1 00:00:18,120 --> 00:00:20,680 Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast. 2 00:00:20,720 --> 00:00:23,239 Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg. 3 00:00:23,480 --> 00:00:26,720 Speaker 1: This week, we're very pleased to welcome Aidan Cheslin and 4 00:00:26,800 --> 00:00:30,200 Speaker 1: Steve Flynn from Bloomberg Intelligence. How are you doing good? 5 00:00:30,200 --> 00:00:33,160 Speaker 1: How are you very well? Aiden doing good? 6 00:00:33,280 --> 00:00:35,120 Speaker 2: James Harding, excellent. 7 00:00:34,760 --> 00:00:36,600 Speaker 1: Excellent, Thanks so much for joining us today. We're excited 8 00:00:36,640 --> 00:00:39,879 Speaker 1: to get your thoughts on all things credit. Bloomberg Intelligence 9 00:00:39,920 --> 00:00:42,720 Speaker 1: is part of Bloomberg's research arm of five hundred analysts 10 00:00:42,720 --> 00:00:44,640 Speaker 1: and strategists, and we're going to dig into the big 11 00:00:44,720 --> 00:00:47,720 Speaker 1: credit market opportunities and risks for the next few months. 12 00:00:48,200 --> 00:00:50,960 Speaker 1: Your teams have crunched all the numbers, and I'll just 13 00:00:51,360 --> 00:00:53,680 Speaker 1: give some words of context on what's going on in 14 00:00:53,680 --> 00:00:56,880 Speaker 1: the markets today. You know, everyone's very very bullish about credits. 15 00:00:56,920 --> 00:00:59,120 Speaker 1: Breads are super tight. There's not very much difference between 16 00:00:59,200 --> 00:01:03,480 Speaker 1: investment grade and when it comes to risk premia. For example, 17 00:01:03,480 --> 00:01:05,800 Speaker 1: on debt rated single B you're getting paid as much 18 00:01:06,200 --> 00:01:08,319 Speaker 1: for default risk as you were in two thousand and seven. 19 00:01:08,920 --> 00:01:11,199 Speaker 1: And the gap between double B and triple B rated 20 00:01:11,200 --> 00:01:13,240 Speaker 1: bonds I'm talking about the US here hasn't been this 21 00:01:13,360 --> 00:01:16,279 Speaker 1: tight since before the pandemic, remember the good old days. 22 00:01:16,760 --> 00:01:19,720 Speaker 1: So let's start with the opportunities. That's basically bonds that 23 00:01:19,720 --> 00:01:23,760 Speaker 1: are trading wide to industry and ratings peer groups rare 24 00:01:23,800 --> 00:01:26,720 Speaker 1: to find these days, given how compressed everything has got 25 00:01:26,800 --> 00:01:30,240 Speaker 1: and how much cash continues to flow into credit markets. 26 00:01:30,560 --> 00:01:33,760 Speaker 1: But Steve, and on the US side, in terms of 27 00:01:34,160 --> 00:01:37,800 Speaker 1: investment grade, what's the story there? I noticed one thing 28 00:01:37,840 --> 00:01:41,039 Speaker 1: on your focus list is Rolls Royce. I'm still saving 29 00:01:41,080 --> 00:01:45,839 Speaker 1: up for mine. Why they want to watch? Thanks, James. 30 00:01:45,920 --> 00:01:48,880 Speaker 3: Yeah, So we have five ideas for investment grade names 31 00:01:48,920 --> 00:01:51,800 Speaker 3: that we think the spreads may tighten, and one of 32 00:01:51,840 --> 00:01:54,520 Speaker 3: the first ones is Rolls Royce. Right, So the credit 33 00:01:54,560 --> 00:01:59,840 Speaker 3: profile is improving, earnings arising, cash flow is increasing, and 34 00:02:00,080 --> 00:02:03,360 Speaker 3: leverage is declining. Now the company has been upgraded by 35 00:02:03,480 --> 00:02:06,160 Speaker 3: SMP and Fitch, but we see that there's potential for 36 00:02:06,280 --> 00:02:10,200 Speaker 3: Moodies to follow, and we see catalysts moving forward as 37 00:02:10,320 --> 00:02:13,160 Speaker 3: higher cash flow that could fuel debt reduction and like 38 00:02:13,200 --> 00:02:16,320 Speaker 3: I said, a potential upgrade to investment grade by Moody's. 39 00:02:17,080 --> 00:02:19,440 Speaker 1: So Steve US high grade. What's the story that can 40 00:02:19,440 --> 00:02:23,720 Speaker 1: we start with Rolls Royce to the consumers it's a 41 00:02:23,840 --> 00:02:27,799 Speaker 1: luxury col brand. But I know for this research you're 42 00:02:27,840 --> 00:02:30,120 Speaker 1: looking at other parts of the company. Can you just 43 00:02:30,160 --> 00:02:32,320 Speaker 1: explain what today's you're looking out into the Rolls Rice 44 00:02:32,520 --> 00:02:35,840 Speaker 1: and why it's a bullish outlook. 