Takeaway Tuesday #6

After last week's post and just limping in to what felt awfully bad Sunday night futures (Emergency Fed Meeting, rumors on CS, etc) the relief rally came right in the nick of time. Does anyone else feel like we are in the beginning of the beginning though? 

Reorg Content (subscription required)

• Performing/High Yield Credit - Sector Insights: European Supermarkets, Food Retailers Wrestle With Inflation Hit on Customer Purchasing Power, Balance Passing on Food Inflation With Protecting Market Share, Focus on Cost Initiatives to Offset Margin Squeeze; No Significant Near-Term Maturities Except for Casino - The consumer is weak and inflation is skyrocketing not just on this side of the pond but in Europe as well. Across European food retailers margins are declining, leverage is increasing and liquidity is running tight. 

• Distressed Credit - LATAM Airlines - LATAM Airlines Anticipates Emerging From Bankruptcy in Q4; Proposed $1.5B Bond Debt Secured by Frequent Flier Program, Cargo Business, IP, Slots in US, UK - Feels like the end of an era on this one. I know its only been a couple lifetimes since the company filed but given where we thought we would be at petition data- its interesting to see this one come closer to exit

Other Content You May Find Interesting

• America's Throwaway Spies: How the CIA failed Iranian informants in its secret war with Tehran: This was a fascinating piece by Reuters Investigates. Given how much clandestine operations have been in the news combined with extraordinary reporting, I think you'll enjoy this one

• Mobile Homes, the Last Affordable Housing Option for Many California Residents, Are Going Up in Smoke (disclaimer: My wife works at Inside Climate News - you should read it!) - This is a harrowing piece and given our community and knowledge of PGE it sorta gave me the feels / anger

Something I bet you didn't know you could do on Reorg.com

We spent the last 18 months building the most comprehensive data lake for all things credit and restructuring related. Its the best thing we ever built.

Here is more information and awesome video: https://www.reorg.com/products/credit-cloud/

Want to know every time Kirkland and Evercore worked together and what DIP looked in terms of fees or carveouts or budget like or the KEIPs that got denied in Delaware or the companies whose loans dropped the most in the past month with the least amount of liquidity that is also more than 7x levered. Want to see dashboards that show what your competitors are advising or investing in or maybe the fees law firms are charging for pre-packs...its all there

Effectively what we are trying to build: If you can ask the question in credit, Credit Cloud can provide the answer.

Give it a try or reach out to me and I'll set you up with the right person.

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Takeaway Tuesday #5

The sentiment out there is bad. One of my favorite Twitter accounts to follow for sentiment is Sentiment Trader (@sentimentrader). They posted this chart earlier this week:

but admittedly it feels like we are teetering on an edge. When its hard for me to call in buy orders I know we are getting closer to a bottom.

Reorg Content (subscription required)

• Performing / High Yield Credit - Reorg Covenants Weekly: Citrix LBO Notes Include Aggressive, Possibly Unprecedented Buildup Basket; NortonLifeLock’s Credit Agreement Expands Unused Carryforward Flexibility; Opendoor, LendingTree Initiation; Hersha Hospitality, Ultra Clean, StoneMor, Sylvamo Updates; CNX Resources, Citrix Primary Review - The feedback on my post last week on ability to submit documents for loan review was met with overwhelming response. As you can see we are covering a lot in the space and this content is absolutely incredible and best-in-class.

• Distressed Credit - Everything and all Puerto Rico. We wrote a litany of stories on Puerto Rico last week and with the island being super topical given the struggles at the island (and Luma featured on John Oliver). Our most popular story of the week: Oversight Board Files PREPA Bond Litigation Schedule With Call to Continue Talks; Latest Bondholder, Oversight Board Restructuring Proposals Disclosed

Two Other Pieces of Content You May Find Interesting

• The Sordid Saga of Hunter Biden’s Laptop - Given the House is most likely going to swing to Kevin McCarthy's leadership if I could buy mentions of Hunter Biden's laptop as a stock, it would be a screaming buy. As a don't like to get political here, this piece laid it all out there
• Has The Zodiac Killer Mystery Been Solved (Again)? - An incredible piece by LA Mag. I lvoe this random guy taking it to the next level...

Something I bet you didn't know you could do on Reorg.com

Our App is incredible. Here in the link: Reorg App on App Store. Look at that 4.9 rating. Beautiful...Seriously though I read all of our content on the app and I think you will too

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Takeaway Tuesday #4

Don't look now - the 1 year T Bill is at 4% and banks are about to take a bath on everything from syndicated loans (Citrix...) to commercial real estate...everything is great out there...

Reorg Content (subscription required)

• Performing / High Yield Credit - Petco / Lenders Object to Petco’s Effort to Transition Senior Secured Term Loan to SOFR From LIBOR Without Credit Spread Adjustment - given the underlying issues with the loan market its good to see the buyside work together to keep overall total return high for their own investors. We noted "The loan’s margin is currently L+325 bps. A transition to SOFR from LIBOR without a credit spread adjustment would have, in effect, lowered the coupon on the loan, given that one-month and three-month LIBOR indexes are currently 2.68% and 3.17%, respectively, while one-month SOFR is currently 2.28% and three-month is 1.92%."

