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I feel like we should address why we were off air for three weeks. People asked me about it.
Really, no one asked me about it. Well, no one asked me about it.
I got questions, Well, you had a vacation, then I had a vacation. Then we actually had an episode.
I think I think everyone in this room would agree the greatest episode of the Money Stuff podcast in its history. Except when I say we recorded it, I mean we performed. We accidentally did not record.
Yeah, so it will never see the light of day.
We do, I believe have your side of the audio. Where's like I was joking, we should do like a space coast coast to coast thing, where like we play your audio and I just say non secretaris that set you up to say something weird in between your audio.
But I was a sign that I was also thinking like Mystery Science Theater, where like I say something and then you, like you offer a snippy little comment, and then I say something else and you just respond.
There are a lot of ways we could go with that audio.
Who has the time.
Who has the time?
Not us? No, so we apologize to your listeners.
You're fine, I'm sure it was.
I'm sure we all had a great couple of weeks.
We got a vacation from this. They got a vacation from us. Fine. I'm going away on a couple of weeks.
So I'm going to a conference, and you're going to do an I want to say this.
I'm going to the Tulane m and A conference, which is like the Big M and A conference for like M and A bankers. The Song Exempt put lawyers to a very logic extent. So if you're there, say hi and uh, I've never been to this conference everyone, So that's fun because it's a New.
Orleans that does sound really and the weather should be nice but not horrible. In March in New Orleans. I'm going to Vegas for an ETF conference. I hate Vegas, but I'll be there. So if you're there, shout out the pod.
Hello, and welcome to the Money Stuff Podcast. You're a weekly podcast, your occasional podcast where we talk about stuff. It into money. I'm that Levine and I read the Money Stuff column from Bloomberg Opinion.
And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
Where should we start, Katie.
We could start with Warner Brothers. That happens last week.
I was still happening.
But yes, it's still happening. But I was on vacation, and I left for vacation thinking that, Okay, Netflix has kind of got this in the bag, like they've kind of had this in the bag, and they did not have it in the bag. They ended up walking away.
Yeah, it's fascinating, right, Like Paramount had bid thirty dollars to buy Warner Brothers. Warner Brothers had said, we'd rather take this Netflix bid. It was something more complicated, but whatever, it was like worth more than thirty dollars, right to Warner, they thought. And then Paramount kept past them. And then they eventually raised their bed from thirty to thirty one, and Warner was like, well, thirty one is better than
Netflix's bed, although thirty was not. So they went back to Netflix and they said, you have matching rights, would you like to raise your bed above thirty one? And Netflix said no, thank you, see you later.
Yeah, And so Netflix.
Just dropped out and Paramount is buying Warner for a thirty one.
Dollars I could see world in which Paramount does go after Netflix next, because this was pretty audacious.
So you have this dynamic where Paramount thinks that it should be combined with Warner Brothers and Warner Brothers kind of things. It should be combined with someone like Warner Brothers. And so Paramount, which has a young, ambitious, arguably NEPO baby ceo.
I was going to say, a CEO with a well deep pocketed file.
Yeah, a CEO with let's say, something to prove. He's like, I want to buy Warner, and Warner has a CEO who has kind of proven itself and you know, wants to sell, right, And so it makes sense to combine these two companies. I mean, it probably makes sense. They
think it makes sense. There's there's some synergies, whatever makes sense to combine the companies, and it makes sense for Paramount's executive team to control the combined company, let's say, right, But what doesn't make sense from a corporate finance perspective is Paramount, which is teeny, buying Warner, which is big. Yes, it sort of straightforward world. You'd be like, well, Warner
will buy Paramount and then they'll combine them and then yah. Yeah, But It just didn't work out that way because of the dynamics of how Warner is trying to sell itself and bidding against Netflix, and Paramount had offered an all stock deal, like, it would not have worked, right, Yeah, So they offered it all cash deal, which meant borrowing yeah, jillions of.
Dollars more than twice their market capitalization. Actually, it's pretty fantastic.