45 00:02:36,840 --> 00:02:40,520 Speaker 3: Yeah. Sure, So Rolls Royce is part of our aerospace coverage. 46 00:02:40,919 --> 00:02:43,400 Speaker 3: And what we like about Rolls Royce is that they 47 00:02:43,400 --> 00:02:47,399 Speaker 3: have an improving credit profile. You have rising earnings, increasing 48 00:02:47,480 --> 00:02:51,320 Speaker 3: cash flow and leverages declining. Now Rolls Royce has been 49 00:02:51,400 --> 00:02:55,080 Speaker 3: upgraded to investment grade by SMP and Fitch, and we 50 00:02:55,160 --> 00:02:59,520 Speaker 3: believe a Moody's upgrade may follow. Catalysts moving forward include 51 00:02:59,560 --> 00:03:02,720 Speaker 3: higher cares flow available to fuel debt reduction, and like 52 00:03:02,760 --> 00:03:05,200 Speaker 3: I said, the potential upgrade from Moody's. 53 00:03:05,760 --> 00:03:07,680 Speaker 1: But it's the engine making we're talking about. They make 54 00:03:07,680 --> 00:03:08,639 Speaker 1: engines for who. 55 00:03:09,240 --> 00:03:28,519 Speaker 3: They make engines for airplanes. Yes, we believe that forward 56 00:03:28,600 --> 00:03:33,320 Speaker 3: could outperform expectations. There's the potential for higher operating margins 57 00:03:33,360 --> 00:03:37,040 Speaker 3: with a shift in sales from their model E into 58 00:03:37,200 --> 00:03:40,080 Speaker 3: the hybrids, and so the main canalyst there is a 59 00:03:40,160 --> 00:03:43,520 Speaker 3: potential moving forward for better financial results. 60 00:03:44,320 --> 00:03:46,720 Speaker 1: The other one that struck me Blackstone private credit. I 61 00:03:46,760 --> 00:03:48,920 Speaker 1: mean private credit is a massive theme this year. It's 62 00:03:49,000 --> 00:03:52,720 Speaker 1: a one point seven trillion dollar market. As we keep saying, 63 00:03:53,080 --> 00:03:56,720 Speaker 1: everyone's very excited about it. Why is this Blackstone private credit? 64 00:03:57,680 --> 00:04:00,120 Speaker 1: You know, in terms of what's the opportunity. 65 00:03:59,600 --> 00:04:02,880 Speaker 3: That Okay, First of all, the bonds for Blackstone Private 66 00:04:02,920 --> 00:04:06,640 Speaker 3: Credit Fund trade wider than a lot of other triple 67 00:04:06,680 --> 00:04:11,880 Speaker 3: B financial peers, and so we see an upward ratings trajectory. Uh. 68 00:04:12,560 --> 00:04:15,920 Speaker 3: You know, our anos believes that Blackstone is Blackstone Private 69 00:04:16,000 --> 00:04:19,559 Speaker 3: Credit Fund is key to overall Blackstone. And as you said, 70 00:04:19,680 --> 00:04:22,599 Speaker 3: there is a large and growing private wealth market with 71 00:04:22,640 --> 00:04:26,080 Speaker 3: a lot of it focused towards private credit. And you know, 72 00:04:26,080 --> 00:04:29,880 Speaker 3: the Blackstone Private credit bonds they trade closer to double 73 00:04:29,880 --> 00:04:33,200 Speaker 3: B than triple B. They are rated triple B by 74 00:04:33,200 --> 00:04:36,479 Speaker 3: both Moody's and S and P. And we see a 75 00:04:36,640 --> 00:04:40,480 Speaker 3: potential catalyst there as a possible upgrade from Moody's as 76 00:04:40,520 --> 00:04:42,800 Speaker 3: there is currently an outlook positive for Moodies. 77 00:04:43,080 --> 00:04:45,559 Speaker 1: That's an interest one. It's kind of accessing private credit 78 00:04:45,600 --> 00:04:51,279 Speaker 1: through the public bond markets. Yes, okay, interesting. The other one, IBM, 79 00:04:51,640 --> 00:04:52,440 Speaker 1: what's all that about? 