WEBVTT - Distressed Creditors Play Nice; Telecoms in Focus

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<v Speaker 1>Hello, and welcome to The Credit Edge, a weekly markets podcast.

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<v Speaker 1>My name is James Crombie. I'm a senior editor at Bloomberg.

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<v Speaker 1>This week, we're very pleased to have with us Erin Hudson,

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<v Speaker 1>who covers distress debt for Bloomberg News in New York.

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<v Speaker 1>How are you, Erin?

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<v Speaker 2>I'm great, Thanks for having you, James.

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<v Speaker 1>We're also delighted to see Aidan Cheslyn, who looks at

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<v Speaker 1>telecoms and media for Bloomberg Intelligence in London. We'll be

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<v Speaker 1>coming right back to Aiden a little bit later in

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<v Speaker 1>the show, so do stay with us. But first, Erin

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<v Speaker 1>Hudson with Bloomberg News, you've been looking at carvaner which

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<v Speaker 1>rose to fame by selling cars from vending machines during

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<v Speaker 1>the pandemic, then almost went bust. Now they seem to

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<v Speaker 1>be on.

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<v Speaker 2>The up again.

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<v Speaker 1>The stock is up more than eight hundred percent so

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<v Speaker 1>far this year, and they seem to be sorting out

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<v Speaker 1>some of their debt issues. But what's the latest on

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<v Speaker 1>car Erin?

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<v Speaker 2>Yes, the big news on Carvana is that they announced

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<v Speaker 2>a debt restructuring alongside their earnings last week, and they

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<v Speaker 2>so they reduced their debt by about one point two billion,

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<v Speaker 2>and they're doing a new equity raise. Garcia, the family

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<v Speaker 2>Ernie Garcia, is participating in that, and it's it's an

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<v Speaker 2>exciting development, I guess in the story of Carvana, because

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<v Speaker 2>creditors and the company were going back and forth or

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<v Speaker 2>there were different maneuvers that the company was taking and

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<v Speaker 2>that creditors were taking in recent months to try and

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<v Speaker 2>address the company's massive debt load. So this was you know,

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<v Speaker 2>a big, a big announcement because they reached an agreement

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<v Speaker 2>and they did it with creditors signing on too. They

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<v Speaker 2>had all signed onto a cooperation agreement and that agreement

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<v Speaker 2>held throughout this processes. So in the distress that world

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<v Speaker 2>there was, you know, there's kind of a question of

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<v Speaker 2>how powerful cooperation agreements can be and what is their

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<v Speaker 2>use and this was sort of a case where it

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<v Speaker 2>proved they can be very useful.

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<v Speaker 1>Okay, so let me just stop you there. They wrote

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<v Speaker 1>down about billion dollars one point two billion dollars in debt,

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<v Speaker 1>which is great. They presumably they cut their interest expands,

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<v Speaker 1>they turned out maturities, did they? I mean, what are

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<v Speaker 1>the specifics of this restructuring.

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<v Speaker 2>Yeah, those are the other points extended maturities, defered some

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<v Speaker 2>interest payments, and tightened tightened some covenants. And so the

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<v Speaker 2>idea is that this restructuring has sort of given the

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<v Speaker 2>company more leeway to improve its business, improve performance and

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<v Speaker 2>kind of turn itself around. There is still capacity to

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<v Speaker 2>issue some new debt, I believe as well. So they

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<v Speaker 2>the company still has a lot of options and you know,

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<v Speaker 2>creditors are kind of on board for that ride.

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<v Speaker 1>And when we look at the creditors, who who is it?

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<v Speaker 1>We're talking about who the who are the key people

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<v Speaker 1>involved here?

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<v Speaker 2>Well, some of the key people that we know are

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<v Speaker 2>involved are Apollo Ares and Pimco. Those are some of them,

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<v Speaker 2>but of course they're there. There are a lot more.

