Mall Shenanigans (Short short-termism) & New York City Retail

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The degree of short-termism reflected in this piece is mind-boggling. In a nutshell, anchor tenants like Macy's ($M), JC Penney ($JCP) and Sears ($SHLD) are squeezing landlords over waivers of reciprocal easement agreements (REAs), often holding out for payments. Sure, we understand the basics of contract rights but it strikes us as pennywise-and-pound-foolish to delay any updates to malls on account of...signage? Maybe these guys didn't get the memo that many malls - particularly those with Macy's, JC Penney and Sears as anchor tenants - are under existential siege and everyday that passes without significant and meaningful change is another day closer to the grave. Meanwhile, the New York City retail sitch is looking bloodier and bloodier, with retail tenants seeking massive rent reductions from their landlords. Choice quote from an obstinate landlord, “None of those tenants would agree to pay more rent to me if I asked them to because the market had gone up.”Hahaha, WOW. We guess, uh, he's gotta point??

Interesting Restructuring News

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  • 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: 

Interesting Restructuring News

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  • 3-D Printing. A few weeks ago we noted the disruptive potential of 3-D printing. You can revisit that piece here. The spare parts market already appears to be under seige.
  • Automation. We hate to pick on support staff as there's been a lot of pain there the past decade but...short administrative assistants? On the flip side, note this.
  • European Distressed Debt. The vultures are looking at Spain and Italy. Meanwhile, last week Agent Provocateur, this week Jones Bootmaker = the latest PE-backed European retailer staring down the brink of administration(with KPMG hired to find a buyer).
  • Grocery. Food deflation appears to be leveling off - good news for grocers who had a rough 2016 (which we covered previously here).
  • Guns. Looks like the rise in anti-Semitism and hate crimes hasn't translated into robust gun sales: Remington Arms Co. is downsizing. The $2.6mm trade claim the company has in the Gander Mountain Company bankruptcy won't help matters either.
  • Malls. The Providence Arcade is deploying new and creative ways to put mall space to use. This brings a whole new meaning to "consumer culture." Meanwhile, more on malls becoming the new big short.
  • Restaurants. Ruby Tuesday is now for sale after closing 100 locations. UBS is apparently the financial advisor.
  • Retail. Shocker! A newly released report delineating the most valuable retail brands failed to include Charming Charlie's, Payless Shoes, rue21, J.Crew...ah, you get the point. Also notably absent from this list is Neiman Marcus which, given its lack of scale (42 stores, ex-Last Call & Bergdorf Goodman), isn't all too surprising on a relative basis but that hasn't stopped it from attracting attention from Hudson's Bay Co (note: the Canadians have been taking a lot of interest in US retail lately, see, also Eastern Outfitters). Looks like some teens DO shop at Neiman Marcus but find malls, generally, "vanilla"...choice quote here: "I like finding stuff on eBay - clothes and accessories that no one else is wearing...[e]verything you can't find in a mall." See, also, Poshmark. Meanwhile, private equity backed retail is especially sordid.
  • Retail II. Bon Ton Stores (BONT) reported higher earnings, cost savings that bested projections and a free cash flow positive '16 (compared to a wildly cash flow negative '15). But same store sales were down big. A few takeaways: 1) bad retail performance is always partially the weather's fault; 2) it's planning to make its landlords sweat with lease negotiations; 3) it's closing 46 stores in '17; 4) it's picking from the carcass of closed Macy's locations, poaching vendors and sales associates; and 5) it's still over-levered AF. While there is no near-term maturity post-retirement of the '17 second lien senior secured notes and the company claims liquidity through '17, the company is still levered at 8.5x and raising rates, generally, won't help retail. And the stock trades in dogsh*t (reverse split?) territory at $1.00. Hmmmmm.
  • Fast Forward: iHeartMedia launched an optimistic restructuring process seeking to swap more than 90% of its $20b of debt; Gymboree got a going-concern warning in the face of declining revenue and same-store sales and a 12/17 maturity; Gulfmark Offshore skipped its interest payment triggering a 30-day grace period due 4/15; the same date marks the forbearance expiration agreed to by lenders of 21st Century Oncology; and Concordia International Corp. reported HORRIBLE numbers and declined to provide go-forward guidance given the headwinds confronting drug pricers. 
  • Rewind I: We swear we're not picking on Sun Capital Partners but this week S&P Global Ratings downgraded Vince Intermediate Holdings to CCC+ making SCP's portfolio a virtual retail minefield. 
  • Rewind II: Yawn, more Westinghouse. 
  • Rewind III: Last week we covered Aquion Energy in our summaries of cases (click company name for summary). Turns out, this dog is more controversial than we thought as its another example of government subsidy gone wrong. Which is not to say we're not for experimentation/funding with/for alternative energy businesses, particularly in storage. But the comments to this seem on point.
  • Chart of the Week: 

Chart of the Week II: 

What the Pros Say (2/12/17)

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  • European Distressed Debt. Orrick and Greenhill & Co. Inc. team up to summarize the state of European distressed debt in 2017.
  • Malls. Kenneth Rosen of Lowenstein Sandler LLP discusses the need for malls to diversify given a multitude of challenges to retail. 
  • Marblegate/TIA - King & Spalding LLP's Michael Rupe, W. Austin Jowers, Jeffrey Pawlitz, Christopher Boies and Michael Handler offer their thoughts on the recent much-discussed ruling on the Trust Indenture Act. 
  • Subordination. Michael Friedman and Leo Gagion of Chapman & Cutler LLP discuss the recent Ninth Circuit decision on subordination. 
  • Survey. AlixPartners released its 2017 restructuring experts survey. Read it here. And here is a summary. 

