Spotify Officially Goes Public, and Consumer Goods Bankruptcies Continue

The past week was relatively quiet for IPOs. Most notable, however, was, Spotify Technology SA's (NYSE: SPOT) unique direct listing, which resulted in first-day stock appreciation. The previously detailed direct listing by the Stockholm-based music-streaming company was the largest of its kind and might pave the way for other firms looking to enter public markets through the non-traditional route.
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During the past year, many notable U.S. retailers have been significantly derailed by the consumer spending shift to e-commerce and their heavy debt burdens. Since the start of 2018, Toys-R-Us, iHeartMedia, and Claire's have all filed for bankruptcy. During the past two weeks, two more recognizable companies have filed bankruptcies: Remington Outdoor Co. and Nine West Holdings, Inc. 

• On Sunday, March 25th, Remington, which has manufactured firearms in the United States for over 200 years, filed for bankruptcy due to a burdensome debt load, a recent slump in gun sales, and a few lawsuits resulting from school shooting incidents. As of Wednesday, March 28th, Remington Outdoor Co. received a federal judge's approval for a $75 million loan as part of the firearm company's pending business restructuring plan. The loan allows Remington to continue making its firearms while pursuing its more-than-$620-million debt-resolution plan. Remington is currently owned and operated by private equity firm Cerberus Capital Management LP since its 2007 acquisition, when it was combined into the Freedom Group. According to Thomson Reuters, Remington has a $550 million loan maturing in 2019 as well as $250 million of bonds due in 2020. According to its recent filings, the North Carolina-based arms manufacturer is supposedly looking to hand control over to its creditors, who include Franklin Templeton Investments, Inc., and JPMorgan Chase's Asset Management Division. Colt's Manufacturing, a competitor to Remington, emerged from bankruptcy in 2016.

• This past week, another retail apparel chain, Nine West Holdings, Inc., filed for Chapter 11 bankruptcy. The bankruptcy plan includes asset sales as well as reorganization. According to the Wall Street Journal (WSJ), the asset deal includes the sale of its Nine West and Bandolino footwear and handbag brands to licensing firm Authentic Brands Group, Inc. Recent court filings detail that the licensing firm has agreed to pay $200 million plus net working capital assets for the intellectual property of the associated brands. The Sycamore Partners, a historical "turnaround" private equity owned firm, had recently closed Nine West's seventy-one remaining stores. The restructuring plan includes a $300-million debtor-in-possession loan from its main creditors. According to the WSJ, recent court filings show that 79% of secured creditors and 89% of unsecured creditors support the turnaround plan. Thomson Reuters reports that Nine West's recent bankruptcy disclosure describes the company's assets ranging from $500 million to $1 billion and liabilities ranging from $1 billion to $10 billion.

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A firm or its creditors can undertake two separate avenues within Title 11 of the United States Code (Bankruptcy Code) when a business is unable to service its debts or pay back creditors. The first choice is Chapter 7, whereby, the courts will assign a firm a trustee, who will examine the financial affairs and administer the appropriate liquidation processes. During liquidation, daily operations have ceased, and the firm's assets, including whole business units, and property will be dissolved and re-distributed to the creditors, starting with the secured creditors. The second choice for bankruptcy is Chapter 11, in which any business can file for re-organization. After filing for Chapter 11 bankruptcy, the debtor in possession continues to operate the business and has 60 days to submit a written disclosure detailing its assets, liabilities, and business affairs. Then, a 120-day period of exclusivity offers the debtor in possession the first opportunity to draft a business restructuring plan. Once a reorganization plan is established, the creditors will vote on the plan while the presiding judge deliberates. Failure to construct an approved restructuring plan or secure interim financing during the bankruptcy phase can lead to case dismissal and subsequent liquidation processes.