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Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crumby. I'm a senior editor at Bloomberg.

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Speaker 1: This week, we're very pleased to welcome back to the

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Speaker 1: show Emilia Pollard, who reports on distressed debt for Bloomberg

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Speaker 1: News in New York. How are you, Amelia, I'm great,

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Speaker 1: Thanks so much, James. We're also delighted to have Mike Campalone,

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Speaker 1: who covers retail for Bloomberg Intelligence, also in New York.

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Speaker 1: We'll be coming back to Mike shortly. Lots of fascinating

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Speaker 1: stuff going on in the retail and consumer sect right now,

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Speaker 1: so do stay with us. But first, Amelia Pollard with

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Speaker 1: Bloomberg News Distressed Debt. You had a great story this

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Speaker 1: week on struggling companies who are finding a lifeline new

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Speaker 1: money to keep them alive a bit longer, but they're

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Speaker 1: going bust anyway. Investors are essentially giving more cash to

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Speaker 1: doomed companies and they're not making anything better. In fact,

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Speaker 1: they seem to be making it worse. Deck Chairs on

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Speaker 1: the Titanic, Amelia, what's going on? What's the situation?

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Speaker 2: Yeah, that's the perfect way to describe it. James, and

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Speaker 2: many people I spoke to while are broughting the story

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Speaker 2: said that these deals, which are known as liability management

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Speaker 2: transactions and the most jargon me buzzword out there right now,

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Speaker 2: are essentially basically just rearranging Dectairs and the Titanic.

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Speaker 3: And the reason why lenders have an incentive.

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Speaker 2: To give new money is that these are existing lenders

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Speaker 2: that are already in the capital structure, so they already

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Speaker 2: have skin in the game, so to speak, and have

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Speaker 2: a big incentive to try to keep the company afloat.

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Speaker 2: And these deals known as liability management exercises or transactions,

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Speaker 2: they're referred to both synonymously basically our last ditch efforts

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Speaker 2: to buy the company time. So what we've seen in

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Speaker 2: recent weeks, though, is that a lot of the deals

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Speaker 2: that happened in twenty twenty and twenty twenty one, and

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Speaker 2: even as recently as last year are starting to unravel.

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Speaker 2: As you know, the pain of high interest rates and

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Speaker 2: waning consumer spending is really not is not helping the

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Speaker 2: situation for these companies, and they're not able to turn

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Speaker 2: things around in the way they had hoped to.

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Speaker 1: So let's just stop for a minute and look at it.

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Speaker 1: Sort of in more broad terms liability management. First, that

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Speaker 1: sort of sets off a load of jargon and lums

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Speaker 1: in my mind. What does it mean just taking some

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Speaker 1: debt and refinancing it with new debt maybe longer maturity,

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Speaker 1: maybe cheaper or what is it? What is it? In

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Speaker 1: basic terms?

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Speaker 2: Yeah, basically it is, you know, getting new The company

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Speaker 2: gets receives new money in exchange for either pushing out

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Speaker 2: maturities or you know, kind of making some kind of

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Speaker 2: arrangement that gives the lenders a benefit. And typically what

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Speaker 2: we've seen in recent years is these these deals have

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Speaker 2: been around forever, but the most recent breed of these

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Speaker 2: deals are pretty contentious, and you often see a group

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Speaker 2: of lenders left behind and often they're so pissed off

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Speaker 2: that they will sue the company or the other lenders

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Speaker 2: and becomes a very big, dramatic mess very quickly.

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Speaker 3: But there are.

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Speaker 2: Two specific types that have become exceptionally popular, and forgive

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Speaker 2: the moment of jargon jargon, but I will.

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Speaker 3: Explain about them.

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Speaker 2: One is an up tearing transaction, and that's something that

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Speaker 2: we saw the mattress Maker sort of Simons do in

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Speaker 2: twenty twenty. And essentially all that means is that a

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Speaker 2: group of lenders agrees to give new money in exchange

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Speaker 2: for being bumped up in their repayment line. So given

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Speaker 2: the worst case scenario, the company files for bankruptcy, they

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Speaker 2: will be the first ones to get paid back. And

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Speaker 2: in testimony from executives for these funds who had given

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Speaker 2: new money or weren't able to.

