West Marine Restructures Debt

[CaptTom]

Originally Posted by danstanford

Holders of business ownership do exactly what their customers do, what is best for them. Maximizing profit on your investment is analogous to minimizing costs to you as a consumer...

Businesses only exist to support customers. Customers don't only exist to support businesses.

It's a simple issue of sequence. Sure, stockholders can make money investing in a business which does a good job of providing value to their customers. But it's that value which drives the whole thing, not the profit. I should, as a customer, seek the best value for me. An investor should seek the best way to offer that value. That's how to make a profit over the long term.

Originally Posted by jlynker

Maximizing profit doesn't always mean satisfying the consumer. Sometimes it means taking loans, filing for bankruptcy leaving debtors, employees & suppliers unpaid & walking away with cash & bad management decisions relative to the intended purpose of the business.

Well said. Exploiting flaws in the system to extract massive amounts of cash in a short time is certainly possible. But it benefits no-one but the one doing the exploiting, while damaging the customers, suppliers, employees, and the economy in general.

Originally Posted by danstanford

...We can see that it is better for a community and your fellow citizens to buy products made/sold more locally, even if it costs a bit more than finding the lowest cost item on the shelf or from some online source...

I'm not 100% sold on this concept. Say my next-door neighbor makes a few widgets in his basement. He or she has set up a complicated fabrication facility and buys materials and supplies in small quantities. If I like him or her, I might pay extra for the novelty of having home-made widgets, and to support my neighbor. After all, it feels good.

But at the scale of the overall national economy, is it really good? Isn't it far more efficient in every way (including environmentally) to centralize production in one factory? Widgets can be made to a higher quality standard, on better, more efficient equipment. Raw materials and supplies can be purchased and transported in bulk. Good, steady jobs are generated. Any waste products can be disposed of in a more environmentally friendly way than putting them out for residential trash collection. Worker safety is probably much more closely monitored on the factory floor than in my neighbor's basement.

Obviously that's an extreme example. But there are economies of scale in almost every industry. Of course transportation can limit the ability to scale up production. But I don't buy that low-scale production is always a good thing.

Originally Posted by GordMay

New York City just passed a law, that corporations have to post earnings statements, in public spaces [to be accessible], like in parks, MTA stations, high-density residential areas...
“And the words of the profits are written on the subway walls and tenement halls.”

Good one!! But you have to be a pretty hard-core Rush fan to get it.

[Kettlewell]

This is total sailboat registrations in the USA, but if you look at the larger cruising sailboat segment the number of new boats is well less than 2,000 a year. It is a tiny industry. I remember overhearing a conversation once at the New York boat show, which at the time was the largest in the country. One person was telling another," If you think this boat show is impressive, you should see the HVAC show!"

[GordMay]

Originally Posted by CaptTom

...Good one!! But you have to be a pretty hard-core Rush fan to get it.

It's a Paul Simon [Simon & Garfunkel] quote.

What's a Rush fan? Is it some kind of bilge blower?

[Kettlewell]

Here's an article from 1986 talking about the decline in the sailing industry, and this trend has just continued unabated since then: https://www.latimes.com/archives/la-...232-story.html

Unlike the powerboat business, which has enjoyed three years of recovery after a recessionary decline, the American sailboat industry remains in deep trouble. Since 1974, sales by domestic sailboat manufacturers have dropped 73%.

Woodland Hills-based Catalina, the nation’s largest sailboat maker, says its sales are down 8% for the fiscal year so far. “Only a bad hurricane that destroys a lot of boats” would revive sales of new boats, said Jack Turner, publisher of the respected Soundings magazine, published in Essex, Conn.

The sailboat industry has all but disappeared from Southern California, once considered the industry’s hub. Many companies have fled to more lucrative markets, especially in Florida or the Northeast, where land is cheaper and marinas are more plentiful. Others have simply faded away.

[jlynker]

Very presumptuous for everyone to think L Catterton (or their French backers) are interested in boat part sales. They probably want the hdings of West Marine Real Estate.

As for demographics, most WM customers either just bought a boat or are quickly selling their boat. If you're a veteran boater, you probably know what you want (less desire to browse a retail floor) and know where to get it cheaper. Examplw: after 40 years sailing, I only use DOW 795 caulk. No BoatLife or 3M on my boat. But Dow only sells caulk through specific suppliers.

[jlynker]

Originally Posted by jlynker

Very presumptuous for everyone to think L Catterton (or their French backers) are interested in boat part sales. They probably want the hdings of West Marine Real Estate.

As for demographics, most WM customers either just bought a boat or are quickly selling their boat. If you're a veteran boater, you probably know what you want (less desire to browse a retail floor) and know where to get it cheaper. Examplw: after 40 years sailing, I only use DOW 795 caulk. No BoatLife or 3M on my boat. But Dow only sells caulk through specific suppliers.

For Financials, look up "shorting stocks". This looks a lot like L Cat is actually shorting the entire WM portfolio.

