FT : Tether’s mystery commercial paper exposure

Tether’s mystery commercial paper exposure
Tweets from the stablecoin’s CTO are raising new questions about reserve quality

The public face of crypto’s biggest stablecoin, Tether chief technology officer Paolo Ardoino, laid down the gauntlet this week to hedge funds who are shorting the $66bn market cap token.

Over 12 tweets on Monday, he decried “FUD, troll armies, clowns etc” and said that Tether was “the only stablecoin that is proven with fire under extreme pressure”, referring to the $17bn in redemptions it has processed in May and June.

“Eventually these hedge funds, that borrowed and shorted billions of USDt will need to buy them back. What will happen then?,” he warned.

But in one message, Ardoino may have flagged something important about the reserves backing crypto’s most widely used and most controversial stablecoin.

Some background: Tether issues ‘USDT’ tokens that are used by crypto traders as a dollar substitute. Its $1 value is backed 1-to-1 by dollar assets held in Tether’s reserves.

Controversy about these reserves has raged for years. Tether in 2021 paid tens of millions to US regulators in settlements over its past disclosures.

Today, hedge funds including Fir Tree Partners and Viceroy Research have shorted USDT, the idea being that the assets currently backed Tether are worth less than the tokens in circulation. Tether has strenuously denied that claim.

One suggestion is that Tether may have suffered losses on its commercial paper holdings, which according to a Bloomberg report last year included Chinese commercial paper. Earlier this month, Tether put out a blog post:

Tether is aware of rumours being spread that its commercial paper portfolio is 85% backed by Chinese or Asian commercial papers and being traded at a 30% discount. These rumours are completely false and likely spread to induce further panic in order to generate additional profits from an already stressed market. Tether condemns such attempts which oftentimes see simple users take the biggest hit, while few co-ordinated funds increase their profits.

The post added that Tether’s “current portfolio of commercial paper has since been further reduced to 11bn (from 20bn at the end of Q1 2022), and will be 8.4bn by end June 2022”.

Ardoino this week made a similar comment in his Twitter thread:


So, here’s what one hedge fund that’s short Tether has been pointing out to clients on the back of Ardoino’s tweets.

Looking at the quarterly breakdown Tether has put out about its reserves, the commercial paper holdings should be far lower than $8.4bn if the company had been simply rolling them off into US treasury bills.

An attestation from Tether’s Cayman Island accountant on Tether’s reserves says that as of March 31, 2022, there was $20.1bn in commercial paper holdings and certificates of deposit.

Most of that was short duration. Specifically, $18.9bn was set to reach maturity within 90 days. If Tether was letting its commercial paper holdings roll off, in other words, then by the end of June there should have been just $1.2bn, not $8.4bn.

What explains that gap? Has Tether given payment extensions to someone? Was some commercial paper not fully repaid at maturity? We don’t know. We asked Tether, but have yet to hear back.

FT : Barcelona sells media rights stake to Sixth Street in bid to repair finance

Barcelona sells media rights stake to Sixth Street in bid to repair finances
Deal with private equity group will deliver Spanish club more than €200mn over 25 years

FC Barcelona has agreed to sell a 10 per cent stake in its media rights to US investment group Sixth Street, in a deal that will deliver more than €200mn to shore up the Spanish football club’s troubled finances.

The deal, announced on Thursday, will hand Sixth Street a slice of the Catalan club’s media rights for a 25-year period. The club may consider selling another 15 per cent stake later this summer, according to people familiar with the matter, which could allow Sixth Street to increase its share further.

Barcelona’s financial health has been hampered by a pile-up of short-term debt obligations after a season that began with the departure of its longtime star, Lionel Messi. The club’s president Joan Laporta had likened its finances to a Formula One racing car that has run out of fuel, but said his aim was to “leave the pits and return to the front row of the grid to compete and win again”.

The club opted to sell its own share of TV rights instead of participating in La Liga’s leaguewide €2bn deal with private equity group CVC Capital Partners, which provided a capital injection in exchange for 11 per cent of media rights over 50 years.

La Liga, which runs the top two divisions in Spain, originally agreed a €2.7bn financing package, but was forced to reduce the size of the CVC deal because of opposition from Barça and Real Madrid, both of which refused to join. The two clubs, which receive a greater share than their rivals of the broadcast revenue generated by La Liga, failed in a late bid to thwart the CVC deal with a counterproposal to other clubs that involved bank financing.