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Speaker 3: Give new money, some of them said that.

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Speaker 2: Their base case scenario was that sort of would eventually

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Speaker 2: file for bankruptcy, just did not.

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Speaker 3: The writing was on the wall.

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Speaker 2: They had too much debt, you know, the industry itself

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Speaker 2: was hurting, and so they wanted to ensure that they

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Speaker 2: were in the best position when that did happen. We've

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Speaker 2: seen a number of deals since in twenty twenty kind

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Speaker 2: of replicating the structure of that deal. And then the

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Speaker 2: other one that has become very popular has been something

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Speaker 2: known as the drop down. And this is something that

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Speaker 2: Ja Crue pioneered a few years ago, and it essentially

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Speaker 2: strips collateral from a group of lenders and facts and

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Speaker 2: new group of lenders, and it's often the most valuable collateral,

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Speaker 2: you know, so whether it's a subsidiary. In some cases,

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Speaker 2: we saw something like that with Envisioned healthcare, where subsidiary

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Speaker 2: was kind of used as new collateral that was seen

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Speaker 2: as highly valuable by lenders. And so those two types

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Speaker 2: are the ones that those two types of deals are

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Speaker 2: the ones we're seeing unraveling. And in some cases it's

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Speaker 2: because so much litigation has emerged, as in the case

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Speaker 2: of Serda, where the companies really are love with no

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Speaker 2: option but to put the company.

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Speaker 1: In chapter eleven, you mentioned though it's got worse over

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Speaker 1: the last couple of years. I'm wondering why that's his.

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Speaker 1: I mean, is it that company's getting more desperate because

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Speaker 1: of the macro environment. Is it the advisor and laws

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Speaker 1: are getting creative in you know, finding solutions. Is it

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Speaker 1: the fact that none of these deals had any covenants

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Speaker 1: in the easy times? What's the reason for coming to

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Speaker 1: a head now?

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Speaker 2: Yeah, well, I think you just listed the big three,

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Speaker 2: but you know, those are all reasons why this coming

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Speaker 2: to a head now. And I think we start to

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Speaker 2: see we started to see some of these really crop

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Speaker 2: up in twenty twenty and early twenty twenty one, the

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Speaker 2: era of easy money. You know, it was easier to

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Speaker 2: get new money in that at that time. But now

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Speaker 2: we're still seeing it's big still popular, and it was

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Speaker 2: still popular last year as the economy started to tighten

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Speaker 2: a bit, and you know, credit markets were not as

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Speaker 2: readily available with new money, and so companies were increasingly

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Speaker 2: tapping existing lenders to get new financing. And that's what

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Speaker 2: we've seen here. And then you know, I wrote this

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Speaker 2: story just on the heels of two big filings that

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Speaker 2: had liability to management deals under their belts in Kora,

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Speaker 2: which is an aerospace supplier, and also dee Bold Nicksdorf,

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Speaker 2: which is like one of the biggest ATM makers in

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Speaker 2: the world. And so I think that we're starting to

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Speaker 2: see these deals are essentially a bet that the companies

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Speaker 2: were able to turn things around with interest rates as

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Speaker 2: high as they are.

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Speaker 3: They haven't been able.

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Speaker 1: To do that, but it's essentially good money off to bed.

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Speaker 1: I mean, that's just throwing money down the pan because

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Speaker 1: they're already involved in the situation. They're hoping to get

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Speaker 1: some kind of benefit in the longer terms. The what's

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Speaker 1: the play.

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Speaker 2: Yeah, the play is basically just bettering their position. So

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Speaker 2: you know, one thing we saw with Serta for instance,

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Speaker 2: the mattress company, is that the two different groups of

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Speaker 2: lenders were basically giving the company competing contentious offers of

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Speaker 2: how to reconfigure the debt, and once one group caught

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Speaker 2: win that the other group was, you know, pitching a

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Speaker 2: very contentious plan as well. They were like, okay, well,

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Speaker 2: we need to you know, put together our own proposals

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Speaker 2: so that we can get ahead. And so it's a

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Speaker 2: little bit of a race to the box them as well,

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Speaker 2: in which lenders are kind of you know, pushing each

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Speaker 2: other to get you know, the best in the best

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Speaker 2: position in case of a default. And I think that

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Speaker 2: that's what we're seeing where lenders, if blenders have a

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Speaker 2: base case of a default in place, I think they're

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Speaker 2: trying to ensure that they're in the best possible position

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Speaker 2: when the repayments start for creditors.

