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(Continued)First Republic
The two options with First Republic Bank are pretty much:
1) Do something, or
2) Do nothing.
“Do something” is obviously bad. First Republic’s balance sheet shows about $233 billion of assets, including about $173 billion of loans, but the market value of those assets is considerably lower: Those loans are largely mortgages made at very low interest rates, and they have lost a lot of value as rates have gone up.. First Republic estimated as of Dec. 31 that its assets were worth about $27 billion less than their carrying value. So figure its assets are worth something like $206 billion on a good day.
Meanwhile it has about $105 billion of deposits and about $105 billion of secured borrowing from the Federal Reserve and Federal Home Loan Bank system. Of those deposits, roughly $55 billion are insured by the Federal Deposit Insurance Corp. and roughly $50 billion aren’t; $30 billion of the unsecured deposits belong to a consortium of big banks that deposited money with First Republic last month to boost confidence. Roughly speaking, the insured deposits and the Fed/FHLB ($160 billion total) get paid back first, the uninsured deposits ($50 billion) get paid back next, and everybody else — subordinated debt, shareholders — gets paid back with whatever is left.
So if you can sell the assets for about $210 billion, then the government and all of the depositors get paid back in full; if you can’t, they don’t. (Either way, the shareholders are, uh, in trouble.) Again, the assets are worth something like $206 billion, based on First Republic’s filings in December; that would not quite be enough to pay everyone back. But the consensus seems to be that if you actually had to go sell everything at once, things would be considerably worse, and there would be a hole of tens of billions of dollars.
And so all of the do-something options are bad, because of that hole. The most straightforward do-something option is that the FDIC could seize First Republic, sell its assets, and use the money to pay back depositors. But there would be a hole of tens of billions of dollars. And the FDIC would either have to fill that hole (declaring First Republic systemically important and using its deposit insurance fund to pay off the uninsured depositors), or not fill that hole (letting the uninsured depositors bear the loss). The Wall Street Journal notes:
The details and extent of the FDIC’s support will be determined on whether they use the same tool, a so-called systemic risk exception, that allowed the agency to guarantee all of the depositors at last month’s two failed institutions.
Invoking that exception again would allow regulators to backstop all of the roughly $50 billion in deposits at First Republic that are above the FDIC’s insurance limit, including the $30 billion deposited by the big banks.
If the FDIC doesn’t make those depositors whole, it could reignite questions about such deposits at other regional banks, causing customers to yank their deposits from smaller firms. But if it does, the FDIC could be accused of bailing out Wall Street.
If the FDIC takes over First Republic at a loss, somebody — the uninsured depositors (meaning largely but not exclusively the big banks) or the FDIC (also meaning largely the big banks, who pay to fund the FDIC’s insurance fund) — has to bear the loss.
There are other do-something options that could happen in the shadow of an FDIC takeover: Another bank could buy First Republic and assume its deposits, or other banks could buy its assets at above-market prices, or banks or private equity firms could buy some equity in First Republic. Bloomberg News reports:
A number of rescue proposals have so far failed to come to fruition.
Earlier this week, Bloomberg reported that First Republic was looking to potentially sell $50 billion to $100 billion of assets to big banks that would also receive warrants or preferred equity as an incentive to buy the holdings above their market value.
By Wednesday, the firm’s advisers were privately pitching a similar concept, in which stronger banks would buy bonds off of First Republic’s books for more than they were worth so that it could sell shares to new investors. While that would mean booking initial losses, banks could hold the debts through repayment to be made whole.
But all of these have the same basic outcome, which is that somebody — probably, again, one or more big banks — steps in to bear the losses, to buy First Republic’s assets for more than they are worth. Nobody likes it:
The fate of First Republic Bank has become a game of chicken between the US government and the lender’s largest rivals, with both sides seeking to avoid steep losses and hoping the other will handle the troubled firm. …
Executives at five of the biggest banks, speaking on the condition they not be named, dismissed the notion of once again banding together to prop up First Republic, especially when it could mean paving the way for investors or a competitor to scoop up the firm at a bargain price.
If the big banks bear the losses on First Republic, then whoever ends up owning First Republic — its current shareholders, a new buyer — won’t. You can finesse that a little bit with warrants — effectively, you make the banks who take the losses also the new owners of First Republic — but the main problem doesn’t go away. The main problem is the losses.
