Staples, Inc.
Thesis
We are long Staples 8.5 2025 Senior Unsecured notes which are trading at 91.7 with a YTM of 10.3%. The market has overreacted to the announcement of Amazon Business Prime, dropping the newly issued bonds from 96 to a low of 85. We believe the bonds offer a compelling investment due to extremely stable cash flows, strong barriers to entry against Amazon, and market overreaction to Amazon Business Prime.
Did it work?
The long thesis argued the bonds were cheap on a market overreaction, underpinned by 'extremely stable cash flows' and 'strong barriers to entry against Amazon.' Instead, the notes collapsed roughly 95% from the 91.7 purchase price to the mid-single digits, a magnitude consistent with severe credit deterioration or a distressed exchange/default rather than ordinary spread volatility. This decisively invalidates the core claims of the thesis — the competitive threat proved existential, not an overreaction — making this a clear failure regardless of the remaining time to the 2025 maturity.