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Speaker 1: Do we expect more of this?

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Speaker 3: I think so.

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Speaker 2: I mean, there there were a lot of liability management

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Speaker 2: deals in the last couple of years, and it seems like,

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Speaker 2: you know, professionals are only cooking up more breeds. I

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Speaker 2: think that upteering and drop downs are you know, the

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Speaker 2: only only two of the types of you know, kind

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Speaker 2: of contentious deals that are merging from this era.

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Speaker 3: But I'm sure there will be more.

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Speaker 2: It seems like, you know, there's every time that you know,

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Speaker 2: a new clause or you know, sentence or two is

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Speaker 2: added to these credit agreements to block you know, an

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Speaker 2: upteering deal or drop down deal. You know, there's always

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Speaker 2: some legal gap that lawyers will find. Is there a

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Speaker 2: pattern too? It Is it related to a particular sector

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Speaker 2: or kind of deal?

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Speaker 1: I mean, is it all retail. We're going to talk

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Speaker 1: to Mike Campblown a bit about retail, But is it

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Speaker 1: is it mainly in one sector?

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Speaker 3: You know, it's not. It's that's something that's interesting about

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Speaker 3: these kind of deals. It's so.

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Speaker 2: It's so diverse and the types of companies and that

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Speaker 2: do these sorts of transactions. And I think that's really evident.

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Speaker 2: And you know, just the two that we saw last

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Speaker 2: week or two weeks ago now within Quora and people

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Speaker 2: next Door if that, you know, any company that has

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Speaker 2: a lot of debt is going to try to do

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Speaker 2: one of these transactions.

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Speaker 1: Is it mostly private equity backed companies? You think?

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Speaker 3: Yeah?

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Speaker 2: You know, I mean I think that there is a

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Speaker 2: sponsor component to this. I'm not sure how much those

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Speaker 2: sponsors are driving these sorts of deals, but in sort

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Speaker 2: of for instance, you know, there there was some testimony

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Speaker 2: from their p sponsor during the bankruptcy hearings and their

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Speaker 2: role in kind of facilitating and helping to field interests

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Speaker 2: from lenders that were proposing these sorts of deals. So

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Speaker 2: they definitely play a role. Whether or not they're soliciting

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Speaker 2: these kinds of transactions, I'm not sure.

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Speaker 1: And when they end up in bankruptcy what you're saying

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Speaker 1: in your stories that they're actually making them much more

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Speaker 1: complex and much more messy. They're also all ending up

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Speaker 1: in Texas, so I'm interested in why that's is as well.

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Speaker 3: Yeah, they are. They love Texas.

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Speaker 2: I think maybe all of the filings have been in

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Speaker 2: Texas so far this year, of the ones that have

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Speaker 2: libel management deals, or at least the vast majority. I

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Speaker 2: think it started actually again with Surda, not to bring

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Speaker 2: up Surda for the fifth time in this.

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Speaker 3: Call, but.

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Speaker 2: Sort of filed in Texas in January, and the bankruptcy

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Speaker 2: judge there, David Jones has been kind of a pioneer

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Speaker 2: in blessing many pieces of this highly controversial transaction, and

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Speaker 2: the most recent one came only this week in which

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Speaker 2: he said that the deal was made in good faith

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Speaker 2: and that was one of the arguments that the spurned

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Speaker 2: lenders was making was that the deal reached this implied

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Speaker 2: covenant of good faith and fair dealing, which basically means

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Speaker 2: that the intent of the original credit agreement, you know,

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Speaker 2: was not to have this this sort of subverted transaction

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Speaker 2: down the line. And so the fact that Judge Jones

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Speaker 2: has been so willing to kind of step in and

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Speaker 2: you know, make sweeping decisions and basically established case precedent

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Speaker 2: in the process has attracted a lot of other companies

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Speaker 2: to the venue.

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Speaker 1: So he's being easier on these companies only from the

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Speaker 1: investor standpoint, well.