It depends on account, like their market cap right now, Paramount's market gap is like thirteen fourteen billion dollars their equity market cap and the debt for this deal I think, including like everything is like seventy nine billion dollars, so it's like six times in their market cap. But that math is not quite right because like their market cap today is like thirteen billion dollars, but they're getting like a forty something billion dollar equity check from Larry Allison Fair.
They're also doing a rights offering, which I love.
Explain that and why do you love it? Well?
I love it because just doesn't make sense for like this teeny company to borrow so much money to buy this bigger company. You do the reverse, right, and the rights offering is a way to like very slightly move in the correct direction, which is like, we should have more stock outstanding if we're going to swallow this giant company. And so they're offering to sell about three billion dollars of stock to whoever wants at public investors on the
same terms that Larry Allison is buying. So Paramount is essentially a controlled company like in the personal ownership of like the Ellison family, but it has public shareolders and they can put in some more money. Basically, if you're a public sherelder, you have the right to buy some stock at the sixteen bucks that Larry Ellison is playing, which like you know, it's three billion of stock, which it's three billion less of debt load than you'd otherwise need. And like they have a lot of debt.
They do have a lot of debt, to the point where they were downgraded to junk by Fitch in the aftermath of this, which I guess isn't that surprising when we're talking about some.
Of these levels I was thinking about, like when they were trying to get this deal. So there's a long time where Paramount was pestering Warner to take their deal instead of Netflix and Warner we're saying no, and it was hard for them to say no because a lot of sharelders wanted the certainty and cash of the Paramount deal, and so the board had to defend their deal. And one thing the board said was the paramat deal would be the largest leveraged buyotever, and we have doubts that
they can get it done. And like, in some sense, that's like a weird thing to say. Because the Warner board represents the Warner shareholders. They have a fiduciary duty at this point to get the best price for the Warner shaholders. And if you say, well, the paramount deal involves borrowing a lot of money, it would be hard to pay down all that debt, Like that doesn't matter, Like that's not your problem, right, the shoulders are cashed out at that point. If it runs into trouble after
the LBO, that's not the sholder's problem. So it's not the boards problem. And the board is defending this as saying, well, we don't think they could even raise the financing to do this albo, which is kind of a weird thing to think because it's like Larry Ellison, It's like it's people who can raise the financing yeah, but now that they've signed the Paramount deal, I'm like, oh, yeah, this is the largest LBO ever And like I can see why someone with ties to Warner Brothers would be nervous
about that. There's going to be a lot of job cuts. There's going to be probably a lot of cuts in production,
although there's debate about that. But like, to service all of this debt, it's going to be difficult and it's going to lead to like hard business treses at Paramount Warner And if you sold to Netflix, which has plenty of money, you wouldn't have those pressures made a lot of pressures, right, Like Netflix is not not necessarily a lavish benign over alert for movie companies, but like having that much debt like makes it harder to run the business.
Yeah, I mean there were questions about theatrical releases, et cetera. When it came to the Netflix bid.
Netflix is like, you can have your theory of mind of Netflix, but they have plenty of money.
Yeah. Yeah, it's funny. I mean, taking a look at our reporting, both Ted Sarandos and David Ellison had spent a lot of time in DC sort of pitching for this deal. And it seems like one of the factors though, was the idea that when it came to the regulatory side of things, that it would be a quicker experience going with the Paramount bid than with Netflix that probably would have lasted well into twenty twenty seven.
A lot of people think that, Yeah, Paramount definitely pushed that narrative. Ted Sarandas is going around saying no, no, it's fine, we have no problem. We would have got improved quickly. So I don't know the answer, but like, yes, certainly people were nervous about the Netflix regulatory approval process, and you know, this is on the backdrop of everything is about Donald Trump's personal whim but anyway, so there's a sense that like Netflix is politically on the outs and
Paramount is politically on the end. But like the Netflix very consistently said no, no, it's no problem, more fine, We're doing great.
So I don't know, Yeah, I mean, Netflix, in walking away said that this was solely about price, that they were confident they would get it.
Fascinating, Yeah, you've come this far, You've had this much time and money on this deal, and they're like, could you pay one more dollar and you're like, no, it's amazing. It's an amazing display of disciplined No, by the way, it's one more dollar. But it's also they get a big breakup fee for walking away.
