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Last October, Catie McKee, a hedge fund analyst, had been scrutinizing the mortgages on the nation’s malls, and was convinced that some of those malls would default on their loans, the New York Times reported. McKee made her case to Carl Icahn, who had made a similar wager and invited her team to discuss the trade. Nothing would bolster her confidence — and the prospects for her trade — more than if the billionaire and onetime corporate raider backed her up. Both agreed that e-commerce, changing consumer habits and evolving demographics had pummeled all malls to some degree in recent years, but some were far worse off than others. So by betting on their demise, both could profit handsomely — which they did. Icahn, whose hostile takeover of TWA in the 1980s established him as a major dealmaker, has made $1.3 billion on the trade since that meeting. And the investors that made the trade within McKee’s firm, MP Securitized Credit Partners, more than doubled their money. Trapped between the growth of online shopping and the popularity of discount chains, many retailers have struggled to find a foothold in the changing firmament. The nation’s roughly 1,000 shopping malls (excluding strip and outlet malls) have borne the brunt of the problems, with hundreds of them fighting low occupancy and the loss of major stores, known as anchors. The coronavirus pandemic, which prompted stay-at-home orders, increased the financial strain on malls by choking off much-needed foot traffic and cash flow. “The pandemic sped up the rate of demise for CMBX 6 malls by being the final straw for a lot of struggling retailers and mall owners,” McKee said, referring to the obscure real estate index that she bet against because of its exposure to troubled malls. The private equity fund Apollo Global Management, which runs an internal hedge fund that focuses on credit investing, made more than $100 million shorting the CMBX 6 and other commercial real estate securities — one of the fund’s most successful trades of the year. Jason Mudrick, whose New York hedge fund, Mudrick Capital, focuses on distressed investments, estimated that he had made the same amount. So did Scott Burg, chief investment officer at Deer Park Road, a fund in Steamboat Springs, Colo. So far this year, 16 percent of all retail industry loans are delinquent, according to statistics tracked by the data firm Trepp. Major retailers, including J.C. Penney, Neiman Marcus and Modell’s Sporting Goods, have filed for bankruptcy, and new tenant demand for mall space has never been weaker, according to an analysis of national malls by the advisory firm Green Street.

When hedge-fund manager Dan Kamensky found out a prominent investment bank might challenge him for a piece of Neiman Marcus Group Ltd.’s crown-jewel asset, he set about eliminating his competition, a government inquiry found, the WSJ Pro Bankruptcy reported. Within 15 minutes of learning of the competing bid, he was pressuring the investment bank, Jefferies LLC, to stand down, according to Justice Department watchdogs who looked into his actions. “DO NOT SEND IN A BID,” he wrote in a chat message to an unnamed Jefferies employee, the government officials wrote in an investigative report submitted on Wednesday in Neiman’s chapter 11 proceedings. The report found “substantial evidence” that Kamensky, founder of Marble Ridge Capital LP, breached his fiduciary duties by using his pull with Jefferies to dissuade it from bidding for shares of MyTheresa, Neiman’s thriving e-commerce business. When Jefferies disclosed its conversations with Mr. Kamensky, he urged it to back up his preferred version of events that the episode was a misunderstanding, unaware the phone call was being taped, according to the report. The Justice Department’s Office of the U.S. Trustee, which monitors the nation’s bankruptcy courts, said the report is preliminary and Mr. Kamensky hasn’t had the chance to respond or rebut the conclusions. The report suggested a formal proceeding in open court to determine any next steps. Read more. 

Distressed investment firm Marble Ridge Capital LP plans to wind down its funds after a government report called into question the actions of its managing partner, Dan Kamensky, during the Neiman Marcus Group bankruptcy, the firm said yesterday, Reuters reported. “After much consideration, and in light of the operating environment, we have made the difficult decision to commence an orderly wind-down of the Marble Ridge funds,” the firm told clients in a letter seen by Reuters. “Marble Ridge will manage the liquidation in the best interests of our investors and with the objective of protecting and enhancing the value of the funds’ assets.” Kamensky admitted a “grave mistake” to the Department of Justice’s U.S. Trustee division, which oversees bankruptcies, in interfering with a potential bid for certain assets of the luxury retailer. Read more.

The coronavirus pandemic is upending the way U.S. consumers shop and the holidays will be no exception as major retailers and shippers roll out their earliest-ever shopping season, Reuters reported. Target, Best Buy and Kohl’s have moved winter holiday promotions up to as early as October. They also joined rival Walmart in announcing store closures on Thanksgiving and plans to bypass the midnight Black Friday door-buster sales that traditionally mark the start of the holiday season but are incompatible with the pandemic’s social distancing recommendations. Kohl’s Chief Executive Michelle Gass said on Tuesday that “a holiday season like no other” means emphasizing comfortable apparel, home essentials and kids’ toys, all categories that have performed well as shoppers largely opt to remain at home. Target CEO Brian Cornell on Wednesday said the retailer will stress same-day delivery and add thousands of items available via these services, including more gifts and essentials during the “very different holiday season.” One supplier to a big box retailer told Reuters that the chain is bracing for a 30 percent decline in holiday spending this year, though the National Retail Federation (NRF) trade group has yet to release its holiday forecast.

