Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
Speaker 1: another episode of the All Thoughts Podcast. I'm Tracy Alloway.
Speaker 2: And I'm Joe.
Speaker 3: Wasn't that Joe?
Speaker 1: Do you remember deal toys? Did you ever see those?
Speaker 2: I never got a deal I never I do know
Speaker 2: what they were.
Speaker 1: You wouldn't get a deal toy unless you were working.
Speaker 2: Out, so I'm aware that they existed, but I don't
Speaker 2: never had one. I never saw one.
Speaker 1: I used to be slightly obsessed with them.
Speaker 2: Were they toys like or were they like like were
Speaker 2: they those sort of looseight Uh?
Speaker 1: Yeah, that's pretty much it. So if you are working
Speaker 1: in capital markets or in mergers and acquisitions and you
Speaker 1: completed a deal, you would mark the end of that
Speaker 1: transaction by, you know, adding some sort of swag I guess.
Speaker 1: And it could be really boring. It could just be
Speaker 1: a looseight block or something like that. But some of
Speaker 1: them were really interesting and fun. And one of the
Speaker 1: ones I remember seeing was someone it must have been
Speaker 1: working in like capital markets. It was a little toggle,
Speaker 1: like an actual like think of like a railroad I
Speaker 1: kind of toggle, and it was to celebrate the first
Speaker 1: ever pick toggle transaction.
Speaker 2: So can I say something you know we talked to
Speaker 2: First of all, it's amazing. Second of all, you know,
Speaker 2: we talked to a lot of investors on the podcast.
Speaker 2: We talked to a lot of people whose job in
Speaker 2: some way resembles our job, which is looking at screens
Speaker 2: all day or maybe looking at data. I think if
Speaker 2: I ever had gone into finance, I would have some
Speaker 2: job that looked involved a lot of looking at screens
Speaker 2: and a lot of maybe looking at data, but mostly
Speaker 2: just looking at screens. We don't often talk talk to
Speaker 2: a lot of people who are in the world of
Speaker 2: actually talking to other people about making things happen. I
Speaker 2: never think i'd be good at that. No one wants
Speaker 2: to hang out with me, you know, stuff like that.
Speaker 2: And so I want to learn and talk to more
Speaker 2: people about how actually things in finance, whether we're talking
Speaker 2: about a deal, whether we're talking about a new issuance,
Speaker 2: et cetera, how that actually happens, how an instrument or
Speaker 2: security actually comes into the world.
Speaker 1: Well, I'm very pleased to say, Joe that we do,
Speaker 1: in fact have the perfect guest for this topic. We're
Speaker 1: going to be speaking to someone who's day to day
Speaker 1: business is talking to people sourcing and finding deal and
Speaker 1: someone who also knows exactly about that Pictoggle deal toy
Speaker 1: that I mentioned earlier. So I'm very excited we're going
Speaker 1: to be talking. We're going to try to thread the
Speaker 1: needle between sourcing deals and also something else we've been
Speaker 1: interested in lately, which is private. That's right, all right,
Speaker 1: So without further ado, we're speaking with Millwood Hobbes. He
Speaker 1: leads Oak Trees Sourcing, an originations group. So really again
Speaker 1: the perfect person, Millwood, thank you so much for coming
Speaker 1: on all thoughts, Thank you for having me. So I'm
Speaker 1: right right about the pictogle toy. You've seen this toy.
Speaker 3: Yes, I've seen it. My favorite deal toys. There's two
Speaker 3: that stick out when Ford spun out Hurts in two
Speaker 3: thousand and five, I was part of that transaction, and
Speaker 3: so I have a set of car keys and there's
Speaker 3: from Hurts and it's it's a it's they're called loose Heights. Yeah.
Speaker 3: And then the other one, which was pretty cool. I
Speaker 3: did the Mars regularly deal with Byron Trott, and so
Speaker 3: I have two eminem amazing guys that sort of they
Speaker 3: lay out.
Speaker 2: The train a room in your house that's sort of
Speaker 2: like I'm imagining high school athletes trophies.
Speaker 3: So so you know, I have we moved there in
Speaker 3: Covid in twenty twenty and we bought a house and
Speaker 3: I have like a real library. And then that library
Speaker 3: are two things from investment banking that I have. I
Speaker 3: have bank books from deals we used to we used
Speaker 3: to go to a printer and we used to draft.
Speaker 3: Oh like the pitch that well, it's like a it's
Speaker 3: like an actual it's a glossy picture book of of
Speaker 3: the deal. The transaction goes through transaction over youw, it
Speaker 3: goes through company, it goes through business, and that was
Speaker 3: what folks used to actually underwrite deals back in early
Speaker 3: two thousands. Yeah, and then I have loose sites, so
Speaker 3: I have a lot of loose sights.
Speaker 1: So the unit that you're leading at oak Tree that
Speaker 1: was created I think relatively recently, it was like twenty
Speaker 1: What was the thinking behind that?
Speaker 3: So the market private credit in origination and financing of
Speaker 3: deals has evolved quite a bit. If you just go
Speaker 3: back to kind of pre Dot Frank, most private equity
Speaker 3: firms didn't have what we call capital markets professionals, and
Speaker 3: post Dot Frank and the migration and creation of a
Speaker 3: robust private credit mark. Most of the private equity firms
Speaker 3: have capital markets professionals who really spend time drafting, creating,
Speaker 3: structuring financings for the private equity buyouts. And what we
Speaker 3: figured out oak Tree we were founded in nineteen ninety five,
Speaker 3: we managed a couple hundred billion dollars. What we were
Speaker 3: figuring out when I first started in twenty thirteen. Every
Speaker 3: strategy within oak Tree kind of did its own thing.
Speaker 3: So if a deal came into one strategy and it
Speaker 3: didn't work, it just kind of died in that strategy.
Speaker 3: So what we decided as the market evolved and moved
Speaker 3: towards capital solution provider versus this fund does this and
Speaker 3: this fund does that. We created my group with the
Speaker 3: real purpose of a couple of things. Number one is
Speaker 3: making sure we were focused on providing capital solutions versus
Speaker 3: trying to figure out what fit a particular strategy. Yeah,
Speaker 3: and then the second reason we really did it is that,
Speaker 3: you know, capital is the commodity in our business. Everyone
Speaker 3: has a lot of money, but how do you get
Speaker 3: the first call in the last call? And that's the relationship.
Speaker 3: So my team is meant to really spend time and
Speaker 3: develop relationships with the counting parties because look, the reality
Speaker 3: of it is, we shouldn't. We're not agreeing on We
Speaker 3: have different investors, So a private equity firm has a
Speaker 3: different investor base than we have. The goal in my
Speaker 3: group is to one make sure the entire firm sees
Speaker 3: a transaction, and two we're involved in the art of
Speaker 3: the deal, right, And so the goal is no one
Speaker 3: really should win. Both parties should be just mildly annoyed.
Speaker 3: And how do you do that? How do you do that?
