is Coming

Remember how we previously told youabout bankrupt Suniva Inc. and SolarWorld AG's efforts to get the Trump Administration to levy tariffs on foreign solar imports (looking at you China)? Well, the US International Trade Commission ruled on Friday that domestic makers are, in fact, hurt by foreign imports. There are a few admin steps before it goes to Trump but this could get interesting. Choice quote: "Hopper argues Suniva and SolarWorld are the victims of mismanagement and that the foreign-owned companies are using U.S. trade laws to bail out their bad investments." You read that right: both companies are actually majority owned by, wait for it, non-US companies. W.T.F.

Platforms (China Takes It Up a Notch)

in

We've previously championed the conspicuous rise of platforms (see book recommendation below) but didn't anticipate that you could purchase the distressed debt of Chinese steelmakers onTaobao, China's largest e-comm platform. Apparently there are now 50 websites marketing bad loans/debt in China. Choice quote: "...potential buyers...may not be as diligent in the required analysis that we deem appropriate to price a portfolio." YOU THINK? Nothing like sitting at home in your pajamas getting drunk AF and purchasing a portfolio of 118 non-performing loans from some company situated in the Yunnan province. That can only end well. 

Distressed Investors Are Bullish on China Distress

in

"Bankruptcy could become common". Ruh roh. Let the vulturing begin. NowShoreVest Capital Partners is following (firewall) Bain Capital and Oaktree Capital Management into China with a $750mm fund. And they're not alone: JP Morgan's Vice Chairman of Asia Pacific is starting his own distressed fund focusing on non-performing Chinese loans.

Interesting Restructuring News

in
  • Busted Tech. Ok, not yet. But soon. Faraday Future has cancelled its plans to build a Vallejo California assembly factory - shortly after scaling back its original Nevada facility. This Techcrunch piece says that "it's unclear where the future will lead for Faraday." Seems pretty clear to us that it will lead to bankruptcy court. And, quietly, a number of (once) high-flying startups are laying people off including, notably, Postmates and Zozi ($60mm VC - Richard Branson and others). Finally, Munchery, often hailed as a top food-delivery startup, required a recap this week to survive.
  • Grocery & Sun Capital Partners. We SWEAR we are not picking on SCP here but c'mon already: now it looks like Marsh Supermarkets is in trouble as the company falls behind on rent and quietly - well, not so quietly anymore - shuts locations. So, let's recap: in the past 6 months, SCP has seen the following portfolio companies file for bankruptcy: Garden Fresh Restaurant Intermediate Holdings LLC, Limited Stores Company LLC, Gordman Stores Inc. Maybe this will be the next?
  • High Yield. Remember a few years ago when Chobani was distressed? Now you can get in on a new offering at a premium to par, it seems. Semi-related, the bidding to lend to Westinghouse in bankruptcy was reportedly pretty intense, with Apollo Investment Corporation duking it out with Goldman Sachs, Highbridge Capital, and Silver Point Finance for the privilege to finance the nuclear power company while it figures out how to restructure its business and address two incomplete installations in Georgia in South Carolina. Yield, baby, yield. 
  • Oil&Gas. That was fast. Like super fast. Seems the new owners of Samson Resources II, LLC don't share a very "long" view of the oil and gas space - despite "having discharged approximately $4 billion of debt and nearly $300 million of annual interest expense from Samson Resources Corporation," aka the previously bankrupt entity that filed in mid-2015. And distressed investors wonder where the term "vulture" comes from. PJT Partners LP was the previous banker for the company but with the Board being what it is, there's no surprise Houlihan Lokey has a piece of the action.
  • Retail. Finish Line added itself to the long line of retailers that reported dogsh*t numbers with earnings down, same store sales down, blah blah blah. Right, and approximately 40 store closures. Naturally. Also, David's Bridal was downgraded this week. The CD&R LLC owned retailer has a $520mm term loan due in 2019 and if millennials continue to flick off conventional marriage, there's no way they'll be able to sell enough gaudy wedding dresses to manage the interest expense. And, uh oh, now there appears to be a glaring hole in the "fast fashion" narrative as H&M missed expectations with declining net profit.
  • Rewind I: 3-D Printing. Not to be a broken record about this, but it is totally real. Last week we noted Adidas' plans for it and this week Under Armour followed suit. The implications for those in the supply chain can't be underestimated.
  • Rewind II: Glass Half Full. Looks like Gordmans Stores won't be a complete liquidation after all: Stage Stores stepped up and, as part of a joint venture with Tiger Capital Group and Great American Group, will acquire roughly 50 stores with an option for a handful of others. The remainder will be liquidated but this presumably means that, for now, a couple of dozen will continue to operate. At least until the inevitable Chapter 22 that occurs after next holiday season. Kidding! (Or are we?)
  • Chart of the Week: