“…now I’m a spent firework; but at least I’ve been a firework.”

 David Mitchell, Cloud Atlas

covenant-lite

  • Lenders Can Only Watch as Covenant-Lite Debt Strips Influence (Bloomberg, Reuters Breakingviews): Yield hungry investors are accepting minimal creditor protections, with the majority of high yield issues in 2016 having been “covenant lite”. The challenge of these structures is that, when companies begin to show signs of strain, creditors are powerless to act.  The Caesars bankruptcy might be the exception that proves the rule.  In that case, private equity firms Apollo and TPG were outmaneuvered by junior creditors, who appear to have increased their recovery by 70 percent from initial offers.  Ironically, junior creditors were substantially aided in their efforts when a court-appointed examiner found that Apollo and TPG could be liable for damages of $5 billion arising from a series of restructuring maneuvers Caesars undertook prior to its bankruptcy filing.

mode-media-funding

  • Inside the Catastrophe at Mode Media (Business Insider): The collapse of Mode Media, which reported 2015 revenues of $100 million and had raised nearly $250 million in funding, was shocking to many. On further review, the story of the reckless pursuit of growth over profitability, a shifting competitive landscape, and investors losing faith, is very familiar; perhaps highlighting the fact that the fundamentals of business remain the same, no matter the numbers involved.

department-store-closures                       further-dept-store-trimming

  • More Than 700 Department Stores Have Closed Since 2013 (Fortune): Department Stores are struggling to rationalize their footprints as customers continue their embrace of ecommerce. Despite the large number of closures, even more store closures would be necessary for these retailers to achieve their 2006 sales per square foot levels.

one_kings_lane-valuation

  • The Valuation History That Led to One Kings Lane’s Fire Sale (Pitchbook, Fortune): Ecommerce startup One Kings Lane raised over $200 million between its founding, in 2009, and its last round, in 2014. That final round valued the company at over $800 million.  Less than three years later, the would-be disrupter was sold to Bed Bath & Beyond for $11.8 million, highlighting the brutal economics of startups.

houston-pensions

  • Houston’s Plan to Cut Pension Costs in Half Overnight (Governing): Municipal finance experts have been increasingly vocal in their concern over the sheer scale of under-funded pension liabilities nationwide.  These same experts have been impressed by the recent proposal of Houston Mayor Sylvester Turner to reduce his city’s $7.7 billion unfunded liability by nearly 50 percent.  The plan, which involves a combination of rationalized assumptions, pension obligation bonds, union concessions, and a municipal commitment to make timely payments in the future, may provide a way forward for other municipalities struggling with unfunded pension liabilities.

About the Author

David Johnson has served as advisor or interim manager on over $5 Billion of distressed transactions, and is a recognized expert on the topics of value creation, change management, performance improvement, turnaround, and restructuring.  David Johnson can be contacted at david@abraxasgp.com or 312-505-7238.