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<v Speaker 2>There's it's a huge capital structure. Those are some of

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<v Speaker 2>the key players. And I think just the fact that

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<v Speaker 2>those are some of the key players that we're sort

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<v Speaker 2>of known in the market. You know, cooperation is not

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<v Speaker 2>always historically thought of when some market systems think of

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<v Speaker 2>those those those those firms. So again, I think there

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<v Speaker 2>was just a question of how effective will this cooperation

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<v Speaker 2>agreement really be? You know, is there really a track

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<v Speaker 2>record for all of these different all these different and funds,

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<v Speaker 2>you know, cooperating. So I think this was sort of

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<v Speaker 2>an answer, and you know, people have described it to

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<v Speaker 2>me as a significant development in the distress debt marketplace.

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<v Speaker 1>So let me just stop me there, because you talk

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<v Speaker 1>a lot about cooperation lenders. In this particular case, Cardana,

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<v Speaker 1>they did work together in lots of ways to try

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<v Speaker 1>and find the best outcome. But you know, in this

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<v Speaker 1>new era of restructuring where we're seeing a lot more

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<v Speaker 1>of what's been called creditor on creditor violence, how and

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<v Speaker 1>why did the bond holders coordinate on this particular situation.

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<v Speaker 2>Well, I think that is sort of a question that

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<v Speaker 2>we want to answer, more like when people choose to

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<v Speaker 2>cooperate versus not. In this case, it seems like, I

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<v Speaker 2>guess all the interests were aligned. It's sort of what

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<v Speaker 2>we understand. There was no one who had sort of

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<v Speaker 2>hugely different different a different interest, which can sometimes happen

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<v Speaker 2>in companies where there's secured debt unsecured debt. Maybe there's

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<v Speaker 2>some other instruments as well, there's different holdings where people

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<v Speaker 2>might have sort of slightly different goals and motivations. In

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<v Speaker 2>this case, it seemed, as far as we know, like

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<v Speaker 2>everyone was aligned. So that might help explain part of it.

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<v Speaker 2>But you know, I don't know if there's a formula

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<v Speaker 2>at this point, but for sure, this is a big

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<v Speaker 2>moment that people will look at and you know, sort

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<v Speaker 2>of a show that creditors can unify and kind of

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<v Speaker 2>all get on the same page, which I think some

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<v Speaker 2>people in the market are viewing as a really positive,

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<v Speaker 2>sort of optimistic sign that maybe we're turning a corner

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<v Speaker 2>on the whole creditor on creditor violence theme and narrative

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<v Speaker 2>that's really dominated the distress debt marketplace for the last

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<v Speaker 2>couple of years.

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<v Speaker 1>But so this capital structure then is, in relative turns

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<v Speaker 1>less complex. I mean, there wasn't all this upteering and

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<v Speaker 1>drop down and all this stuff that's been going on

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<v Speaker 1>in other situations.

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<v Speaker 2>Is that is that.

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<v Speaker 1>Why the creditors were more aligned and sort of more

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<v Speaker 1>on the same side of the table.

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<v Speaker 2>Well, I should say that part of the reason the

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<v Speaker 2>cooperative agreement was formed was because there was a fear

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<v Speaker 2>that the company might try to kind of strike a

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<v Speaker 2>deal with a major creditor and that that deal could

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<v Speaker 2>leave everyone else behind. So I think there was a

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<v Speaker 2>lot of fear, and you know, I should sort of

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<v Speaker 2>correct the record there, Like some of my colleagues have

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<v Speaker 2>done a lot of reporting on that last year, and

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<v Speaker 2>that was sort of the driver to band together because

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<v Speaker 2>if somebody cut a side deal with the company, then

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<v Speaker 2>you know, there want to be a deal for everybody.

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<v Speaker 2>So I think they decided this would be a good

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<v Speaker 2>moment to stand together.

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<v Speaker 1>Interesting, okay, So but the big question I guess for

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<v Speaker 1>the company do they have a future? I mean, it

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<v Speaker 1>seemed like definitely a good idea during the height of COVID,

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<v Speaker 1>when no one really wanted to interact with other human

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<v Speaker 1>beings using vending machines, using the Internet to buy and

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<v Speaker 1>sell cars. Plus at that time, you know, used car

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<v Speaker 1>prices were off the charts, so everyone wanted one. It

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<v Speaker 1>was a massive demand story. What's the state of play now?

