Automotive & "Talking Your Book"

in ,

Faraday Future Keeps the Drama Coming

The New York Times Magazine does a deep-dive this week into the future. One of the reporters says about self-driving cars, "...I think we're all radically underestimating how much will change once they arrive." On the road to this radically transformational future, there'll surely be winners and losers. We've talked about this before. Faraday Future, the would-be challenger toTesla, looks more and more like a loser every time we read something about it. But let's take a step back: we're wildly aware of investors talking their book, so to speak, in an effort to affect bond pricing, bond trading, or management behavior in the midst of restructuring discussions. They may plant something fundamentally untrue in, say, Debtwire, with the hope that the market will read it and market forces will bend to their benefit. Oldest trick in the book. But we're not sure we've ever seen the next-level sh*t reported here: that is, that someone purportedly created a fake FF powerpoint presentation to suggest an imminent bankruptcy and force out the company's main financier. Choice response: “These documents were not created by Faraday Future, nor were they created on behalf of Faraday Future or at Faraday Future’s request,” said a spokesperson. Interesting. Was this the work of some sloppy lawyer or banker who left a pitch-book sitting around? (Haha, probably yes). Inquiring minds want to know.

Electric Cars & Car Insurance

in

If all you do is look at headlines, this piece may give you the impression that electric cars are doomed. Tack on Tesla's underwhelming news and attendant stock decline (prior to Friday's slight recovery) and that view may be warranted. But let's back up a minute: does a $100-200 charge move the needle for purchasers of electric vehicles? Speaking of vehicles, how is the auto insurance industry looking as we enter the next phase of electric and autonomous car adoption? According to KPMG, not good.

Interesting Restructuring News

in
  • Grocery. Cerberus Capital Management-owned Albertsons is reportedly in talks regarding a possible take-private buyout of publicly-traded grocer Sprouts Farmers Market ($SFM). Given the tough grocery environment, this is an interesting development. And it may get EVEN MORE interesting given this.
  • Oil&Gas. Crude stockpiles hit a modern record this week as American producers basically flick off Saudi Arabia/OPEC and produce, baby, produce. Crude priced down to ~$48/barrel. This - and the embattled state of Seadrill Ltd. - isn't stopping John Fredriksen from looking at picking off offshore assets. Speaking of offshore assets, the oil players are going face-to-face with power suppliers - for wind. Meanwhile, a dissenting view relating to the effect of the rise of electric cars on oil demand (paywall). Elsewhere, in Canada...
  • Retail. Bebe Stores Inc. ($BEBE) is plans to shut down its brick-and-mortar locations and become an exclusively e-comm brand - a plan that depends on the sudden charity of landlords who have shown ZERO propensity for flexibility with retail tenants. Seriously, like, ZERO. See, e.g., THE TRAIL OF RETAIL CORPSES LINING THE 2017 BANKRUPTCY ROLLS. Meanwhile, Land's End ($LE) continued to suffer from its association with Sears while reporting a perfect storm of, wait for it...decreased net revenue, decreased catalogue and e-commerce revenue, decreased same-store sales, and worsening gross margin. J.Crew  reported sliding sales, revenue and same-store comps but nevertheless reported a (very) small profit - largely on the back of Madewell. And then there is Nike ($NKE) which, in its quarterly report, noted increased profit but modest sales growth in the face of online shipping headwinds.
  • Retail II. Uh oh. It appears that Walmart may be getting it's (e-commerce) sh*t together which doesn't bode well for brick-and-mortar already suffering from the Amazon onslaught. Speaking of which, peace out Payless Inc. Wethinks we'll soon be saying "peace out" to a bunch of Chinese shoe manufacturers on top of the thousands of American jobs that will be wiped out. But dividends for Golden Gate Capital and Blum Capital Partners!
  • Rewind I: We have taken a little bit of heat for two mentions of 3D-printing in this newsletter; we have been accused of over-hyping the technology and its near-term ramifications. Well, noting the Adidas announcement this week, have we?? 
  • Chart of the Week: 