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Comments
An interesting overview for this bank, that may be a template for some other banks.
Truly, a type of Catch-22.
First Republic likely headed for receivership, and regulators are readying themselves for it. Yahoo Finance is the source.
https://finance.yahoo.com/news/u-regulator-set-over-first-203340365.html
@BenWP- Same here, if that's any consolation. Speaking of length, you may have noticed that I frequently post abridged or edited versions of various news items. I couldn't even start to do that with Matt Levine- every word that he writes is germane and necessary.
somehow like an inverse of naked shorting
or something
\\\ Beyond bloodbath
On Jan. 20, Bed Bath & Beyond Inc. had about 117.3 million shares of common stock outstanding; the stock closed that day at $3.35 per share. On March 27, it had about 428.1 million shares outstanding, at $0.7881 each. On April 10, it had 558.7 million shares outstanding, at $0.2961 each. Yesterday, April 23, when it filed for bankruptcy, it had 739,056,836 shares outstanding.[1] The stock closed at $0.2935 on Friday.
So in the last two weeks, Bed Bath & Beyond has sold about 180 million shares to retail investors, more shares than it had outstanding in January. The stock averaged about $0.31 per share over those two weeks, meaning that the company raised maybe $55 million, in those two weeks, as it has been sliding into bankruptcy. Since January, Bed Bath & Beyond has sold about 622 million shares, or almost 50 million shares a week, raising a few hundred million dollars.
Here is Bed Bath’s first-day declaration in the bankruptcy case, which describes what the company has been up to over the last few months. The points that I would highlight are:
In December 2022, “Bed Bath & Beyond triggered multiple events of defaults under its financing facilities” and began its slow move into bankruptcy.
Also in December 2022, its financial advisers at Lazard “commenced a process to solicit interest in a going-concern sale transaction that could be effectuated in chapter 11,” that is, to find someone who was interested in buying the company out of bankruptcy and continuing to operate its business.
They failed: By mid-January, “Lazard had engaged with approximately 60 potential investors to solicit interest in serving as a plan sponsor, acquiring some or all of the Debtors’ assets or businesses, or providing postpetition financing,” but “to date, the Company has been yet to identify an executable transaction.”
So, as of mid-January, it seems that the company’s plan was to file for bankruptcy, close all its stores, liquidate its inventory and hand whatever cash was left to its creditors.
But Bed Bath did have one thing going for it. It was “part of the ‘meme-stock’ movement started and fueled on Reddit boards and social media websites,” because it “checked the two boxes needed to become a meme-stock: (i) a troubled financial situation and (ii) nostalgia value.”[2]
So someone had the bright idea of delaying things for a bit by selling tons and tons of stock to Bed Bath’s retail shareholders at whatever prices they’d pay. “Certain third-party investors expressed interest in providing the Debtors with substantial equity financing in light of the Company’s depressed share price and continued trading volatility. More specifically, the Debtors were approached by Hudson Bay Capital Management, LP” about a weird stock deal that we discussed in January; this ended up raising about $360 million. After the Hudson Bay deal ran its course — basically, after Hudson Bay and Bed Bath drove the stock price from above $3 to below $1 by pounding out about 311 million shares to retail investors — Bed Bath and its brokers at B. Riley Securities Inc. sold another 311 million shares to retail investors, but at ever-declining prices, so they raised a lot less money. Still something, though.
It was not enough, though, and ultimately this weekend Bed Bath & Beyond filed for exactly the sort of bankruptcy it was contemplating in January: Close all the stores, liquidate the inventory, hand whatever cash is left to the creditors. “The Debtors are committed to achieving the highest or otherwise best bid for some or all of the Debtors’ assets by marketing their assets pursuant to the Bidding Procedures, and, if necessary, conducting an auction for any of their assets,” the company says, but it has had like four months to find someone interested in buying the business, and if no one has shown up yet no one is going to. And: “The Debtors estimate that the aggregate net sales proceeds from all Sales will be approximately $718 million,” against about $1.8 billion of debt to pay off. Nonetheless:
While the commencement of a full chain wind-down is necessitated by economic realities, Bed Bath & Beyond has and will continue to market their businesses as a going-concern, including the buybuy Baby business. Bed Bath & Beyond has pulled off long shot transactions several times in the last six months, so nobody should think Bed Bath & Beyond will not be able to do so again. To the contrary, Bed Bath & Beyond and its professionals will make every effort to salvage all or a portion of operations for the benefit of all stakeholders.