80 00:04:53,400 --> 00:04:58,320 Speaker 3: So IBM bonds trade wide, So if we look at 81 00:04:58,920 --> 00:05:04,159 Speaker 3: similar rated bonds, IBM is single a across the board, but 82 00:05:04,200 --> 00:05:09,000 Speaker 3: the bonds trade closer to triple B plus technology companies, 83 00:05:09,320 --> 00:05:12,400 Speaker 3: and we see better financial results as the potential catalyst 84 00:05:12,520 --> 00:05:15,640 Speaker 3: to move those bonds tighter and to trade more comparable 85 00:05:15,920 --> 00:05:18,000 Speaker 3: spread levels to similarly rated peers. 86 00:05:18,400 --> 00:05:20,159 Speaker 1: Is that an AI trade at all? 87 00:05:22,200 --> 00:05:24,960 Speaker 3: There's some AI component to IBM as one of your 88 00:05:24,960 --> 00:05:27,920 Speaker 3: major technology providers, but they do a lot of other 89 00:05:28,240 --> 00:05:30,480 Speaker 3: different technology services and equipment. 90 00:05:30,520 --> 00:05:34,720 Speaker 1: Okay, that's kind of utility correct, Good, All right, So, Aidan, 91 00:05:34,720 --> 00:05:36,799 Speaker 1: why don't jump in on the European side. Let's start 92 00:05:36,839 --> 00:05:40,080 Speaker 1: with high grade opportunities over there. I know you've got 93 00:05:40,080 --> 00:05:43,640 Speaker 1: some banks on your list, you've got others, al still, 94 00:05:43,760 --> 00:05:45,800 Speaker 1: what's going on there? 95 00:05:46,480 --> 00:05:49,359 Speaker 2: Yeah? So, well, starting with the banks, then, since you 96 00:05:49,440 --> 00:05:54,480 Speaker 2: mentioned it, we've got ubs seniors where our analystsu and 97 00:05:54,560 --> 00:05:59,039 Speaker 2: Julius thinks that those bonds could tighten on more capital 98 00:05:59,080 --> 00:06:04,200 Speaker 2: and less supply, so they've got a tidening potential from 99 00:06:04,240 --> 00:06:07,720 Speaker 2: a higher capital stack. We think less issuance coming in 100 00:06:08,480 --> 00:06:11,800 Speaker 2: coming years as well than before, with the former maybe 101 00:06:11,800 --> 00:06:14,840 Speaker 2: going up fifteen to twenty five billion dollars due to 102 00:06:14,839 --> 00:06:18,360 Speaker 2: increase capital requirements, and we think issuance could fall eleven 103 00:06:18,360 --> 00:06:21,080 Speaker 2: to twenty three billion dollars to bring its te l 104 00:06:21,120 --> 00:06:23,599 Speaker 2: act more in line with its peers. So all of 105 00:06:23,640 --> 00:06:27,480 Speaker 2: that potentially positive technicals for ubs senior bonds. 106 00:06:28,480 --> 00:06:30,760 Speaker 1: What about the other ones on your list? 107 00:06:31,160 --> 00:06:35,760 Speaker 2: In Alston Alston, Yeah, so our analyst on this one 108 00:06:35,880 --> 00:06:41,680 Speaker 2: is Stefan Kovichev. He thinks that the company's obviously trip 109 00:06:41,720 --> 00:06:45,719 Speaker 2: will be minus with a negative outlook, but the company 110 00:06:45,720 --> 00:06:47,920 Speaker 2: has started to do a lot of actions to strengthen 111 00:06:47,920 --> 00:06:52,080 Speaker 2: the balance sheet. And when he put on this view originally, 112 00:06:52,560 --> 00:06:55,360 Speaker 2: I think it was trading like a downgrade to high 113 00:06:55,440 --> 00:06:58,720 Speaker 2: yield was pretty much a done deal. There's been quite 114 00:06:58,760 --> 00:07:02,760 Speaker 2: a lot coming that's happened recently. Management has seemed very 115 00:07:02,839 --> 00:07:05,120 Speaker 2: very keen to hold on to that investment grade rating, 116 00:07:05,120 --> 00:07:07,760 Speaker 2: which is in line with his thesis, and it started 117 00:07:07,800 --> 00:07:11,600 Speaker 2: to respond to that. But he still thinks there's this 118 00:07:11,720 --> 00:07:13,640 Speaker 2: potential for further tightening on Nelston. 119 00:07:14,840 --> 00:07:17,000 Speaker 1: Very good, Okay, So that's the investment grade side. What 120 00:07:17,040 --> 00:07:21,040 Speaker 1: about high yield AID? I'm going to keep it on Europe. 121 00:07:21,760 --> 00:07:24,680 Speaker 1: There's a few interesting names in there. What's going on 122 00:07:24,760 --> 00:07:27,880 Speaker 1: in the high yield tide corporate hybrids? 