Retail Apocalypse Returns

Welcome to the first issue of The Brink, the new newsletter from Bloomberg's global credit team that chronicles the fallout from corporate distress, bankruptcies and financial meltdowns. Leveraging the team's scoops, exclusive data and expert insight, we'll explain the news every Tuesday and Friday. I’m Amelia Pollard, a reporter in New York, where troubled retailers are teetering on bankruptcy again. Send us feedback and tips at [email protected] or Tweet to @ameliajpollard. And if you aren’t yet signed up to receive this newsletter, you can do so 

The Retail Apocalypse Returns

After toppling household names like Toys “R” Usand forcing the closure of thousands of stores across the world, retail bankruptcies went on something of a hiatus in the post-pandemic era. Central bank stimulus made rescue financing widely available for even the most troubled retailers while consumers spent freely thanks to pandemic stimulus checks.

Now, with borrowing costs soaring, savings accounts shrinking, and inflation putting a check on discretionary purchases, the industry's long-entrenched problems — shifting consumer habits, too many physical stores and too much debt — are surfacing again.

Party City fell into Chapter 11 bankruptcy in January. Home decor chain Tuesday Morning is at risk of its second bankruptcy in less than three years. And Bed Bath & Beyond, which was declared in default by its lenders last month, may have staved off its demise with an eleventh-hour $1 billion equity deal.

In the UK, taken over by creditors and stationary chain Paperchase was sold to Tesco after going into administration. Several French fashion retailers, including , have entered insolvency proceedings in recent weeks.

More retailers are likely to to be pushed to the brink in the coming months. The default rate among junk-rated US retailers could reach 12% this year compared to a near rock-bottom low of 0.2% at year-end, according to Fitch Ratings. With $67 billion in outstanding bonds across those firms, about $8 billion is on the line.

“These retailers’ financial models didn’t make sense anymore, their debt loads didn’t make sense anymore, and they shouldn’t have been functional companies anymore,” says Craig Ganz, a bankruptcy lawyer with Ballard Spahr. “A whole slew of these retail companies just can’t survive.”

One of the biggest difficulties facing the firms is that consumers just aren’t shopping as much as the stimulus-driven spending of the pandemic era runs out. US retail sales fell by the most in a year in December, recent Department of Commerce data showed.

While restructuring professionals generally don't expect the same level of carnage that followed the 2008 financial crisis, the latest wave of stress will continue to separate winners from losers. “We’re going to see what I refer to as the continuing Darwinism effect on retail,”  says Perry Mandarino, head of restructuring at B. Riley Financial Inc. “Only the strongest survive.”

By the Numbers

Insolvencies from cryptocurrency lender Genesis Global Auto Plus, a carpart distributor backed by Carl Icahn, contributed to the busiest January for large US corporate bankruptcies in 13 years. More are expected: rising interest rates will prove painful for heavily indebted firms, especially those with floating-rate debt. The surge in filings follows months of build-up in the pile of bonds and loans trading at distressed level in the Americas, which is more than 3.5 times higher than it was at this time last year.

High Alert

• Angelo Gordon, Canyon and Mariner are among the bondholders accusing telecom software company  of “massive fraud” in a New York lawsuit. The investors claim they lost $125 million as the company refinanced debt shortly before firing the CEO and revealing a huge drop in its earnings forecast.
• The Winklevoss brothers’ Gemini reached an agreement with Digital Currency Group over the restructuring of crypto lending arm Genesis. Gemini had partnered with Genesis on a high-yield product called Earn. Cameron Winklevoss had threatened to sue DCG to get a better deal in bankruptcy.  
• Sam Bankman-Fried’s offshore unit that owns 55 million shares of Robinhood Markets filed for bankruptcy last week. The stake held by Emergent Fidelity Technology has already been seized by the US government, but several parties, including SBF, are trying to get their hands on the shares. The Robinhood stake is worth almost $600 million at current market prices. 
• Administrators at the UK battery firm Britishvolt selected Recharge Industries to buy the majority of its assets and business. The company’s plan for a ?3.8 billion plant in northern England never materialized and the firm filed for insolvency last month. 
• is preparing a new offer to convince local pension funds to participate in a debt restructuring that will see them receive full interest over a longer period of time. 

Notes From the Brink

It turns out that people’s love for their pets isn’t crisis proof, Erin Hudson writes. Ask TPG, whose Independent Pet Partnersfiled for bankruptcy this week.

Pet-care products were supposed to be a safe wager when TPG started aggregating regional US chains in 2017. That same year, rival PetSmart acquired Chewy.com for more than $3 billion, the biggest eCommerce deal on record. 

The bet that people would continue spending for their pets even in a downturn has been tested by the pandemic and the return of inflation: while pet ownership increased amid Covid lockdowns, stores were shuttered and sales dropped. Independent Pet Partners limped on only with the help of its private equity backer. 

The final hit came with rising consumer prices, which ate into pet-owners' bottom lines. Suddenly, quality pet food and services became an item that when push came to shove wasn't necessary.

The Latest on… Adani 

Billionaire Gautam ’s fortune has shrunk by more than $60 billion since short seller Hindenburg Research published a report last month reviving old questions about corporate governance at the Indian group.

bleeding has stopped, for now at least, after the businessman and his family pre-paid more than $1 billion worth of borrowings and traders covered short positions. The flagship Adani Enterprises soared in response on Tuesday, rising as much as 25%.

Hindenburg’s report alleges stock manipulation and accounting fraud at the group, threatening to undermine broader investor confidence in India and in the nation’s regulatory framework — whether the researcher’s claims ultimately prove to be true or not. The Adani Group has repeatedly denied the allegations.

Some of the conglomerate’s dollar bonds fell into distressed pricing after the analysis was published, drawing attention from specialist funds. Baupost, Oaktree and Silver Point have started to buy dollar-denominated bonds issued by some of the group’s units, The Economic Times reported.

Adani, 60, has been close to Prime Minister Narendra Modi for decades. And his business — with investments in capital-intensive projects such as airports, power plants and data centers — is at the heart of Modi’s growth agenda. As a national champion, the tycoon has aligned his business interests with Modi’s development goals, often stepping in where the state lacks resources or competence, creating thousands of jobs in the process.

Any further dents to investor confidence in Adani’s empire would be a setback for India’s growth story, a blow when blue chip companies are expanding there to hedge their exposure to China.

More from The Terminal and Bloomberg Law

• Funds Dispute Fees’s €3.8 Billion Restructuring
• Lenders to Tom Gores’s Prison Phone Company Tap Advisers on Debt
• Billionaire Sicupira Is Said in Talks With Americanas Creditors
• CelsiusShareholders Take on Customers Over Affiliate’s Assets
• Russia Exit Tricky for Firms One Year After Ukraine Invasion

Thank you for reading The Brink, Bloomberg’s twice-weekly newsletter on corporate crisis and distressed debt. Contact the author of today’s issue via email at [email protected] or Tweet to @ameliajpollard

— With assistance by Tasos Vossos, Erin Hudson, Catherine Bosley, Jenny Che and James Crombie