Each year, I try to highlight some of the best distressed debt conferences I come across. This year we are starting the year off right highlighting the 7th Annual Wharton Restructuring and Turnaround Conference. Panelists from a number of the best and brightest distressed debt funds including Brigade, SVP, and Avenue (Marc Lasry is a keynote speaker) will be speaking on a number of fascinating topics (GGP case study looks particularly interesting).
"While the Company believes cash on hand is sufficient to fund short-term operations, based on the Company’s current working capital and anticipated working capital requirements and results of operations, the Company will not be able to finance continuing operations without securing new capital and restructuring its obligations. The Company intends to conduct discussions with its revolving credit lenders, bondholders, other creditors and owners in an effort to recapitalize. There can be no assurance that these discussions will be successful."
"We own approximately 3,400 acres of land in Oregon, of which approximately 1,900 acres are planted orchards geographically dispersed throughout the Rogue Valley of Southern Oregon at varying elevations and micro-climates. This dispersion has historically allowed us to successfully mitigate the risks associated with frost, wind, hail, storm damage and other inclement weather as well as dependence on any single water source. Also included in our 3,400 acres is our 93-acre campus in Medford, Oregon, which houses our 54,000 square foot bakery, confectionery and chocolate complex dedicated to the production of baked goods, chocolates and confections, our 646,000 square foot fruit packing and gift assembly complex including cold storage, our 72,000 square foot year-round call center and various other distribution and storage facilities. Our owned acreage also includes housing for our seasonal agricultural workforce. We also own a 51-acre campus in Hebron, Ohio, which houses our 275,000 square foot fruit packing and gift assembly complex including cold storage and our 55,000 square foot call center and office space. In the fourth quarter of fiscal 2010, we initiated a plan to shut down our Hebron call center and utilize a third party service provider to complement our Medford call center. The shut down of the Hebron call center was completed during the first quarter of fiscal 2011 and the transition to a third party service provider is in progress. The building which included the call center will still be utilized to support our Hebron distribution operation."
- Legal / restructuring fees at 3% of total debt = $6M
- DIP to continue operations at average AP through a fiscal year = ~$20M
- 9% Notes due 2013 = $140M * 1.045 [to account for accrued...i.e 1 missed payment] = $145
- FNRs due 2012 = $59M * 1.025 [to account for accrued based on last floating data ] = $61M
- Underfunded Pension = Underfunded by $30M in June 2010. Assume cap market appreciation in excess of service costs = Pension claim of $25M
- Other GUC = $20M = eyeballing guesstimate.
Last week, Bloomberg has penned an amazing piece on Canyon Partners. I know a few of the analysts at Canyon Partners and it really is an amazing organization. Canyon is and has been involved in a number of very high profile bankruptcies in the past years. Off the top of my head, they are / have played Lehman Brothers (through the Paulson Group), Tribune, Americredit, Charter, Univision, and many others. From looking at their 13F, they were involved in CIT and Spansion on the post - reorg side.
"The credit culture of Drexel gave me an important way to frame investment opportunities. The idea is to combine a full understanding of whether a company will be able to pay back its obligations, in sort of a ratings-agency sense, with a focus on whether the company has a business model or competitive advantage that builds long-term value. Drexel was unique in looking at credit quality this way and we think it’s a great way to think about any investment in a business"
"We grew up in an environment at Drexel where the head trader always reminded us that you never went bankrupt by taking a profit. We’re not immune to the common mistakes of being overly risk averse on winning positions by not letting them run and taking on excess risk with losing positions by holding on.We’ve gotten better at letting our winners run. Part of that comes from really understanding what we’re betting on. Say you bought something at $5 that’s now at $20. If $15 of that $20 is just the cash the company has accumulated since you bought in, the bet on the future business is still only $5. Absent a change in your thesis, why would you sell in a case like this just because you’ve already made a bunch of money"
2010 is in the record books. Last year, in a post entitled "2009 - What a Year for Distressed Debt!" I wrote:
"2009 was such a great year for distressed debt and debt investing, but the math alone makes it hard to justify another return like this. Here's to hoping its one-half, or even a quarter, or even a tenth of 2009's return..."
- Long structured credit: Whether it be BB CLO liabilities, MAV notes, the 0-3% loss piece of synthetic structures (thank you mortgage insurers!), or subordinated tranches of CMBS, long distressed structured credit was a huge winner in 2010.
- Grabbing your sack and buying post re-org equities in the summer: So many trades to name here but the ones that really jump out at you (and seemingly many people were long): LYB, LEA, CIT, SOA, SIX, Delphi (traded privately off the distressed desks), etc.
I know many people, from a variety of buy and sell side organizations, read this site. Would any of you know or happen to work with a fantastic graphic designer at your relevant shops that have developed templates for research pieces? Thanks!
Adequate Protection is always as an interesting issue when it comes to investing in distressed bonds and bank debt secured by various assets. Because a creditor's interest is secured by those same assets, it is assumed that the debtor will set up a mechanism to preserve the value of that collateral. Generally speaking, adequate protection comes from periodic post-petition cash payments (i.e. post-petition interest) or granting of additional liens.
"...provide the Secured Noteholders with the same types of adequate protection that are provided to the DIP Lenders and the Pre-Petition Secured Lenders, including: (1) payment of reasonable expenses, including professional fees and expenses, of the Secured Noteholder Consortium; (2) the current payment of the semi-annual coupon amount as provided for in the Secured Notes Indenture as an adequate protection payment provided for in Bankruptcy Code Section 361(1) and (3) access to information on the same terms as provided to the DIP Lenders, including, without limitation, notice of any offer to purchase any material assets of the Debtors, including any offer to purchase the Debtors as a going concern, or any retail banner owned by the Debtors as of the Petition Date, and notice of any intention to reject any material unexpired leases or executory contracts."
"Moreover, it has been reported that Yucaipa Cos. (“Yucaipa”), which the Debtors indicate hold a majority of their preferred stock (and control 2 board seats as a result), have recently acquired certain debt of the Debtors, including Secured Notes. Yucaipa has a history with the Debtors’ operations, having sold the Pathmark chain to the Debtors in December 2007 for $1.4 billion. Counsel to the Secured Noteholder Consortium has made a request of Yucaipa’s counsel (Latham & Watkins LLP) to disclose the amount of Yucaipa’s holdings of other Debtor debt issuances, including any Secured Notes, but as of the date hereof Yucaipa has not provided such information. The Secured Noteholder Consortium submits that Yucaipa should disclose the amount of its debt holdings (including holdings of Secured Notes) forthwith."
In November, we announced we would be conducting interviews with emerging hedge fund managers (defined as less than $250M in AUM) as a regular feature on the blog. It gives me great pleasure to bring you the second edition of those interviews.
- Great business at a good price
- Cheap Growth
- Special situation
- Global Macro