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<v Speaker 1>Is carvan a business that we think will survive?

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<v Speaker 2>Well? Time will tell from sources that I've talked to,

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<v Speaker 2>you know, I think that I think that, you know,

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<v Speaker 2>it's a it's a compelling idea and everyone wants to

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<v Speaker 2>see if they can turn their performance around. So that's

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<v Speaker 2>what you know, everyone will be watching. And I think

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<v Speaker 2>that was you know why this debt restructuring was possible.

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<v Speaker 2>Is that it's giving them more time, and yeah, we'll

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<v Speaker 2>see what happens.

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<v Speaker 1>Interest costs for that company they shot up there at

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<v Speaker 1>one hundred eighty million dollars or something, you know, is

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<v Speaker 1>that now under control just the interest expense.

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<v Speaker 2>Some of the interest payments were deferred. So I think

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<v Speaker 2>it does give them. I don't think that's the same

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<v Speaker 2>pain point as it was previously. There has been some

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<v Speaker 2>relief there, and.

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<v Speaker 1>You mentioned that they do have potential access to raise

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<v Speaker 1>more debt. I mean, have we resolved all the liquidity

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<v Speaker 1>concerns around this company?

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<v Speaker 2>You know, I don't know if anyone thinks that all

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<v Speaker 2>of the problems are fixed permanently. From analysts I've talked to,

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<v Speaker 2>they're sort of viewing this as it gives the company

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<v Speaker 2>a runway of a couple of years. It is possible that,

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<v Speaker 2>you know, they kind of end up in a similar

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<v Speaker 2>position down the road where these like big fundamental questions

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<v Speaker 2>will will come back. So maybe in hindsight we will

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<v Speaker 2>look back in a few years and think of this

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<v Speaker 2>as more of a band dad solution. But from source

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<v Speaker 2>that I talk to now, I think the view is

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<v Speaker 2>that this is, you know, it's sort of a second

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<v Speaker 2>chance in a way, so I'm not sure we'll see.

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<v Speaker 1>They certainly have the brand name, but you know, selling

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<v Speaker 1>cars online doesn't seem like it's you know, huge barriers

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<v Speaker 1>to entry for competition, So I mean, I guess they're

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<v Speaker 1>gonna they're going to come up against it again. But

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<v Speaker 1>in terms of the broader takeaways thereon for credit markets,

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<v Speaker 1>what are the lessons we're learning from this?

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<v Speaker 2>Obviously, just the lessons learned is that there there is

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<v Speaker 2>quite an appetite for cooperation if the conditions are right,

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<v Speaker 2>and it does seem I'm surprised by the number of

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<v Speaker 2>people I talk to who sort of do really feel

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<v Speaker 2>like this is a feel good type of moment. You

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<v Speaker 2>know that that was surprising. So yeah, this, So we'll

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<v Speaker 2>see what happens if this becomes something that happens a

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<v Speaker 2>lot more more in various transactions, restruct strings or if

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<v Speaker 2>you know, this this is really kind of an exceptional moment.

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<v Speaker 2>I'm not sure we can we can say for sure

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<v Speaker 2>right now.

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<v Speaker 1>It's very rare you'd see, I mean, in distressed or

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<v Speaker 1>anywhere in markets, a win win for everyone, and you know,

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<v Speaker 1>there's no losers. I'm surprised that no one's complaining about

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<v Speaker 1>this one.

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<v Speaker 2>But yeah, I will say that is from from people

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<v Speaker 2>I've talked to that is really the takeaway. This is

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<v Speaker 2>a win win And.

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<v Speaker 1>If you flip it to the issue of standpoint, I mean,

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<v Speaker 1>this is simply a story of a company expands way

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<v Speaker 1>too fast during the good times.

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<v Speaker 2>Of course, they had a huge surgeon business during the pandemic.