Spain’s two leading clubs — arch-rivals on the pitch but increasingly aligned off it — were founding members of the European Super League, an attempted breakaway competition that collapsed rapidly after its unveiling in April 2021. La Liga opposed the ESL and publicly criticised Barça and Real Madrid over their role in its creation.

For Sixth Street, the deal comes soon after it agreed to a separate investment in Real Madrid. The San Francisco-based fund, which manages more than $60bn in assets, will pay €360mn to partner with Real Madrid on refurbishing its Santiago Bernabéu stadium and a live events package over a 20-year period. Sixth Street also has a minority stake in US basketball team San Antonio Spurs.

The stake sale of Barcelona’s media rights was led by Key Capital, the Spanish brokerage that previously advised Real Madrid on its stadium deal with Sixth Street.

It also follows a vote at Barcelona’s general assembly this month, which granted the club permission to sell stakes of up to 25 per cent in the Catalan football empire’s media rights and up to 49 per cent in Barça’s merchandising and sponsorship business. At the time, Barcelona said the assets had the potential to provide a €600mn boost.

Barcelona’s financial descent was exacerbated by the coronavirus pandemic, when matches at its famous 99,000-capacity Camp Nou stadium were played behind closed doors.

Despite the €222mn sale of Brazilian striker Neymar to Paris Saint-Germain in 2017, Barcelona has over the years generated a deficit from player transfers. A high wage bill has added to the pressure and led to Messi’s departure to the same club.

Only three clubs in Europe’s big five leagues have had a worse result from transfer dealings than Barcelona’s negative net spend of €650mn in the decade since summer 2012, according to research by CIES Football Observatory.

>>> US Research Calls

Research Calls

  • Upgrades:
    • Advanced Micro (AMD) upgraded to Outperform from Market Perform at Northland Capital; tgt lowered to $95
    • Banco Bilbao Vizcaya Argentaria (BBVA) upgraded to Buy from Neutral at UBS
    • Banco Santander Chile (BSAC) upgraded to Neutral from Sell at UBS
    • Brookfield Infrastructure (BIP) upgraded to Outperform from Neutral at Credit Suisse; tgt $49.50
    • ShotSpotter (SSTI) upgraded to Outperform from Mkt Perform at William Blair
    • YPF Soc. Anonima (YPF) upgraded to Neutral from Sell at UBS
  • Downgrades:
    • Ameren (AEE) downgraded to Neutral from Buy at UBS; tgt raised to $96
    • Axos Financial (AX) downgraded to Neutral from Outperform at Wedbush
    • Duke Energy (DUK) downgraded to Neutral from Buy at UBS; tgt lowered to $112
    • Evergy (EVRG) downgraded to Neutral from Buy at UBS; tgt lowered to $70
    • Fortis (FTS) downgraded to Sell from Neutral at UBS
    • Huntington Banc (HBAN) downgraded to Neutral from Outperform at Wedbush; tgt $14 and removed from Best Ideas List
    • KeyCorp (KEY) downgraded to Neutral from Outperform at Wedbush; tgt lowered to $20
    • MSC Industrial (MSM) downgraded to Mkt Perform from Outperform at William Blair; tgt $67
    • National Grid (NGG) downgraded to Hold from Buy at Jefferies
    • Poshmark (POSH) downgraded to Mkt Perform from Outperform at Raymond James
    • SAP SE (SAP) downgraded to Neutral from Outperform at Exane BNP Paribas; tgt $105
    • Webster Financial (WBS) downgraded to Neutral from Outperform at Wedbush
    • Western Alliance Bancorp (WAL) downgraded to Neutral from Outperform at Wedbush
  • Others:
    • ABB Ltd (ABB) initiated with a Buy at Stifel
    • Acumen Pharmaceuticals (ABOS) initiated with a Buy at H.C. Wainwright; tgt $15
    • Alphabet A (GOOGL) removed from Best Ideas List at Wedbush
    • Amkor (AMKR) initiated with a Buy at DA Davidson; tgt $30
    • AppLovin (APP) initiated with an Overweight at KeyBanc Capital Markets; tgt $55
    • Bath & Body Works (BBWI) initiated with an Overweight at Piper Sandler; tgt $58
    • CarGurus (CARG) resumed with a Mkt Perform at JMP Securities
    • Carvana (CVNA) resumed with a Mkt Outperform at JMP Securities; tgt $35
    • Coty (COTY) initiated with a Neutral at Piper Sandler; tgt $8
    • Etsy (ETSY) initiated with an Outperform at Raymond James; tgt $100
    • FIGS, Inc. (FIGS) initiated with a Strong Buy at Raymond James; tgt $15
    • ironSource (IS) initiated with an Overweight at KeyBanc Capital Markets; tgt $3.50
    • Nutanix (NTNX) initiated with an Overweight at Barclays; tgt $19
    • Overstock.com (OSTK) initiated with a Mkt Perform at Raymond James
    • Perficient (PRFT) initiated with a Sector Outperform at Scotiabank; tgt $110
    • PropertyGuru (PGRU) initiated with a Mkt Outperform at JMP Securities; tgt $7.50
    • Rent the Runway (RENT) initiated with an Outperform at Raymond James; tgt $9
    • Revolve Group (RVLV) initiated with an Outperform at Raymond James
    • Theseus Pharmaceuticals (THRX) initiated with a Buy at H.C. Wainwright; tgt $22
    • thredUP (TDUP) initiated with an Outperform at Raymond James; tgt $7
    • Texas Instruments (TXN) initiated with a Buy at The Benchmark Company; tgt $205
    • Unity Software (U) initiated with a Sector Weight at KeyBanc Capital Markets
    • Warner Bros. Discovery (WBD) initiated with a Buy at The Benchmark Company; tgt $26
    • Zurn Water Solutions (ZWS) initiated with a Buy at Stifel; tgt $34