/1
I said above that the few hundred million dollars that Bed Bath raised by selling 622 million shares of stock since it started preparing for bankruptcy “was not enough” to solve its problems, but it’s actually a bit worse than that. Bed Bath’s bankruptcy filing tells a story in which the company got into a bad place due to a combination of pandemic/supply-chain issues and its own management mistakes; in particular, its former chief executive officer pushed private-label brands instead of the well-known brands that its customers wanted. Bed Bath realized its mistakes and began correcting them — that CEO “was excused on June 29, 2022” — but that takes money; “the Company needed real runway to turn around its inventory and liquidity position.”
But the story is not that it then went out and raised several hundred million dollars to build up its inventory and make its business more attractive. No, the story is that it went out and raised several hundred million dollars to hand directly to its creditors:
Unfortunately, under the terms of the Second Amended Credit Agreement, the Debtors were required to use the net proceeds from the initial closing of the [Hudson Bay] Offering, along with the FILO Upsize, to repay outstanding revolving loans under the Debtors’ Prepetition ABL Facility, including repayment of the nearly $200 million overadvance. At this point the Company’s sales had dropped 60% on a comparable store basis, resulting in substantial ongoing losses from operation; therefore, the remaining Offering proceeds went to cover operational losses rather than to restoring inventory levels. …
The net proceeds from the B. Riley ATM Program were used to prepay outstanding revolving loans under the Debtors’ Prepetition ABL Facility and cash collateralize outstanding letters of credit, resulting in new credit under the Debtors’ Prepetition ABL Facility. ...
The Debtors’ cash burn continued while sales further declined due to lack of incoming merchandise, thus, preventing the Debtors from implementing their anticipated long-term operational restructuring while satisfying their restrictive debt obligations.
That is, Bed Bath had an asset-based lending facility (its most senior debt) and a first-in-last-out term loan (effectively its second-most-senior debt); as of November 2022, it had borrowed $550 million on the ABL (plus $186.2 million of letters of credit) and $375 million on the FILO. As of Sunday there was $80.3 million outstanding on the ABL (plus $102.6 million of letters of credit) and $547.1 million outstanding on the FILO.[3] Since this all began, Bed Bath has raised a bit more than $400 million from shareholders and handed about $300 million of it directly to its lenders, while the business collapsed and it had no money to fix things. Now it will hand the rest of its money over to the lenders.
I don’t know what to say? All of this was quite well disclosed. Back when Bed Bath did the Hudson Bay deal in January, it said in the prospectus that it intended to use all the money it raised to repay debt, and that if it didn’t raise a billion dollars in that deal (it did not) then it “would not have the financial resources to satisfy its payment obligations,” it “will likely file for bankruptcy protection,” “its assets will likely be liquidated” and “our equity holders would likely not receive any recovery at all in a bankruptcy scenario.” All of the legal documents were pretty clear that Bed Bath was raising money by selling stock to retail investors, that it was handing that money directly to its creditors, that the money probably wouldn’t be enough, that Bed Bath was probably going bankrupt, and that when it did the stock that it had just sold to those retail investors would be worthless. And things have worked out exactly as promised. No one can be surprised!
And yet it is one of the most astonishing corporate finance transactions I’ve ever seen?[4] The basic rules of bankruptcy are:
When a company is bankrupt, the shareholders get zero dollars back, and the creditors get whatever’s left.
The shareholders don’t get less than zero. They don’t put more money in.[5]
Here, I mean, Bed Bath was kind of like “hey everyone, we went bust, sorry, but our lenders are such nice people and they could really use a break, we’re gonna pass the hat and it would be great if you could throw in a few hundred million dollars to make them feel better.” And the retail shareholders did! With more or less complete disclosure, they bought 622 million shares of a stock that (1) was pretty clearly going to be worthless and (2) now is worthless,[6] so that Bed Bath could have more money to give to its lenders when it inevitably liquidated.
I have over the past few years been impressed by AMC Entertainment Holdings Inc.’s commitment to the meme-stock bit. In particular, AMC’s management was early and aggressive in realizing that being a meme stock could be a tool of corporate finance, that when people on Reddit are bidding up your stock for no clear reason, the correct reaction is not to chuckle in disbelief but to sell them stock. But AMC at least has a story; AMC is using its meme investors’ money to pay down debt, sure, but also to keep its theaters open and buy a gold mine.
No, this is the peak of meme stocks. Bed Bath & Beyond sold 50 million shares a week for three months with, as far as I can tell, no story, no plan, nothing but “a troubled financial situation and nostalgia value.”[7] Bed Bath saw that its retail shareholders wanted to throw their money away, and that its sophisticated lenders wanted to get their money back, and realized that there was a trade to be done that would make everyone, temporarily, happy. So it did the trade. It’s amazing. The lawsuits are gonna be great.
Dual-class stock
Most investors would prefer not to have dual-class stock. If a company has two classes of common stock, one of which has a lot of votes and is held by the founders and the other one of which has fewer votes and is sold to the public, then that’s bad, for you, as a big public shareholder. If you’re buying 5% of a company you’d like to get 5% of the votes, so that if you get dissatisfied with management you can push for change and they’ll have to listen to you.
But it can be a little hard to insist on this preference. Most of the time, if things work out well or even adequately, your voting rights just won’t matter very much. If some hot tech company is looking to go public with dual-class stock so that its visionary founder can keep control forever, and you like the visionary founder, you will want to own the stock even with no voting rights, and if you insist on voting rights, the visionary founder can say “well I don’t need your money anyway, lots of other people want to invest.” There is a collective action problem: Most investors would like voting rights, but it’s not at the top of their list, so anyone who refuses to buy dual-class stock will end up missing out on a lot of hot deals.
This means that, if you are a visionary founder looking to go public, there’s not much downside to having dual-class stock. “Investors won’t like it,” your bankers will tell you, and you will ask “well how much less will they pay for the stock if it’s dual-class,” and the bankers will be forced to reply “well they’ll pay the same price but they’ll grumble about it to the press.” Who cares? If there is no visible economic penalty for having dual-class stock, lots of founders will want it.
There is, however, at least one way for investors to act collectively to address this problem. Sort of. Companies, and founders, want to be in stock indexes, because there is a lot of money there: Trillions of dollars are managed in indexed strategies, and trillions more are in funds that are benchmarked to indexes and tend to invest in companies in indexes. So there is an economic penalty for companies that are not eligible for the indexes. And index eligibility rules are set by index providers like S&P Dow Jones Indices and FTSE Russell. Those companies can change their rules if they want. Those companies’ clients are investment managers who use their indexes. And the index eligibility rules are, to some extent, a matter of customer service and marketing: Index rules are not just about the abstract pursuit of truth (“What does it mean to be a large-cap company in Europe, the Middle East and Africa? How do we make sure all of those companies are in our index?”), but also about providing a useful product for your customers (“What list of large-cap EMEA companies do large-cap EMEA index fund managers feel like they should invest in?”).
And so if all the investment managers hate dual-class stock, they can quietly call up the index providers and say “hey it would be helpful for us if you ban dual-class stocks from the index, because then none of us could buy them and our collective action problem would be solved.”
/2
In 2017, Snap Inc. went public by selling non-voting stock; only founders and insiders would get any votes at all. Investors complained, and also bought the stock, because they didn’t want to miss out on a hot initial public offering. (It’s down more than 40% since its IPO, oops.) But then some index providers — FTSE Russell and S&P Dow Jones — changed their rules to exclude or limit dual-class stocks from many of their indexes. The investors had solved their collective action problem; they had found a way to impose economic penalties on companies with dual-class stock.
It didn’t work. Companies kept going public with dual-class stock. They didn’t care that much about missing out on the indexes; their founders were willing to pay the economic price to keep control. (In particular, companies don’t generally get added to the S&P 500 the day they go public; a lot of index demand is not for shares in the IPO but later on, meaning that it doesn’t directly affect the IPO price.) This means that the investors’ solution ended up being bad for them: They credibly committed to not buying dual-class stock of hot companies, hot companies kept going public with dual-class stock, index funds couldn’t buy those stocks, and they were sad.