[jlynker]

Here's a way to think about Equity taking a publicly traded company private. If this interest in investing in a multi-channel distributor (keep in mind, West Marine only moves parts in one direction, cash in the other) for those profits, what incentive is there to take that company private? There's no IP, no patents, nothing tangible to retain - just people effort (employees) moving parts in one direction, cash in the other. So then, the incentive would be to leverage the value of the Publix being able to invest.

Now, if the Financials turn bad, (L Cat just gave $225M in 2023) then the incentive would be to offload more of that liability onto the public shareholders...

Unless, gee, if one of those bankruptcy courts will give L Cat all that new property West Marine invested in, new digs in Ft Lauderdale, Seattle, **.. at $0.10 on the dollar....there's now incentive to take such a company private.

Load the target up with debt; don't work to contribute to the success of the target, let them flail and ask the courts for relief from all the mis-management L Cat suffered at the mis-management performed by West employees.

One big old blame game with lots of victim potential.

[Letterkenny]

Originally Posted by jlynker

Here's a way to think about Equity taking a publicly traded company private. If this interest in investing in a multi-channel distributor (keep in mind, West Marine only moves parts in one direction, cash in the other) for those profits, what incentive is there to take that company private? There's no IP, no patents, nothing tangible to retain - just people effort (employees) moving parts in one direction, cash in the other. So then, the incentive would be to leverage the value of the Publix being able to invest.

Now, if the Financials turn bad, (L Cat just gave $225M in 2023) then the incentive would be to offload more of that liability onto the public shareholders...

Unless, gee, if one of those bankruptcy courts will give L Cat all that new property West Marine invested in, new digs in Ft Lauderdale, Seattle, **.. at $0.10 on the dollar....there's now incentive to take such a company private.

Load the target up with debt; don't work to contribute to the success of the target, let them flail and ask the courts for relief from all the mis-management L Cat suffered at the mis-management performed by West employees.

One big old blame game with lots of victim potential.

Except they wouldn’t be the lien holders in that position and be at the bottom of the totem pole as common equity holders.

The whole incentive is that they saw a company undervalued and where they thought they could extract operating efficiencies to increase margin and then have a higher multiple on an exit. I’ve worked on many of these deals and what you are suggesting is rubbish. You can’t even offload to common shareholders if they are private as only institutional investors/highly skilled that meet certain SEC requirements would be able to invest within the fund.

[jlynker]

Originally Posted by Letterkenny

Except they wouldn’t be the lien holders in that position and be at the bottom of the totem pole as common equity holders.

The whole incentive is that they saw a company undervalued and where they thought they could extract operating efficiencies to increase margin and then have a higher multiple on an exit. I’ve worked on many of these deals and what you are suggesting is rubbish. You can’t even offload to common shareholders if they are private as only institutional investors/highly skilled that meet certain SEC requirements would be able to invest within the fund.

You're welcome to your opinion but Bain Capital did it to Sports Authority, Bed Bath & Beyond & West Marine & Gibson Guitars is going through it now..

And yes, the Equity Notes & investments of $225M, when WM files bankruptcy will be the largest recipient of the remaining assets. They don't have to "lien hold" in bankruptcy court.

"Where they thought they could..." - I doubt a Venture Capital / Private Equity firm tossing around hundreds of millions is that niave to assume ALL the risk of failure without that plan (I'll call it plan A) being fully flushed.

[jlynker]

By the way, if operational efficiencies were the incentive plan A, explain where they were to come from given their decisions?

Rubin once owned a boat. But Ulta & WM are very different. I thought their best opportunity (pre L Catt).was with REI Guy w/ a membership that would roll in BoatUS insurance...

One of the early strategies of WM was to keep real estate costs low. Not be right at the Marina or Mall, bur just down the street. But when West Marine Real Estate IS the value as the value and retail appears undervalued .. iow, the real estate transactional is worth more than the retail services it houses. That was intentional. Financial planners are not dummies. They are profiteers.

[Letterkenny]

Originally Posted by jlynker

You're welcome to your opinion but Bain Capital did it to Sports Authority, Bed Bath & Beyond & West Marine & Gibson Guitars is going through it now..

And yes, the Equity Notes & investments of $225M, when WM files bankruptcy will be the largest recipient of the remaining assets. They don't have to "lien hold" in bankruptcy court.

"Where they thought they could..." - I doubt a Venture Capital / Private Equity firm tossing around hundreds of millions is that niave to assume ALL the risk of failure without that plan (I'll call it plan A) being fully flushed.

You kept mentioning public shareholders when that’s factually inaccurate. By going private, you get rid of the shareholders outside of the investors with which whatever fund this acquisition is in. Further, you don’t seem to understand how bankruptcy works. Debtors tend to be first in line, followed by preferred holders, and then common. It’s the way the agreements are structured for the firms to be able to get debt. That’s also why the PE shops are willing to do this as they aren’t taking much risk at all as it’s not their money. It’s just leveraged money from a consortium of lenders.

