De-Revlon-ingLast August, Citigroup Inc. accidentally wired $900 million to some hedge funds to pay off a syndicated loan for Revlon Inc. The money did not come from Revlon, the loan had not come due, and neither Revlon nor Citi intended to pay it off. Citi was the administrative agent on the loan, handling payments from Revlon to the lenders; some people in Citi's back office just checked the wrong boxes on their computer, oops, and the money went out. They noticed the problem the next day and contacted the hedge funds to ask for their money back. Unfortunately many of the hedge funds were in a bitter, somewhat unrelated dispute with Revlon, and they decided that they'd rather keep the money. About $500 million was not returned. So Citi sued. Last month Citi lost, in a somewhat shocking decision; a federal judge ruled that the "discharge-for-value defense" under New York law allowed the hedge funds to keep the money. We talked about this last month. It was pretty weird. One thing that happens in financial markets is that, when there is a shocking court decision upending people's expectations of how financial contracts work, typically lawyers will add a clause to their boilerplate financial contracts, for use in all future deals, saying "but that shocking court decision does not apply to this deal." Much financial law consists of default rules, and if you don't like a particular legal rule, you can usually opt out of it by contract. In a note yesterday, Xtract Research reported that "in the weeks following the decision, Citibank and other agent banks have added Revlon Clawback language to credit agreements." "Revlon Clawback" means that, if you get money by mistake, like Revlon's lenders did, you have to give it back, like Revlon's lenders didn't. Here's a sample, also from Xtract: If a payment is made by the Administrative Agent (or its Affiliates) in error (whether known to the recipient or not) or if a Lender or another recipient of funds is not otherwise entitled to receive such funds at such time of such payment or from such Person in accordance with the Loan Documents, then such Lender or recipient shall forthwith on demand repay to the Administrative Agent the portion of such payment that was made in error (or otherwise not intended (as determined by the Administrative Agent) to be received) in the amount made available by the Administrative Agent (or its Affiliate) to such Lender or recipient, with interest thereon, for each day from and including the date such amount was made available by the Administrative Agent (or its Affiliate) to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. Each Lender and other party hereto waives the discharge for value defense in respect of any such payment.
Look: Obviously! There is no earthly reason that those funds should be able to keep the money, except that there happens to be a weird doctrine of New York law that lets them keep it. As a former lawyer I am tempted to say, sure, fine, whatever, counterintuitive old doctrines are what make law school fun and keep lawyers employed. "Citi just sent us money by mistake, do we have to give it back," the hedge fund analyst asks, and instead of saying "of course duh we live in society," the portfolio manager replies "hang on, let me consult with a lawyer," and the lawyer says "hang on, let me consult with my firm's specialist in Finders Keepers Law," and the Finders Keepers specialist consults some dusty old tomes of arcane lore and says "lemme tell you about the doctrine of discharge for value." And she bills the hedge fund $2,000 an hour and is absolutely worth it. We live in a particular kind of society. But this doctrine is dumb and no one in the world of syndicated lending actually meant to sign up for it; "if you send us the wrong money we will keep it" is not a rule that anyone wanted built into their loan documents. It did not occur to anyone to opt out of it—it did not occur to anyone, outside of the small fellowship of Finders Keepers lawyers, that this rule even existed—until it cost Citi $500 million. But now everyone is extremely aware of it, the big banks want to opt out, they have consulted with their own Finders Keepers lawyers, they have put the opt-out language into the contracts, and the other lenders don't really have a choice. What are they going to do, object? "No, if you send us money by accident, we'd prefer to keep it"? It's just not a reasonable ask. It's the law, sure—at least by default—but it's not reasonable. My general assumption is that when boilerplate gets added to credit agreements, it never gets removed. Even if the Revlon decision gets reversed on appeal, it doesn't hurt banks to leave this language in all their future credit agreements. In a decade, some junior associate at some law firm will draft a credit agreement (by taking a precedent credit agreement and find-and-replacing the company's name), and she'll come to the section saying "if we send you money by mistake you have to send it back," and she'll chuckle and ask "why did anyone ever think they had to say this," and the partner will say "oh do I have a story for you." How's Hertz stock doing?REALLY? YOU THINK SO? Day traders, snapping up penny stocks on the popular Robinhood app, sought to defy decades of convention and make money on bankrupt rental-car company Hertz. The craze sent shares soaring as much as 896%, prompting Hertz to briefly capitalize on the frenzy by issuing even more stock. The conclusion, outlined Tuesday in a reorganization plan to end Hertz Global Holdings Inc.'s nine-month trip through Chapter 11, is a cautionary tale for the little guy. Holders of Hertz shares, which traded for as much as $2.53 just three months ago, will get nothing. Hertz's lenders, who include some of Wall Street's giants of distressed investing, will be paid in full after collecting millions in fees and interest payments for financing the company's reorganization.