123 00:07:28,480 --> 00:07:31,920 Speaker 2: So, by and large, these are high yield bonds issued 124 00:07:31,960 --> 00:07:38,120 Speaker 2: by investment grade companies, but they trade much wider than 125 00:07:38,240 --> 00:07:42,440 Speaker 2: senior double B paper for a similar rating risk. We 126 00:07:43,320 --> 00:07:45,600 Speaker 2: like the sector as a whole. We think there are 127 00:07:45,600 --> 00:07:49,240 Speaker 2: some land mines in the real estate sector, but that's 128 00:07:49,240 --> 00:07:53,120 Speaker 2: pretty well flagged now, with companies like Around Town having 129 00:07:53,200 --> 00:07:55,160 Speaker 2: passed on some of the cubon's last year, we've done 130 00:07:55,160 --> 00:08:01,120 Speaker 2: some refinancing subsequently. We think most of the the other sectors, 131 00:08:01,160 --> 00:08:05,360 Speaker 2: like telecoms utilities, that are very frequent issuers in the 132 00:08:06,120 --> 00:08:12,560 Speaker 2: hybrid space are much less likely to extend extended maturity 133 00:08:12,640 --> 00:08:16,240 Speaker 2: dates or pass on coupons, and we think that this 134 00:08:16,320 --> 00:08:19,840 Speaker 2: market can continue to tighten relative to senior bonds and 135 00:08:19,880 --> 00:08:22,800 Speaker 2: relative in particular to senior high yield bonds. 136 00:08:23,440 --> 00:08:26,160 Speaker 1: Are we talking about subordinated or perpetual? What kind of 137 00:08:26,760 --> 00:08:27,840 Speaker 1: hybrids I'm talking about? 138 00:08:28,240 --> 00:08:32,520 Speaker 2: Yeah, these bonds are either extremely long or undated. They're 139 00:08:32,559 --> 00:08:36,559 Speaker 2: subordinated to everything except for equity, and they have special 140 00:08:36,600 --> 00:08:42,040 Speaker 2: features like the ability to push coupons and defer maturity. 141 00:08:42,920 --> 00:08:45,400 Speaker 2: But we think, you know, those risks have been kind 142 00:08:45,400 --> 00:08:48,680 Speaker 2: of overstated by the market. Over the last couple of years, 143 00:08:48,880 --> 00:08:51,079 Speaker 2: this has started to play out. We've started to see 144 00:08:52,080 --> 00:08:56,440 Speaker 2: hybrid yields tighten inside of the HYOD index now and 145 00:08:56,480 --> 00:08:59,360 Speaker 2: they're starting to close back towards double B senior bonds 146 00:09:00,360 --> 00:09:03,000 Speaker 2: where they traded through those prior to COVID, and we 147 00:09:03,040 --> 00:09:07,880 Speaker 2: think actually that's the best comparison, and that these hybrids 148 00:09:07,880 --> 00:09:10,720 Speaker 2: can trade back in line with double b's where they 149 00:09:10,760 --> 00:09:11,760 Speaker 2: were before the COVID. 150 00:09:12,040 --> 00:09:15,480 Speaker 1: What else do you see in terms of European high 151 00:09:15,559 --> 00:09:18,400 Speaker 1: yield Jaguar land Rover popped out for me. What's the 152 00:09:18,400 --> 00:09:18,959 Speaker 1: story there? 153 00:09:19,360 --> 00:09:22,920 Speaker 2: Yeah, So Joel Levington, who runs our credit research team, 154 00:09:22,960 --> 00:09:28,320 Speaker 2: covers autos from the US, and Jaguar land Rover is 155 00:09:28,360 --> 00:09:32,720 Speaker 2: targeting ten percent EBIT margins by twenty twenty six, which 156 00:09:32,760 --> 00:09:35,400 Speaker 2: we're constructive on them being able to achieve. That would 157 00:09:35,400 --> 00:09:39,040 Speaker 2: actually put them more in line with luxury auto manufacturers 158 00:09:40,240 --> 00:09:42,800 Speaker 2: rather than the sort of likes of Audi and BMW 159 00:09:42,840 --> 00:09:45,760 Speaker 2: which they are kind of currently being benchmarked against, and 160 00:09:45,800 --> 00:09:50,560 Speaker 2: it would also exceed what both Moodies and SMP have 161 00:09:50,640 --> 00:09:53,839 Speaker 2: been looking for at the existing credit rating. That plays 162 00:09:53,880 --> 00:09:56,960 Speaker 2: into Joel's original thesis where he said he thought that 163 00:09:58,120 --> 00:10:01,120 Speaker 2: net leverage trend was trending to a better better than 164 00:10:01,200 --> 00:10:04,880 Speaker 2: rated outcome as well. So several reasons sort of from 165 00:10:04,920 --> 00:10:07,920 Speaker 2: a fundamental perspective where we think possibly the ratings are 166 00:10:07,920 --> 00:10:10,400 Speaker 2: too low and that the spreads can tighten. 