Heller and Shannon: Last installment

George Forsythe was a banker's banker. He did not believe in the Tooth Fairy, Fairy God-mothers or luck.

It was George Forsythe’s personal opinion that eleventh-hour White-Knight offers were more myth than reality. Oh, sure, bottom-fishers would tender low-ball offers near the end of highly distressed Chapter 11 reorganizations but in every case he was familiar with, all of the major players “took it in the shorts” regardless.

So Forsythe was extremely dubious about this urgent request by a Mr Aarons for a meeting to preview a way out of the contentious Whelen Sports Chapter 11 hearings, which for all practical purposes was trending toward a Chapter 7 (total liquidation) with a barely controlled crash landing with the brand struggling to keep even a handful of stores operating after the reorganization.

Forsythe would have quietly ignored Mr Aarons’ request except for the fact that he had been called, personally, by the chief officer of Barclays of Isle of Mann to request the meeting. The chief officer informed Forsythe that the company Aarons was representing had deep pockets and it would be worth his time to meet with him.

Forsythe chose a small, generic conference room close to the restrooms. He hadn’t been sleeping well and relied on coffee to stay awake. What went in had to come out.

Mr Ken Aarons was a very unremarkable looking fellow. Forsythe had his administrative assistant investigate Aarons’ profesional credentials. He had graduated summa cuda laud from a very large but otherwise undistinguished law school. He specialized in intellectual property law and was not noted as being a player in serious financial negotiations. Still, Forsyth was cognizant of the fact that sharks can swim in any ocean. The important thing is that a shark is a shark.

Forsythe introduced his two administrative assistants, actually glorified go-fers to iron out details as they became visible.

“I am authorized by Apidea Wealth Management incorporated in the Isle of Mann to tender the following offer and to negotiate on their behalf” Aarons said.

He slid a single, 8-1/2” by 11 sheet over to Forsythe and kept one in front of himself. He started reading the highlights of the offer.

“Apidea offers a 20% premium on all outstanding debt. The basis for the offer will be yesterday’s closing prices on the debt taken by Whelen Sporting Goods”

That was an extremely generous offer. The prices had a downward trajectory and the bank managers’ financial fiduciary responsibility made the offer a no-brainer.

“Apidea requires that the leases on the following outlets be dissolved”

Aarons slid a second sheet over to Forsythe. Forsythe scanned the list. Apidea was axing a lot of stores.

“Basically, it is all of the stores that are in urban areas within jurisdictions that do not prosecute shop-lifters, retail fraud or simple assault” Aarons said. “We also require that lease duration be shortened on the remaining stores so we can cut our losses more quickly if the local business environment changes.”

It was Shannon's opinion that fully a third of the stores were “legacy” stores that had been open for more than three decades and been kept open for nostalgic reasons and simple, mental inertia. Ironically, the dowdy, run-down buildings were charging higher rents than the newer stores in areas with lower property taxes. Locations that were once viable had changed over time and became chronic money-losers.

"The list also includes the new mega-stores that Whelen has been opening over the last two years” Aarons said.

Shannon had done her homework. Memories of hundreds of bull-shit sessions with her fellow professionals at happy-hour and around campfires came flooding back to her. It had been the collective opinion that the era of Big-Box stores was over and that outlets the size of “dollar” stores were more profitable. Larger stores had much, much higher rents and required much higher staffing to run them.

Shannon’s buddies in construction confirmed that there are “steps” in the code where larger buildings were required to withstand higher wind and snow loads, required more plumbing and fire suppression and the number of mandated, handicapped parking places increased the distance able-bodies customers had to walk. Not only were there more square-feet, customers disliked the additional walking and landlords had to charge more per-square-foot to recover their costs.

Forsythe knew that would be a difficult thing to sell to the judge. The judge thought business existed to provide employment, not turn a profit. The stakeholders continued to hemorrhage cash while the judge fixated on perserving Whelen's entire footprint. 

 

The biggest stores were enormous and would be difficult to rent...but given how the proceedings were going it seemed very unlikely that Whelen's could stock and run those stores after reorganization regardless.

“However, Apidea will retain all of the racks and shelves currently in the new stores…” Aarons said.

Shannon realized that the shelving and racking had been designed to minimize “shrinkage”, that is, shoplifting. None of the shelving in the new stores was taller than 60” high. The racks were very flexible with regard to configuration and were also shorter than 60" tall.

Going back to the main sheet of highlights, Aarons said “We want to retain your bank as our primary source of local credit”

“The first order-of-business is to restock the shelves. Apidea will pay suppliers IN FULL, to 60-days-net with the understanding that the future flow of merchandise will be expedited and there won’t be any foot-dragging.”

Forsythe bristled at that. “The bank will not allow the suppliers to get preferred treatment.”

Aarons responded blandly, “The offer is contingent that condition. The only merchandise Whelen's currently has is virtually unsalable. We cannot turn a wheel until we get desirable products on the shelf and to do that we need to make our suppliers whole.”

 

40% of the floor-space in a typical Whelen's was devoted to apparel and it had been a major revenue and traffic generator. The stock was depleted, picked over and dated. The colors of the remaining stock were bizarre, the sizes were low-runners and the workmanship was haphazard. In a word, unsalable.

 

Without a rapid, major injection of desirable, new merchandise the Whelen's brand would be toast, even with the slimmed down, efficient distribution network.

Forsythe didn’t have to like it. 20% over market prices for the debt was a compelling case, but he still didn’t have to like it.

