From the Securities Lending Trading Desk

In the US, an impending $134 million dollar debt payment due on Monday has made Sears’ bankruptcy all but certain. In Asia, FamilyMart UNY Holdings said it would acquire a 20% stake in Don Quijote Holdings in a deal that could be valued at as much as 212 billion yen ($1.9 billion). In Europe, Reports that funds were looking to increase short positions in Ceconomy have increased borrower demand this week

Americas

Short interest has increased on Enphase Energy as doubts persist about its rapid gross margin expansion and recent deal with Sunpower Energy. A shortseller report issued by Prescience Point Capital Management over the summer pointed to ENPH’s purported 44% gross margin increase, in less than a year, without any major catalyst. Enphase currently manufactures solar modules which are connected on a microinverter system which converts solar rays into electricity. They recently closed on a deal with Sunpower to acquire its microinverter business. New Enphase CEO Badri Kothandaraman has steadfastly refuted the report which accuses the company of engaging in accounting ‘shenanigans’ which overstate ENPH’s revenue per inverter. Short interest rose to 33.6% of the shares available at the end of September up from 2.1% just 2 years ago.

A $134 million dollar debt payment that was due on Monday has made Sears’ bankruptcy a certainty. A deal was being negotiated to keep some of the Sears stores open through Christmas and to maintain the chain and brand name as a live entity. However, with lenders urging liquidation as the stock fell more than 50% in the last week, bankruptcy became unavoidable. Hitting a high of $80/share in early 2010, the SHLD short has been one of the longest and most lucrative in the industry. Monday’s deadline appeared to be putting an exclamation mark on the short.

Asia Pacific

Shares in the healthcare unit of China’s third-largest property developer fell sharply early last week on news that an electric vehicle start-up is seeking to back out of share sale transaction. Evergrande Health Industry fell by 16% last Monday after the company announced that US-based Faraday Future sought to end an agreement to sell a 45 per cent stake to the company worth a total of $2 billion. Faraday Future has contended that Evergrande Health changed the terms of the deal including the schedule for making payments for the transaction – allegations that Evergrande Health has denied. We have seen long term securities lending demand for Evergrande Health which has seen its shares increase by over 180% in 2018.

Japan’s second-largest convenience store operator announced last week that it will acquire a stake in a rival retailer. FamilyMart UNY Holdings said it would acquire a 20% stake in Don Quijote Holdings in a deal that could be valued at as much as 212 billion yen ($1.9 billion). Separately, Don Quijote will look to acquire FamilyMart’s remaining 60% stake in UNY, a chain of general merchandising stores. The transaction by FamilyMart UNY comes at a time of increased competition and declining margins in the Japanese convenience store market with firms looking at different ways to continue to grow. We have seen strong securities lending demand for shares of Don Quijote since the announcement of the deal.

Europe

What a difference a day makes for Patisserie Valerie (CAKE LN). News reported this week that the company had found a black hole in its finances amid “significant, potentially fraudulent, account irregularities” led shares to be suspended and the dismissal and subsequent arrest of the CFO. Estimates suggest that the £28.8M net cash balance declared at its last interim result may have disappeared. CAKE LN had hit historic highs earlier in the year, up 153% from its launch price in 2014, prior to the suspension of shares on Monday. The café chain warned that it would not be able to continue in its current capacity without an immediate injection of capital. Given the high performance, Short Interest has been historically low at 0.5%. Borrower demand has been high but as expected liquidity in the market is extremely low as further news is awaited.

Reports that funds were looking to increase short positions in Ceconomy have increased borrower demand this week. Ceconomy (CEC GY) shares have seen a volatile week, opening 22% down early on, only to increase 14% late on in the week. Shares initially dropped following a profit warning made by the consumer electronics company, the second in just under a month. Shares have subsequently increased following news that its board is meeting to discuss potential management changes. Ceconomy shares are down just over 67% YTD and lending demand has increased this week with Short Interest increasing from 5% to 7.5% over the course of a few days.