167 00:10:11,559 --> 00:10:14,920 Speaker 1: Is there an electric vehicles element to it too well. 168 00:10:14,960 --> 00:10:17,160 Speaker 2: I think a lot of companies in that sector are 169 00:10:17,200 --> 00:10:20,000 Speaker 2: kind of started moving away from that a little bit. 170 00:10:21,720 --> 00:10:26,480 Speaker 2: But no, I think generally speaking, the higher margins are 171 00:10:26,520 --> 00:10:30,920 Speaker 2: kind of supported by things that they're doing within their 172 00:10:30,960 --> 00:10:36,120 Speaker 2: own business, you know. And when you look at where 173 00:10:36,160 --> 00:10:39,320 Speaker 2: they are relative to what the rating asines have been expecting, 174 00:10:39,320 --> 00:10:42,800 Speaker 2: they've kind of been well ahead of the curve of 175 00:10:42,920 --> 00:10:45,640 Speaker 2: where moody Is and SMP have wanted them to come out, 176 00:10:45,640 --> 00:10:48,320 Speaker 2: whether you're talking about profitability or whether you're talking about 177 00:10:48,920 --> 00:10:49,680 Speaker 2: the balance sheet. 178 00:10:51,440 --> 00:10:53,720 Speaker 1: So another one to watch there in in terms of 179 00:10:53,960 --> 00:10:57,040 Speaker 1: high yield opportunities in Europe, Steve going back to the 180 00:10:57,120 --> 00:11:00,520 Speaker 1: US high yield, What are we excited about out here? 181 00:11:01,480 --> 00:11:03,319 Speaker 3: Sure, So there's a couple of names that we are 182 00:11:03,360 --> 00:11:06,240 Speaker 3: excited about for US high yield. So number one in 183 00:11:06,240 --> 00:11:10,400 Speaker 3: the consumer sector is Cody. The secured bonds are rated 184 00:11:10,440 --> 00:11:14,200 Speaker 3: B A two W plus triple B minus, and we 185 00:11:14,240 --> 00:11:17,199 Speaker 3: believe that there's the company is focused on reducing debt 186 00:11:17,480 --> 00:11:20,000 Speaker 3: and improving its leverage, and there's the potential for another 187 00:11:20,880 --> 00:11:23,839 Speaker 3: investment grade ratings. So if Moody's or SMP moved to 188 00:11:23,880 --> 00:11:26,720 Speaker 3: an investment grade, they'd have two of the three ratings 189 00:11:26,760 --> 00:11:29,720 Speaker 3: as investment grade and therefore they would, you know, officially 190 00:11:29,720 --> 00:11:32,880 Speaker 3: move into the investment grade market. And the bonds trade 191 00:11:32,960 --> 00:11:36,600 Speaker 3: much wider than most triple B rated consumer names, so 192 00:11:37,120 --> 00:11:40,400 Speaker 3: you know, the catalysts there are continued debt reduction, lower leverage, 193 00:11:40,440 --> 00:11:43,600 Speaker 3: and the potential for higher ratings and a movement into 194 00:11:43,600 --> 00:11:44,440 Speaker 3: investment grade. 195 00:11:44,600 --> 00:11:45,280 Speaker 1: And what do they do? 196 00:11:45,960 --> 00:11:50,120 Speaker 3: This is Cody. This is the consumer company that provides 197 00:11:50,840 --> 00:11:58,640 Speaker 3: I believe it's mostly consumer products, fragrances and items like that. 198 00:11:58,679 --> 00:12:01,440 Speaker 3: I believe really hugs our analysts there and she could 199 00:12:01,800 --> 00:12:04,400 Speaker 3: dive into the details of everything that Cody does. 200 00:12:05,200 --> 00:12:06,520 Speaker 1: Okay, what else is the new list? 201 00:12:06,760 --> 00:12:10,400 Speaker 3: Sure? So another high yield tightening potential name are the 202 00:12:10,440 --> 00:12:14,360 Speaker 3: cruise lines. So Jodi Lourie is our analyst there. She's 203 00:12:14,400 --> 00:12:17,480 Speaker 3: been positive on the cruise lines for some time. The 204 00:12:17,520 --> 00:12:21,040 Speaker 3: cruise line bonds trade wide of many of their peers, 205 00:12:21,280 --> 00:12:24,280 Speaker 3: yet the companies are very focused on reducing debt and 206 00:12:24,360 --> 00:12:28,280 Speaker 3: improving leverage. Each of the major cruise lines. We're talking 207 00:12:28,280 --> 00:12:31,520 Speaker 3: about Carnival, Norwegian and Royal are on a multi year 208 00:12:31,600 --> 00:12:35,120 Speaker 3: quest for investment grade ratings, so they've been talking for 209 00:12:35,160 --> 00:12:37,440 Speaker 3: a while that they want to improve to investment grade. 