CBL & Associates Properties Inc., one of the country’s largest mall owners, plans to file for bankruptcy by Oct. 1 after the coronavirus pandemic forced almost all its properties to shut down temporarily, disrupting rent collection, WSJ Pro Bankruptcy reported. Founded during a building boom in the 1970s, CBL owns and operates about 90 second-tier shopping centers around the U.S., including locations in smaller and less wealthy cities. The company said yesterday that it has reached a deal on a debt-for-equity swap with bondholders that would erase $900 million in debt and at least $600 million in other obligations. The mall owner’s rents slowed to a trickle since the World Health Organization in March declared COVID-19 to be a pandemic. Some of CBL’s biggest tenants, such as J.C. Penney Co., have filed for bankruptcy as mall closures dragged on, a process that makes it easier for those retailers to close stores permanently and walk away from leases. Penney has said that it would close eight of its 47 stores at CBL properties. While those eight stores bring in only $2.1 million in annual rents, CBL risks losing other tenants in those shopping centers with leases tied to the presence of large anchor tenants like Penney. A number of other CBL tenants have filed for bankruptcy since the pandemic, including GNC Holdings Inc., Aldo Group Inc. and RTW Retailwinds Inc., the parent company of New York & Co. Other tenants such as Macy’s Inc. have recently said they would permanently close certain stores. Read more. 

Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store. 

Mall of America, the biggest in the U.S., had its value cut by 16 percent in a new appraisal as the pandemic added to the struggles it already was facing from changing shopping habits, Bloomberg News reported. The 5.6 million-square-foot mall outside Minneapolis was reappraised at $1.94 billion, reduced from $2.31 billion, according to a monthly report on the property’s debt filed by trustee Wells Fargo & Co. Malls suffered from the bankruptcies of apparel and department stores as consumers turned more to online shopping, a trend that’s accelerated since the coronavirus forced many businesses to shut their doors in March. Reappraisals are required under the terms of many contracts for commercial mortgage-backed securities when loans are delinquent. Hotel and retail properties have had the highest delinquency rates, leading to transfers to workout specialists, known as special servicers. About 24 percent of hotel and 14 percent of retail CMBS debt was managed by special servicers in July, according to industry tracker Trepp. The Mall of America appraisal came after the owners, the Ghermezian family, missed three monthly payments on its $1.4 billion in bond debt.

Citigroup Inc. widened its effort to claw back money it wired to Revlon Inc. lenders, suing more investment firms that say they don’t believe a major financial institution sent them portions of a $900 million payment by mistake, WSJ Pro Bankruptcy reported. The bank said that it wrongly sent $127.3 million to HPS Investment Partners LLC and $109.7 million to Symphony Asset Management LLC and wants a New York federal court to force them to return the money. The bank has blamed human error for the transactions, which fully paid off a loan issued by Revlon in 2016 out of the bank’s own funds. Citi had already sued Brigade Capital Management LP and on Tuesday won a temporary restraining order freezing the hedge fund’s share of the loan payment, roughly $175 million. Brigade, HPS and Symphony aren’t conceding there was a mistake, suggesting the payment may have been intentional and questioning how Citi could have transferred such a huge sum in error.

Giant mall owner Simon Property Group is pursuing an unorthodox business strategy, smashing the foundation of the traditional industry model on the one hand while trying to glue certain elements of it back together with the other, the Wall Street Journal reported. Simon has been in talks with Amazon.com Inc. to convert department stores into warehouse distribution hubs, an innovation that could plug large holes filled by ailing tenants such as Sears Holdings Corp. and J.C. Penney Co. But the move would challenge a long-held industry belief that anchor tenants are crucial for attracting foot traffic to other stores. At the same time, Simon has been trying to keep aspects of the old business model intact, despite heightened pressure from e-commerce and other forces that have pushed some once-prominent retailers into bankruptcy. It is using cash to help stabilize some companies whose demise would mean closing stores in Simon malls. The mall operator and a partner recently agreed to buy apparel retailers Brooks Brothers Inc. and Lucky Brand Dungarees LLC out of chapter 11. With another partner, Simon is in advanced talks to buy J.C. Penney.

For large American companies, the most recently completed quarter was the most extreme in years, as the coronavirus pandemic shook up consumer habits and the economy at large, the Wall Street Journal reported. Overall, revenue for the companies in the S&P 500 index is on track to fall 9.2 percent year over year for the most recently completed quarter, based on actual results and estimates for those companies yet to report, FactSet said. This is below the five-year average revenue growth rate of 3.7%, the data tracker said, and would be the largest year-over-year revenue decline since the third quarter of 2009. Some of the biggest revenue gainers involve companies that benefit from people spending more time living and working at home. These include companies that deliver key products, entertainment and services to homebound customers and workers. Meanwhile, companies feeling more pain from the pandemic include those that are connected to travel and tourism, depend on customers leaving their homes, and rely on advertising and special events.

Senate Majority Leader Mitch McConnell (R-Ky.) yesterday cast doubt on whether negotiators would be able to break the impasse on a fifth coronavirus package, though he said that he thinks there needs to be another bill, The Hill reported. "We do need another bill and I'm hoping that this impasse will end soon.... [But] I can't tell you yet here today whether there's going to be additional relief for health care providers," McConnell said. "I'm hoping what we're talking about today is not that last tranche that we will make, but as of the moment, today, I can't tell you with certainty we're going to reach an agreement," he said, adding that the talks had been "further complicated" by the November elections. McConnell's remarks come after negotiations between the Trump administration and congressional Democrats derailed earlier this month amid deep policy and political differences. Republicans have lined up behind aid totaling roughly $1 trillion, while the House passed a more than $3 trillion package in May. As part of the talks, Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Charles Schumer (D-N.Y.) offered to drop their price tag by $1 trillion if Republicans agreed to add $1 trillion to their top line.