One thing that you did get partially right is that shops will also look for deals to extract the most amount of cash from as well. This can be by buying an entity, heavily financing it to get returns. If it goes BK then it goes BK but that’s never the main goal. You would make it increasingly difficult to get funding if this was always your strategy. I have worked with a firm that took a large real estate entity private as they saw it undervalued, extracted a ton of capital via debt to get immediate returns, but are still holding it as they can service the debt. They identified a company undervalued and extracted the value while still enabling a sound business.

[Letterkenny]

Originally Posted by jlynker

By the way, if operational efficiencies were the incentive plan A, explain where they were to come from given their decisions?

Rubin once owned a boat. But Ulta & WM are very different. I thought their best opportunity (pre L Catt).was with REI Guy w/ a membership that would roll in BoatUS insurance...

One of the early strategies of WM was to keep real estate costs low. Not be right at the Marina or Mall, bur just down the street. But when West Marine Real Estate IS the value as the value and retail appears undervalued .. iow, the real estate transactional is worth more than the retail services it houses. That was intentional. Financial planners are not dummies. They are profiteers.

You are mixing concepts here. The CEO is irrelevant. The whole fund strategy is likely a LBO model with a 5 year fund life so the PE shop looks for company’s that meet the bill of the fund and decided on WM. While a good leader is needed, the reason why a PE shop buys an entity is because they see a way to make it better for a good ROI.

[Dockhead]

Originally Posted by Sailor Sailor

This could be a pre-packaged or pre-negotiated chapter 11 plan, popular these days, the debtor reaches agreements with its biggest creditors, then files chapter 11. It already satisfies the requirements for confirmation as far as the numbers and classes of claims. Usually, someone gets screwed in these deals - the smaller creditors, maybe landlords of nonperforming stores that will be closed.

BTW, I like WM and its price matching policy.

It's not a pre-negotiated Ch 11 -- a large amount of debt was converted into equity. That shows confidence in the company -- a lot of it -- because in the event of insolvency, equity is wiped out, whereas debt gets a share of whatever assets there are. That's a good sign that WM will survive.

[jlynker]

Originally Posted by Letterkenny

You kept mentioning public shareholders when that’s factually inaccurate. By going private, you get rid of the shareholders outside of the investors with which whatever fund this acquisition is in. Further, you don’t seem to understand how bankruptcy works. Debtors tend to be first in line, followed by preferred holders, and then common. It’s the way the agreements are structured for the firms to be able to get debt. That’s also why the PE shops are willing to do this as they aren’t taking much risk at all as it’s not their money. It’s just leveraged money from a consortium of lenders.

One thing that you did get partially right is that shops will also look for deals to extract the most amount of cash from as well. This can be by buying an entity, heavily financing it to get returns. If it goes BK then it goes BK but that’s never the main goal. You would make it increasingly difficult to get funding if this was always your strategy. I have worked with a firm that took a large real estate entity private as they saw it undervalued, extracted a ton of capital via debt to get immediate returns, but are still holding it as they can service the debt. They identified a company undervalued and extracted the value while still enabling a sound business.

A public traded company has access to cash that is non-obligated. Granted equities were issued that can go bust, but if their value is less than the assets retained in bankruptcy, net gain. BC doesn't measure intent, just liabilities.

If L Catt thought WM was valued, they'd want to play with shareholders wad of cash because there's no obligation to deliver on publicly traded stocks. If, as a publicly traded company, L Catt thought they were going to take a dive, they'd short. But shorting has risk... so, take it private, those loans ARE debt creating a liability that must be enforced in BC ... oh and by taking it private and writing equities, as long as the notes going bust are less than the assets retained in BC, again, court doesn't care if L Catt profits of bankrupted properties or sales of caulk.

Think of the price per square foot of Seattle space if they remove the racks of Gill foulies and put in Google cubes? That's the real valuation battle I see happening. There was nothing wrong with the Watsonville Headquarters, except that by loading up WM with debt of a new high rise in Ft Lauderdale, one that caulk sales won't support, West Marine Real Estate and West Marine Supplies (Port Supply, et al) will have to part ways for ol' L Catt. Nothing personal... just valuation Florida style. Ft Lauderdale is where Sports Authority went to die in their privatization. This trick is getting old.

[jlynker]

Originally Posted by Letterkenny

You are mixing concepts here. The CEO is irrelevant. The whole fund strategy is likely a LBO model with a 5 year fund life so the PE shop looks for company’s that meet the bill of the fund and decided on WM. While a good leader is needed, the reason why a PE shop buys an entity is because they see a way to make it better for a good ROI.

I do get your point that any one person doesn't make/brake the entire company however, a CEO is pretty important player in the role of organizing executive staff... refer to my earlier post weeks ago - WM on Loan Funding doesn't have to behave like a capitalist company, they on welfare. That - and the executive leadership team throwing that loan cash in the air - didn't have to earn it. ...and they don't have to pay it back until the BC judge drops the gavel.