The solution was to give up. Last week S&P Dow Jones announced that dual-class stocks are fine again: “Effective April 17, 2023, all companies with multiple share class structures will be considered eligible candidates for addition to the S&P Composite 1500 and its component indices,” including the S&P 500. Here’s a Davis Polk & Wardwell LLP client memo from last week:
In response to Snap Inc.’s IPO in which only non-voting shares were offered to the public, the Council of Institutional Investors and others had lobbied the major index providers to bar non-voting shares from their indices, arguing that absent this change, passive investors such as index funds would be forced to invest in non-voting shares that erode public company governance. As a result, since July 31, 2017, S&P Dow Jones has excluded companies with multiple share classes from the indices comprising the S&P Composite 1500.
The decision to revisit index eligibility criteria comes after a consultation process that S&P Dow Jones ran with market participants from October to December 2022.
In 2017, investors noisily complained that they were being forced to buy dual-class stocks, so S&P kicked the dual-class stocks out of the indexes. In 2022, investors noisily complained that they were being forced not to buy dual-class stocks, so S&P let them back in.
Oil rigging
I loved Liam Vaughan’s and Lucia Kassai’s Bloomberg Businessweek story last week about corruption in Venezuelan oil auctions, in part because it is two almost entirely separate stories of corruption. For starters, there are the Venezuelan oil auctions. Venezuela’s state oil company, Petróleos de Venezuela SA, would sell various oil products in auctions, and big oil trading firms would hire a consulting firm named Helsinge, run by a guy named Francisco Morillo, to help them win the auctions. The way he allegedly helped them win was (1) he bribed PDVSA insiders to tell him about the other bids, (2) he shared those bids with his clients, (3) the clients topped those bids by a penny and (4) they paid him enough to cover the bribes with some profit for himself:
In one series of chats from March 14, 2006, Morillo, using the screen name George White, guided three prominent commodity traders—Maarraoui at Vitol, Gustavo Gabaldon at Glencore and Maximiliano Poveda at Trafigura—through auctions for fuel oil and a product called vacuum gas oil, which is used to make gasoline. At 9:51 a.m., nine minutes before the offers were due, Morillo shared details of the bids PDVSA had received for the vacuum gas oil—information PDVSA says is supposed to be confidential. Five minutes later he informed the three traders, via separate chats, of a late bid for the fuel oil.
The traders didn’t enter every auction, but when they did bid, the information Morillo had provided let them know at what price to do so. On March 20, 2006, after learning about offers from BP Plc and two other companies, Maarraoui placed a bid to buy gas oil at 0.8¢ per gallon more than the next-highest bidder. Two days later, Poveda won a liquefied petroleum gas auction after being told about two rival offers and besting them by a cent.
These conversations, a handful among thousands, demonstrate how valuable Helsinge’s service was to its customers—and how potentially devastating it was to the Venezuelan people. If Morillo’s clients had been forced to enter the market blind, they likely would have placed some bids at $5 or $10 per metric ton higher than they needed to, as the chats show their competitors did. Instead the traders were able to win auctions they entered by a dollar or less, saving as much as $1.5 million on a typical 150,000-ton cargo. According to the Boies complaint, they’d pay Helsinge about $300,000 on a shipment of that size. PDVSA declined to provide data to Businessweek on the outcome of its auctions, or to comment for this story, but given that the company conducted dozens of auctions each month as buyer and seller, and that Helsinge was in business for 15 years, it’s conceivable Venezuela lost out on several billion this way.
Also, if you keep doing this, eventually you’re going to drive everyone else out of the auctions, further depressing prices:
Traders from two oil companies told Businessweek that they’d stopped participating in PDVSA’s auctions because they were sick of losing to the same players. “Putting together an offer takes time. You need to figure out the economics, freight, insurance, the hedge, then submit to your compliance, get signatures from God knows who before you’re able to submit a number,” says one of the individuals, who asked not to be identified. “After a while we just gave up. It became clear to us that something funny was happening.”