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<v Speaker 2>You know, everything was really aligned for them, tailwinds behind them.

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<v Speaker 2>So there's sort of this broader narrative about companies that

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<v Speaker 2>did great during the pandemic and you know, were they

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<v Speaker 2>able are they able to transition to like a post

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<v Speaker 2>post pandemic type of world where some of those hill

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<v Speaker 2>winds are not so strong, or now they're facing new

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<v Speaker 2>heads inflation, rising rates. So you know, I don't know

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<v Speaker 2>if I can comment directly on Carvana, but for sure

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<v Speaker 2>that's a that's a narrative that's out there. As you know,

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<v Speaker 2>investors are looking at companies and their performance over time.

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<v Speaker 1>So before we talk to Aiden Chanslin Bloomberg Intelligence, what's

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<v Speaker 1>the next big story to watch out for?

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<v Speaker 2>Here eron.

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<v Speaker 1>I mean, credit markets seem very bullish right now, even

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<v Speaker 1>though we're seeing more distress, more bankruptcy. Do we expect

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<v Speaker 1>it all to get better from here, or you're still

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<v Speaker 1>going to be very very busy reporting on distress debt.

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<v Speaker 2>People tell me I'll be very very busy. So I

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<v Speaker 2>expect there to be a lot more restructuring. Is a

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<v Speaker 2>lot more, a lot more distress out there. This is

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<v Speaker 2>why I'm hoping. But then again, there's there is a

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<v Speaker 2>joke in this market that you know, every time people

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<v Speaker 2>say that nothing happens. So so we'll see. But I

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<v Speaker 2>do think there's a lot of there's going to be

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<v Speaker 2>some interesting interesting cases on the horizon.

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<v Speaker 1>Great stuff. Erin Hudson from Bloomberg News, thanks so much

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<v Speaker 1>for joining us.

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<v Speaker 2>Thank you so much. James read all of.

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<v Speaker 1>Erin's scoops on the Bloomberg terminal and of course at

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<v Speaker 1>Bloomberg dot com. So, as I mentioned earlier, we're delighted

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<v Speaker 1>to welcome back on the credit edge. Aidan Cheslin, who

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<v Speaker 1>covers telecoms and media for Bloomberg Intelligence based in London.

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<v Speaker 1>How's it going, Aidan?

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<v Speaker 2>Good?

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<v Speaker 3>James, how are you very well? Thanks?

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<v Speaker 1>And I know you cover a lot of different things,

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<v Speaker 1>but I did want to focus on telecoms again. Last

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<v Speaker 1>time we spoke, you mentioned the defensive nature of these firms.

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<v Speaker 1>You know, the economies may be slowing, consumers maybe under

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<v Speaker 1>attack from inflation and higher interest rates, but we always

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<v Speaker 1>need our phones. Is that still the case or are

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<v Speaker 1>there any cracks appearing in that narrative.

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<v Speaker 4>I think it has generally been the case. I think

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<v Speaker 4>where we're seeing some distress in telecoms is really more

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<v Speaker 4>in the high yield space, where you know, the new

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<v Speaker 4>issuance markets there have been closed for some time, has

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<v Speaker 4>been only very sporadic companies coming and having to pay

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<v Speaker 4>to do so. And we're starting to get closer to

0:13:08.320 --> 0:13:12.480
<v Speaker 4>refinancing walls twenty twenty five onwards with some of the

0:13:12.559 --> 0:13:16.239
<v Speaker 4>names like Telecommetalian LTEs the most in focus.

0:13:17.360 --> 0:13:19.560
<v Speaker 1>So on Telecommetalia, I mean that's a good name. They

0:13:19.559 --> 0:13:21.960
<v Speaker 1>are burning through a lot of cash, the ratings are

0:13:22.000 --> 0:13:25.160
<v Speaker 1>under pressure. What's the plan to turn that company around?