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Speaker 3: Some would say, some would say he's being easier in

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Speaker 3: the company.

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Speaker 2: I mean, I think that you know, any bankruptcy court

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Speaker 2: and judge's main prerogative is for the company to survive,

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Speaker 2: you know, And so I think that that's that's really

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Speaker 2: the goal here, and I think that they he presumably

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Speaker 2: saw the litigation as a you know, a barrier to

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Speaker 2: the company survival, and he cited the fact that the

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Speaker 2: other group of lenders had proposed an equally contentious type

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Speaker 2: of deal, so you know, they were they were very

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Speaker 2: ready to do their own type of transaction and only

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Speaker 2: because they were left and behind.

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Speaker 1: Were they so pissed off? Okay, but this doesn't always

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Speaker 1: end badly. You mentioned J Crew earlier. They're still in business.

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Speaker 1: How can this come to a happy ending here? There

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Speaker 1: are some success stories. One that we saw was with

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Speaker 1: board Writers, which is a surfwhere retailer. They did a

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Speaker 1: contentious deal in recent months and they were ultimately bought

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Speaker 1: by Authentic Brands, which is I think they agreed to

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Speaker 1: buy them in March. So that you know that a

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Speaker 1: sale out of court is would be seen as a

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Speaker 1: success by many. And I think that whenever these deals

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Speaker 1: are proposed or lenders are interested in doing this sort

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Speaker 1: of transaction, they'll point to success stories like this. So

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Speaker 1: you know, I think that we cited a study from

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Speaker 1: Fitch that's out of thirty types of these kinds of deals,

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Speaker 1: twenty four amounted to a default or a bankruptcy down

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Speaker 1: the line. So but you know there are there are

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Speaker 1: six that didn't, and lenders and companies will keep on

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Speaker 1: pointing to those is as reasons why it might be

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Speaker 1: worth it in the end. But mostly bad, so far,

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Speaker 1: so far, mostly bad. That's you're a lawyer.

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Speaker 2: Yeah, I mean, I'm for sure unless you're a lawyer

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Speaker 2: or any professional retained for these kinds of deals.

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Speaker 1: So before we talked to Mike Campbell and Bloomberg Intelligence,

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Speaker 1: what's the next big story to watch on your beat, Amelia.

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Speaker 2: I think the next big one is the fact that

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Speaker 2: a lot of the companies that we've seen in file

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Speaker 2: for bankruptcy this year have been ones that have been

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Speaker 2: you know, highly very telegraphed in. They've been names that

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Speaker 2: have been on our radar for months, if not years,

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Speaker 2: and you know, I have had a huge amount of

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Speaker 2: debt for a long time. I think something that will

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Speaker 2: be interesting in the broader market and economy as if

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Speaker 2: we start to see pretty healthy companies pivot quickly into

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Speaker 2: a distress situation, and I think that will be evidence

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Speaker 2: that interest rates are you know, really starting to bite

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Speaker 2: in a way that is causing severe repercussions. And the

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Speaker 2: other thing that we're looking at is just how commercial

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Speaker 2: real estate is being impacted right now by interest rates.

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Speaker 2: That's one of the biggest you know, industries or sectors

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Speaker 2: to have distress debt right now, and I think that

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Speaker 2: will be a story that'll play out for the rest

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Speaker 2: of the year.

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Speaker 1: Great stuff familiar pull out from Bloomberg News. Thanks so

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Speaker 1: much for joining us. Read all of Amelia's scoops on

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Speaker 1: the Bloomberg terminal and of course at Bloomberg dot com.

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Speaker 3: Thanks so much having me James, So.

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Speaker 1: As I mentioned earlier, we're glad to have with us

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Speaker 1: Mike Campalone, who looks at retail companies for Bloomberg Intelligence.

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Speaker 4: How's it going, Mike, Hey, James, thanks for having me on.

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Speaker 1: So in retail, what's the outlook? How strained are consumers

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Speaker 1: right now given such high inflation, rising rates and a

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Speaker 1: recession coming?