Yay, Paramount is paying.
There's been a lot of talk about paramount of grain to pay that breakup fee, and like, I've always found that talk very perplexing because obviously, if you've been thirty one dollars per share in cash to buy a company, the incidence of the breakup fee is on you, Like nobody could possibly pay it other than paramount, and it's just like sort of smoking mirrors that. Wheer was like, oh, they have to pay the breakup fee anyway, Yeah, they're paying it far.
Yeah. Well. Also, just to the point on the DC relationship, apparently President Trump told Sorrando's at some visit not to overpay for the company. So apparently he took his advice.
I don't know, No, he was he was going to overpay. The Trump gave him some business advices.
I've never mind if the President tells you that, I mean kind of feels like the writing's on the wall, like this is all okay.
I don't think that's Like if you overpay, we'll want to approved. I think that's just used to be in business.
Yeah, yeah, yeah, I mean I wasn't actually in the room, So yeah.
We're speculating a little bit about what that conversation.
I don't know what room it was. Wasn't the Oval office, It could be any room, yeah, perhaps a ballroom. Just from a human level, I mean, just reading this, I feel like I was getting my feelings hurt, like the fact that it took so many months, Paramount was rebuffed
at so many turns. It feels like Warner Brothers the board really didn't want to do this and then found themselves in a position where they sort of couldn't say no. I feel like if I was in Paramount shoes, I would just feel really bad all the time.
But interesting, I don't know.
I mean, maybe I just don't have the bullheaded confidence.
You know, Warner would never say we really don't want to sell the I mean, they're a boardive competent directers that have a fiducial duty to get the best price for their shareholders. I think that they liked the Netflix deal. For whatever reason, they liked the Netflix deal. You know, they'll tell you deal certainty and the value of the cable stub and whatever. But there was always some price.
I mean, there had to have always been some price that paramount could pay that would be enough for them, And it turned that price was one dollar more, which is funny. The other thing that happened that it's so strange is that Netflix, you know, was like, we'll pay the complicated package they would pay, and this is our best and final offer. And Paamans said, we offer thirty dollars and it is not our best and final offer. And so it would like Warner could not accept that deal.
It would be just absolute malpractice to be like, we'll take your not best offer. So they had to hold out for something more, And everything else is in the background of like, oh, we had to hold out for more, and like I don't know if they explicitly said thirty one best and final effort, but like thirty one was enough.
Yeah, Well, it'll be interesting to see how long this actually does take to get through.
The Other thing is but I don't think I think they've already gotten some of their clarents. There's like European there's a locking still happen. But the other interesting thing is like if your model of this is they have taken on crippling dat and won't be able to service it, like you read some people being like Netflix's plan here is to buy the whole thing in three years when it falls apart, which is one one way to put Private credit has been a thing.
Oh my gosh, GOSHBDC.
All these things.
Yeah, b CRED Blackstone stepping up to meet these redemptions personally, right.
Be cred the Blackstone non traded private credit business development company that's not as name, that's just what it is. Its name is b Credit. All these non traded BBCs, they call them like semi liquid vehicles. Every quarter they offered a redeem up to five percent of the stock a tender offer. So if you are invested in this fund, you can't sell it on the stock exchange. There's no way to get liquidity except every quarter they will buy back your shares if you want, if you want out,
but only up to five percent. So last quarter they got seven point nine percent of the fund in redemption requests, which is a record, as we reported. And so they had to scrape to do those redemptions, not because they didn't have the money. They have like bank credit facilities. They can do the money, but because like the way the tender offer works, they can't. It's boring, but like
they couldn't actually meet all those redemptions. And rather than say no, which is not quite the same thing as gating, the fund quotes but like yeah, like look like gating, and people get mad and upset. So rather than say know it anyone right out, they let everyone get out. And to do that, they paid about seven percent of them out with Pea Creds money and they paid their remaining zero point nine percent out with money from Blackstone
the firm and from the personal accounts of some Blackstone employees. Yeah, here, you know, get into the fund. It's like meant to be a show of confidence. It's like we will cash you out at par and we will pay par with our own money because we really believe in these credits.