Speaker 3: In a way you do it the relationship.
Speaker 1: That's funny because we say that in journalism sometimes, like
Speaker 1: the goal is for everyone to be like slightly dissatisfied
Speaker 1: in the story, because if everyone's happy, then you basically
Speaker 1: put out a press.
Speaker 3: Release somebody's wrong. If one side is really happy, the
Speaker 3: other side is probably wrong.
Speaker 2: I know Tracy already more or less ask this question,
Speaker 2: but I'll just put it in a different way. What
Speaker 2: do you just give us a sort of brief overview.
Speaker 2: If someone says, what do you do and how'd you
Speaker 2: get here? What did you do and how you get here?
Speaker 3: Yeah, so you don't want you don't want my full
Speaker 3: full background.
Speaker 1: Oh, I actually do, because you've been in the market
Speaker 1: for a really.
Speaker 4: Long time.
Speaker 2: Childhood.
Speaker 3: But okay, okay, I'll start from what I'll start from.
Speaker 3: So so look, my my dad was in public accounting,
Speaker 3: and originally so I got a fool. I could a
Speaker 3: scholarship to Rutgers to go to law school. I sat
Speaker 3: in political science and I would fall asleep and wake
Speaker 3: up and they were talking about the same thing. So
Speaker 3: I said, I don't think I can do four years
Speaker 3: of political science. So I switched to accounting. Because my generation,
Speaker 3: you did what the adult said to do. And so
Speaker 3: I switched to public into accounting, and my dad said,
Speaker 3: don't do public accounting, do banking. So I started out
Speaker 3: at a firm called Nation's Bank, which is now is
Speaker 3: a predecessor to Bank of America. And the most interesting
Speaker 3: job I had at Nations Banking, I was a controller
Speaker 3: for leverage finance. I was de controlling, the youngest controller
Speaker 3: in the firm, and I said, I want to be
Speaker 3: a leverage finance banker, you know. And the reason why
Speaker 3: it sounds silly when you're at my age, but they
Speaker 3: wore a nice time, They were nice shoes, They were
Speaker 3: in big in finance, and at that time Nation's Bank
Speaker 3: was a pretty big terminobe lender, and so the head
Speaker 3: of the group basically said, look, right now, you're just
Speaker 3: an accountant. He said, go get a sales job and
Speaker 3: then go to the school. So again I went to
Speaker 3: g Capitol and I financed commercial equipment, so rolling stock assets, cars, trucks, forklifts.
Speaker 3: Did that for one year to today, and then went
Speaker 3: to Columbia Business School. I summered at first Boston and
Speaker 3: I summered in asset backs and leverage finance, and then
Speaker 3: doing deoutsche Bank in two thousand full time. And during
Speaker 3: that time period I structured a lot of lbo's sun Guard, Nema,
Speaker 3: Marcus Us foods.
Speaker 1: Irridium, first Demon, Marcus being the first ever pick Togles. Yes,
Speaker 1: and so you had that deal toy.
Speaker 3: I have it, you know, I'll be honest with you.
Speaker 3: I think I gave it to someone more senior. Oh.
Speaker 1: Oh, should have given it to me.
Speaker 3: I know somebody who has one. And then in two
Speaker 3: thousand and seven I left Deutsche Bank. And really you
Speaker 3: sort of say, why would you leave Deutsche Bank? And
Speaker 3: if you go back to two thousand and seven, the
Speaker 3: market was very concentrated so versus today. There were eight
Speaker 3: underwriters who owned all the leverage finance, right, so you
Speaker 3: could see the market. You know, when I got a
Speaker 3: call to say, hey, what leverage would you provide on
Speaker 3: a deal? I'd ask the private equity firm, well, what
Speaker 3: do you think the business work, and they'd say, well,
Speaker 3: it's based on you know, leverage, and so you could
Speaker 3: see that coming to a head. So in two thousand
Speaker 3: and seven I went to Goldman Sachs. I did LBOs
Speaker 3: at Goldman Sachs and also did high you sales and
Speaker 3: joined oak Tree in twenty thirteen.
Speaker 2: It's always interesting to hear someone's background, but I like
Speaker 2: how there's dovetails with the actual development of the industry
Speaker 2: itself and this idea that at one point there were
Speaker 2: just a handful of very small or a handful of
Speaker 2: banks that ran leverage finance, and then of course we
Speaker 2: know about the proliferation of all that. So it's pretty useful.
Speaker 1: Yeah, with that background, well, why don't we dive into
Speaker 1: that a little bit more so, talk to us about
Speaker 1: how the credit market, the capital market has evolved over
Speaker 1: the course of your career.
Speaker 3: Yeah, so, look, when I first started, covenants were pretty
Speaker 3: standard amendments to deals were actually fairly standard, and as
Speaker 3: you moved forward, by two thousand and seven, the majority
Speaker 3: market was cove light. The one interesting thing about pre
Speaker 3: Dodd Frank was in the credit agreement, which is a
Speaker 3: document that sort of governs the loan if you will,
Speaker 3: you had to hedge fifty percent of your floating rate risk.
Speaker 3: And so going into the cycle, two things that made
Speaker 3: since then is one folks were hedged fifty percent, and
Speaker 3: then the other thing is lightboar if you remember back
Speaker 3: in two thousand and seven was at five percent, so
Speaker 3: the spread to deals was two hundred and fifty to
Speaker 3: get to that seven and a half percent average LBO. Well,
Speaker 3: what happened at when Dodd Frank, when the markets cried
Speaker 3: the world the global financial crisis, rates went to zero, right,
Speaker 3: So companies actually generated cash flow in that cycle. The
Speaker 3: challenge or difference we have today is we've been in
Speaker 3: no rate environment, so no one really hedged one and
Speaker 3: then two there because there was zero percent base rates,
Speaker 3: the spread on deals was much higher. Instead of two
Speaker 3: or fifty, you had for fifty five hundred, six hundred.
Speaker 3: So when twenty two when rates started to move up,
Speaker 3: you actually had a situation where a lot of companies
Speaker 3: couldn't support the cash flows because no one predicted that
Speaker 3: race will movement, and most folks were not hedged like
Speaker 3: they were in two thousand and seven.
Speaker 2: Can you talk a little bit, you know, it's a
Speaker 2: theme that obviously comes up with every private credit but
Speaker 2: also other episodes as well. Talk to us a little
Speaker 2: bit more about like the post the immediate the passage
Speaker 2: of Dodd Frank and how it's set into people's brands,
Speaker 2: that this is going to restructure the financial industry, that
Speaker 2: there are to be various activities, whether we're talking about trading,
Speaker 2: whether we're talking about lending, et cetera. Right, these are
Speaker 2: not to be part of the banks anymore. Right, talk
Speaker 2: to us a little bit about those sort of early
Speaker 2: posting you know, and they were talking to two thousand
Speaker 2: and nine, twenty ten, those initial conversations that people were
Speaker 2: having about something new, New opportunities are going to emerge
Speaker 2: from them.