That's from a Bloomberg article titled "Hertz, the Original Meme Stock, Is Turning Out to Be Worthless." Twenty-nine million of the dollars that Hertz will pay back to its lenders came from selling worthless stock, while it was actually in bankruptcy, in an at-the-market offering to retail investors last June. Hertz filed for bankruptcy, bored and confused retail investors thought "it'll be fun to buy this bankrupt stock," the stock went up, Hertz was like "if people want to buy our stock we're going to sell it to them," the bankruptcy judge—whose goal is to maximize recovery for creditors—agreed, Hertz sold some stock, the U.S. Securities and Exchange Commission told Hertz to knock it off, it knocked it off, but it had already sold $29 million worth. And that $29 million is now part of the bankruptcy estate that the creditors will divide up. The shareholders who enthusiastically bought Hertz stock last summer, some of them from Hertz, will get nothing. Because they bought shares of a bankrupt company. "We expect that common stock holders would not receive a recovery through any plan," said the prospectus for Hertz's at-the-market offering, unless debt holders were paid in full, "which would require a significant and rapid and currently unanticipated improvement in business conditions." The unanticipated improvements, as anticipated, did not occur, and the shareholders will get zero. You can't say they weren't warned. "Hi, we are bankrupt, would you like to buy some worthless stock from us," Hertz asked its retail investors, and they said "heck yes here's our money," and they got back stock and it was worthless. The whole story is as simple and dumb as can be; it resists analysis totally. Also it feels like it's the only story in stock markets these days? GameStop Corp. stock closed at $118.18 yesterday. Hertz stock closed at $1.1855 yesterday. Trades that make no economic sense, but are funny, can go on for a long time. Perhaps some of them can go on forever. Not Hertz, though. GameStop regulationAt times over the last four years I would find myself feeling sorry for Jay Clayton, a longtime corporate and securities lawyer at a big firm who became the chairman of the U.S. Securities and Exchange Commission under Donald Trump. Clayton spent his career in private practice representing sophisticated financial institutions in complex high-stakes transactions,[1] and no doubt came into office with a lot of views on how regulation of the financial industry should change to adapt to modern circumstances. And then there was a wild all-consuming boom in cryptocurrency and initial coin offerings, and Clayton had to devote, not all of his attention, but surely more of his attention than he would have liked, to shutting down weird token sales and arguing about whether ICO tokens are securities. It was not, I sometimes thought, what he had signed up for. Gary Gensler also had a long successful career in sophisticated finance, as a partner at Goldman Sachs, and then had another successful career in government, including as the head of the Commodity Futures Trading Commission, where he developed a reputation for being tough on banks and reforming over-the-counter derivatives markets. Now he is Joe Biden's nominee to run the SEC, and this is what he gets: Gary Gensler pledged to scrutinize trading apps that have exploded in popularity, signaling the Biden administration's pick to lead the U.S. Securities and Exchange Commission plans to confront issues central to wild stock swings that have shocked Wall Street and Capitol Hill. Gensler, testifying during a Tuesday confirmation hearing before the Senate Banking Committee, said a top concern is that upstart technologies are prompting less sophisticated investors to take risks that they don't fully understand. Without naming Robinhood Markets, his comments seemed squarely aimed at the Silicon Valley brokerage that has brought a legion of new traders to the stock market. "Technology has provided greater access, but it also raises interesting questions," Gensler told lawmakers. "What does it mean when balloons and confetti are dropping and you have behavioral prompts to get investors to do more transactions?" An SEC review, Gensler said, would include such "gamification," as well as the controversial practice of brokers selling customer orders to Citadel Securities and other trading firms. While that revenue has been used by online brokerages such as Robinhood to offer commission-free trades, lawmakers are increasingly questioning whether hidden conflicts are preventing investors from getting the best deal.