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • DCT -15.8%, SGH -14.2% (also to acquire Stratus Technologies), RH -9.2% (lowers FY22 revenue and op mgn guidance; maintains Q2 guidance), UHS -7.7%, FIZZ -4.3%, WBA -2.4%, STZ -0.7%

Other news:

  • HYPR -18.5% (CEO will step down for personal reasons)
  • CYTK -16.9% (proposes $450 mln convertible notes offering)
  • MSTR -8.2% (EU says provisional agreement reached on transparency of crypto asset transfers)
  • BITO -5.8% (EU says provisional agreement reached on transparency of crypto asset transfers)
  • THC -5.5% (in sympathy with weak UHS guidance)
  • COIN -5.1% (EU says provisional agreement reached on transparency of crypto asset transfers)
  • WSM -4.8% (in sympathy with weak RH guidance)
  • W -4.8% (in sympathy with weak RH guidance)
  • HCA -4% (in sympathy with weak UHS guidance)
  • CYH -3.8% (in sympathy with weak UHS guidance)
  • UBS -3.3% (ordered to pay $25 mln to settle SEC fraud charges, according to Reuters)
  • AADI -3.2% (receives notice from EOC Pharma of termination of License Agreement )
  • HPK -3% (stock offering)
  • LXRX -2.2% (announces positive top-line results from phase 2 study of LX9211)
  • RKLB -2.2% (Lunar Photon spacecraft successfully completes the third of seven planned orbit raising maneuvers)
  • OIS -1.8% (settles dispute with HCperf Holdings)
  • BA -1.8% (Inspector General sends letter to FAA regarding oversight of 737 Max issues)
  • WBD -1.6% (NXST nearing a deal to acquire majority control of the CW Network from WBD and PARA, according to WSJ)
  • BGNE -1.4% (Announces Late-Breaking Data at ESMO GI Showing Overall Survival Benefit for Tislelizumab Plus Chemotherapy in First-Line Advanced or Metastatic Esophageal Squamous Cell Carcinoma)
  • BILI -1.4% (shareholders approve proposed conversion to primary listing on the Hong Kong Stock Exchange; Proposed Conversion is expected to be October 3, 2022)
  • XRX -1.2% (CEO and Vice Chairman John Visentin unexpectedly passes away)

Analyst comments:

  • DUK -1.3% (downgraded to Neutral from Buy at UBS)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • POWW +5.9%, CDMO +5.5%, MLKN +5.4%, AYI +2.7%

Other news:

  • ASPN +41.8% (decides not to proceed with concurrent public offerings of common stock and green convertible senior notes due 2027)
  • SYM +17.9% (stock offering)
  • AURA +12.9% (announced that the FDA has granted Fast Track designation for belzupacap sarotalocan (AU-011), Aura's first VDC product candidate, for the treatment of Non-Muscle Invasive Bladder Cancer)
  • AVDL +9% (provides corporate update)
  • OSCR +5.2% (launches its Next Best Actions engine)
  • OMGA +4.9% (Presents New Preclinical Data Supporting the First Epigenomic Controller, OTX-2002)
  • TGAN +4.8% (stock offering)
  • BPMC +4.7% (announces $1.25 bln strategic financing collaborations with Sixth Street and Royalty Pharma (RPRX); Blueprint Medicines will receive $575 mln in total cash funded at close)
  • SAVE +1.4% (to adjourn Special Meeting of stockholders; intends to continue discussions with Frontier (ULCC) and JetBlue (JBLU))
  • BNTX +1.2% (PFE and BNTX announce new vaccine supply agreement with US govt)
  • CORT +1.1% (initiates ROSELLA, a pivotal Phase 3 trial of relacorilant plus nab-paclitaxel for ovarian cancer)
  • RPRX +1.1% (confirms it has acquired an ex-U.S. royalty interest in Gavreto (pralsetinib) from Blueprint Medicines (BPMC))

FT : Hedge funds scoop up biotech stocks after ‘catastrophic’ declines

Hedge funds scoop up biotech stocks after ‘catastrophic’ declines
Some managers expect cheaper valuations will fuel M&A activity

Hedge funds are hunting for bargains in the beaten-down biotechnology sector, betting that a vicious sell-off has run its course and that lower valuations will breathe life back into deal flow.

A Nasdaq index of biotech stocks has tumbled almost a third from its all-time high last August, as hopes about the Covid-19 pandemic boosting the industry gave way to worries about frothy share prices. The sharp sell-off has, in turn, left many companies struggling to raise new funding.

However, some hedge fund managers now believe that prices have fallen too far relative to firms’ drug development prospects and their remaining cash levels. Those investors have started buying up stocks on the cheap, or launching portfolios to capitalise on the turmoil.

“This is the worst correction [in the biotech sector] I have seen in my 22-year career”, said Michele Gesualdi, founder of London-based investment group Infinity Investment Partners. “We have never seen stress like this.”

Gesualdi’s firm, which manages $1.5bn in assets, recently launched a new fund specifically to focus on opportunities in the life sciences sector. He added that the sector is, on all metrics, “as cheap as it has ever been”.


Industry insiders attributed the sell-off in the sector in part to the departure of so-called tourist investors who do not specialise in biotech but who were hunting for returns during the early stages of the pandemic. Investors have also grown concerned about regulatory scrutiny of dealmaking and the possibility that companies may start to run out of funding.

The ensuing market reversal has proved particularly difficult for a sector that had grown accustomed to record-low interest rates and a seemingly never-ending equity bull market. Such companies’ future profits are highly valued when interest rates are near zero, but appear less so when borrowing costs rise.

“Coming out of the Covid tunnel, seeing inflation rise at [a] higher pace than predicted by any central bank, the [biotech] sector has faced unexpected adversity,” said Philippe Wolgen, chief executive of Australian biotech Clinuvel Pharmaceuticals, whose share price has fallen from almost A$45 in September to A$15 (US$10).

After a “catastrophic” fall in the sector, fund managers and bankers “are openly expressing their aversion to perpetuating these risky ventures”, he added, referring to backing companies with little prospect of revenues in the near term. However, he said investors were starting to look at “genuine business[es]” in the sector.

Mergers and acquisitions activity, meanwhile, traditionally a major support for valuations as big pharmaceutical companies look for ways of building their drugs pipeline, has also dried up. The deal count in 2022 has fallen to its lowest level for the opening six months of a year in more than a decade, according to Evaluate Pharma.

The sell-off has hit some specialist healthcare hedge funds hard. One of the highest-profile funds to suffer is New York-based Perceptive Advisors, which lost about 32 per cent last year and is down 35 per cent this year to late June, according to numbers sent to investors and a person familiar with the performance.

California-based Endurant Capital, run by Vietnamese trader Quang Pham, lost 6.8 per cent in its Health Master fund this year to the end of May, although it has made back some ground in June. Last year San Francisco-based Asymmetry Capital shut after losses, with its founder highlighting how difficult life had become for small, biotech-focused funds.

Nevertheless, some managers believe now is the right time to build exposure to the sector.