This part of the story includes some classics of the “don’t put it in writing” and “don’t refer to bribes by cutesy nicknames” genres:
As well as routinely passing along information, [PDVSA commercial and supply unit manager Rene] Hecker talked to Morillo about the need to encrypt their conversations and about an offshore company he’d set up in Panama. In one message, Hecker sent Morillo banking information for his father-in-law, known as Gigante, writing in the subject line, “chamo elimina estos archivos despues please” (“dude delete these files later please”). Before Christmas 2004, Gigante received two payments totaling $400,000, Morillo’s bank statements show.
/3
And:
A defendant in the case, who spoke on condition of anonymity, denies paying bribes—his firm paid Helsinge “consultancy fees”—but says that exchanging information on rival bids and tenders was “the way of doing business” in South America at the time.
Ah, yes, great, great.
But the other part of the Businessweek story is that this story of corruption and bribery — and Morillo’s instant messages allegedly proving it — fell into the hands of David Boies, the famous American lawyer, who saw that Morillo and his clients had stolen billions of dollars from Venezuela and decided to try to get that money for himself:
Excited by the evidence in their possession, various combinations of Boies, [Morillo’s rival Wilmer] Ruperti, Blondie (the private investigator) and [investor Bill] Duker (the moneyman) met over the summer of 2017 in various offices and on Duker’s 230‑foot sailboat, Sybaris, named for an ancient Greek city famous for its excess. …
First they needed to persuade the Maduro administration to let them bring a claim on PDVSA’s behalf. … Ruperti introduced Boies and Duker to Nelson Martinez, Venezuela’s newly installed oil minister, and Reinaldo Muñoz Pedroza, the country’s attorney general. On July 12, 2017, the parties came to an agreement: Blondie, Duker and the lawyers would get 66% of the proceeds, leaving 34% for PDVSA.
So they set up an entity — PDVSA US Litigation Trust — to sue Morillo and his clients in Florida federal court, and to pay any winnings two-thirds to the lawyers and one-third to PDVSA. They sued, and the defendants’ first line of defense was, basically, “look, you say that we stole billions of dollars from PDVSA, but why do you get to sue? You aren’t PDVSA; you’re some weird new trust. If we stole from PDVSA, let PDVSA sue us.”
Back in court in Miami, before the proceedings could turn to the matter of whether Helsinge and its customers had committed any crimes, Boies needed to demonstrate that the trust had standing—the legal right to bring a case. In most lawsuits, an injured party files a complaint and the two sides argue over its merits. Here you had an opaque New York vehicle claiming to represent Venezuela’s state oil company, which itself was controlled by a corrupt dictator subject to sanctions. Beyond that, it was unclear from the preliminary filings who controlled the trust and who stood to benefit. In July 2018 the defendants filed a motion to have the case dismissed on the grounds that the trust was illegitimate.
This defense was helped by the fact that nobody from PDVSA could really come to court to explain that the trust was legitimate, because (1) Venezuela was subject to increasingly strict US sanctions that made it hard for Boies to work with PDVSA and (2) the Venezuelan government didn’t make it particularly easy either:
What followed was a kind of courtroom farce, as Boies Schiller Flexner’s increasingly desperate efforts to demonstrate the trust’s bona fides fell apart under scrutiny. Defense lawyers sought to depose Venezuelan signatories to the litigation agreement among the various parties, but none could be pinned down. One had simply vanished. Another, Martinez, the oil minister, had recently been arrested in Venezuela and charged with corruption. “Jailed? Did I hear jailed?” the judge asked, trying to keep up. When PDVSA’s general counsel did finally commit to going to the US to be deposed, two dozen attorneys booked flights and hotels, only for the witness to pull out at the last minute, apparently under orders from Maduro himself.
The plaintiffs’ position was further undermined by how poorly news of the litigation was going down in South America. As part of the discovery process, Boies Schiller Flexner was ordered to hand over the agreement letter laying out the 66%-34% split. It was pilloried on Venezuelan state television. On April 24, 2018, the National Assembly, home to what remains of the country’s opposition, published a decree describing the trust as “a mechanism to divert the funds and resources” of Venezuela.
Ultimately this defense worked, and the judge dismissed Boies’s lawsuit. I love that a famous US lawyer learned of Swiss companies defrauding a Venezuelan company out of billions of dollars, and his natural first reaction was to go to a US federal court to get it to order those companies to give him the money instead. “If a US lawyer notices anyone stealing any money anywhere in the world, that money belongs to him, and a US court will enforce his rights to it” is not 100% wrong as a description of US law, which explains a lot about the extraterritorial application of US law, the hegemony of the dollar system, and the entrepreneurial American legal culture. But it is not 100% right either, and it did not work out for Boies.