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Speaker 4: Yeah? Absolutely so. You know, we've been looking at recent

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Speaker 4: credit card transaction data and it showing consumers continue to

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Speaker 4: pull back on retail spending, and while their preference for

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Speaker 4: or experience related categories continued, that pace has actually started

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Speaker 4: to slow. So furniture supporting goods and clothing accessory stores

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Speaker 4: all within retail experience the greatest demand driven contraction that

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Speaker 4: we've seen in that data.

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Speaker 1: You know.

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Speaker 4: More generally, retailers across sub sectors have warned up an

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Speaker 4: increasingly more pressured consumer, but we certainly see more red

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Speaker 4: flags from auto part home improvement, and select apparel retailers

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Speaker 4: as well, especially those catering to a lower income earning consumer.

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Speaker 4: Retailers have given us a fairly consistent outlook for twenty

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Speaker 4: twenty three, which includes pressure both on the top and

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Speaker 4: bottom line in the first half of the year, with

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Speaker 4: some of that pressure easing in the second half. You know,

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Speaker 4: easing freight costs seem to be the largest contributor to

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Speaker 4: retailers improved tone in the backup of the year, and

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Speaker 4: we expect to see that as well.

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Speaker 1: So you said consumers are kind of pulling back across

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Speaker 1: the board. Is it away from discretion? Are you away

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Speaker 1: from sort of nice to have and more to what

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Speaker 1: people need to have right now?

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Speaker 4: Yeah, that's absolutely true. And you know, after one Q earnings,

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Speaker 4: some of those themes that retailers have expressed to us

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Speaker 4: at the beginning of the year have really held consistent

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Speaker 4: with our expectations. You know. Some of those themes include

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Speaker 4: inventories realigning, so as supply chains and product costs decline.

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Speaker 4: In twenty twenty two, we saw inventories were extremely bloated,

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Speaker 4: as you may remember, and as demand and timing we're

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Speaker 4: significantly out of sync. So we're seeing that rebalancing start

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Speaker 4: to happen. The second theme, freight costs are easing. Like

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Speaker 4: I said earlier, that's going to benefit retailers who import

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Speaker 4: from Asia the most. So we've seen spot rates pushed lower,

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Speaker 4: which has enabled some retailers to renegotiate annual shipping container

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Speaker 4: contracts that they typically hold in the spring, and that's

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Speaker 4: why we're going to see that benefit, that freight benefit

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Speaker 4: in the second half of the year for most names.

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Speaker 4: And then lastly, the weakest sub sectors last year within

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Speaker 4: retail are going to see the greatest improvement this year.

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Speaker 4: So department stores, apparel and footwear, and value sectors will

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Speaker 4: benefit from this more conservative inventory planning after substantial markdowns

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Speaker 4: last year to clear that access inventory.

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Speaker 1: It's interesting that bricks and mortar scenes becoming back people

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Speaker 1: as you want to go out to shop now.

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Speaker 4: So yeah, so you know, I think how retailers are

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Speaker 4: differentiating themselves, and you know, what they've learned from the

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Speaker 4: pandemic is the physical store remains extremely important, and that's

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Speaker 4: both from an in store shopping experience and also leveraging

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Speaker 4: physical footprints that retailers have to bolster their logistics and

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Speaker 4: distribution network. So stores are still important, and it's more

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Speaker 4: about store footprint optimization than getting rid of stores completely.

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Speaker 1: And as part of that, I mean, you're going out

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Speaker 1: to shops because you couldn't for so long. Is it

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Speaker 1: sort of revenge spending as we've been calling it.

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Speaker 4: Yeah, you know, there was definitely that theme of revenge

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Speaker 4: spending and people wanting to just spend money that was

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Speaker 4: built up during the pandemic, whether through uh, you know,

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Speaker 4: stimulus fueled money that people were receiving, or just a

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Speaker 4: desire to do things and shop again. So we've seen

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Speaker 4: that revenge spending on goods definitely pulled back, and it's

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Speaker 4: still lingering around in the travel and experience sector. But

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Speaker 4: like I said earlier, we're starting to see those trends fade.

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Speaker 1: So it has to come to an end. I mean,

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Speaker 1: obviously it's some that the pandemic has been you know,

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Speaker 1: there's it's supposed to be over now, although everyone's wearing

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Speaker 1: masks skin because of the air quality. But the the

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Speaker 1: idea that you know, there was this boom eventually fades.