Specifically, it was more than twenty five senior leaders from sure across Blackstone. We reported. Yeah, I've heard that too. I was talking to someone about this on bloomber TV yesterday and they were like, I take this as a very bullish sign. It's a kin to share buybacks or insider buying or something like that.
So that is the honestly what it's meant to be.
That's the optimistic angle. But the headlines keep coming, and I.
Mean like the angle is like some retail investors in this private fund, having read bad headlines, wanted to take their money out, and there are offsetting inflows from experienced private credit professionals who work at Blackstone and know the portfolio. Right, that's a good story. Yeah, you have to like, you know, you have to like twist the arms of the employees to yeah, how do you say no?
That's what I would love to know, Like, Okay, more than twenty five or about twenty five said yes. Did anyone say no? Did anyone feel like they could? I want to talk to that person.
The other thing that bothered me about this is like if you came to me and I was like a sharp Elbo private.
Credit professional and you really I can see it.
You're like all of our retail not all seven of our retail investers are panicking in one out of our lovely fund, which has great credits, and I live in the portfolio. Would you like in? I'd be like, sure, that sounds like a firesal. I'd be happy to get in when these people are panicking, and then my bosses would be like, great, you're buying it one hundred cents
on the like, no, that's nothing. I don't want to. Like, if I think they're worth one hundred cents on the dollar and everyone's panicking, I want to buy a ninety. They should get a discount. You know, when you think about like the professionals at the firm using their own money to buy the controversial assets. The classic story is in like I don't know, I like twenty eleven or something.
Sometime shortly after the financial crisis, Credit Sueez had this like giant pile of what people call the toxic assets, like yeah, the mortgage derivatives and just do your weird stuff from the crisis, and they were like, we can't sell this. It has a huge capital hit. So we're going to package it into a box and give shares of the box to our like managing directors. And so
they've just paid bonuses one year in toxic assets. Love it, and like those people all got rich, like they'd like immediately recovered, and they did so well because like they got these toxic assets at the marks they were at, which was a distress mark. But here everything's in par you know their distress marks. You're getting a price that does not reflect necessarily the level of nervousness that your retail investors are showing they try to redeem.
Yeah, and that's the thing. I mean, we heard from Blackstones Global head of private credit Strategies at Bloomberg and Bust this week saying that the noise that you're seeing doesn't match the solid credit fundamentals of the fund's assets. It almost feels like the conversation has sort of moved beyond that when it comes to the redemption request that you're seeing. And even if it's not headlines about Blackstone specifically,
there's a lot of stories. I mean, there was one on Thursday about Blackrock what marking a private loan they hadn't made to zero.
Me some markdan on some lens.
Yeah.
I don't know that it'll be universal across all these these funds, but like all these all these people, all the all these like senior private credit people are going around expressing conference in their portfolios, which one might be true and two they have to say. But then, like there's the separate question of if everyone is panicking and you are confident in the portfolio, Like, yeah, you should step in and buy, but it's weird to have to
buy out one hundred cents on the dollars. Yeah, and this is why I of the trade that Boas Weinstein is doing. So we're recording this. On Thursday, he announced one I think today or yesterday for the star woud A private read Yeah, and two weeks ago he announced one for these blue Owl private BDCs, where basically he's going around tendering to buy shares of these non traded, semi liquid vehicles that people are nervous about, and he's offering to buy them, like, you know, he's seventy five
sons on the dollar. Presumably he's more skeptical than like Blackstone is, but like less skeptical than these retail investors. Right, he thinks these credits are fine or he's heading the credit I don't know, but like he's getting these credits at a discount because retail investors are I don't want to say panicking, but they're nervous.
Well, that's what I wanted to ask you, was what is the trade here for Boas?
The trade is like the value of liquidity in these vehicles has gone up enormously in the last month. People now want this liquidity, and if people really want liquidity, they should pay for liquidity, and bo As will be the one to get paid.
Yeah, in theory, I'm wondering.