He's gonna take over the SEC and spend all his time figuring out how much animated confetti is too much to celebrate a retail options trade. I worry that GameStop has broken finance, that everything everyone thinks about will have to be just a little bit dumber forever because GameStop happened. SPAC SPAC SPAC: namesHere is a special purpose acquisition company called "two." I think it is just called "two." No "Inc." or "Corp."; no capitalization. "two is a newly incorporated blank check company incorporated as a Cayman Islands exempted company and incorporated for the purpose of effecting a merger," begins its prospectus, which was filed yesterday. It is, I am sorry to say, the second SPAC from a team including Kevin Hartz and Troy Steckenrider, whose first SPAC is named, as you have probably guessed, "one." one went public in August and signed a merger agreement with MarkForged Inc. last week. In a funnier world it would have merged with Fifth Third Bancorp. I wrote yesterday that the main thought that SPAC sponsors seem to want to convey, in the names of their SPACs, is "hurry, it is a boom market for SPACs, let's get this SPAC out the door, no time to think about the name!" So some absolutely real SPAC names include Just Another Acquisition Corp. and Do It Again Corp. If you've got a $200 million SPAC called "one" and it does its SPAC merger, you move right along to a $200 million SPAC called "two" the next week. I don't know how long the current SPAC boom will last. I would be surprised if there is, like, a "forty-one." But, you know, the template is in place. If you can just give a SPAC any old lowercase name you want, I think a good name for a SPAC would be "five hundred million dollars." Then you'd raise $800 million I guess. I don't really know what we're doing here. Also here's a SPAC called 1.12 Acquisition Corp. That one was filed today. It doesn't seem to be affiliated with one or two. Nor is there, as far as I can tell, a 1.11 Acquisition Corp., or a 1.1 Acquisition Corp. I cannot quite figure out the numbering scheme for this one. Perhaps they use a random number generator. Next will be 2.38 Acquisition Corp. Then 5.91. Then 3.54. "Why did the numbers go down," you will ask, but shh, shh, it doesn't matter. SPAC SPAC SPAC: athletesI wrote yesterday that special purpose acquisition companies may be the most efficient way for celebrities to monetize their fame in the financial industry. Clearly hiring celebrities would be useful for an investment bank or private equity firm looking for deal flow, I wrote, but there are regulatory and cultural hurdles. "Part-time work also seems to be frowned upon," I wrote; "it is hard to be a successful investment banker at the same time that you're an NBA All-Star." Reader Michael Mouch emailed to point me to this very funny 2017 Bloomberg Businessweek profile of Steve Young, the Hall of Fame former San Francisco 49ers quarterback who currently works as (1) an on-air football analyst for ESPN and (2) a private equity investor. Simultaneously. Really simultaneously: Lots of professional athletes retire and attempt a second career in finance. Many fail. Others hang on as front-office window dressing, celebrity their only value. Young turns out to be the rare ex-jock who's actually good at private equity—doing original research to find takeover targets, learning how to model deals in Microsoft Excel, and helping to manage the companies after acquisition. HGGC has generated an average annual yield of 66 percent over the last three years, according to a firm presentation obtained by Bloomberg News. Young says he may have quit ESPN years ago if not for his private equity partners, who like him to keep a high profile. When he works a Monday Night game for the network, he spends no more than an hour or two at the stadium preparing his commentary, he says; the rest of the time, he's holed up in HGGC's suite, cramming for deals. Once the game starts, he barely watches the action. A couple of transactions, he notes, have even been agreed to with handshakes in the suites. "My wife hates football, and my kids don't really care," Young says. "I see myself as a deal guy first. I've put football behind me. Roger Staubach once told me—and I'll never forget it: 'When you retire, run. Never look back.' "