0:13:26.120 --> 0:13:29.800
<v Speaker 4>Well, they're trying to sell the network. So the fixed

0:13:29.840 --> 0:13:35.640
<v Speaker 4>line network in particular is of interest to KKR. Has

0:13:35.640 --> 0:13:41.200
<v Speaker 4>been selected as the exclusive bidder at this stage, and

0:13:41.240 --> 0:13:43.600
<v Speaker 4>by the end of September we're supposed to hear more

0:13:44.200 --> 0:13:48.000
<v Speaker 4>about whether that's going ahead and what that might end.

0:13:47.960 --> 0:13:48.560
<v Speaker 3>Up looking like.

0:13:49.360 --> 0:13:51.880
<v Speaker 4>There's still a degree of uncertainty here, which is that

0:13:53.000 --> 0:13:56.600
<v Speaker 4>the less preferred bidder that's been pushed to the side

0:13:56.600 --> 0:14:02.439
<v Speaker 4>for now included CDP, one of the government's own investment vehicles.

0:14:02.480 --> 0:14:06.680
<v Speaker 4>So there's a little bit of uncertainty is whether the

0:14:06.679 --> 0:14:11.880
<v Speaker 4>government would allow Italy to lose control of this asset,

0:14:13.520 --> 0:14:16.640
<v Speaker 4>and so there is some political risk to this deal

0:14:16.679 --> 0:14:18.840
<v Speaker 4>completing still, So.

0:14:18.800 --> 0:14:20.840
<v Speaker 1>Just so we know the importance of this one aiden

0:14:20.880 --> 0:14:23.080
<v Speaker 1>what's the scale? How important is this company in the

0:14:23.080 --> 0:14:26.240
<v Speaker 1>European telecoms contexts?

0:14:26.320 --> 0:14:29.880
<v Speaker 4>The Italian incumbent, so the number one player in fixed

0:14:29.880 --> 0:14:34.440
<v Speaker 4>line in particular in Italy. They have their problem has

0:14:34.480 --> 0:14:39.479
<v Speaker 4>been for a long period of time now an elevated

0:14:39.480 --> 0:14:43.760
<v Speaker 4>debt position, so net debt at the end of twenty

0:14:43.840 --> 0:14:47.360
<v Speaker 4>twenty three was in the order of twenty five to

0:14:47.400 --> 0:14:52.920
<v Speaker 4>thirty billion euros. This grid sale couldnet them around somewhere

0:14:52.960 --> 0:14:56.000
<v Speaker 4>around two thirds of that figure, so it would make

0:14:56.040 --> 0:14:59.680
<v Speaker 4>a serious, serious inroad into the debt. The only problem

0:14:59.760 --> 0:15:03.200
<v Speaker 4>is operating off the network obviously leaves you with just

0:15:03.280 --> 0:15:07.479
<v Speaker 4>the service company, which would be a lot more susceptible

0:15:07.520 --> 0:15:10.760
<v Speaker 4>to competition and to volatile learnings.

0:15:11.720 --> 0:15:14.040
<v Speaker 1>Can they still access the bond market and how expensive

0:15:14.040 --> 0:15:14.480
<v Speaker 1>would it be.

0:15:15.200 --> 0:15:17.360
<v Speaker 3>They've done so twice this year.

0:15:18.200 --> 0:15:20.720
<v Speaker 4>The problem was that the costs keeps you racking up

0:15:20.760 --> 0:15:24.320
<v Speaker 4>every time they do it. So they access the market

0:15:25.760 --> 0:15:32.920
<v Speaker 4>in January with a six handle on the coupon, and

0:15:32.960 --> 0:15:40.600
<v Speaker 4>then they came again much more recently with another bond,

0:15:41.120 --> 0:15:43.520
<v Speaker 4>and the coupon on that one was almost eight percent.

0:15:44.920 --> 0:15:47.360
<v Speaker 4>So the problem is the longer they go on burning

0:15:47.400 --> 0:15:51.760
<v Speaker 4>cash increasing leverage, the longer this deal takes to materialize,

0:15:52.440 --> 0:15:53.920
<v Speaker 4>the interest costs are just going.

0:15:53.800 --> 0:15:54.560
<v Speaker 2>Up and up and up.