Tender like this might just be trolling. Yeah, nothing forces anyone to tender, because these vehicles all have mechanisms to cash you at a one hundred cents on the dollar. Like, yeah, not perfect, there's gates whatever. But because like you sort of expect to get cashed out one hundred cents on a dollar, you might not want a tender to Boaz at seventy five, but you might.
Yeah, to the point, he could be trolling. I was looking at some of his tweets, including the one he announced this, and someone commented something like, you're a hilarious man. It is pretty funny.
Funny trade. Yeah, it's a funny trade because like there's all these headlines that, oh, private credit liquidity, and then like there's all these private credit people going around on TV being like it's fine, our portfolios are good. And then because like I'll pay seventy five, like it's great, it's a good trade. Well, it was like a little bit pouring fuel on the fire, Like.
How it works out for him? Like is he he might get zero shares?
I don't know, but.
I mean it would be nice to ask the man himself. But like, is this him calling the bottom and hoping, like how it's being traded in the market, that it will go back to one hundred cents or is he just hoping that he will get cash out at one hundred cent?
There could be all sorts of trades. Yeah, he could be short what the credits a right? But like, yeah, to me, like the obvious trade is like the il liquidity premium of these funds has gone way up and he can capture that.
Yeah, well, Boas come on the podcast. Just the point I wanted to I wanted to make when it comes to like the fundamentals almost not mattering. I do just wonder about the psychological aspect of it all. The fact that over the past several years, all these private asset, private credit folks have been pushing so hard into the retail market. Whether this experience overall, even if the fundamentals are fine, will just dent demand going forward from retail.
My bet is always on people having short memories. But right now, yeah, it's like no, one's like, oh, we really need to do our retail private credit pressure right, like not this week.
Not this week. I don't know. There's a lot of planned there's like a lot of like interval fund type things that are supposed to push out in the next couple of months. So yeah, we'll see, we'll see, we'll see. Speaking of private assets, you about thanks over, Let's talk about what's going on in the ETF space. Why not you know, all the while we're here, So we're talking
specifically about private companies because there's this fascinating ETF. The government name is the er Shares Private Public Crossover ETF. It's xover Crossover XOVR. It owns SpaceX, not outright, but through a special purpose vehicle. And the SEC has a cap on how much of an ETF, any open ended fund can have in a liquid asset. It's fifteen percent. The problem is that the CTF keeps running into is that it keeps getting out flows, so it stake as
a percentage of the portfolio keeps going up. It hit like forty four percent or somewhere close to it in the past couple of weeks.
SpaceX's evaluation is like a quintuple the last years.
Yeah, morning Star has been very vocal on this, specifically this man named Jeffrey Prattack. I hope that's I'm saying his last name, right, that if you take a look at the performance of the ETF, it doesn't necessarily reflect the fact that SpaceX's valuation has quintupled, which is also a big question mark.
Right, this is like the opposite of private credit. Like private credit, everyone's like, oh, the marks are fine, everyone like about these marks, and then this one. Yeah, like those marks should be much higher. Yeah, which is weird to me that people wouldn't usually people of marketings up.
Yeah, Well that's the big question there, like why, like you would think that this fund is absolutely crushing it. But morning Star has made the case that if you take a look at the performance of this ETF, its performance can be almost entirely explained by its public holdings rather than it's SpaceX holdings, which again it's a it's a question mark, why is that happening? Sure, that's that's the big one.
I mean the answer, I mean, I don't know the answer.
I don't know the answer either.
We've looked at the SPV and the shares aren't there and like oops, and they close up and forget about.
Well, that's one of the theories, right, is that the SPV, well, the SPV that's like a very well, it could partly be explained by SPV costs. There was a filing this week where the firm said that in the prior period, the funds like total expense ratio was one point one eight percent, even though the management fee is only seventy five bases points. And they said that they've since switched to an SPV that has no management fee and no carried interest, so this isn't going to be a problem anymore.
So it's going to be interesting to see how that shakes out. But what we do know is that you take a look at the this share of SpaceX, that is this portfolio, and it is wildly above the SEC's limit on how much you can actually hold liquid securities. So the point being, this is a story that's developing right now and it's going to be interesting to see how it shakes out. And it sort of puts the whole push on putting private assets, or at least private
companies in an open ended vehicle. Kind of takes the shine off because with an ETF, you can take your money out at any time. These funds ETFs aren't gated, and that can cause your portfolio to do really funky things if you have to sell your liquid assets and it's not as easy to sell.