News for the Week of 2/12/17

in
  • Coal. Prices have risen and Trump is promising assistance. Is this enough to offset sagging demand? China's new measures aren't helping. But the capital markets are, as Peabody Energy, Arch Coal, and Contura Energy are all taking advantage of cheap financing/refinancing options. Peabody shopped an upsized term loan (by $450mm) with revised company-favorable pricing; it also issued new notes and bonds. Amazing how quickly things changed with coal.
  • Chicago. S&P is making threats. 
  • Electric Vehicles. Something tells us that oil and gas management teams and their wildly astute restructuring bankers and advisors neglected to bake this element into their business plans. 
  • European Debt. Increasing concerns about Italy and Greece. Meanwhile, in France, CVC Capital Partners' owned vehicle leasing firm Fraikin has hired Rothschild to restructure its 1.4 billion Euro debt. Lazard will represent the mezz debt.
  • Moelis & Co. & Aramco. "Ken of Arabia"? C'mon, that's just dumb.
  • Power. California has more power plants than it needs. After a slate of power-related bankruptcies, it looks like there is more hurt to come in this space. And big developments on the storage side probably won't help. And this new cooling tech won't help either - if it's legit.
  • Retail. And people wonder why private equity is vilified...case and point: Rackspace. Speaking of private equity, Canada Goose's proposed IPO reeks of a dump-and-run on greater fools. Millennials don't spend money, but Bain Capital will have us believe that $900 fur-lined jackets are the exception to the rule. Riiiight. 
  • Retail Part II. Organized Retail Crime = massive problem. 
  • Retail Part III. Gander Mountain = toast.
  • Retail Part IV. Amazon announced that the number of third-party sellers on its B2B site has reached 45k, up about 50% from the approx 30k sellers it had at the end of Q2...IN JUNE.
  • Return of the Maturity Wall. Nothing gets restructuring professionals' juices flowing like sexy maturity stats. So, here it is: $2 trillion of corporate debt comes due in five years. And this is, in part, because the capital markets are definitely wide open right now in the face of soon-to-be rising interest rates. Take THAT wall, President Trump! 
  • Sears. Everyone is looking at this oncoming trainwreck and wondering "when?", not "if." Nice recent CDS movements on it but then the company unearthed a remarkable $1b in cost savings. Like, out of nowhere. And, naturally, the stock soared 25+%.
  • Spotify. Typically there are tremors before the earthquake. Perhaps Filip Technologies, Violin Memory, and Nasty Gal are the tremors foreshadowing a venture debt-backed reckoning on the horizon. It's unclear. But, in Spotify's case, the interest ratchets attached to $1b of debt get more and more expensive with each consecutive quarter sans IPO. A big "unicorn" is going to fail and fail big. Spotify may not be the one, but it ain't looking great. But that one IS coming (Zenefits anyone?). Along these lines, how the eff is Theranos not bankrupt yet? 
  • Takata. Inching towards bankruptcy.
  • Fast Forward: Most retail-focused restructuring pros emphasize "omni-channel," the latest retail buzzword that, practically speaking, means basically nothing in today's climate. Case and point: Neiman Marcus, which was downgraded this week with projected 10x leverage on $4.77b of debt. Most of the cap stack traded at new lows this week. Omni-channel ain't a panacea, it appears.
  • Rewind I: This result for Relativity Media sure sounds positive.
  • Rewind II: The grocery space is getting hammered so badly that now even Whole Foods is retrenching, shutting more stores than it's opening go-forward.
  • Chart of the Week: 
Screen Shot 2017-02-10 at 5.14.32 PM.png

News for the Week of 12/11/16

in
  • Argentina. Lawyers get credit for a break in the 15-year impasse.  
  • Distressed Legal Debt. Wait, say what? Anchorage Capital purchased Citi's debt in law firm Slater & Gordon for $0.38/on-the-dollar. 
  • Solar & Wind. In the wake of La Paloma Generating and Illinois Power Generating Company (Genco) both filing for bankruptcy (see below), solar seems to be gaining momentum with measurable progress in Florida and California (San Diego). But not just solar: this week Google announced that its reducing its carbon footprint with direct purchases of renewable (wind) energy. See Chart of the Week II below.
  • Fast Forward: UnderArmour announced this week that, starting in 2020, it has exclusive rights to produce Major League Baseball's uniforms. While this is a way off and numbers for MLB fanhood may be even weaker than today, this is a big deal for them and a major loss for Majestic Athletic. Cause and effect: we're wondering what this will mean for Majestic's business go-forward...
  • Rewind I: Dead Malls. People can't seem to talk about this enough: here, some ways to invest it.
  • Rewind II: Dallas. We previously mentioned the pension issues there and talk of Chapter 9. This week Moody's released a report highlighting that Texas' four largest cities have a combined $22.6 billion in underfunded pension liabilities. Yikes.
  • Rewind III: Last week we noted the injunction in place delaying, for now, a mandated overtime pay rule that is thought to endanger retail profits further. Some companies have decided to implement the change preemptively. 
  • Chart of the Week: When viewed in tandem with last week's chart about peak oil, the rise of battery-powered cars is marked.  

Renewable energy use...this is changing rapidly: