Michaels Cos., the U.S. crafting and hobby retail chain, has agreed to a sale to Apollo Global Management at an equity value of about $3.3 billion, Bloomberg News reported. Apollo will pay $22 a share to Michaels shareholders, representing a 22% premium from Tuesday’s close. The Michaels board has unanimously approved the deal, according to a statement yesterday. Although the offer was unsolicited, Michaels Chairman James Quella said it made sense. The company’s management “firmly believes Apollo’s offer represents a compelling value to our shareholders.” Apollo’s interest in Michaels comes on the heels of the company’s best annual stock performance since its latest initial public offering in 2014. Shares rose 61% last year, fueled by all the crafting items and home decor purchased by families stuck at home during the pandemic. That marked a major turnaround from prior years, when the growth of Amazon.com Inc. and flagging sales had forced the chain to shutter dozens of locations.
Private equity-owned stationary and gifts retailer Paper Source Inc. filed for bankruptcy, planning to permanently close some stores and sell itself to an affiliate of asset manager Apollo Global Management Inc. in exchange for debt relief, subject to better offers, WSJ Pro Bankruptcy reported. Chicago-based Paper Source filed for chapter 11 protection Tuesday in the U.S. Bankruptcy Court in Richmond, Va., becoming the latest retail chain pushed into bankruptcy as a result of the COVID-19 pandemic. Paper Source said its business was strong and growing until it was forced to temporarily close all of its nearly 160 stores last March in response to COVID-19. Revenue then dropped from canceled weddings and lost sales during the Mother’s Day and Easter holidays. The company closed stores weeks after Paper Source acquired additional locations from a competitor, Papyrus Inc., which itself was in chapter 11 at the time.
U.S. mall values plunged an average 60% after appraisals in 2020, a sign of more pain to come for retail properties even as the economy emerges from pandemic-enforced lockdowns, Bloomberg News reported. About $4 billion in value was erased from 118 retail-anchored properties with commercial mortgage-backed securities debt after reappraisals triggered by payment delinquencies, defaults or foreclosures, according to data compiled by Bloomberg. That average drop — which reflects the change in value since the debt was originated years ago — may underestimate losses when the properties come up for sale because so much retail real estate is in distress. And few buyers are willing to take risks on aging shopping centers as e-commerce continues to grab market share. The biggest owners, such as Simon Property Group Inc., Brookfield Asset Management Inc. and Starwood Capital Group, have started to triage properties, walking away from money-losers while reinvesting in viable locations. Hard-hit centers were already decimated by department store bankruptcies and high vacancy rates, before COVID-19 accelerated Americans’ taste for online shopping. Only about half of the 1,100 U.S. indoor malls have a good chance of survival, according to Floris van Dijkum, a real estate analyst with Compass Point Research & Trading. The strong will get stronger while the weakest face abandonment, he said. “There’s a huge bifurcation between good and bad quality,” van Dijkum said. “By value, 80% is in the top 300 malls.”
Car rental company Hertz Global Holdings Inc. said today that it had filed a proposed plan of reorganization with the U.S. Bankruptcy Court for the District of Delaware, Reuters reported. Under the plan, Knighthead Capital Management LLC and Certares Opportunities LLC will invest about $4.2 billion to buy up to 100% of common stock of reorganized Hertz.
Men’s Wearhouse owner Tailored Brands Inc. is seeking a lifeline to help it stay afloat less than three months after it emerged from bankruptcy protection, Bloomberg News reported. Tailored Brands has “severely underperformed” compared to the projections in its chapter 11 reorganization plan and needs roughly $75 million by the beginning of March to avoid a default, according to court papers. The company has arranged a tentative deal with Silver Point Capital, its largest equity holder and a lender, to provide the funds and help it avoid another bankruptcy, according to a notice from Mohsin Meghji of M-III Partners. Plans call for $25 million of funds that rank equal to an existing term loan and $50 million of subordinated debt, documents show. The $50 million loan would be converted to equity within three years at $1 per share. A representative for Tailored Brands said in a statement to Bloomberg that the company has been in talks to raise additional money to help it execute its strategic plan and expects to close the deal next week. The retailer “has exceeded the forecasts shared with prospective investors in every week of the past two-and-a-half months,” according to the statement.