210 00:12:37,600 --> 00:12:40,240 Speaker 3: A lot of these companies took on very high coupon, 211 00:12:40,400 --> 00:12:43,240 Speaker 3: very expensive debt during the pandemic because they had to, 212 00:12:43,720 --> 00:12:45,400 Speaker 3: and what we've seen over the past couple of years 213 00:12:45,400 --> 00:12:48,079 Speaker 3: is that they've been refinancing a lot of that very 214 00:12:48,120 --> 00:12:51,679 Speaker 3: expensive debt with much more reasonable coupon. So that's improved 215 00:12:51,679 --> 00:12:55,440 Speaker 3: their you know, their interest costs and obviously demand for 216 00:12:55,520 --> 00:12:58,880 Speaker 3: cruise lines has been very strong. That's helping a lot 217 00:12:58,920 --> 00:13:01,640 Speaker 3: with their with their fun mentals and so we see 218 00:13:01,720 --> 00:13:05,920 Speaker 3: you know, lower leverage there, lower debt, and improving bond 219 00:13:05,960 --> 00:13:08,920 Speaker 3: spreads for the cruise line. So those are names that 220 00:13:08,920 --> 00:13:09,720 Speaker 3: we like in high yield. 221 00:13:10,400 --> 00:13:11,760 Speaker 1: There always a risk that, I mean, we would have 222 00:13:11,760 --> 00:13:13,320 Speaker 1: to get Jodi back on the show still about this, 223 00:13:13,320 --> 00:13:15,920 Speaker 1: but the risk that consumers pulled back with seeing a 224 00:13:15,920 --> 00:13:19,040 Speaker 1: little of pressionnel on consumers, but mainly mainly the low end. 225 00:13:19,120 --> 00:13:21,920 Speaker 1: But you know, it's probably the first thing you would 226 00:13:22,679 --> 00:13:25,720 Speaker 1: stop spending on, you know, luxury items like cruises if 227 00:13:26,080 --> 00:13:27,760 Speaker 1: things do get tough, you. 228 00:13:27,760 --> 00:13:31,800 Speaker 3: Would think that, but it's it's you know, consistently strong 229 00:13:31,880 --> 00:13:35,520 Speaker 3: demand for cruise lines. It's interesting as Comcasts reported, uh 230 00:13:35,600 --> 00:13:38,360 Speaker 3: the other day, and they were talking about their theme 231 00:13:38,440 --> 00:13:42,920 Speaker 3: parks business and attendance was down or lower than anticipated 232 00:13:43,840 --> 00:13:46,880 Speaker 3: for the second quarter. Now, they had a very strong 233 00:13:47,080 --> 00:13:49,160 Speaker 3: second quarter of the year before. But what they talked 234 00:13:49,200 --> 00:13:52,600 Speaker 3: about for lower attendance, part of it was a change 235 00:13:52,679 --> 00:13:55,720 Speaker 3: in consumer spending. So there was a pull forward for 236 00:13:55,760 --> 00:13:58,679 Speaker 3: theme parks after the pandemic. People you know, ran to 237 00:13:58,760 --> 00:14:03,160 Speaker 3: theme parks, but they've been losing now share to cruise 238 00:14:03,160 --> 00:14:04,560 Speaker 3: lines in international travel. 239 00:14:04,600 --> 00:14:05,360 Speaker 1: So it's just interesting. 240 00:14:05,360 --> 00:14:08,040 Speaker 3: They pointed out that people still really like cruise lines 241 00:14:08,400 --> 00:14:11,760 Speaker 3: and have moved away from domestic theme parks towards cruise lines. 242 00:14:12,200 --> 00:14:14,520 Speaker 3: So yes, there is a pullback, but you know, cruisers 243 00:14:14,559 --> 00:14:16,240 Speaker 3: still love the cruise I guess. 