🍋 PE Backed Bankruptcies

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Good Morning! NYC is back... or is it? Experts thought 2023 would be the year everyone finally came back to the office, but it turns out NYC’s return-to-office push is starting to retreat.

SBF asked a federal court in Manhattan to dismiss most criminal charges against him lol. Regional banks are staging a stock rebound, alleviating investors’ concerns. Summer travel prices are soaring to unprecedented levels amid inflation and record demand. And corporate giants are buying primary care practices left and right as they look to diversify revenue streams.

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1. Story of the Day: PE Backed Bankruptcies

Private equity firms are currently facing a daunting challenge: a surge of portfolio company bankruptcies. The culprit? A confluence of rising interest rates and slowing economic growth. However, some private equity execs say the situation is not as dire as it may seem in the short term.

Private equity portfolio companies are facing a perfect storm of macroeconomic trends right now. 16 private equity-backed companies filed for bankruptcy during the first 75 days of 2023, on pace for the most since 2010. With higher interest rates, portfolio companies might face a challenging road ahead if they want to refinance. So why isn’t the industry sounding the alarm?

In comparison to the 2008 economic downturn, the current economic slowdown is much more modest, alleviating concerns. Additionally, private equity portfolio companies have less existing leverage than they did in years past, making them better equipped to weather any economic turbulence.

What's more, a lot of PE-backed companies have proactively taken steps to mitigate risks by pushing back their debt maturities, taking advantage of loose credit conditions in late 2020 and 2021.

Takeaway: Private equity firms are betting that they can weather the storm and come out on top. They say whether or not we have more bankruptcies is contingent on how long interest rates stay high, and it also looks like Fed is done with rate hikes for now. Private equity firms have tried to build more resilient businesses since the 2008 financial crisis, and we’ll have to see just how resilient this year.

2. Markets Rundown

Stocks closed slightly changed mixed as investors interpret banking and Fed data.

Movers & Shakers

• (+) Zscaler ($ZS) +21% after the cybersecurity company revised its revenue outlook.

• (+) Six Flags ($SIX) +19% after the theme park company beat earnings and anticipates high consumer demand.

• (–) Catalent ($CTLT) -26% after the drug company revised its annual guidance.

Private Dealmaking

• Baxter sold its biopharma-solutions arm for $4.25 billion

• Ace Turtle, an order management platform, raised $34 million

• Nomba, a payment services startup, raised $30 million 

• Pattern Bioscience, an antibody testing startup, raised $28.7 million

• Hackajob, a technical hiring platform, raised $25 million

• Instruqt, a virtual IT lab, raised $16.5 million

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3. Top Reads

• Why labor shortages could be here to stay (Axios)

• Breaking down Buffett’s warning on earnings (YF)

• KKR posts 26% drop in Q1 earnings, beating expectations (Reuters)

• Worries linger about financial security following bank rescue (CNBC)

• How High Sport made $860 stretch pants feel indispensable (WSJ)

• Buffett says banks need old-fashioned values (Axios)

• Institutional interest in crypto is maturing (CNBC)

• AI won’t beat the market any better than Wall Street (BB)

• How to lose friends and alienate people with AI (NYT)

• ChatGPT spawning investor gold rush in AI (WSJ)

4. Book of the Day: MBS 

MBS is the untold story of how a mysterious young prince emerged from Saudi Arabia’s sprawling royal family to overhaul the economy and society of the richest country in the Middle East—and gather as much power as possible into his own hands.

Since his father, King Salman, ascended to the throne in 2015, Mohammed bin Salman has leveraged his influence to restructure the kingdom’s economy, loosen its strict Islamic social codes, and confront its enemies around the region, especially Iran.

That vision won him fans at home and on Wall Street, in Silicon Valley, in Hollywood, and at the White House, where President Trump embraced the prince as a key player in his own vision for the Middle East.

But over time, the sheen of the visionary young reformer has become tarnished, leaving many struggling to determine whether MBS is in fact a rising dictator whose inexperience and rash decisions are destabilizing the world’s most volatile region.

“It’s just like playing Monopoly with a bunch of guys, but you are in charge of everything and you can change the rules,” he said. “But everyone has to stay at the table and play with you.”

5. Short Squeez Picks

• Is loneliness the new burnout?

• Buffett and Munger on success, toxicity, and Elon Musk

• Why you shouldn’t befriend your boss

• How to start a business in 2023

• 6 books to make you a better business leader

• Does office small talk do more harm than good?

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6. Daily Visual: Share of US Population That is Working Age

Ages 15-64

_{Source: Axios}

7. Daily Acumen

The Circle of Influence and Circle of Concern model was popularized by Stephen Covey in his book "The 7 Habits of Highly Effective People". This model divides our concerns into two circles: the Circle of Concern and the Circle of Influence.

The Circle of Concern includes all the things we worry about, such as global events, the economy, and other people's behavior. The Circle of Influence, on the other hand, includes the things we have control over, such as our thoughts, actions, and choices.

Covey suggests that highly effective people focus on their Circle of Influence, rather than getting bogged down by things outside of their control in the Circle of Concern. By focusing on what they can control, they are able to take action and make positive changes in their lives.

This mental model can be applied to various areas of life, including personal relationships, career, and even global issues. By identifying the areas where we have the most influence, we can direct our energy towards positive change and avoid getting overwhelmed by external factors outside of our control.

8. Memes of the Day

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