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Wax that board and grab your wetsuit…
Get ready to hang ten. As told by our friends at the New York Times: “A Tidal Wave of Bankruptcies Is Coming.”
COVID has forced many companies to blow into both sides of their inflatable PFDs and call for life rings from their lenders, postponing debt repayments or staving off hungry sharks with chunks of federally-backed PPP loans. We’ve already seen bankruptcy go mainstream in the past few months as more and more high-profile cases (mostly retail, consumer goods we’ve written about like J. Crew, Tuesday Morning, Hertz).
The longer companies have to drawdown their cash reserves (which in many cases have been propped up by fully-drawn revolvers), the less chance the business has of being able to use that cash productively to return to operations. As such, a group of academics cited in the article see the bankruptcy expect “a Covid-19 cliff” in the next 30 to 60 days…
The bottom (fishing) line: bankruptcy won’t be jumping the shark anytime soon.
Pyxus International looks to vaporize $400m in secured debt
Pyxus, a tobacco supplier who moved into the hemp, CBD, and vaping space as the market for cigarettes slowly goes up in smoke, filed for a Chapter 11 prepack on June 15.
In his declaration, Pyxus’ EVP and CFO claim the business is “fundamentally sound” despite being “burdened with an unsustainable level of debt.” With declining revenues weakening the company’s cash position, the COVID pandemic forced the company to burn through cash reserves while the company’s credit lines were coming up to maturity.
The company is using Chapter 11 to favorably restructure its debt, as agreed to by the majority of its lenders.
24 Hour Fitness: bankruptcy flex
24 Hour Fitness filed for Chapter 11 on June 15, a pure-play COVID bankruptcy. In a Shakespearean declaration from its Chief Restructuring Officer (FTI-placed):
“But for the COVID-19 pandemic and its detrimental effects on their business, the Debtors would not be seeking the Court’s protection today.”
The company’s 445 clubs and 3.4m members have been closed / working out at home since the start of March. The company will use bankruptcy to primarily reduce its operating footprint by laying off staff and rejecting leases (approximately 135 of them).
Misc. etc.
Hertz pumps brakes on equity offering: after considering a surprising sale of new shares to a retail market that seemed to support demand, Hertz is backing down from the controversial offering. We covered that offering last week.
When in distress, head to the equity markets: Red Robin plans sale of $40m in new shares to bolster balance sheet. While not in bankruptcy, Red Robin’s liquidity position has also been hit hard by the global pandemic.