An SPV, I mean counterplant it's SpaceX. Yeah, right, this is not a very good counterplint, right because like three months ago, I won't want to be in croit credit and now they don't. But like it is a counterplint, which is that Yeah, people are like ooh, they're surprised of having outfuds because people like you want to own SpaceX and if their performance reflected that SpaceX shares, people.
Would want that flows follow performance. This is probably more conversation around like SPVs, because there is an ETF that does hold SpaceX outright. The ticker is ron B. It's
the Barren First Principles ETF. But they've also classified their SpaceX holdings not as ill liquid but as less liquid, which is something that I didn't actually really appreciate until I started looking into the ron B ETF, that you, as the portfolio manager, classified the liquidity of your holdings to the SEC rather than the other way around.
Right, And by the way, like obviously they are incentives the game that but like I kind of see why someone would say SpaceX is kind of liquid, right, like, yeah, it's a two trillion dollar company or whatever.
Really theoretically going public in the next couple of months.
Yeah, but like also there's secondary trading. That's there's jillions of best pieces. Like if you were like gone to your head, you have to liquid out your SpaceX shares, and we like you could do it at like today's prices, you could, yeah, for hundreds of millions of dollars of size, right, not for tens of billions of dollars. So I don't know,
I don't I don't have that. Like I keep saying private markets and then in public markets, right, like the there's a continuum of liquidity, and like SpaceX is more liquid than a lot of publics.
Then yeah, well it's interesting. I mean, as far as I can tell, this ETF hasn't liquidated any of its SpaceX SPV holdings, right.
Also, why would it. Yeah, it's a marketing matter.
Well, probably to get below the fifteen per sure, fair fair.
But once you once you solve that problem by saying it's liquid, then as a marketing matter, it's really better to be like, hey, I'm an ATF that's full of SpaceX than to be like, hey, I'm an ETF with a little bit of SpaceX and all other stuff.
Barn for example, is somewhat of a special case. People familiar with the matter have run this plan by the SEC. Part of their reported logic in why they classified it this way is that they've been investing in SpaceX since twenty seventeen, and they have like an established and good relationship with the company that it seems like they would have an easier time getting their hands on more SpaceX
than maybe other firms and funds out there. I don't know, like if any issuer could go to the SEC and be like, actually, this private company, we think it's lost liquid. It's not you liquid.
I don't know. I could sell SpaceX shares. This doesn't seem like a big problem. The only thing I think is interesting to these funds is I just said, like, you'd rather be like, hey, this is an ATF with SpaceX than like than cats and dogs in SpaceX. Yeah, Like, there's obviously a demand very publicly traded a SpaceX proxy.
Despite how liquid SpaceX is, right And one thing I've heard is that people talk about the ETFs as like a trade where the trade is you buy the EHF and like with with with exover, there's like a they have like a sort of indexy mechanistic list of their other public stocks. You buy the ETF, you short the other public stocks, and what you're left with is a trade that's just long ETF, short public stocks and the ETF,
so you're left with just long SpaceX. And I think that that's like kind of a marketed trade of like this is how you get your SpaceX exposure. You buy this ETF and you hedge out in the public stocks. Which reminds me a little bit of the trades you talked about with with Arc of Hollywood's rc ETFs, where those ETFs looked like they might get allocations and hot IPOs and so people would heartbeat into the ETFs to.
Get some.
But this is like this is like a sort of you know, way to isolate SpaceX exposure, if that's the sort of thing you're looking for, which I feel like a lot of public market investors are.
Yeah, perhaps this fund did run up quite a bit. I mean it grew to like one point eight billion dollars in assets at one point, and I have to imagine that was entirely because it was marketed as having SpaceX exposure. But it's since seen pretty significant outfloads.
Yeah, so it doesn't go up allow SpaceX shows that it's not a very good SpaceX proxy. And that was The Money Stuff Podcast.
I'm Matt Levine and I'm Katie Greifeld.
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