244 00:14:16,240 --> 00:14:18,760 Speaker 1: Okay, all right, we'll see how resilient that is if 245 00:14:18,800 --> 00:14:21,960 Speaker 1: we go into a bit of a downtown. But so 246 00:14:22,000 --> 00:14:24,520 Speaker 1: those are all the things that we love in terms 247 00:14:24,520 --> 00:14:27,440 Speaker 1: of high yield and investment grade credit US and Europe. 248 00:14:27,480 --> 00:14:31,160 Speaker 1: But let's talk about the risks. Things that you know, 249 00:14:31,520 --> 00:14:35,000 Speaker 1: bonds actually may underperform, they may be priced too tight 250 00:14:35,120 --> 00:14:38,240 Speaker 1: versus their peers they may actually wide and start with 251 00:14:38,240 --> 00:14:40,640 Speaker 1: you again, Steve, with investment grade, what are you worried 252 00:14:40,640 --> 00:14:40,960 Speaker 1: about that? 253 00:14:41,640 --> 00:14:44,280 Speaker 3: Sure? So you know, like again, not everybody has a 254 00:14:44,320 --> 00:14:47,280 Speaker 3: positive view on everything. We're definitely look at both things 255 00:14:47,280 --> 00:14:50,360 Speaker 3: that maybe trade too wide and companies that trade too 256 00:14:50,400 --> 00:14:53,280 Speaker 3: tight and risk for concern. And one name I'd highlight 257 00:14:53,440 --> 00:14:56,880 Speaker 3: is Disney. So Disney is rated single A across the board. 258 00:14:57,720 --> 00:15:00,920 Speaker 3: The bonds trade much tighter than some ready to appears, 259 00:15:01,280 --> 00:15:05,200 Speaker 3: for example Comcast, which is also single A across the board. 260 00:15:05,240 --> 00:15:08,760 Speaker 3: Disney bonds are much tighter than Comcasts. Yet Comcast has 261 00:15:08,920 --> 00:15:13,040 Speaker 3: lower leverage, so Disney has higher leverage and tighter spreads. 262 00:15:13,440 --> 00:15:16,400 Speaker 3: And then you have a potential catalyst on the horizon 263 00:15:16,400 --> 00:15:19,320 Speaker 3: that I think could cause their bonds to watt. Number one, 264 00:15:20,400 --> 00:15:24,480 Speaker 3: Disney bought out comcasts one third stake in Hulu at 265 00:15:24,520 --> 00:15:26,640 Speaker 3: the end of last year, and they paid an initial 266 00:15:26,920 --> 00:15:29,960 Speaker 3: about nine billion dollar payment based on the floor value. 267 00:15:30,400 --> 00:15:33,880 Speaker 3: Yet there's a go forward valuation process whereby they figure 268 00:15:33,920 --> 00:15:36,600 Speaker 3: out what the true value or market value of Hulu is, 269 00:15:37,360 --> 00:15:40,640 Speaker 3: and once that process plays out, we believe that Disney 270 00:15:40,680 --> 00:15:43,480 Speaker 3: may have to make an additional valuation true up payment 271 00:15:43,520 --> 00:15:48,040 Speaker 3: to Comcasts, which could be about four billion dollars looking 272 00:15:48,080 --> 00:15:51,080 Speaker 3: at you know prices, you know, valuation metrics for other 273 00:15:51,120 --> 00:15:54,320 Speaker 3: streaming companies out there, whether Netflix or names like that. 274 00:15:54,880 --> 00:15:58,480 Speaker 3: And so four billion dollars going from Disney to Comcast, 275 00:15:58,520 --> 00:16:02,680 Speaker 3: that's obviously credit negative Disney a positive for Comcasts. And 276 00:16:02,720 --> 00:16:05,000 Speaker 3: the other issue to worry about with regard to Disney 277 00:16:05,040 --> 00:16:09,240 Speaker 3: is that legacy media companies have been under tremendous pressure. 278 00:16:09,280 --> 00:16:12,640 Speaker 3: We're seeing a shift in pay TV viewership right, so 279 00:16:12,680 --> 00:16:16,920 Speaker 3: people are leaving their subscriptions and moving towards streaming, and 280 00:16:17,000 --> 00:16:20,080 Speaker 3: so we've seen pressure on traditional media names like Paramount, 281 00:16:20,360 --> 00:16:23,400 Speaker 3: like Warner Brothers, Discovery. Well, Disney, you know has a 282 00:16:23,480 --> 00:16:27,040 Speaker 3: large media business. So Disney's media business accounts for sixty percent, 283 00:16:27,320 --> 00:16:30,440 Speaker 3: we around sixty percent of overall revenue. So you know, 284 00:16:30,480 --> 00:16:32,360 Speaker 3: as pressure builds in that part of the