0:15:55.440 --> 0:15:57.640
<v Speaker 1>They are also doing some liability management that they're buying

0:15:57.680 --> 0:16:00.640
<v Speaker 1>back some bonds with tender offers and turning up maturities.

0:16:00.640 --> 0:16:02.400
<v Speaker 1>How's that going for them?

0:16:02.800 --> 0:16:05.720
<v Speaker 4>Yeah, that was the focus of these recent new issues,

0:16:05.800 --> 0:16:10.000
<v Speaker 4>so I think that's just them trying to extend these

0:16:10.000 --> 0:16:11.320
<v Speaker 4>maturities as best they can.

0:16:11.360 --> 0:16:12.960
<v Speaker 3>They've still got a bit of a wall.

0:16:14.320 --> 0:16:18.120
<v Speaker 4>Twenty twenty five, they haven't really cured that problem, so

0:16:18.160 --> 0:16:19.160
<v Speaker 4>there's still more to do.

0:16:20.720 --> 0:16:22.920
<v Speaker 1>So what's the next big thing to watch out for here, Aidan?

0:16:22.960 --> 0:16:24.720
<v Speaker 1>Is there a date by which that sale needs to

0:16:24.760 --> 0:16:27.280
<v Speaker 1>go through? Is there some kind of calendar of events

0:16:27.280 --> 0:16:28.160
<v Speaker 1>that we're looking out for.

0:16:29.600 --> 0:16:33.000
<v Speaker 4>They've given exclusivity to KKR until the end of September,

0:16:33.120 --> 0:16:36.400
<v Speaker 4>so that's kind of the deadline, although these deadlines have

0:16:36.400 --> 0:16:38.800
<v Speaker 4>been rolled over before, but that's the deadline we have

0:16:38.840 --> 0:16:42.520
<v Speaker 4>at the moment for a deal actually coming about. I

0:16:42.560 --> 0:16:44.720
<v Speaker 4>think what bondholders are really looking for is a bit

0:16:44.720 --> 0:16:46.760
<v Speaker 4>more clarity on the future capital structure.

0:16:47.520 --> 0:16:48.160
<v Speaker 3>At the moment.

0:16:49.040 --> 0:16:51.600
<v Speaker 4>They were unable to answer on the last analyst call

0:16:52.320 --> 0:16:54.960
<v Speaker 4>whether debt would be separated with the network into the

0:16:55.000 --> 0:16:58.040
<v Speaker 4>new KKI unit, or whether they'd have to retain the

0:16:58.120 --> 0:17:00.880
<v Speaker 4>debt and use the cash proceeds to to start tendering

0:17:00.920 --> 0:17:03.280
<v Speaker 4>for some of that debt. And if they did that, well,

0:17:03.320 --> 0:17:05.600
<v Speaker 4>we still don't know exactly which ones would be tended

0:17:05.600 --> 0:17:08.199
<v Speaker 4>and which ones wouldn't, So there's a huge amount of

0:17:08.280 --> 0:17:11.240
<v Speaker 4>uncertainty for bondholders even if the deal does go through.

0:17:12.840 --> 0:17:15.560
<v Speaker 4>In our view, it's very unlikely that whether you end

0:17:15.600 --> 0:17:18.280
<v Speaker 4>up in a network business with KKR, which would probably

0:17:18.359 --> 0:17:20.919
<v Speaker 4>have a high degree of leverage, or whether you end

0:17:21.000 --> 0:17:23.720
<v Speaker 4>up in a service company with a comparatively low amount

0:17:23.760 --> 0:17:27.399
<v Speaker 4>of leverage. We don't see either of those eventualities leading

0:17:27.440 --> 0:17:31.440
<v Speaker 4>to an investment grade rating. You may have some improvement

0:17:31.480 --> 0:17:35.280
<v Speaker 4>over the current position, but not much, and the real

0:17:35.359 --> 0:17:38.480
<v Speaker 4>tail risk here is that if a deal doesn't occur,