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Speaker 1: Is it Is it gonna just go to zero? I mean,

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Speaker 1: are we going to just see a big, big drop

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Speaker 1: off in consumption? You think?

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Speaker 4: You know, I think it's unique to the sub sectors

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Speaker 4: within retail. You know, one one space, uh, you know,

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Speaker 4: particularly where there's been a lot of shift in spending

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Speaker 4: and also in credit profiles is the the department stores.

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Speaker 4: So you know, it's the department stores are an absolutely

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Speaker 4: interesting space within retail for us from a credit perspective,

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Speaker 4: and we've seen drastic changes in some of these companies'

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Speaker 4: profiles for the names we cover, so Macy's, Coal's, and

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Speaker 4: Nordstrom just over the past three years. So Macy's has

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Speaker 4: done an exceptional job delevering its balance sheet. It's reduced

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Speaker 4: funded debt by over two billion dollars over the past

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Speaker 4: three years. It's pushed out near term debt maturities with

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Speaker 4: no significant bomb maturities over the next five years, and

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Speaker 4: it has a capital structure that's mainly unsecured. The company's

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Speaker 4: Polaris initiative has also started to benefit the company's margins

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Speaker 4: that have historically lacked peers a pre pandemic, and we

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Speaker 4: expect that trend to persist for Macy's this year. You know,

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Speaker 4: Nordstrom continues to face operating challenges, especially with its rack business.

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Speaker 4: We think that these issues will continue to extend pressure

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Speaker 4: on its credit profile over the near term, and the

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Speaker 4: company has two hundred and fifty million of bombs charities

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Speaker 4: in twenty twenty four that also need to be addressed,

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Speaker 4: you know. And then lastly, moving on to Coles, I

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Speaker 4: think that name has seen the most drastic negative shift

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Speaker 4: in its credit profile over the past three years, at

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Speaker 4: a time where probably execution risk is likely at its

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Speaker 4: highest with new management in place. So Cole's had a

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Speaker 4: financial policy last year that prioritized shareholder returns via buybacks,

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Speaker 4: which a person was seven hundred million dollars for the year,

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Speaker 4: and that's despite the company generating negative free cash flow

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Speaker 4: during that time period. So you know, definitely a shift

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Speaker 4: in spending across different subsectors of retail, department stores being

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Speaker 4: a very unique space within there as well, both from

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Speaker 4: a consumer spending shift and from you know, indiosyncratic credit

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Speaker 4: risk that exists within some of these names. So a

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Speaker 4: lot going on there.

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Speaker 1: So regardless of the quality of the product and the

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Speaker 1: experience and all that stuff, and you know, whether you

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Speaker 1: love the store or not, it really does seem to

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Speaker 1: be more about how how the companies have managed their

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Speaker 1: balance shees right, in terms of like you know, with

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Speaker 1: suddenly in this much much higher rate, and.

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Speaker 4: Absolutely absolutely, we could not agree more with that. We

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Speaker 4: are prefer names that have prioritized cleaning up the balance

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Speaker 4: sheet last year, and that's just putting them in a

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Speaker 4: better position this year from a capital allocation standpoint and

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Speaker 4: being able to deploy capital, even if it's more limited,

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Speaker 4: deploy capital in the right places, like investing in stores

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Speaker 4: and cafecs.

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Speaker 1: And so how they differentiating themselves in the context of

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Speaker 1: credit quality.

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Speaker 4: Yeah, so you know that definitely names are differentiating selves

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Speaker 4: by you know, investing in the physical store like we

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Speaker 4: were staying like we were saying earlier, and leveraging that

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Speaker 4: store for their distribution network. And then you know, second

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Speaker 4: from the type of business that the that this retailer

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Speaker 4: operates in, Like we were saying, there's so many different

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Speaker 4: subsectors within retail. So how how are retailer is differentiating

403
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Speaker 4: itself via its product offering and it's its store experience

404
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Speaker 4: is really making a difference. So something like an off

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Speaker 4: price retailer like TJX is really benefited benefiting from last

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Speaker 4: year's inventory blood and they're able to secure a larger

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Speaker 4: surplus of branded products at a lower cost, so both

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Speaker 4: improving the company's margin profile, offering consumers a lower price

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Speaker 4: point option at a time where wallets are already being strapped.