• Distressed Credit - U.S. Renal Care / Pimco, Other U.S. Renal Care Lenders Working With Milbank, Houlihan Lokey - We noted "Market participants are evaluating the possibility of certain lenders to the dialysis provider proposing and executing a transaction that involves funding new money to extend the company’s maturity runway while rolling up their debt holdings that would prime other lenders, known in recent years as creditor-on-creditor violence, the sources said." This is something I think we are going to see a continued massive increase over this cycle

Two Pieces of Content I Found Interesting

• The Great Buenos Aires Bank Heist - This is a WILD story. The article came out pre pandemic (so about 20 years ago) and is just a super fun / crazy read 

• AI Art: World’s First Bot-Generated Graphic Novel Hits the Market - My kids and I have spent far too much time on Midjourney. We are in the 1st inning of the application of AI Art and its absolutely incredible the progress in just a couple years

Something I bet you didn't know you could do on Reorg.com

At Reorg, we very much built our business around distressed debt and bankruptcies in the early years. While we have continued to invest and deepen our expertise there, I believe we currently have the best covenant product combining deep editorial research and data in both the U.S. and Europe.

And I bet you didn't know we analyze every single primary issuance (bonds and loans) in a fashion that blows away the competition. We do this in the pre-marketing / pre-syndication phase as well. 

If you are looking for an analysis of a new loan in particular, you can reach out to our Covenants team at this email: CovenantLoanReport [at] reorg-research.com and request a review. We push these to the platform for topical credits to make people more aware of the service

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Takeaway Tuesday #3 9/13/2022

After a lot of suggestion, we may be moving this to a substack of sorts. Apparently 2009 technology doesn't translate well to 2022...(yes the blog started 13 years ago - I had a lot more hair then)

Reorg Content (subscription required)

• Performing / High Yield Credit: Veritas Technologies has been one of the most searched names on Reorg in September after they reported results with EBITDA down 50% y/y. While the company seemingly has a tremendous amount of liquidity, its capital structure has traded down past results.

• Distressed Credit: Two of the most read stories last week on Reorg focused on two names familiar to distressed debt and event driven credit investors: Reorg was the first the to break the Second Circuit's reversal of SDNY decision in Revlon and Reorg did a huge number of stories on Cineworld which filed last week.

Two Pieces of Content I Found Interesting

• Johnson & Johnson and a New War on Consumer Protection: While most credit investors will be familiar of the situation, this article dives super deep on the history of J&J and its troubled history with asbestos

• Real Money, Fake Musicians: Inside a Million-Dollar Instagram Verification Scheme: As someone that has failed to get a blue check (THIS GUY), I found this article so entertaining. The reporting on the piece is incredible. And I really feel like the scheme game is at an all time level right now.

Something I bet you didn't know you could do on Reorg.com

Given inflation is the talk of the town, I bet you didn't know you could compare what law firms are charging their clients on Reorg, by level. Lets compare associates Proskauer and Latham, both huge players across many aspects of credit 

What we did was index EVERY final fee application over the past 5-6 years by law firm by position utilizing data science to break down these comp numbers.

Why is this important: 

• If you are a buysider and you are comparing pitches/engagement letters from law firms, you can use this data to keep law firms honest
• If you are a law firm BD, you can use this data to build marketing materials, comp sheets, and generally be more aware of the market
• And if you are a law firm recruiter: this has the data down to the named associate/counsel/partner which can be used for head hunting purposes.

Let us know if you have any questions!

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Takeaway Tuesday #2 9/6/2022

I hope you all had a great LDW. As always, any feedback on the format as it begins to shape up, please let me know.

Reorg Content (subscription required)

• Bausch Health's exchange offer was one of the most searched terms on Reorg last week. The Reorg analyst team put together an incredible exchange model that allows users to enter in their own assumptions. Our takeaway: "Assuming 100% participation...Reorg calculates that total debt would be reduced by $2.982 billion and that the net debt leverage ratio would decrease to 6.8x from 8x as of the end of the second quarter"

• Cineworld continues to be topical and one of the most searched companies on Reorg. The team put together a detailed waterfall recovery analysis. We are assuming a bankruptcy filing could occur before the end of this month. Given the complexity of the situation (Cineplex litigation) and capital/corporate structure, this is going to be a fascinating case.

Two Pieces of Content I Found Interesting

• The Humiliating History of the TSA - about 5 years ago, my oldest child had one of their toys taken away by a TSA officer in Chicago. In disgust, a letter was written to the TSA (utilizing the best 7 year old penmanship could offer). This article gives a detailed account of some of the crazy that goes on at the organization

• An Anatomy of Erasure: How a free and open Hong Kong became a police state - in 2019, I visited Reorg's Hong Kong offices two times. Once in June and again in November. Between those short couple of months, the world completely changed. We had numerous meetings cancelled in November because of tear gas in offices. It was so sad to see. 

Something I bet you didn't know you could do on Reorg

One thing that is just starting to get air in the mainstream media is spread widening of the direct lending market. New issues are coming much wider in terms of spread relative to this time last year - underwriting is tighter and its affecting everything from PE IRR calcs to cash flow to service debt etc. 

A couple years ago, Reorg built what I think is the best and most comprehensive database on the BDC market. We index every BDC that files with the SEC (both publicly traded and privately held) and updated their numbers and marks almost instantaneously when an SEC filing occurs.

On Reorg BDC's page, I can isolate all collateral in the BDCs that have been marked down or marked at a level that would signal distress. I could compare marks across various BDCs. I can see new loans coming in and loans that have exited to get a sense for how spreads have changed. And if I'm a lawyer or advisor, this helps me get in front of lenders / companies that may need an assist with liability management / formal restructuring. Or if I'm a lender, I can uncover companies that may need emergency capital to fend the current storm.

Give it a try and if you have any questions please reach out to your CSM at Reorg.

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