Speaker 3: Right. Well, well, if you go back to two thousand
Speaker 3: and seven, when a portfolio manager and a public side
Speaker 3: was selling risk in the market, the banks were the
Speaker 3: shock absorber to that risk. Yeah, right, So you know
Speaker 3: when I was sitting at Goldman Sachs, it wasn't unusual
Speaker 3: for us to buy two hundred million dollars of an
Speaker 3: issue and it would be on your balanchie and it'd
Speaker 3: be on our balance sheet. Right post what Dodd Frank
Speaker 3: did effectively has said, okay, if you go back to
Speaker 3: the leverage. And I hope I'm not being too technical, but.
Speaker 2: No, there's great.
Speaker 3: Banks were levered roughly thirty times pre global financial crisis.
Speaker 3: Post they're fifteen times levered. Right, So once you shrunk
Speaker 3: that liquidity or capital out of the banks, they can
Speaker 3: no longer absorb the deals. And so what happens is
Speaker 3: and this is why liquidity is really an important phenomenon.
Speaker 3: So when a PM calls the desk and says, hey,
Speaker 3: I have to move five, ten, fifteen million, you're not
Speaker 3: really sure what their real size is because they know
Speaker 3: the market's not liquid. When I was in sales and trading,
Speaker 3: Pimco or somebody would call and say, hey, I've got
Speaker 3: several million to move, and I'd say, well, this is
Speaker 3: your first call or a last call, and they laugh
Speaker 3: and they say why, I said, because I give you
Speaker 3: two different prices. And so what happens in a market
Speaker 3: that's less liquid is as they're trying to sell, they
Speaker 3: call relative different banks, and every time they make a call,
Speaker 3: a bank then assumes that there's more behind that to go,
Speaker 3: and so they rerack the pricing. And so in a
Speaker 3: public security, which is different than private, a public security
Speaker 3: can actually move pricing wise without anything really trading, but
Speaker 3: on the anticipation that there's their supply out there, and
Speaker 3: so that created you know, and if you go back
Speaker 3: to two thousand and nine, private credit market was like
Speaker 3: three hundred billion dollars, right, most of that was more
Speaker 3: mes or off the run, not what we call our
Speaker 3: regular way direct lending private credit, which we were active in,
Speaker 3: but we're doing it more on the distress or opportunistic
Speaker 3: credit side, and over time, because of the liquidity and
Speaker 3: capital requirements of banks, more of that has just migrated
Speaker 3: to the private credit market, supplemented by the fact that
Speaker 3: there are these private equity professionals who are very efficient
Speaker 3: at looking at both markets and figuring out where they
Speaker 3: should play or where they should place their credit or
Speaker 3: their deals.
Speaker 1: I'm getting a lot of flashbacks to writing about corporate
Speaker 1: bond inventories that the dealers like around twenty twelve, so
Speaker 1: just on this note, is the pitch from private credit?
Speaker 1: Is it basically execution? Like you don't need to worry
Speaker 1: about us actually being able to do or complete this deal.
Speaker 1: Where is it a bank? You know they're taking into
Speaker 1: into account leverage considerations, regulatory requirements and all that, right.
Speaker 3: Right, So what a proper deal should be? Right? If
Speaker 3: you're sitting in private equity, your job is to find
Speaker 3: the most efficient, best price capital for your deal. Right.
Speaker 3: The public market, what they're very good at doing is saying,
Speaker 3: here is the indicative rate for a deal. And let's
Speaker 3: just say the indicative on a term loan is sofur
Speaker 3: plus four hundred. Right, then the private equity firm comes
Speaker 3: to us and says, where will you actually own that risk? Right?
Speaker 3: So they get a level where we're owning, which won't
Speaker 3: be the indicative because remember the banks are marketing, Hey,
Speaker 3: we can get you the best rate and best execution.
Speaker 3: We're in the storage business. The banks are in the
Speaker 3: moving business, so they're trying to move the risk, and
Speaker 3: we own the risk, and so we price the risk
Speaker 3: where we'll hold it. And if those two are not aligned,
Speaker 3: what then? And then once you add to that four
Speaker 3: hundred is you ad what we call flex. So if
Speaker 3: you take the indicative plus flex, that gives you an
Speaker 3: idea of what the banks are willing to say that
Speaker 3: this debt will price. So let's say the flex is
Speaker 3: one hundred and fifty basis points, so they know on
Speaker 3: the private equity side, they know worst case the banks
Speaker 3: will own it at SOFA five point fifty, which the
Speaker 3: banks have gotten that sort of flex number based on
Speaker 3: their discussions with us to know where we would actually
Speaker 3: own that risk.
Speaker 1: I see.
Speaker 3: Yeah, So the process is how do you create an
Speaker 3: efficient auction to have the debt in the right market
Speaker 3: at the right pricing with the right structure.
Speaker 1: Okay, so here's my other question. When you are about
Speaker 1: to do a deal, or when you find a deal,
Speaker 1: who are you actually talking to? Is it the banks
Speaker 1: or is it like the companies that are borrowing in
Speaker 1: the market.
Speaker 3: So so generally in a.
Speaker 2: Yeah, oh wow, so sorry answer questions, but I'm just
Speaker 2: sort of like I'm talking question.
Speaker 3: I'm talking to both, right, everyone was my friend. And
Speaker 3: the goal is the more conversations I have, the more
Speaker 3: informed I am of where the market is right. You know,
Speaker 3: the interesting thing about public markets is that market reprices
Speaker 3: risk faster than private credit because there's a secondary market.
Speaker 3: Private credit doesn't really have a secondary market. So what
Speaker 3: we're always trying to make sure we're understanding is relative
Speaker 3: value between public and private. And so my conversation, let's
Speaker 3: say XYZ sponsor wants to buy a business, right and
Speaker 3: let's say it's a public company. The first call, I'll
Speaker 3: get his front that sponsor and say, hey, Millwood, we
Speaker 3: like you guys to look at a financing opportunity for
Speaker 3: public company we're looking to buy. I'm like great, I say, look,
Speaker 3: I'll put my compliance on the email and we'll do
Speaker 3: a conflicts checks on that business because we don't know
Speaker 3: if we own the stock or there's existing debt outstanding.
Speaker 3: So it goes through a process where that company is
Speaker 3: actually vetted from a conflicts perspective. Once it's vetted and
Speaker 3: that clears the process, then we get initial information on it.
Speaker 3: And that information could be a selling memoranda, it could
Speaker 3: be an initial model, and so then we start the process.
Speaker 3: And what the sponsor wants to be able to do
Speaker 3: is from the preliminary information is get a sense for
Speaker 3: do you want do you like the asset or not?
