Perhaps a Ballroom

Matt Levine and Katie Greifeld discuss their recent hiatus from the Money Stuff Podcast, attributing it to vacations and a lost episode. They share their upcoming conference plans, with Matt attending the Tulane M&A Conference and Katie expressing her dislike for Las Vegas while attending an ETF conference.

The conversation shifts to the Warner Brothers acquisition, where Katie highlights the initial bidding war involving Netflix and Paramount. Matt reflects on his belief that Netflix would secure the acquisition, but Paramount's $31 bid ultimately prevailed after Netflix declined to match it. They discuss Paramount's ambitious CEO and the experienced leadership at Warner, suggesting a merger could be logical despite concerns about Paramount's financial capacity to complete the deal. Paramount's market capitalization of $13-14 billion contrasts sharply with the $79 billion debt required for the acquisition, raising questions about its ability to finance the purchase. The company plans a rights offering to raise $3 billion, aiming to alleviate its debt burden. However, Fitch downgraded Paramount to junk status, complicating the situation further. Warner's board faced pressure from shareholders to prioritize the certainty of cash from Paramount over Netflix's offer, despite doubts about Paramount's financing capabilities.

The regulatory approval process is discussed, with Ted Sarandos from Netflix and David Ellison from Paramount actively engaging in pitches to secure the deal. There is a belief that the regulatory process would be smoother with Paramount, although Netflix claimed it would not face issues. Netflix's decision to withdraw from the deal was framed as a matter of price, despite significant investment in the negotiation process. Paramount is now responsible for a breakup fee due to Netflix's exit. The emotional toll of the lengthy negotiation process on Paramount is noted, alongside Warner Brothers' fiduciary duty to secure the best price for its shareholders. The offers made during negotiations are examined, with Netflix's complex proposal being their best and final, while Paramount's initial bid was not. The timeline for regulatory clearances is anticipated, with some already obtained but European regulators still needing to weigh in. Speculation arises that Netflix may consider acquiring Warner Brothers in the future if it encounters financial difficulties.

The discussion on private credit centers around B-Cred, Blackstone's non-traded private credit business, which is facing redemption requests exceeding its quarterly limits. To maintain investor confidence, Blackstone has utilized its own funds and employee accounts. Some view these actions as bullish, akin to share buybacks, while retail investors express concern and withdraw funds. Despite this, experienced professionals at Blackstone continue to invest, indicating confidence in the underlying credit fundamentals. Investor sentiment is challenged during market downturns, with opportunities for buying assets at a discount emphasized. Historical examples illustrate the potential for appreciation in value. Current market conditions show retail investors' nervousness, but the actual credit quality remains solid. A disconnect between market noise and asset quality is noted, with recent markdowns in private loans raising questions about confidence among investors.

The conversation also touches on the psychological impact of private asset firms entering the retail market, questioning how this might affect future demand despite solid fundamentals. There appears to be a lack of urgency in pursuing retail private credit initiatives.

In the ETF space, the discussion focuses on the ER shares private-public crossover ETF (Xover), which holds a stake in SpaceX through a special purpose vehicle (SPV). Regulatory limits on liquid assets are causing issues for Xover amid outflows, and despite SpaceX's significant valuation increase, the ETF's performance does not reflect this growth. Morningstar analyst Jeffrey Pratak notes that the ETF's performance is primarily driven by its public holdings, raising questions about the valuation and performance metrics of the underlying assets in the SPV.

SpaceX's share in the portfolio exceeds the SEC's limit for illiquid securities, raising concerns as the situation evolves regarding the inclusion of private assets in open-ended vehicles. ETFs provide easier liquidity compared to SPVs, which complicate portfolio management. However, there is a counterpoint regarding outflows from funds holding SpaceX, as demand for the company remains high. The Baron First Principles ETF holds SpaceX but classifies its holdings as "less liquid," which may influence SEC reporting and potentially lead to misclassification incentives. SpaceX is viewed as more liquid than many public stocks, with secondary trading available. The ETF has not liquidated any of its SpaceX SPV holdings, likely for marketing reasons, and Barron’s long-standing relationship with SpaceX may facilitate easier access to shares. There is notable demand for a publicly traded SpaceX proxy, with some investors using these ETFs as a trade to gain exposure to SpaceX while hedging against public stocks. A fund that grew to $1.8 billion in assets primarily marketed as a SpaceX proxy has experienced significant outflows, indicating it may not be a reliable proxy for SpaceX performance.