0:17:39.960 --> 0:17:42.080
<v Speaker 4>then the company is in big trouble. It has a

0:17:42.119 --> 0:17:45.840
<v Speaker 4>huge amount of debt, rapidly rising interest costs, a big

0:17:45.880 --> 0:17:50.159
<v Speaker 4>funding need in a very competitive market. And our thesis

0:17:50.200 --> 0:17:52.280
<v Speaker 4>has been that if you don't get this this deal,

0:17:53.000 --> 0:17:55.719
<v Speaker 4>you could end up with credit spreads trading more in

0:17:55.720 --> 0:17:59.120
<v Speaker 4>line with something like an LTS whether the marketer has

0:17:59.119 --> 0:18:02.439
<v Speaker 4>started to price in and more just stress valuation in

0:18:02.520 --> 0:18:05.440
<v Speaker 4>anticipation of those maturities in twenty twenty five.

0:18:06.440 --> 0:18:09.159
<v Speaker 1>Okay, so we'll be watching your research very closely on

0:18:09.200 --> 0:18:10.919
<v Speaker 1>that one. Before we go that, we did want to

0:18:10.920 --> 0:18:13.920
<v Speaker 1>also ask you about sell Next, which is a Spanish

0:18:14.000 --> 0:18:16.640
<v Speaker 1>tower operator. Why is that one on your radarid?

0:18:17.240 --> 0:18:19.360
<v Speaker 3>Yeah, a bit more of a positive story on this one.

0:18:19.440 --> 0:18:23.679
<v Speaker 4>Last year, they massively changed their corporate strategy, which for

0:18:23.720 --> 0:18:26.720
<v Speaker 4>the last few years has been an absolute acquisition on

0:18:28.200 --> 0:18:31.159
<v Speaker 4>but they've rained that in. They want to get the

0:18:31.280 --> 0:18:33.480
<v Speaker 4>S and P rating up from plus to trip will

0:18:33.480 --> 0:18:38.480
<v Speaker 4>be minus. They actually reported results this week which seemed

0:18:38.480 --> 0:18:41.560
<v Speaker 4>to fit or still seem to be trending in the

0:18:41.600 --> 0:18:44.840
<v Speaker 4>right direction for an upgrade. We think sometime next year.

0:18:45.280 --> 0:18:48.399
<v Speaker 4>The one thing that could bring that forward would be

0:18:48.560 --> 0:18:51.000
<v Speaker 4>if they were to sell or partner on some of

0:18:51.000 --> 0:18:53.600
<v Speaker 4>their assets and bring an external investment and get leverage

0:18:53.640 --> 0:18:56.399
<v Speaker 4>down a little bit quicker. But they're on track to

0:18:56.800 --> 0:18:59.440
<v Speaker 4>a free cash flow break even in twenty twenty four.

0:19:00.480 --> 0:19:03.320
<v Speaker 4>The capex starts to tail away in twenty twenty five,

0:19:03.400 --> 0:19:06.080
<v Speaker 4>and I think that's probably the trigger for SMP to

0:19:06.160 --> 0:19:09.919
<v Speaker 4>raise them to triple B minus the credit spreads for them.

0:19:09.960 --> 0:19:12.679
<v Speaker 4>They still trade wide of their investment grade piers, so

0:19:12.720 --> 0:19:18.280
<v Speaker 4>the closest comparison is American Tower, which trades tighter than

0:19:18.320 --> 0:19:21.840
<v Speaker 4>them in Euros, when normally we would expect European companies

0:19:21.880 --> 0:19:24.400
<v Speaker 4>tend to trade tighter than the Yankee issuer is in Euros.

0:19:24.400 --> 0:19:28.200
<v Speaker 4>So it seems like there's a reasonable amount of room

0:19:28.320 --> 0:19:31.359
<v Speaker 4>for Cell and X spreads potentially upperformers and when that

0:19:31.440 --> 0:19:32.480
<v Speaker 4>upgrade comes through.

0:19:33.240 --> 0:19:34.879
<v Speaker 1>How much are we talking about here?