“It’s the one area where there’s been complete and utter capitulation,” said Andrew Clifford, chief executive of Sydney-based Platinum Asset Management, which manages $14bn in assets. The firm is launching an EU-regulated version of a health sciences fund it already manages, as it tries to profit from the sell-off.

SYZ Capital has also been adding to its positions in funds trading the sector, and sees opportunities in the US and, longer term, in China. “We are positive on biotech”, said Cedric Vuignier, head of liquid alternative managed funds.

UBS’s hedge fund unit O’Connor earlier this year hired a team from Alera Partners to run a new strategy betting on rising and falling prices and focused on healthcare therapeutics. The strategy is part of O’Connor’s multi-strategy fund, but could eventually be launched as a separate fund, said a person familiar with the firm’s plans.

“Healthcare is a perfect example of where we want to be exposed,” said chief investment officer Kevin Russell, who believes there is capacity for more than $1tn of deals in the sector as pharma companies try to build their drug pipeline.

Russell added that there had been “very little distinguishing between stocks” by investors.

“We think [this] is a function of a lack of experience and scientific knowledge” among investors, and should present opportunities for O’Connor to make money betting on rising and falling prices, he said.

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • ASPN +51.4%, AVDL +13.2%, POWW +6.9%, CDMO +5.5%, MLKN +5.3%, OSCR +5.2%, TGAN +4.8%, SYM +4.3%, NXST +3.4%, AYI +2.6%, SAVE +1.9%, BNTX +1.5%, CORT +1.1%, HPK +0.8%
  • Gapping down:
    • HYPR -27%, DCT -19.1%, CYTK -14.9%, SGH -14.9%, MSTR -9.4%, RH -6.5%, W -6.4%, BITO -5.3%, COIN -5%, FIZZ -4.3%, WSM -3.7%, LXRX -3.1%, UBS -2.9%, RKLB -1.9%, OIS -1.8%, HOOD -1.7%, STNG -1.6%, BA -1.6%, WBD -0.9%

>>> Europe : Brokers Upgrades & Downgrades - 30th of June 2022 V2(+)

>>> Up
* Air France-KLM Raised to Buy at Citi; PT 1.50 euros (+)
* Atea Raised to Hold at Handelsbanken
* Bank of Cyprus Raised to Outperform at KBW; PT 172.29 pence
* Orsted Raised to Buy at HSBC; PT 930 kroner
* Uniper Raised to Outperform at Oddo BHF; PT 25 euros
* Virgin Money UK Raised to Overweight at Barclays; PT 200 pence

>>> Down
* Cary Group Cut to Hold at SEB Equities; PT 65 kronor (+)
* Domino's Pizza Group Cut to Sell at Liberum; PT 230 pence (+)
* EasyJet PT Cut to 360 pence from 475 pence at Citi (+)
* Graines Voltz Cut to Hold at Tradition; PT 161 euros (+)
* SAP Cut to Neutral at Exane; PT 100 euros
* Spie Cut to Hold at Stifel; PT 24 euros
* Supermarket Income Cut to Reduce at Peel Hunt; PT 115 pence
* YIT Cut to Hold at DNB Markets; PT 3.50 euros

>>> Initiation
* ABB Rated New Buy at Stifel; PT 35 Swiss francs
* Aker Carbon Capture Rated New Hold at Arctic Securities (+)
* Barry Callebaut Rated New Buy at Berenberg
* Edenred Rated New Outperform at Credit Suisse; PT 56 euros (+)
* El.En. Rated New Buy at Berenberg; PT 16.10 euros
* Nexi Rated New Outperform at Credit Suisse; PT 10.50 euros (+)
* Unity Software Rated New Sector Weight at KeyBanc
* Worldline Rated New Underperform at Credit Suisse (+)

>>> Call
* ABB Rated New Buy at Stifel; Sees Strong Growth, Higher Margins (+)
* Barry Callebaut a New Buy at Berenberg With Re-Rating Seen Ahead
* Bunzl Consensus Estimates Likely to Move Higher, Citi Says (+)
* Citi Opens Positive Catalyst Watch on WPP, Publicis Into Results
* El.En. Set For Next Phase of Growth, New Buy at Berenberg
* Just Eat Share Drop Overdone, 2Q May Bring Respite, MS Says
* National Grid Downgraded at Jefferies as Upside Looks Limited
* SAP Cut to Neutral at Exane BNP Due to Risks on Demand Side
* Uniper PT Cut to 12 euros from 15 euros at Bankhaus Metzler (+)