He grinds away at his day job in football to support his passion of modeling private equity deals in Microsoft Excel. I like it a lot. Needless to say Young has a SPAC now. SPAC SPAC SPAC: uh, financial newsletters?I, uh, hmm: Beacon Street Group, LLC ("Beacon Street" or the "Company"), a leading multi-brand digital subscription services platform that provides premium financial research, software, education, and tools for self-directed investors, and Ascendant Digital Acquisition Corp. (NYSE: ACND) ("Ascendant"), announced today that they have entered into a definitive business combination agreement which will result in Beacon Street becoming a publicly traded company. … Assuming no redemptions by Ascendant's existing public stockholders, aggregate consideration to Beacon Street equity holders will be approximately $2.9 billion, consisting of up to $374 million of cash consideration and $2.5 billion or more of rollover equity. The cash consideration will be funded by Ascendant's cash in trust of approximately $414 million, as well as a $150 million private placement from a high-quality investor group.
A SPAC and accompanying PIPE investors are paying $564 million in cash to take public a financial newsletter company at a $3.1 billion valuation. That is interesting to me. I am kidding a little, Beacon Street has a broad set of paid subscription offerings, more financial research than just "newsletters." The investor deck is fascinating, though; as Michael Santoli points out, it posits a $191 billion total addressable market for its products, which "includes the $111 billion in fees paid annually by individual investors to all active core and specialty fund managers." (See page 10.) The implicit thesis is that, sure, right now people pay asset managers to invest their money for them, but in the future they will just do it themselves, and will pay research providers to tell them how to do it. I am not sure I believe that thesis, but I concede that right this minute is a great time to market it. "Rise of self-directed 'Robinhood' investors provides huge future upside," says the deck (page 11), and they have a point there. Though I think that the Robinhood investors mostly get their research from Reddit. Speaking of whichMy model of the last year in the stock market is basically "people got bored in pandemic lockdowns and entertained themselves by downloading Robinhood and trading weird individual stocks for free," but that is not quite right; some of them got bored and traded stocks for free with Fidelity instead: Fidelity Investments capped 2020 with record annual operating profit, lifted by strong stock-market gains and an unexpected wave of new individual investors. ... Fidelity had 26 million retail accounts in 2020, up 17% from a year earlier. Workplace retirement accounts, including those in 401(k) plans, rose 7.9% to 32.6 million. Daily trading volume doubled. It was an unusual year for the money-management industry. The market panic over the pandemic's effects on the global economy quickly gave way to a rally that lifted stocks to record highs. Individual investors' interest in the market caught fire. Brokers dropped commissions to zero and let customers trade in fractions of popular stocks, fueling a record year for individual-trading volume. The industry added millions of new customers. Low- or no-cost brokerage accounts and investment funds have helped lure a generation of new investors to the wealth-management industry. While those products won't help short-term profit margins, firms like Fidelity are hoping their new customers will eventually turn to them for more lucrative services, including financial advice.