0:19:36.520 --> 0:19:43.840
<v Speaker 4>So celln X has a pretty significant eurocurve. Their leverage

0:19:44.119 --> 0:19:50.080
<v Speaker 4>has been coming down from around seven times fully adjusted

0:19:50.480 --> 0:19:55.280
<v Speaker 4>the way the rating agencies do it, and I think

0:19:55.280 --> 0:19:57.800
<v Speaker 4>that's going to come down to around five to five

0:19:57.840 --> 0:20:01.520
<v Speaker 4>and a half times in the medium to so it's

0:20:01.520 --> 0:20:06.560
<v Speaker 4>a fairly fairly significant reduction in leverage, and the rating

0:20:06.560 --> 0:20:10.880
<v Speaker 4>agencies as well. It's worth remembering have become a lot

0:20:11.000 --> 0:20:16.200
<v Speaker 4>more tolerant of leverage at tower companies. Recently, there was

0:20:16.240 --> 0:20:18.960
<v Speaker 4>an S ANDP report that basically said all of the

0:20:19.000 --> 0:20:21.399
<v Speaker 4>tower companies have been given an extra half a turn

0:20:21.440 --> 0:20:26.360
<v Speaker 4>of leverage tolerance within their credit ratings. I think as

0:20:26.359 --> 0:20:29.480
<v Speaker 4>the business model has kind of shown itself to be

0:20:29.560 --> 0:20:32.800
<v Speaker 4>quite resilient through the various recent shocks.

0:20:34.280 --> 0:20:36.560
<v Speaker 1>So are there any particular parts of a curve for

0:20:36.600 --> 0:20:39.159
<v Speaker 1>sell Next you particularly like or you're interested in, you know,

0:20:39.240 --> 0:20:41.120
<v Speaker 1>that you think might move more than others.

0:20:41.640 --> 0:20:44.920
<v Speaker 4>Yeah, I think when you look at that comparison that

0:20:44.960 --> 0:20:48.640
<v Speaker 4>I was talking about to American Tower, it becomes more pronounced.

0:20:48.680 --> 0:20:49.399
<v Speaker 3>At the longer end.

0:20:49.480 --> 0:20:51.080
<v Speaker 4>Cell Next, as a high old issue, has a bit

0:20:51.080 --> 0:20:54.960
<v Speaker 4>of a steeper curve. So around the sort of seven

0:20:55.040 --> 0:20:58.320
<v Speaker 4>to nine year kind of maturity points in Euros looks

0:20:58.359 --> 0:21:03.280
<v Speaker 4>to be where there's most relative value against the US comparative.

0:21:04.160 --> 0:21:08.520
<v Speaker 1>Interesting, So cell Next going up potentially and Telecom Italia

0:21:08.800 --> 0:21:09.359
<v Speaker 1>going down.

0:21:10.640 --> 0:21:11.080
<v Speaker 3>That's it.

0:21:11.720 --> 0:21:14.359
<v Speaker 1>Thanks very much, Aidan Cheslin of Bloomberg Intelligence. You can

0:21:14.400 --> 0:21:16.919
<v Speaker 1>read all of his great analysis on the Bloomberg terminal.

0:21:17.040 --> 0:21:18.320
<v Speaker 1>Do check it out, and I hope to see you

0:21:18.359 --> 0:21:19.120
<v Speaker 1>back on the show soon.

0:21:19.160 --> 0:21:19.440
<v Speaker 2>Aiden.

0:21:20.119 --> 0:21:21.680
<v Speaker 3>Thanks James, and thanks.

0:21:21.520 --> 0:21:24.560
<v Speaker 1>Again to Erin Hudson from Bloomberg News. Read all of

0:21:24.600 --> 0:21:27.400
<v Speaker 1>her great credit scoops on the Terminal and at Bloomberg

0:21:27.480 --> 0:21:30.120
<v Speaker 1>dot Com. I'm James Crombie. It's been a pleasure having

0:21:30.119 --> 0:21:32.760
<v Speaker 1>you join us again next week on the Credit Edge.