On Mornings with Maria on Fox Business today, Former FBI Terrorism Task Force member Steve Rogers cuts to the chase in a frank discussion on the horrific shooting in San Bernardino, California which left 14 dead. Joining him are host Maria Bartiromo, Hedgeye CEO Keith McCullough and FBN’s Dagen McDowell.
Takeaway: The pending debt raise is not likely to come with favorable terms, and could cause more harm than benefit down the road.
- RAISING CAPITAL: P is looking to raise $300M in debt, with an option for another $45M available to the primary bookrunner. All we know is that the debt will be convertible (cash + stock); terms and covenants haven’t been settled yet. Note that P has recently committed ~$356M in capital primarily toward ancillary ventures away from its core business; leaving $87M in net effective cash (vs. 3Q15 balance) prior to this offering.
- TOO LATE? P probably should have explored this option a little earlier than 2 weeks prior to the Web IV decision. That said, it’s not likely that the offering will be completed before then, which means P is not likely to receive favorable terms. P already struggles to generate positive cash flow under the Pureplay rates, which expire at year end, and will likely be considerably lower than what it will have to pay in 2016.
- WHAT DOES THIS MEAN? We’re not sure if this is just a buffer to get by while P tries to strike direct deals with the labels, or if it is planning to keep its foot on the gas on with the ad-supported model. An Incremental $300M is not a lot relative to P’s content costs, which should eclipse +$500M in 2015. For context, P could blow through nearly all of that $300M in 2016 on the rate increase alone in a worst case Web IV scenario (rates up +50%), while paying interest to do so. That said, this loan could introduce an extra level of risk to the story depending on how P plans to run its model next year.
The Web IV proceeding should be concluded by Dec 15th and announced the following day. See below for supporting analysis on the implications of Web IV on P's business model.
P | Changing Its Tune (Strategic Update Call)
11/17/15 08:35 AM EST
P: Can We Still Be Friends? (3Q15)
10/23/15 08:14 AM EDT
P: It's All About the Benchmarks (Web IV)
10/02/15 12:22 PM EDT
P: Fool's Gold (Web IV)
09/21/15 02:05 PM EDT
P: Losing the Critical Debate? (Web IV)
04/08/15 08:53 AM EDT
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What an epic fail for financial journalism today.
The Financial Times leaked incorrect coverage ahead of the ECB's major policy announcement at 7:38am. (The actual announcement wasn't due until 7:45am).
Here is the FT's Twitter stream and the recanting of that original misinformation.
Here's what actually happened:
- The ECB announced that it would cut the deposit facility rate to -0.3% from -0.2%.
- ECB Head Mario Draghi also said that the ECB would extended the asset purchase programme to the end of March 2017, "or beyond, if necessary."
- The ECB would also reinvest all principal payments on the securities purchased under the asset purchase program as they mature, as long as necessary
The markets seemed underwhelmed with a selloff in European equity markets...
Takeaway: Almost all active categories had withdrawals last week, including -$3.5 B from domestic equity funds. Meanwhile, equity ETFs gained +$8.0 B.
Investment Company Institute Mutual Fund Data and ETF Money Flow:
Fund flows in the 5-day period ending November 25th were similar to the week prior. Investors again pulled funds from almost all actively managed risk categories, as the rotation into passive products continued. Total equity mutual funds lost -$3.9 billion with total fixed income mutual funds shedding -$2.7 billion for the week. Meanwhile, investors contributed +$8.0 billion and +$670 million to equity and fixed income ETFs, respectively.
A broader look at the ongoing damage from passives against the active industry outlines the continued growth trajectory of ETFs. Passive ETFs have garnered 55% of cumulative investment flow since 2007 taking in over $1.4 trillion versus all long-term mutual fund products of $1.1 trillion (both stock and bond funds). The damage on the equity side specifically is most notable with international and domestic equity funds having lost -$281 billion since '07 versus the over $1.0 trillion inflow for equity ETFs over the same time frame. The divergence this year is running near another +$150 billion for passives with active equity outflows at -$39 billion (running domestic equity fund flows for '15 are -$147 billion netted against international funds with a +$107 billion contribution) and equity ETFs taking in +$109 billion in the first 11 months of the year. With only 13% total market share against total fund products, the ETF structure has plenty of additional share to gain.
In the most recent 5-day period ending November 25th, total equity mutual funds put up net outflows of -$3.9 billion, trailing the year-to-date weekly average outflow of -$840 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund withdrawals of -$369 million and domestic stock fund withdrawals of -$3.5 billion. International equity funds have had positive flows in 43 of the last 52 weeks while domestic equity funds have had only 8 weeks of positive flows over the same time period.
Fixed income mutual funds put up net outflows of -$2.7 billion, trailing the year-to-date weekly average inflow of +$100 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds contributions of +$642 million and taxable bond funds withdrawals of -$3.3 billion.
Equity ETFs had net subscriptions of +$8.0 billion, outpacing the year-to-date weekly average inflow of +$2.3 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$670 million, trailing the year-to-date weekly average inflow of +$1.1 billion and the 2014 average inflow of +$1.0 billion.
Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.
Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2014 and the weekly year-to-date average for 2015:
Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.
Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2014, and the weekly year-to-date average for 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:
Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors contributed +$135 million or +6% to the materials XLB ETF, more than replacing the prior week's -$94 million withdrawal.
Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$6.2 billion spread for the week (+$4.2 billion of total equity inflow net of the -$2.0 billion outflow from fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$968 million (more positive money flow to equities) with a 52-week high of +$27.9 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)
Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA
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