Bankrupt US retailers begin to catch a break

The biggest US specialty toy retailer plans to emerge from Chapter 11 bankruptcy with many of its about 1,600 stores, employing 64,000 people, remaining open. (Reuters)
Updated 06 October 2017
0

Bankrupt US retailers begin to catch a break

NEW YORK: An unexpected helping hand from creditors, landlords and vendors is allowing more US retailers to stay in business following bankruptcy with most of their stores and employees in the fold.
The new approach marks a turning point for the beleaguered sector, which has seen at least 19 brick-and-mortar retail chains shut down the bulk of their operations since 2014.
Until this year, most bankrupt retailers, including American Apparel, Sports Authority and The Limited, were dismantled during their bankruptcy process. Investors and companies acquired their intellectual property and other assets, but refused to take on their business as a going concern because they saw little value in assuming costly store leases. Instead, they often opted to revamp some of the battered brands online.
However, several creditors, landlords and vendors now see more value left in some retailers, and are seizing on an opportunity to minimize their own losses in the retail rout.
This could spell a slowdown in the decline in brick-and-mortar retail jobs, which fell by more than 100,000 this year, as more than 6,000 stores shuttered under increasing pressure from competition among traditional retailers as well as e-commerce firms such as Amazon.com.
“We’re seeing a set of situations come together in which the constituencies have more interest in the retailer surviving than not,” said Holly Etlin, a managing director at AlixPartners, a consulting firm that worked on the bankruptcy of Gymboree.
Jeans company True Religion Apparel Inc. and perfume wholesaler and retailer Perfumania Holdings Inc. are set to emerge from bankruptcy with at least some of their stores in operation, according to interviews with bankruptcy attorneys and a Reuters review of financial information of more than 15 retailers shared with bankruptcy courts.
These chains will follow a path blazed by Payless ShoeSource, which in August emerged from bankruptcy while keeping more than 3,400 out of its 4,200 stores worldwide, and preserving 19,000 of its 22,000 employees.
Last month, teen clothing shop rue21 Inc. and children’s apparel chain Gymboree Corp. came out of bankruptcy in similar fashion, preserving much of their store footprints and employee headcount.
Most of these retailers were owned by private equity firms, which saddled them with debt in a risky bid to juice returns. But in bankruptcy talks, the chains are arguing successfully that they can generate enough cash to withstand the sector’s woes if their debt mountains are slashed and payment obligations eased.
Creditors, landlords and vendors are more receptive to this approach, because their own financial projections show that liquidations would result in a limited recovery of what they are owed, according to interviews with debt investors and bankruptcy court filings.
Had rue21 liquidated, for example, many loan holders would have seen almost the entire value of their investment wiped out by the end of its five-month bankruptcy process, according to bankruptcy court filings and people familiar with the matter.
This new reality offers grounds for optimism for Toys “R” Us, which last month became the largest retail bankruptcy in 13 years. The biggest US specialty toy retailer plans to emerge from Chapter 11 bankruptcy with many of its about 1,600 stores, employing 64,000 people, remaining open.
Toys “R” Us plans to argue that its annual cash flow of roughly $800 million would make it viable if its $5.2 billion in debt is significantly reduced, according to court papers and people familiar with the matter.
If a retailer’s brand is strong enough and its operations can be improved, creditors see greater value in forgiving some of their debt in exchange for equity stakes, rather than recouping pennies on the dollar in a liquidation.
Many landlords that rent out store space are also willing to provide relief rather than seeking another tenant amid a glut of unused mall space. Rue21’s landlords granted rent reductions of about 20 percent on its remaining 758 stores, according to a person who asked not be identified because the terms of the lease deals are not public.
Supplier support is also critical. Vendors can offer longer payment terms, helping retailers free up working capital to operate. They are often promised full repayment on their claims in return.
Hong Kong-based Li & Fung, a supply chain manager that helps retailers work with apparel and accessories makers, gave Gymboree a 75-day repayment period in exchange for full payment on its claims in the bankruptcy, people familiar with the matter said.
Before Gymboree filed for bankruptcy, the retailer also extended Li & Fung a $20 million secured claim, helping keep merchandise flowing to its stores, the sources added. Li & Fung declined to comment.
Toys “R” Us has also fought to keep suppliers onboard, accelerating its plan to file for bankruptcy to be able to pay them. It has been making progress in winning back vendors who curbed shipments over payment fears.


New oil, gas projects to accelerate next year

Updated 17 December 2018
0

New oil, gas projects to accelerate next year

  • Global investment in oil and gas production is expected to reach around $425 billion next year
  • Many of the new projects will be around gas, with a record number of liquefied natural gas (LNG) projects

LONDON: The number of new oil and gas projects will rise five-fold next year from a 2015 trough but overall spending is still unlikely to be enough to meet future demand, consultancy Wood Mackenzie said in a report.
Shaken by a sharp drop in oil prices in recent months, boards are generally expected to stick to spending discipline imposed following the 2014 price crash.
Global investment in oil and gas production, known as upstream, is expected to reach around $425 billion next year, according to WoodMac analyst Angus Rodger.
That compares with a total spending of $770 billion in 2014, which dropped to $400 billion in 2016 and 2017.
Although spending levels have slightly recovered since then, next year’s capital expenditure will still fall short of the $600 billion required to meet demand growth and to offset the natural decline of output from fields, Rodger told Reuters.
A handful of the world’s top oil companies, including US giants Exxon Mobil and Chevron, said they would boost spending next year as they accelerate developments of highly-productive shale fields.
But overall, companies will seek to maintain spending largely flat in order to return cash to investors after years of pain, Rodger said.
Still, deep cost cuts introduced in recent years and lower rates for drilling rigs and services mean that companies can do more with their money.
In 2019, the number of large new oil and gas projects is expected to reach up to 50, compared with 40 in 2018, and around 10 in 2015, according to WoodMac’s 2019 outlook. Large projects hold over 50 million barrels of oil or gas equivalent.
Many of the new projects will be around gas, with a record number of liquefied natural gas (LNG) projects set to get the green light in 2019.
Those include the Arctic LNG-2 in Russia, at least one project in Mozambique and three in the United States, which would together require $50 billion, according to the report.
“The stars are aligning on LNG sales contracts, corporate appetite, long-term demand and costs. But these are huge investments, and investor confidence could waver if we see signs of cost inflation, global recession and falling prices.”
The LNG projects will target 100 trillion cubic feet of gas, up from 80 tcf in 2019 and 32 tcf in 2017.
Spending could see a strong increase in 2020 if oil prices continue rising steadily and as rig costs are expected to rise, Rodger said.