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Speaker 4: So both a combination of a capital allocation historically prioritizing

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Speaker 4: the balance sheet and continuing to invest into the company's

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Speaker 4: business and store footprint, and then also this differentiating the

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Speaker 4: product and service that the retailer offers.

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Speaker 1: Let's talk about the risk of I mean, since we've

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Speaker 1: credit guys, Emilia Apollo from Bloomberg News was talking about

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Speaker 1: the stress generally, and we've seen a lot of bankruptcy,

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Speaker 1: a lot of defaults, and a lot of them have

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Speaker 1: been in retail. A lot of them been happening over

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Speaker 1: the last few years. Is there more of that to come? Yeah?

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Speaker 4: So I was actually reading a recent SMP report that

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Speaker 4: was similar to Amelia's story, and it was pointing out

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Speaker 4: that consumer discretionary actually has topped the list of sexor

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Speaker 4: sectors with the most bankruptcies this year in the US.

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Speaker 4: So yeah, we've definitely seen some notable retail bankruptcies this year,

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Speaker 4: including Party City and bed Bath and Beyond, who both

426
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Speaker 4: followed for Chapter eleven earlier this year. And that was

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Speaker 4: a combination of weakening consumer demand, higher costs, and then

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Speaker 4: really unsustainable debtloads.

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Speaker 1: Has it been cleared out now or is there more

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Speaker 1: of that to come? You think?

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Speaker 4: Yeah, we think that there's still risks for obviously highly levered,

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Speaker 4: sponsored owned retailers and who operate in segments of retail

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Speaker 4: that are super content concentrated in UH product offerings that

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Speaker 4: are fading away. So whether it's you know, home improvement,

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Speaker 4: auto parts, and even some apparel retailers. So that kind

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Speaker 4: of combination of very specific business segment that the retailer

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Speaker 4: operates in and sells products out of, and just high

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Speaker 4: debt loads that are unsustainable, you know, could could continue

439
00:23:11,480 --> 00:23:13,080
Speaker 4: that trend of retail bankruptcies.

440
00:23:13,720 --> 00:23:15,720
Speaker 1: So again you mentioned household names like Party City. I

441
00:23:15,720 --> 00:23:17,880
Speaker 1: mean those those would seem to be good businesses. Everyone

442
00:23:17,920 --> 00:23:21,720
Speaker 1: wants a party, but just purely because they didn't manage

443
00:23:21,720 --> 00:23:23,479
Speaker 1: that debt properly, they're blowing up.

444
00:23:24,400 --> 00:23:26,600
Speaker 4: Yeah, yeah, yeah, blowing up. And I don't know if

445
00:23:26,640 --> 00:23:30,959
Speaker 4: you met a pun intended there. The helium shortage actually

446
00:23:31,119 --> 00:23:34,800
Speaker 4: was a big driver of the bankruptcy UH for Party

447
00:23:34,840 --> 00:23:37,880
Speaker 4: City as well. So yeah, a combination of just business

448
00:23:37,960 --> 00:23:40,320
Speaker 4: risks and unsustainable debt loads.

449
00:23:40,880 --> 00:23:43,080
Speaker 1: So what do you see the value right now? Mike,

450
00:23:43,160 --> 00:23:45,360
Speaker 1: I mean in terms of, you know, what would you

451
00:23:46,000 --> 00:23:50,960
Speaker 1: say is a good credit pick or what's a pan?

452
00:23:51,720 --> 00:23:54,399
Speaker 4: Yeah? Absolutely, yeah, And a little shameless plug for our

453
00:23:54,840 --> 00:23:57,200
Speaker 4: BI Credit Picks and Pans reports that we put out

454
00:23:57,240 --> 00:24:00,200
Speaker 4: on multiple times throughout the year, So absolutely check is

455
00:24:00,240 --> 00:24:02,960
Speaker 4: out to all our listeners if you haven't. But from

456
00:24:03,000 --> 00:24:05,680
Speaker 4: a relative value perspective, at the beginning of the year,

457
00:24:05,720 --> 00:24:08,960
Speaker 4: within our vi I Credit Picks and Pans report UH,

458
00:24:09,040 --> 00:24:12,919
Speaker 4: and specifically for retail, in our picks, we included Macy's,

459
00:24:13,240 --> 00:24:16,640
Speaker 4: t j X, and Target At. Some of the names

460
00:24:16,640 --> 00:24:19,800
Speaker 4: that could outperform in Some of the names that were

461
00:24:19,840 --> 00:24:23,800
Speaker 4: on our pans list were VF Corp UH and under Armor,

462
00:24:24,280 --> 00:24:27,280
Speaker 4: and we kind of stand by those, uh, those views

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00:24:27,280 --> 00:24:28,720
Speaker 4: that we outlined at the beginning of the year.