Speaker 3: Do you want to finance it, where do you want
Speaker 3: to finance it at, and what's your leverage and what
Speaker 3: you're pricing. So there's some high level indication that they
Speaker 3: get from us to determine if they if we should
Speaker 3: move forward with a more robust diligence process. So that's
Speaker 3: that's how it starts. And then at that point we
Speaker 3: do a due diligence process on the asset. Right, so
Speaker 3: we may have we may call third party consultants, we
Speaker 3: may do some background on it. We have a call
Speaker 3: with a sponsor, we understand their investment thesis, like why
Speaker 3: are they making the investment, and then we talk internally
Speaker 3: and we have an investment committee and we discuss it,
Speaker 3: and then we'll iterate with the sponsor on diligence questions.
Speaker 3: And then at that point it becomes are you in
Speaker 3: a you out? And so then once the sponsor kind
Speaker 3: of has a sense for who's in and who's out,
Speaker 3: now their goal is to get the right terms, and
Speaker 3: so there's a process around sending us their thoughts on
Speaker 3: the terms right and our job is to figure out
Speaker 3: which of those we want to negotiate and which are
Speaker 3: we fine with.
Speaker 2: First of all, this fantastic stuff. I want to talk
Speaker 2: more about, you know what, or get to what it takes,
Speaker 2: what it takes to be the first call, because you
Speaker 2: said that's that's important, and I'm like curious, Like, you know,
Speaker 2: Tracy and I are competitors, how does one of us
Speaker 2: get the first call out? But but even before we get
Speaker 2: into that question, and it occurs to me that you know,
Speaker 2: because you work for oak Tree and there are multiple
Speaker 2: strategies within it, and you work ass with like different
Speaker 2: people on different committees and different funds, et cetera, is
Speaker 2: there ever tension that arises between your recognition of the
Speaker 2: need to make the get that first call versus what
Speaker 2: people on investment committees see as the fair price right.
Speaker 2: Because if the investor is always trying to get every
Speaker 2: penny fun right, then at some point I'm going to
Speaker 2: stop calling talk to us about reconciling that. And I
Speaker 2: also have to imagine, just to sort of add on
Speaker 2: a part read to this question. You know, it would
Speaker 2: be one thing if like it was a small shop
Speaker 2: and one strategy, but you're looking at this holistically correct,
Speaker 2: Where's the investor who's running a specific line there, cares
Speaker 2: about their returns and doesn't care so much about the
Speaker 2: returns of the other fund or just the general So
Speaker 2: talk to us about reconciling some of these tensions.
Speaker 3: Right. So the biggest tension is, like I said earlier,
Speaker 3: we don't necessarily agree on price, structure, leverage. Right. But
Speaker 3: what we're doing is I'm talking to that sponsor or
Speaker 3: that client or that company all the time. Hey, how's
Speaker 3: your family? I know where they get is go to school.
Speaker 3: I may do zooms with their kids.
Speaker 2: Hey, Milwolle really is a part of my big.
Speaker 3: He say, no, I want to I want to go
Speaker 3: to Ocean Prime. I know you know the manager. I'm
Speaker 3: bringing a family. So yeah, so we are full service here.
Speaker 3: And again, like I said, the relationship is getting the
Speaker 3: first call and the last call. And by the way,
Speaker 3: out of twenty deals, I only care about the last two.
Speaker 3: So how do I pass eighteen times so I can
Speaker 3: see the last two? So it really is a form
Speaker 3: of art, if you will. And what we're trying to
Speaker 3: do is demystify the negotiation and we're institutionalizing relationships. So
Speaker 3: if XYZ sponsors in LA, they'll call me and say, hey, mil,
Speaker 3: what who should I talk to the Okay, let me
Speaker 3: give you a list of folks. Because the more that
Speaker 3: that private equity firm or that sponsor or whatever client
Speaker 3: is feels like they understand our firm, the better the relationship.
Speaker 3: So we spend time making sure that they know who
Speaker 3: our CEO Army is or Bob o'lary, that they know
Speaker 3: the pms at the different strategies, so it's not a
Speaker 3: scary monster. You know, when I when I joined in
Speaker 3: originally oak Tree, remember we were more opportunistic and as
Speaker 3: the market has evolved, and as we have evolved as
Speaker 3: a firm, we're sort of private credit and opportunists. And
Speaker 3: by the way, the client will say, no, I don't
Speaker 3: really care about one side of the house versus the other.
Speaker 3: Your oak Tree, right, So we have to sort of
Speaker 3: in your oak Tree. I'm oak Tree, right, And so
Speaker 3: I have to go to the market as one as
Speaker 3: one firm.
Speaker 1: Wait, talk to us a little bit more about what
Speaker 1: negotiations are actually like, because I will say, we just
Speaker 1: had Suji endap On wrote a great book about the
Speaker 1: Caesar's Palace LBO. Yeah, you're in that, not you specifically,
Speaker 1: but oak Tree certainly is. And there's certainly like there
Speaker 1: are some very dramatic negotiations that take place in sure.
Speaker 3: Oh yeah, I mean look, sometimes you just you get up,
Speaker 3: you throw your pencil in air, and you walk out
Speaker 3: of room. And sometimes you know, so you know, at
Speaker 3: the art of negotiation is what I say to what
Speaker 3: I say to my team is it's not the negotiating
Speaker 3: point you're discussing at the moment, it's the points that
Speaker 3: are coming two points later. Right, You're always thinking ahead
Speaker 3: on the negotiation. You know, we did a deal for
Speaker 3: a business that wasn't really loved in the leverage finance market.
Speaker 3: And I knew that the type of business because I
Speaker 3: had done an LBO and the market really didn't understand it.
Speaker 3: But it was a great management team. Sometimes sometimes deals
Speaker 3: do well because the management team is very good and
Speaker 3: very articulate. And I knew this deal would struggle at
Speaker 3: a bank, and so when it was hung, which means
Speaker 3: the bank had the funded.
Speaker 1: They got stuck with it.
Speaker 3: They got stuck with it. I called in and I said, hey, sorry,
Speaker 3: but I'll buy fifty million at ninety okay, right, Oh gosh,
Speaker 3: what ninety Wow, that's that's a deep discount. Da da
Speaker 3: da da dah. I said, well, you know, I think
Speaker 3: as you now realize that business is not it's a
Speaker 3: little tricky business. And it was a public tool private.
Speaker 3: So a private equity firm was taking a public company
Speaker 3: and making it private. And even though it was a
Speaker 3: climing margin business, there was a view that the public
Speaker 3: company expenses were high. So you could sort of map
Speaker 3: you can map a scenario where over twelve months they
Speaker 3: were going to cut some of the public company calls
Speaker 3: and create a more efficient which would create more ebadah yep. Right,
Speaker 3: So they sold it to us. So now I'm a
Speaker 3: top five lender right with the right responsor. You had
Speaker 3: the right relationship right, well, sponsor, which you know they're
Speaker 3: they're meant to be opportunistic too. Cap structure ibadadh gru
Speaker 3: cap structure looked good. So they wanted to do a dividend. Now, again,
Speaker 3: in a negotiation, if you're doing a dividend, that means
Speaker 3: you're putting more debt on my capital structure.