If you are Fidelity, should you be happy or sad about the Robinhood boom? On the one hand, Robinhood has forced stock brokerage commissions to zero; it has also perhaps shifted some investor money from actively managed mutual funds (which charge fees) into YOLO self-directed brokerage accounts (which, now, don't). On the other hand, Robinhood has been a hugely successful advertisement for the joys of YOLOing stocks, the cool new casino that draws young people to the Strip, and the result seems to be that other discount brokers have added millions of customers who do lots of trades. Surely brokers can find ways (payment for order flow, margin and securities lending, up-selling financial advice) to make money from new customers and increased volumes. Buzz Buzz BuzzHere is a video on Twitter from Dave Portnoy, the Barstool Sports "stocks only go up" guy, touting an exchange-traded fund called the VanEck Vectors Social Sentiment ETF (ticker BUZZ), which is launching today, and which "purports to track the 75 most-favorably mentioned companies on the internet." In the video, Portnoy says: "This Thursday, on the New York Stock Exchange, there is a new [stock] launching. A new [stock] that I'm part of, that I'm putting my face behind, my reputation behind. … The name of the [stock] is BUZZ, B-U-Z-Z, like bzzzz, stung, like a bee." I think that's what he says. Where I have written "[stock]," what he actually says is inaudible, because there's another voice dubbed in saying "ETF." I don't know if Portnoy thought he was pitching a stock and they had to correct it to "ETF" in editing, or if the dubbing is an arch joke. Please don't tell me what the answer is. In fact I will probably be happier if no one emails or tweets me anything at all about BUZZ, or Dave Portnoy, or social media sentiment, or, I don't know, any of this, whatever this is. "GameStop Corp.—which famously surged more than 1,600% in January driven by investors from Reddit platform WallStreetBets—do[es] not currently feature in the index," notes Bloomberg News. "Twitter Inc., DraftKings Inc. and Ford Motor Co. are currently the top names in the gauge, which rebalances monthly." What even is the point. Clubhouse buys TinderAh:[2] Clubhouse Media Group, Inc. (OTCMKTS:CMGR) ("Clubhouse Media" or the "Company"), an influencer-based marketing and media firm with a vast aggregate global social media reach, is excited to announce the signing of a non-binding Letter of Intent (the "LOI") on February 28th 2021 for the acquisition of "The Tinder Blog" (Instagram.com/thetinderblog) ("TTB"), one of the largest and most successful Instagram meme accounts in the world. The Tinder Blog is an official partner of Facebook.
See, Clubhouse Media, which is "an influencer-based marketing and media firm" and is not affiliated with the popular panel-discussions-on-your-phone app Clubhouse, is buying The Tinder Blog, which is an "Instagram meme account" and is not affiliated with the popular dating-on-your-phone app Tinder. (But is an official partner of Facebook.) Clubhouse is not buying Tinder, but a thing named Clubhouse is buying a thing named Tinder, more or less. Clubhouse Media, which until recently was known as Tongji Healthcare Group Inc., is up 626% year-to-date as of yesterday's close, possibly because people confuse it with Clubhouse the app. It was up as much as 7.5% earlier this morning, possibly because of the Tinder merger, why not, why not, why not. Things happenGreensill Problems Build as Regulator Watches Over Banking Unit. Greensill Woes Deepen as Probe Finds Wrongly Booked Gupta Claims. Greensill and supply-chain finance: how a contentious funding tool works. People are worried about bond market liquidity. Venezuela Bondholders Seek to Accelerate Payment on 2025 Notes. Wall Street Lobbies to Bring More ESG Funds Into 401(k)s. Cboe Seeks Approval to List Trailblazer Bitcoin ETF in U.S. Reddit Is Convinced It Knows Bill Ackman's SPAC Target. Kohl's Is 'Way Ahead' of Activist Investors, CEO Says. SEC Probes Whistle-Blower's Claims That Hedge Fund Harmed Yale. Chariot Lambo. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] Disclosure, also sometimes representing Goldman Sachs Group Inc. on deals that I worked on. [2] Credit for this … discovery? … and the joke "Clubhouse buys Tinder" goes to Andrew Walker on Twitter. | 
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