Anyway, elsewhere in euphemisms for bribes, here is the Economist with a helpful collection:
One approach is to talk about something other than money. Some officials, for example, like to keep citizens well abreast of their food and drink preferences. “I really want to drink a Nescafe,” declares an airport security guard six times as he frisks your correspondent in Burkina Faso. In Uganda traffic police find ways to mention their favourite soda. In South Africa such requests are so common that bribes for driving offences are known as “cold drink money”.
I guess if you’re a cop at a traffic stop you can’t really ask for a consultancy fee.
Succession
I have occasionally tried to understand the capital structure, valuation, corporate governance and shareholder base of Waystar Royco, the Roy family’s publicly traded conglomerate on the TV show Succession, but I quickly find myself frustrated by some contradiction that doesn’t make much sense, and then I remind myself that it’s a TV show and nobody cares about the absolute verisimilitude of its corporate bits. (Who is on the Waystar Royco board? Why are there no independent directors? Who cares!) Anyway at FT Alphaville last week Louis Ashworth gave it a go; he got farther than I ever have but he gave up too, and my advice is that it isn’t worth it.
Things happen
SVB’s new owner fights to rebuild brand and stem outflows. Moody’s Downgrades 11 Regional Banks, Including Zions, U.S. Bank, Western Alliance. New Wall Street ‘fear gauge’ to track short-term market swings. The Crypto Detectives Are Cleaning Up. The Impending Fight for Private Equity Buyout Lending. CME plays down rival to LME nickel market. UK Aims to Avoid Repeat of Liz Truss’s Market Mayhem With LDI Reforms. Partner pay at top US law firms hit by dealmaking drought. J&J Consumer-Health IPO Process to Kick Off Key Test for Moribund New-Issue Market. A Schwab Divorce From Bank Could Unlock Value, JPMorgan Says. Gemini’s Plan for Derivatives Exchange Adds to Crypto’s Flight From the US. “The market considers the one-month bill a safe haven. … The three-month is more in the crosshairs.” How Vanuatu allegedly lost its mackerel rights — and fought back. “Afterward we had dinner at Bennigan's; on the menu chalkboard, under Quiche of the Day, Jello [Biafra] scrawled ‘YOU.’”
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[1] This number comes from the company’s first-day declaration (PDF), Document 10 in the bankruptcy docket.
[2] A footnote to this sentence in the declaration cites Money Stuff.
[3] There are also about $1 billion of unsecured bonds outstanding, and talk about nostalgia: They were issued in 2014 to fund a stock buyback, and include about $600 million of *30-year bonds*, due in 2044, with a 5.165% interest rate. They were rated A-/Baa1 when issued. Different times!
[4] Its closest competition is when Hertz Global Holdings Inc. sold stock to meme-stock investors *in bankruptcy*, which was incredible, but (1) the US Securities and Exchange Commission shut that deal down almost as soon as it launched, so it never raised much money and (2) Hertz was trying to reorganize in bankruptcy, not liquidate; it succeeded and the equity actually recovered, so buying (and, thus, selling) the stock was not *that* crazy. To be clear, that is still a possibility here — “Bed Bath & Beyond has pulled off long shot transactions several times in the last six months, so nobody should think Bed Bath & Beyond will not be able to do so again” — and I will feel dumb and amazed if the people who bought Bed Bath stock on Friday at $0.29 end up making a fortune on the trade.
[5] This is a little loose, and there are scenarios where some equity owner might put in more money in a bankruptcy-type situation in order to *keep control of the company*. “An equity owner throws in more money and comes out with zero stake in the company" is … less common.
[6] No, no, it’s still trading; it was at about $0.19 or so at noon today. Really this should say “… and (2) now is even more clearly going to be worthless,” but all hope is not technically lost.
[7] Bloomberg reports: “‘The idea that you can continually support your company even in the face of constant dilution of your investors just isn’t a long-term, viable corporate-finance strategy,’ said James Gellert, CEO of ratings firm Rapid Ratings. ‘Bed Bath & Beyond had a seeming disregard for common equity holders.’”
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