The Federal Reserve and other bank regulators are flashing a new warning sign for the U.S. economy: Businesses ravaged by Covid-19 are sitting on $1 trillion of debt and a high percentage of it is at risk of going bust, Bloomberg News reported. Watchdogs flagged 29.2% of complex corporate lending as troubled in 2020, up from 13.5% in 2019, according to a report released yesterday by the Fed and other agencies. Real estate, entertainment, transportation, oil and gas, and retail were cited as particular problem areas. A “disproportionate share” of the riskiest loans were held by nonbanks, such as investment funds that engage in leveraged lending, insurers and pension funds, the regulators added. “While risk has increased, many agent banks have strengthened their risk management systems since the prior downturn and are better equipped to measure and mitigate risks associated with loans in the current environment,” the Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said in a statement that accompanied the release of their Shared National Credit Review. Still, banks’ share of the weakest loans has also been rising, with some of their holdings -- particularly those associated with oil and gas -- facing credit downgrades during the pandemic, the report found. Banks’ percentage of borrowings deemed below the standards preferred by regulators increased to 45% from 35% a year earlier. For their report, the Fed and other agencies evaluated $5.1 trillion in complex lending involving multiple firms, with half of it representing leveraged loans. Real estate, entertainment, transportation, oil and gas, and retail represented 21.6% of the lending that the regulators examined. The 29.2% of “non-pass loans” highlighted in the report represent those the agencies categorize as meriting “special mention,” being substandard or at risk of triggering losses for lenders. During the pandemic, the debt load involving leveraged lending -- borrowings by the riskiest companies -- has been on the upswing. In so-called syndicated loans backing U.S. acquisitions, leverage surged to at least a five-year high in the fourth quarter, according to Covenant Review.
GameStop shares closed up 19 percent Thursday, after surging as much as 88 percent, as retail investors returned to the shorted stock that set off a trading frenzy last month that shocked Wall Street and sparked federal scrutiny, the Washington Post reported. GameStop ended the session at $109.15, pushing the video game retailer’s market cap past $7.6 billion, even as the broader market slumped. The Dow Jones industrial average fell 559.85 points, nearly 1.8 percent, to 31,402.01. The S&P 500 shed 96.09 points, or nearly 2.5 percent, to close at 3,829.34, while the tech-heavy Nasdaq tumbled 478.53 points, or 3.5 percent, to end at 13,119.43. Other shorted stocks that have attracted intense interest, propelled by online investor communities such as the subreddit WallStreetBets, also had big swings. Koss Corp. jumped 17 percent, to $21.53 per share, after soaring as much as 48 percent. AMC Entertainment soared 5 percent before reversing course; it closed at $8.29, down 8.8 percent.
Department store chain Belk Inc. won bankruptcy-court approval to cut $450 million in debt, emerging from a prepackaged chapter 11 case less than 24 hours after it was filed, WSJ Pro Bankruptcy reported. After filing for chapter 11 protection on Tuesday, Belk won approval for its restructuring plan yesterday from Judge Marvin Isgur in the U.S. Bankruptcy Court in Houston. Belk’s sprint through chapter 11 was one of just a handful of cases that were completed in under 24 hours. Kirkland & Ellis LLP, the law firm representing Belk in the bankruptcy case, said the pre-packaged restructuring was completed in less than 21 hours, faster than other recent Kirkland cases that were quickly turned around, including catalog retailer Fullbeauty Brands Inc. and Sungard Availability Services LP, an information-technology services provider. Superfast bankruptcies like Belk’s are rare. Only a handful of companies have been able to go in and out of bankruptcy in a 24- or 48-hour time frame, including Fullbeauty, which set the previous record in 2019 for the least time between the filing of a chapter 11 petition and confirmation of an exit plan. Charlotte, N.C.-based Belk, however, is using bankruptcy solely to restructure its debt while paying vendors in full and assuming the leases at its 291 stores, all of which are staying open, according to court papers. Judge Isgur expressed concern at Wednesday’s court hearing about whether all creditors were properly notified in advance of the planned bankruptcy and had enough time to raise objections. Justice Department bankruptcy monitors objected to Belk’s sprint through bankruptcy, saying the company was racing through the process too quickly without giving creditors and others who might have an interest in the chapter 11 case enough time to respond or object.
Casual dining chain Ruby said on Wednesday it had emerged from bankruptcy, nearly five months after it filed for chapter 11 protection as restrictions due to the COVID-19 pandemic halted dine-in operations, Reuters reported. The restaurant chain, known for its classic American burgers and steaks, said the bankruptcy allowed it to shed liabilities, including leases from closed locations that were impacted by the health crisis and focus on 209 company-owned locations. “Ruby Tuesday is a healthier company now and is positioned to be more efficient, competitive and stable for the future,” Chief Executive Officer Shawn Lederman said. The company said it would focus on developing “delivery-only” brands and increase its off-premise presence, as consumers still wary of contracting the virus choose to order online and have food delivered to their doorstep. The chain, founded nearly half a century ago, had struggled even before the pandemic due to increasing competition and as fewer people chose to dine at full-service restaurants.