Speaker 2: Right, that's money that could go to you.
Speaker 3: That's money that could go to anybody with them, right.
Speaker 3: And so you know the job of a sponsor at
Speaker 3: that moment is to call the top five lenders and say, hey,
Speaker 3: I'm doing a dividend deal, and they take me from
Speaker 3: violently upset to miley annoyed. That's the job. So this
Speaker 3: sponsor did not call it on that dividend deal, and
Speaker 3: so now I have a I'm in a unique situation.
Speaker 3: They went to other lenders and got the fifty one
Speaker 3: percent to do the deal, and I felt some kind
Speaker 3: of way about that, some kind of way, and so
Speaker 3: I proceeded to try to figure out why folks would
Speaker 3: agree to this dividend deal. And so I called the
Speaker 3: market and a sponsor sort of said, you know, he
Speaker 3: calls me and he says, no, what I hear? You're
Speaker 3: working against me on my dividend deal. I said, well,
Speaker 3: that's not actually true, because you didn't call me when
Speaker 3: you launched it. So he said, but I thought we
Speaker 3: had a good relationship. I said, we do. I thought
Speaker 3: so too, but you didn't call me, all right, And so,
Speaker 3: long story short, the dividend didn't go through, right, and
Speaker 3: so then we changed the structure of the dividend to
Speaker 3: allow we shrunk the size of the dividend, We changed
Speaker 3: the original issue discount, and I told the sponsor, I said, look, unfortunately,
Speaker 3: I'm going to sell the position when this closes. And
Speaker 3: the point of that story is sometimes it's life's too
Speaker 3: short and not all, not all relationships are meant to
Speaker 3: go on forever. We still talk, I'm still a good friend,
Speaker 3: he's still a good friend, but we haven't done a
Speaker 3: lot together since then, because sometimes you know, in our
Speaker 3: in our in a negotiation, if you don't see IDI
Speaker 3: and that deal worked out, what happens if it doesn't
Speaker 3: work out? Yeah, right, So sometimes sometimes you're managing relationships
Speaker 3: to keep, and sometimes you're managing relationships to not do
Speaker 3: on a business side, but you always want to be
Speaker 3: friendly in this market because you're usually one person away
Speaker 3: from somebody that matters in business.
Speaker 2: Actually, since we're on this point, that strikes me as
Speaker 2: very savvy and very wise and like probably a lesson
Speaker 2: many of us should learn in many realms that sometimes
Speaker 2: it's okay to uh take the l or let a
Speaker 2: proposal fall apart because life is long and other things
Speaker 2: happen at some point. We have listeners who are in
Speaker 2: college or young and they think about, you know, career trajectories,
Speaker 2: et cetera. I'm curious, just from your perspective, this is
Speaker 2: probably a sort of attitude that you would hope the
Speaker 2: people who work for you cultivate, internalize, so to speak.
Speaker 2: How do you recognize who has that? And like, when
Speaker 2: you think about like people that you want on your team,
Speaker 2: are you able to sort of like build intuitions about Yeah,
Speaker 2: the people who can think that way.
Speaker 3: Yeah, So good, good question. So I would say, on
Speaker 3: my team, everyone is uniquely different, and everyone's exceptional at
Speaker 3: something and very good at everything else. And I think
Speaker 3: where you make a mistake in building teams, especially in
Speaker 3: our business, is you try to find someone who can
Speaker 3: be exceptional at more than one thing. So I'll tell
Speaker 3: you a good story. So when I was first starting out,
Speaker 3: I would fly to Dallas, Texas, and I would meet
Speaker 3: with folks in Texas, and I thought I was a
Speaker 3: pretty charming, knowledgeable person on the markets, and everyone in
Speaker 3: Texas was friendly. But what I figured out was by
Speaker 3: the time the deals made it to me in New York,
Speaker 3: in Texas, that already passed. So it's almost like wrong
Speaker 3: way risk and so well, because you're in Texas, right,
Speaker 3: it's a different culture, different in New York and and
Speaker 3: and in some markets folks want to do business with
Speaker 3: folks they may see on the weekend or see in
Speaker 3: the gym or you know, and so it's it's more
Speaker 3: of a that person sits in New York. They don't
Speaker 3: really know me, right ye. So but if people in
Speaker 3: Texas didn't really like the deal, then you call the
Speaker 3: people in New York. So so I decided that I
Speaker 3: needed to put someone in Texas. So how do you
Speaker 3: hire people? Right? So this is for the year young audience.
Speaker 3: So I went to a conference and he was kind
Speaker 3: of managing a room really nicely. So I gave him
Speaker 3: my business card. I said, hey, we'd love to spend
Speaker 3: some time with you. So I called him and we
Speaker 3: set up two days and meetings. Well, he didn't realize
Speaker 3: I was actually interviewing him for two days. Because everyone
Speaker 3: says they have great relationships, right, says, oh, yeah, I've
Speaker 3: got the best relationship, Da da da da, But how
Speaker 3: do you actually test that? So I spent two days
Speaker 3: with this person, and look, you know, high school football
Speaker 3: matters in Texas. I didn't play high school for I
Speaker 3: played high school baseball. This person plays high school football.
Speaker 3: And so you put someone in that territory that understands
Speaker 3: the local culture. And what we're trying to do is
Speaker 3: have a hub and spoke origination model where we where
Speaker 3: we where. We have a global firm, but we try
Speaker 3: to talk on a more regional, local level, and that's
Speaker 3: what I think makes our sourcing origination a little bit different.
Speaker 3: And again, people matter in this business, and again the
Speaker 3: goal is to get the first call. On the last call,
Speaker 3: that person may spend a lot of time, you know,
Speaker 3: going to events, spending time with the families, and ultimately,
Speaker 3: what you want folks to do is to show you
Speaker 3: deals because they.
Speaker 4: Trust you, and it's still a trust your business.
Speaker 1: One thing I wanted to ask you, just going back
Speaker 1: to something you said about the management of a particular
Speaker 1: company being good in credit. We've spoken about this on
Speaker 1: the podcast before, but we tend to think about it
Speaker 1: as avoiding losers, right, whereas equities are more about finding
Speaker 1: the winners. So I guess my question is, like, when
Speaker 1: you're looking at a particular deal, do you feel that
Speaker 1: you're making a bet on that business or is it
Speaker 1: just about looking at the numbers and making sure that
Speaker 1: you know you're not going to yes?
Speaker 3: So so interesting enough, what we're trying to do in
Speaker 3: a diligence process is figure out where there may be
Speaker 3: holes in that investment. We did one deal with accounter
Speaker 3: party that we required them to switch to CFO just
Speaker 3: because the questions it took too long. The answer like
Speaker 3: if I ask you how many days does it take
Speaker 3: you to close your books? What percentage of that is
Speaker 3: manual versus automated? What do your management letters say in
Speaker 3: the auditor? You know, those types of questions if you
Speaker 3: have to think about them, where you say, I'll come
Speaker 3: back to you as a CFO, that would be concerning.