News for the Week of 01/29/17

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  • Artificial Intelligence. Throw the phrase "AI-based" in front of anything and all of the sudden it's like gold. Including retail. We're pretty sure we'll start seeing established companies start rebranding to curtail further devolution, e.g., neiman-marcus.ai or Macy's.ai. After all, we have MacGuyver back on TV and Luke Skywalker back in the theaters...might as well get nostalgic for .com-style frenzy. 
  • Boutique IBanking. An interesting review of the stock performance of one of the original public boutique investment banking firms out there: Greenhill & Co. 
  • Coal. Longview Power CEO Jeff Keffer's assessment of the industry. TL;DR...at least under Trump there's a chance...
  • Conflicts. Believe it or not, conflicts DO exist in bankruptcy court. We're just as shocked as you, but in the Transtar bankruptcy cases, Willkie Farr & Gallagher LLP submitted a motion seeking to withdraw from the case after it determined that "in responding to requests by the Examiner in the course of its investigation, WF&G's own interests may conflict with the interests of the Debtors, or create an appearance of such a conflict." Pinch us. Jones Day LLP is apparently taking Willkie's place for the debtors.
  • Hedge funds. This about sums it up: "No matter what initial capital you give the hedge fund to start with, the hedge fund will become richer than you since its real talent is transferring your wealth into its coffers..."  Indeed, with 2/20, a hedge fund making 10% will make more money than its investors in 17 years.
  • Malls. We probably give the impression that we really love to shop given all of the mall talk lately. But, c'mon, you can talk to us until you're blue in the face about A Malls and C Malls but the truth is that A-LL malls are looking increasingly screwed. There are so many experiential possibilities. 
  • Neiman Marcus as a High Yield Sinkhole. The debt is plummeting: some holders are hitting eject on high yield retailers. And more concerns about liquidity in the bond market.
  • Taxis. So, the Uber effect is contagious? Seemingly so. Capital One Financial holds a distressed (and distressing) taxi medallion lending portfolio. Ugly chart here. Clearly the business traveler has embraced non-taxi options.
Natural gas price projections.

Natural gas price projections.

News for the Week of 01/22/17

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  • Distressed Investing. A short discussion of opportunities in post-reorg equities.
  • Fraud. With lofty valuations and lofty P/E ratios come lofty expectations. And fraud. Here's hoping this is confined only to tech. 
  • Hospitals. They're going away.
  • Malls. Simon Properties and General Growth Properties take a hit from The Limited Brands bankruptcy, which is only valuable on an IP basis. But don't worry: pop-up stores and pickup centers will ease the pain. Wait, what?
  • Mexico. Pemex is selling a baseball field to sure up liquidity. Yes, you read that right.
  • Retail & Retail Analytics. Some analytics around retail. Meanwhile, in the face of talk about renewed IPO activity in '17, Claire's Stores unsurprisingly abandoned its IPO, further calling into question Apollo's $3b take-private transaction. And then there's BCBG trainwreck. But hope is not lost for physical retail: a number of e-commerce retailers are increasing their physical presence, including Bonobos, Rent the Runway and others.
  • Rewind I: More on the Dallas pension fiasco.
  • Rewind II: New developments with Takata pummel the stock.
  • Chart of the Week: 

News for the Week of 10/30/16

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“It’s not like it was 30 years ago, but it’s a good mall”...

  • Athleisure - Lululemon, Nike and Under Armour had all killed it in recent years by focusing on athletic wear but the trend is in decline. Jeans may be making a comeback -- so long as they're not uber-cheesy, e.g., True Religion. Meanwhile, J.Crew recently announced a shift towards athleisure. Are they too late to the party?
  • More Under Armour. The Company reported down numbers this quarter, continuing to exhibit the effect The Sports Authority's bankruptcy has on its business. This holiday season will be make-or-break for a large number of retailers and may be watched closely by those who invest in malls...
  • "Dead Malls" - This really puts the disparity between "A" malls and "dead" malls in perspective: Schuylkill Mall in Frackville Pennsylvania filed for bankruptcy this week. Anchor tenants: Bon-Ton, Dunham Sports, KMart, Hess's, and Sears. The latter three closed in the last 24 months, contributing to a "large vacancy rate."
  • Fund Raising: Oak Hill Advisors raised $2.7b for its second distressed fund while Carlyle raise $1.5b for another distressed fund. Clearly folks are prepping for increased activity.
  • Last Week: To quote renowned bankruptcy expert, Keanu Reeves Esq., "Whoa". Last week we discussed the historic Saudi Arabian debt issuance in our piece about "yield." This week, a Saudi official noted that the country's continued busted budget deficit could lead to sovereign bankruptcy within a few years.
  • Last Week Part II: That Ryan Kavenaugh dude has nine lives. It looks like Relativity Media will avoid a Chapter 22 filing (or liquidation) in light of its announced $250mm sale to some Singaporean sucker. Clearly its the Netflix streaming rights that proved compelling given the whopping ~$6mm intake on "Masterminds."
  • "Captain Obvious" Headline of the Week: "Bankruptcies in Oil Field Services are Accelerating."
  • Chart of the Week: To put this in perspective, as recently as 2010, only three states had at least a 10% wind share. Think about that in the the broader oil and gas context: this energy downturn is not just debt-related. We are looking at the broad-based beginning of a secular decline.