Forsythe’s aids were busy scribbling and frantically looking up technical detail. The Apidea offer would shrink Whelen Sporting Goods footprint to 55% of the previous aggregate square-footage. It would also eliminate the perennial drag those stores had on the bottom line. Every dollar of merchandise shoplifted required the sale of at least five dollars of merchandise at a gross margin of 20% to break-even.

Forsythe couldn’t help but poke and prod a little bit. “You are giving up a lot of prime locations. For example, you are giving up the locations near the major universities.”

Shannon had checked those outlets out, personally. College students were not shopping in the discount sporting goods outlets. They shopped at high-priced boutique outlets or they shopped on-line or at Walmart.

“We are aware of that” Aarons said. “We do not believe that the premium prices for the rent are justified by the incremental revenue. Same for the mall locations.”

Line-by-line Forsythe and Aarons went through the list of the conditions on the offer for the 20% premium. Forsythe was impressed by the comprehensive nature of the list and by the single-minded focus on consolidating the profitable parts of the business and ditching the money-losing parts. Few people would have been as ruthless in excising surplus square-footage, for instance.

After eight hours (with four potty breaks and sandwiches catered-in), Forsythe pushed away from the table. “We could spend another six months in court quibbling about every tiny detail and would still get less than this offer contains. A dollar today is worth more than a dollar six months from now. I will recommend to our team that we do what we can to “sell” this package to the other stake-holders.”

Aarons’ shirt had wilted from the sweat. He had been staying calm by doing isometrics when Forsythe went off on a tangent that was not critical to the negotiations. There had been many.

It had been a long, marathon push to get to this point.

***

Kevin sat down next to Lon’s bed. “Can you talk yet?”

Kevin was Lon’s “boss”. He was also a cut-throat psychopath who had learned to be smooth and to project empathy, warmth and emotion. Kevin was very smooth and very, very cold.

Lon shifted his eyes side-to-side to signify “No”

“But I can ask you some questions, right?” Kevin asked.

Turner rolled his eyes up-down signifying "Yes". He really didn’t have a choice. It wasn’t as if he could throw Kevin out of the room or even push the nurse-call button on his own.

“The accounts are in shambles” Kevin told him. “Every one of our clients is reporting insufficient-funds issues.”

Lon frowned. There should have been enough money in the various sub-accounts to cover one month’s round of checks.

“We have also been unable to find the accounts where you banked the companies assets” Kevin’s voice held menace.

“I will be in touch. As soon as I get word that you can talk, I will be back so you can tell me how to access those funds” Kevin said.

Shit! Shit! Shit! SHIT!

Of course Lon had a back-up set of data. It was recorded on an archival-quality DVD in a weatherproof case that Lon had deposited next to a grave marker at the cemetery a scant mile east of his house. The problem was that Lon could only identify identify the marker by sight but could not describe the subtle details that made the marker unique.

He couldn’t run. He couldn’t produce the necessary information. And even if he could produce the account locations and numbers, there was a very high probability that Kevin would see him as a loose-end to be tidied up.

Shit! Shit! Shit! Shit! Shit! Shit! Shit! Shit! Shit! Shit! Shit! SHIT!

***

“Mom. I have to move back home” Ce’Diff wailed into her phone.

“Whatchu talkin about?” Ce’Diff’s mother replied.

“I got fired” Ce’Diff said. It had started out as a delayed paycheck because of "a temporary cash-flow issue" and Ce'Diff pulled the race card. She demanded that SHE be paid NOW. That is when Ce'Diff's management decided permanent separation was a better option.

"Don't surprise me none. All you ever wanna do is fight" Ce'Diff's mother said.

“Get another job. That’s what I ollays did” Ce’Diff’s mother said.

“That won’t work for me. It is going to take me a while to find another one that pays $95k a year” Ce’Diff said.

“Then git two jobs while you lookin' for a betta one” her mother replied. “Or if that ain’t enough, then git three jobs.”

Ce’Diff’s mom knew about low-paying jobs. She worked in a nursing home. She also knew about working multiple jobs.

“But my car got repo-ed. I can’t get around” Ce’Diff said. “I have to move back home while I get back on my feet.”

“Cain’t happen, honey. Damian don’t like you” her mom said. Damian was her boyfriend.

“You gonna pick your boyfriend over your pwn flesh-and-blood?” Ce’Diff dropped her educated pronunciation and slipped into the cadences of her youth.

“I see Damian every night. I ain’t seen you in over a year. You don’t even pick up the phone when I call you” her mom said. "You thirty-four years-old. Past time for you to grow up and clean up your own messes."

Ce’Diff and Damian had a fight the last time she had visited her mom. Damian called B-S when she started lecturing him on intersectionality and male privilege. She doubled down. He did not back down so she called him a dumb nigger and stormed out.

Her mom’s voice pulled her back to reality.

“If I was you, I would find a homeless shelter on a bus route” her mom said. She had been there and done that, too.

Epilogue

Later that year, the Chief Financial Officer for Lookout Mountain Capital Management Company near Chattanooga, Tennessee was the victim of a home invasion. Two men in a “landscaping truck” had tidied up her yard one hot, spring day when one of them asked for a glass of water.

She had been trussed up. Her home ransacked and all computer storage devices had been collected. Before leaving, she had been shot in both knees and both elbows. 

 

Several weeks later the CFO of Asheville Capital Management suffered a similar fate.

Both CFOs had been in Turner’s list of contacts and both lived within a two-hour drive of where Snek and Slider lived. Coincidence, I am sure.