Speaker 3: So you know, our job is to protect our investors. Yeah,
Speaker 3: that's our job, and what we're trying to do is
Speaker 3: make sure we understand the investment. And no one bats
Speaker 3: a thousand, right. If you look at the top ten
Speaker 3: hitters in Major League Baseball, they strike out as much
Speaker 3: as they hit. So you know, our job is to
Speaker 3: avoid losers, like you said, and we have to manage
Speaker 3: that through a process.
Speaker 2: Can you say actually a little more. I thought that
Speaker 2: was really interesting about some of the questions that you
Speaker 2: asked and the idea like why can't the CFO just
Speaker 2: quickly answer how long it takes to you.
Speaker 3: Would think that would be an easy Yeah.
Speaker 2: I'm always surprised. Also, just generally there's a bit of
Speaker 2: a tangent that even you know, in twenty twenty four
Speaker 2: with like all the computer and accounting systems, that like
Speaker 2: fraud still happens, that there are still way or you know,
Speaker 2: companies like we have a material weakness and we're gonna
Speaker 2: have to it. I'm always a little surprised that that curious,
Speaker 2: like how you like this world of things just being
Speaker 2: wrong or ambiguous at companies. And I'd love to hear
Speaker 2: you talk more about that.
Speaker 3: When you're when you buy a business as a platform
Speaker 3: and then you then buy successive businesses, more than likely
Speaker 3: they didn't have all the same financial stea and the
Speaker 3: integration process depending on how quickly you want to grow,
Speaker 3: it drives how long you actually integrate and so time
Speaker 3: what time. What happens sometimes is you don't fully integrate
Speaker 3: these businesses and systems. If you go back to failures
Speaker 3: of businesses in our market SAP, integration is a big
Speaker 3: sort of point of contention. And so businesses you focus
Speaker 3: on risk that you see time and time. So fraud fraud,
Speaker 3: you know, there was a water business that was you
Speaker 3: know that was fraud fraudulent that you know, some banks
Speaker 3: lost a lot of money. You know, if you go
Speaker 3: back to like Collins and Aikman, which was an LBO
Speaker 3: long time ago, there was some fraud and you could
Speaker 3: see what you're doing in a diligence process. You are
Speaker 3: looking for sort of what I call inherent weaknesses. And
Speaker 3: the information you get back and management letters which the
Speaker 3: auditors produced is a good document that sort of highlights
Speaker 3: the risk of accounting systems, financial systems, and that's a
Speaker 3: pretty systems tends to be a big driver of sort
Speaker 3: of integration issues.
Speaker 1: So this isn't necessarily fraud. But you just reminded me
Speaker 1: of ad backs and deals and you know, adjusted earnings
Speaker 1: and things that can be inflated to make a transaction
Speaker 1: look a lot better than it actually is. The last
Speaker 1: time I remember writing about this was I guess, gosh,
Speaker 1: five or six years ago, and the feeling back then
Speaker 1: was that there was more sketchy stuff happening on the
Speaker 1: valuation side of credit deals. Is that still the case
Speaker 1: or has that been your observation over the years.
Speaker 3: Well, so, the ad backs, it's an assumption and it's
Speaker 3: an ask to get credit for something that may happen
Speaker 3: in the future, right, or it's saying something's happened previously
Speaker 3: that hasn't fully been flown through the financial statements, and
Speaker 3: we want to get credit or we don't want it
Speaker 3: to affect our earnings. Every deal has adjustments, okay, so
Speaker 3: just start with the premise that adjustedy badah will exist.
Speaker 3: And part of our job is to trust our partners
Speaker 3: that they're adjusting the right things. What happens is if
Speaker 3: you watch the financial statements over time, sometimes the adjustments
Speaker 3: never go away, right, and then you start to say, okay,
Speaker 3: this is recurring, not RecA. Right. We did a deal
Speaker 3: for a sponsor and we were and it was near
Speaker 3: your end, and the sponsors going through each line item
Speaker 3: of what they wanted to add back, and you know what,
Speaker 3: I said, Wow, we could we could go through this
Speaker 3: for three days, right, explaining one to add I say,
Speaker 3: you know what, you can add back five million, call
Speaker 3: it whatever you want. Right. So, at the end of
Speaker 3: the day, what we're trying to do is understand the
Speaker 3: rationale for the ad back in a market like today,
Speaker 3: the problem is the rationale isn't fully explained all the time,
Speaker 3: and the amount of time you want to add it
Speaker 3: back it's kind of almost infinite. So you start to
Speaker 3: say okay, and the sponsor's perspective would be I'm paying
Speaker 3: for that right, because I'm paying off that Adjustinbadasa, you
Speaker 3: should leverage against that. The counter would be I'm capped
Speaker 3: upside right, I'm capped at par And if you go
Speaker 3: back to seven, A lot of the ad backs in
Speaker 3: some of the largelbos never truly came to fruition. So
Speaker 3: if you take cap structures that will leverage seven times.
Speaker 3: If you're adding back one hundred million a seven hundred
Speaker 3: million more debt, that if one hundred million ever comes
Speaker 3: through at some level, you could be over levered. So
Speaker 3: that's why you have to look at ad backs. And
Speaker 3: in the one notion, folks say documents are loose, well,
Speaker 3: I would argue it's about asset selection, right. A document
Speaker 3: is not going to help you if you just underwrote
Speaker 3: the wrong asset. At the same time, a document, if
Speaker 3: you're doing well and I'm not letting you lend more,
Speaker 3: what do you think I'm going to do. If you're
Speaker 3: doing well, I'm probably going to figure out a way
Speaker 3: to fix the document to allow you to lend more.
Speaker 3: So I think part of our you know, business, You're
Speaker 3: right on app bats, but you know cove like the
Speaker 3: market is mostly cove light. And even when you think
Speaker 3: about structures with a covenant, a lot of times if
Speaker 3: you actually hit that covenant, it's unclear that business right
Speaker 3: is a is a going concern at that point.
Speaker 2: If you need the document to save you, right, then
Speaker 2: you've got a problem. You've already got a problem.
Speaker 3: You're you're you're in.
Speaker 2: Well, since we're actually talking about documents, and we have
Speaker 2: done a recent episode about so called creditor on credit
Speaker 2: or violence and how that works, et cetera. One thing
Speaker 2: that came up with that, and I'm also curious about it.
Speaker 3: It's like.
Speaker 2: Legal expenses and you will detail, like you know, every
Speaker 2: comma and all that stuff in these documents. I'm just curious, like,
Speaker 2: over the course of your career, yes, how much have
Speaker 2: you seen and to the perhaps to the point that
Speaker 2: it extends exchanges, your expected return on investment, legal costs,
Speaker 2: and the sort of rising lawyer fees, et cetera. To
Speaker 2: check those documents regardless of how many covenants they have
Speaker 2: in them, and if you've seen an evolution over time
Speaker 2: since you've just been in the business of how much
Speaker 2: of a deal resources end up going to the legal sete.