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00:24:29,560 --> 00:24:30,200
Speaker 1: What's PF.

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00:24:31,280 --> 00:24:35,400
Speaker 4: VF Corp. Is the owner of brands like Timberlane, Dickey's.

466
00:24:37,160 --> 00:24:42,400
Speaker 4: It's a really a conglomerate of our portfolio of brands

467
00:24:43,040 --> 00:24:48,399
Speaker 4: that has had a historical emphasis on buying and selling

468
00:24:48,440 --> 00:24:51,600
Speaker 4: brands and managing its portfolio consistently. So we you know,

469
00:24:51,680 --> 00:24:53,880
Speaker 4: we've kind of pointed to some of the risk associated

470
00:24:53,920 --> 00:24:57,000
Speaker 4: with that name just in how it does business in

471
00:24:57,040 --> 00:24:59,840
Speaker 4: that sense, but then also a growing debtload. It has

472
00:25:00,080 --> 00:25:03,600
Speaker 4: to fund an unfavorable tax decision related to its twenty

473
00:25:03,600 --> 00:25:07,760
Speaker 4: eleven acquisition of Timberland that it had a fund with

474
00:25:07,800 --> 00:25:11,000
Speaker 4: all debt. So just higher debt loads and already aggressive

475
00:25:11,040 --> 00:25:13,880
Speaker 4: business just is increasing risk for.

476
00:25:13,840 --> 00:25:16,520
Speaker 1: That name and on you and under Ahma, that's an

477
00:25:16,560 --> 00:25:18,639
Speaker 1: interesting one. I just see people wearing that everywhere I go,

478
00:25:18,800 --> 00:25:20,639
Speaker 1: So why is that not doing so well?

479
00:25:20,920 --> 00:25:23,680
Speaker 4: Yeah? So under Armour has had challenges that it's faced

480
00:25:23,680 --> 00:25:27,240
Speaker 4: even pre pandemic, and it's really struggled with just turning

481
00:25:27,240 --> 00:25:32,280
Speaker 4: around that business since then. You know, the prior CEO

482
00:25:32,359 --> 00:25:34,679
Speaker 4: abruptly left I want to say last year, so we

483
00:25:34,720 --> 00:25:37,520
Speaker 4: have new management in place, and that's just even pushing

484
00:25:37,560 --> 00:25:40,919
Speaker 4: event risk higher for the name. So challenges there that

485
00:25:40,960 --> 00:25:44,280
Speaker 4: were pre pandemic are now even under more of a

486
00:25:44,320 --> 00:25:47,800
Speaker 4: microscope with new management management in place. So absolutely a

487
00:25:47,880 --> 00:25:48,800
Speaker 4: show me story.

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00:25:48,880 --> 00:25:53,040
Speaker 1: Now, Thanks very much Mike campellone of Bloomberg Intelligence. You

489
00:25:53,080 --> 00:25:55,919
Speaker 1: can read all of his great analysis on the Bloomberg terminal.

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00:25:55,960 --> 00:25:57,720
Speaker 1: Do check it out, and we hope to see you

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Speaker 1: back on the show soon. Mike.

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Speaker 4: Thank you so much, Jeeves, and.

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00:26:01,880 --> 00:26:04,400
Speaker 1: Thank us again to Emlia Pollard from Bloomberg News. Read

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00:26:04,440 --> 00:26:07,439
Speaker 1: all of her great distress debt scoops on the Terminal

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Speaker 1: and at Bloomberg dot Com. I'm James Crombie. It's been

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Speaker 1: a pleasure having you join us again. Next week on

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Speaker 1: the Credit Edge