Speaker 1: Yeah, how much do the lawyers bill you everywhere?
Speaker 2: What have you seen?
Speaker 3: So while I while I said I'm going to now
Speaker 3: counter myself, okay, while I said the document won't save
Speaker 3: you any deal, it's very important you have a document
Speaker 3: that sort of expressly documents what what it is, the
Speaker 3: intentions of the transaction. And it's very it's very good
Speaker 3: to have governance in a document. Right. So if you
Speaker 3: just think about public versus private markets, in a public
Speaker 3: market situation, you're given two to three days to review
Speaker 3: a three hundred pay lead to a document. Now, if
Speaker 3: the deal is going very very well, arguably there isn't
Speaker 3: a lot of opportunity for you to push back on
Speaker 3: the document, right, so you kind of take the document
Speaker 3: as is. In the public market and the issue with that,
Speaker 3: there's a lot of and you said credit and current balance,
Speaker 3: but there are a lot of opportunities for you to
Speaker 3: take assets out of a restricted group, create new ass
Speaker 3: new co and lending against that and take value away
Speaker 3: from existing lenders. I think one thing that Private Credit
Speaker 3: is very good at, and it's focused on that part
Speaker 3: of the document. We've been very firm on making sure
Speaker 3: that the ability to take assets out and create new
Speaker 3: assets or new financing or new capital. We've limited that
Speaker 3: quite a bit in private credit. But I will tell
Speaker 3: you lawyers what argue inflation is real for them too
Speaker 3: write so you know, and a lot of that deal
Speaker 3: cost gets kind of you know, born at the beginning.
Speaker 3: But yeah, lawyers. But you need lawyers, right, you need them.
Speaker 3: You know, there's two reasons why deal usually gets hung up.
Speaker 3: Is usually illegal or tax reason on the m and
Speaker 3: a side on the financing side. And so lawyers are
Speaker 3: an important part of our process, and we spend a
Speaker 3: lot of time making sure we have the right cancel
Speaker 3: who can understand and be able to move with us
Speaker 3: if this goes sideways. We want to make sure your
Speaker 3: bankruptcy and attorneys are really good. We want to make
Speaker 3: sure that you are put You know, if you're thinking
Speaker 3: about biotech or something where IP is important, how do
Speaker 3: we make sure that IP you can't overlicense it. There's
Speaker 3: a lot of nuances in the document that we find.
Speaker 3: Lawyers are very valuable in our process.
Speaker 1: So I just have one more question. But you know,
Speaker 1: you've had such a long history in this market and
Speaker 1: you've worked on so many interesting transactions. What deal are
Speaker 1: you most proud of?
Speaker 3: So when I was doing LBOs, it's almost like you're
Speaker 3: watching the company and the sponsor get married and you
Speaker 3: sit in the middle of that marriage and you're kind
Speaker 3: of playing consultant. And all of my deals. I still
Speaker 3: talk to the CEOs of those deals because you get
Speaker 3: to know these people, your own planes with them for
Speaker 3: ten days, you know, I know some of the quirks
Speaker 3: or some CEOs. You know, you just get to know people.
Speaker 3: You know, when I was doing the buyout, when Hughes
Speaker 3: spun out direct TV, ROXE and Austin was a rock star, right,
Speaker 3: a female CEO running direct TV a very profitable business,
Speaker 3: and really really get to know interesting people. So I
Speaker 3: would tell you they're all the deals I'm pretty proud.
Speaker 3: There's probably one that was a bit of a disaster
Speaker 3: that that you know. You know, we used to say,
Speaker 3: if you made one bond payment, tell us.
Speaker 1: About the deal that you're at least proud of.
Speaker 2: Yeah, so that was probably It's actually just a question,
Speaker 2: but nobody really wants to ask that.
Speaker 3: That deal was hard. That deal was hard. It made
Speaker 3: one coupon payment and filed it is no okay, I
Speaker 3: want to protect those involved. Okay, Yeah, but good question.
Speaker 3: And I think you know so, I've done a lot
Speaker 3: of deals, and most of them I'm pretty happy about.
Speaker 3: All right.
Speaker 2: I think you mentioned you take all right, you want
Speaker 2: to be the first call, and to some extent, being
Speaker 2: the first call is some combination of, you know, the
Speaker 2: ability to give decent pricing and also just being a
Speaker 2: likable guy that people want to talk to about their family.
Speaker 3: Right.
Speaker 2: But I think you said you take twenty calls and
Speaker 2: you maybe take two. Like what's so?
Speaker 3: So what you're saying what I'm saying is out of
Speaker 3: twenty calls, I get the last two or the most interesting.
Speaker 3: So how do you actually well, like, engage eighteen times
Speaker 3: and it goes nowhere?
Speaker 2: Yeah, but like is there a minimum, like you have
Speaker 2: to say yes to You can't say no forever otherwise
Speaker 2: at some point you'll no longer be the first call.
Speaker 2: Right If I like, yeah, I might like talking to
Speaker 2: Tracy a lot. But if she never, like in the end,
Speaker 2: wants to consummate the deal, eventually she's no longer going
Speaker 2: to be my first one.
Speaker 3: That's how you say no.
Speaker 2: Okay, so talk to us about saying no but still
Speaker 2: maintaining first.
Speaker 3: Sometimes we don't say no, We say here's how we
Speaker 3: can get to a yes. Okay, right, So sometimes you
Speaker 3: give a path to a yes.
Speaker 2: All right.
Speaker 3: Sometimes and I'm more like we're in today, you know,
Speaker 3: I'm not clear, it's not clear that someone takes my
Speaker 3: no offensively. There's a lot of capital, so it's easier
Speaker 3: to say no in this market than a market where
Speaker 3: there's not a lot of capital. And generally we may
Speaker 3: say no. It may be a concentration issue. Maybe we
Speaker 3: feel like we have too much of that type of
Speaker 3: risk on our books. It could be an attachment issue
Speaker 3: like leverage or attachment could be a problem. It could
Speaker 3: be that we had an issue with a similar business
Speaker 3: and maybe our LPs are fatigued in that in that
Speaker 3: type of space, and we don't want to, you know,
Speaker 3: sort of bring it up again. There there hosts of
Speaker 3: reasons why we may say no. We may not get
Speaker 3: there fast enough. Right, That happens in this market. But generally,
Speaker 3: I think we're a pretty quick study. And what we
Speaker 3: are very good at is we do exactly what we
Speaker 3: say we're going to do. So if we put something
Speaker 3: on paper, we're going to stand by that. And I
Speaker 3: think that that goes a long ways. And I think
Speaker 3: if people say, well, why do they call what do
Speaker 3: they call? Oak Tree? I think we price risk right.
Speaker 3: So in some markets that's a real big compe at
Speaker 3: an advantage. And I think we don't. We don't be
Speaker 3: as people. We say what we can do, We do
Speaker 3: what we say, and that's it. And so sometimes our
Speaker 3: answer is yeah, we like it, but we don't love it.
Speaker 3: But if the sponsor or somebody's able to say, well,
Speaker 3: OA Tree's involved, right, that gives credibility to the deal
Speaker 3: and we can help them get it get it done
Speaker 3: by saying we're involved, but we may not be the anchor,
Speaker 3: we may not lead it, you know. And and when
Speaker 3: you're when you're managing the size capital, we need to
Speaker 3: write three to five hundred million dollar checks on most situations.
Speaker 3: So we're always looking at the biggest deals with the
Speaker 3: largest sponsors. Generally those are safer plays than the lower
Speaker 3: lower middle markets. So we think there's less competition when
Speaker 3: there's only seven seven of us that can write large
Speaker 3: checks versus in smaller deals, hundreds of folks can write
Speaker 3: small sex.
Speaker 1: I have one more question. Actually I just remembered, but
Speaker 1: you mentioned earlier that you want to be friendly with everyone,
Speaker 1: including the banks that you know you're ostensibly incompetition with.
Speaker 1: One thing that's been happening recently, it seems, is that
Speaker 1: a lot of deals that were originally done in the
Speaker 1: private credit market are getting refine out in the public market.
Speaker 3: Great.
Speaker 1: Yeah, so first of all, why is that happening? And
Speaker 1: then secondly, like is that a concern for someone like
Speaker 1: oak Tree?
Speaker 3: That is great? Like if we can be on two
Speaker 3: or three year interim capital in most situations, that's good.
Speaker 3: The reason why they're going back to the public market
Speaker 3: is there's a spread between public and private, so there's
Speaker 3: a cost reduction element, and then for the sponsor there's
Speaker 3: more flexibility. Private credit is not meant to be the
Speaker 3: most flexible. It's the most efficient, but it's not necessarily
Speaker 3: the most flexible. And if I can create an institutionalize
Speaker 3: and have a broader investor base, right, sometimes I can
Speaker 3: get more things done if a lot more people own
Speaker 3: it at very small sizes versus five or six owning
Speaker 3: and at chunky sizes. So it's actually you want a
Speaker 3: healthy market public and private, right. And when most folks say, oh,
Speaker 3: you're losing deals to publicer I'm like, we probably should
Speaker 3: have gone to a public market anyway. Right, it's rated,
Speaker 3: it's it's an exten existing issuer. It's been into public markets.
Speaker 3: It's just stay in public markets. You know. If you
Speaker 3: think about the private credit market, we're one point seven
Speaker 3: one point eight trillion going to probably three trillion. There's
Speaker 3: ABF asset based finance, which is a new phenomenon, which
Speaker 3: isn't really new, right. G Capital was a large ABF under.
Speaker 3: But there's three trillion dollars of dry powder at private
Speaker 3: equity firms. There's enough for us all to do and
Speaker 3: be happy.
Speaker 1: All right, Millwood Hobbes, thank you so much for coming
Speaker 1: on all thoughts. Fantastic good Thank you so much.
Speaker 3: I'm so glad we made this.
Speaker 1: Happen, Joe. That was so much fun.
Speaker 2: That was an unusually fun good episodes, even though all
Speaker 2: of our guests are the perfect guest. You know, I'm
Speaker 2: I really like and I think we should do more
Speaker 2: about talking with the people whose job it is to
Speaker 2: be nice to people and hanging.
Speaker 1: Out with other people.
Speaker 2: Yeah, because that's like an element there's a lot. Yeah,
Speaker 2: we could, we could, but that's like an element in
Speaker 2: finance that's still you know, Like I said, we talked
Speaker 2: to a lot of screen people, and I'm as screen people,
Speaker 2: I'm glad that there are still parts of the industry
Speaker 2: where there's a big role for likable people who can
Speaker 2: maintain relationships.
Speaker 1: And stuff like that, play golf.
Speaker 2: But that's part of being human, right.
Speaker 1: Uh don't you have a whole song with the title
Speaker 1: like all my friends are online or something, all my friends.
Speaker 2: Are on my phone? Yeah, like I want to I
Speaker 2: want to know more people who have friends, who.
Speaker 1: Have friends, I RL. Yeah, all right, there's a lot
Speaker 1: to pull out that. I did think like Millwood's early
Speaker 1: point about banks being in the business of like pricing
Speaker 1: end moving risk very quickly was a good one because
Speaker 1: I think like that's kind of a fundamental difference with
Speaker 1: private credit.
Speaker 2: That was really interesting. I also and it was really
Speaker 2: interesting hearing him talk about the tensions that emerge because
Speaker 2: you want to be the first call and you want
Speaker 2: to have a reputation for at least saying yes ten
Speaker 2: percent of the time or something like that. Yeah, with
Speaker 2: the demands of the actual PM who doesn't care about
Speaker 2: all the times you have to say no. You know,
Speaker 2: I think this is probably a sort of asymmetry that
Speaker 2: comes up in a lot of sales based businesses, right
Speaker 2: where you have some salesperson and their job is to
Speaker 2: hit a commission or something like that, and then you
Speaker 2: have like a product manager who's like, no, you can't
Speaker 2: price it at this or we can't move the product
Speaker 2: this fast. Yeah, this is just sort of like an
Speaker 2: interesting dynamic that emerges in all businesses. And I really
Speaker 2: enjoyed hearing him describe how he negotiates that implicitly.
Speaker 1: The negotiations, because a lot of these deals involve like
Speaker 1: so many different entities who are all coming at it
Speaker 1: from a different angle with a different incentive.
Speaker 2: Yeah, so much, so much there, We'll have to talk
Speaker 2: to Melody.
Speaker 1: Yeah we should, all right, shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 1: This has been another episode of the Odd Loots podcast.
Speaker 1: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our producers Carman Rodriguez at Carman Ermann, dash Ol
Speaker 2: Bennett at Dashbot and Kilbrooks at Kilbrooks. Thank you to
Speaker 2: our producer Moses On On more Oddlots content, go to
Speaker 2: Bloomberg dot com slash odd Lots. We have transcripts, a blog,
Speaker 2: and a daily newsletter. You can chat about all of
Speaker 2: these topics twenty four to seven in our discord Discord
Speaker 2: dot gg slash.
Speaker 1: Odlats and if you enjoy odd Lots, if you like
Speaker 1: it when we talk about how to source deals in
Speaker 1: the private credit market, then please leave us a positive
Speaker 1: review on your favorite podcast platform. And remember, if you
Speaker 1: are a Bloomberg subscriber, in addition to getting our daily newsletter,
Speaker 1: you can also listen to all of our episodes absolutely
Speaker 1: ad free. All you need to do is find me
Speaker 1: Bloomberg channel on Apple Podcasts and follow the instructions there.
Speaker 1: Thanks for listening in