business, there's 285 00:16:32,400 --> 00:16:35,080 Speaker 3: a risk that that could impact Disney. So you got 286 00:16:35,120 --> 00:16:40,320 Speaker 3: Disney bonds a trade very tight, and you have higher 287 00:16:40,400 --> 00:16:44,200 Speaker 3: leverage and potential for negative catalysts on the horizon. Another 288 00:16:44,240 --> 00:16:47,960 Speaker 3: group that I'd point out is Spencer Cutter is our 289 00:16:48,040 --> 00:16:51,080 Speaker 3: man and energy. He believes a lot of the high 290 00:16:51,080 --> 00:16:54,200 Speaker 3: heeled natural gas providers trade too tight. So if you 291 00:16:54,240 --> 00:16:59,440 Speaker 3: think about Chesapeake and tiro comstock Resources, all these companies 292 00:16:59,480 --> 00:17:02,840 Speaker 3: bonds very very tight, and there's a risk with given 293 00:17:02,880 --> 00:17:07,000 Speaker 3: how low natural gas prices are, you could see weaker 294 00:17:07,040 --> 00:17:10,000 Speaker 3: financial reports in the future. You could see leverage start 295 00:17:10,000 --> 00:17:12,840 Speaker 3: to climb, and given how tight they trade, there's the 296 00:17:12,840 --> 00:17:16,160 Speaker 3: potential for those months to widen. Energy has been one 297 00:17:16,200 --> 00:17:18,800 Speaker 3: of the best performing sectors in high yield this year. 298 00:17:19,200 --> 00:17:21,400 Speaker 3: It trade, you know, the sector trades that are option 299 00:17:21,680 --> 00:17:23,840 Speaker 3: just to spread of about one hundred and ninety four 300 00:17:23,880 --> 00:17:26,760 Speaker 3: basis points, so one ninety four versus the overall high 301 00:17:26,760 --> 00:17:29,840 Speaker 3: idled index you know, right around three hundred. So it 302 00:17:29,920 --> 00:17:32,680 Speaker 3: trades very tight, and there's the potential for leverage suggle 303 00:17:32,680 --> 00:17:34,280 Speaker 3: wider and for those names to underperform. 304 00:17:34,800 --> 00:17:37,440 Speaker 1: So I want to watch an Energy potentially some risks 305 00:17:37,480 --> 00:17:38,679 Speaker 1: coming up. But I just wanted to go back to 306 00:17:38,680 --> 00:17:41,280 Speaker 1: Disney for a second. You seem to be talking about 307 00:17:41,280 --> 00:17:43,959 Speaker 1: the most is the streaming service and a sort of broadcaster, 308 00:17:44,040 --> 00:17:47,320 Speaker 1: but they do have this massive business of theme pugs 309 00:17:47,359 --> 00:17:49,440 Speaker 1: and other things, and even cruises. You know, don't go 310 00:17:49,480 --> 00:17:53,119 Speaker 1: to Disney Cruise or Disney Vacation, shouldn't they derive some 311 00:17:53,680 --> 00:17:56,040 Speaker 1: strength from what we've been talking about earlier. You know, 312 00:17:56,080 --> 00:17:57,800 Speaker 1: the cruise lines is doing so well, it shouldn't Disney 313 00:17:57,800 --> 00:17:59,120 Speaker 1: benefit from some of that demands as well. 314 00:17:59,720 --> 00:18:02,080 Speaker 3: Yeah, Disney will benefit. But if you think about again, 315 00:18:02,080 --> 00:18:05,520 Speaker 3: when I said earlier about Comcast talking about weaker theme 316 00:18:05,560 --> 00:18:09,359 Speaker 3: park attendants in Orlando, you know Disney has huge exposure there, right, 317 00:18:09,400 --> 00:18:12,560 Speaker 3: So the exposure to theme parks is much greater than 318 00:18:12,600 --> 00:18:14,439 Speaker 3: it is for cruise lines. So while cruise lines may 319 00:18:14,440 --> 00:18:16,120 Speaker 3: be doing better, if they have weakness on the theme 320 00:18:16,160 --> 00:18:18,879 Speaker 3: park side, that's going to warn offset the strength on 321 00:18:18,960 --> 00:18:20,640 Speaker 3: the cruise lines. But we'll see what happens when they 322 00:18:20,640 --> 00:18:24,800 Speaker 3: report fiscal earnings in I think it's early August. 323 00:18:25,680 --> 00:18:29,320 Speaker 1: Okay, Okay, so Daiden, I noticed you didn't have that 324 00:18:29,440 --> 00:18:32,760 Speaker 1: many concerns on your list. Is everything bright and rosy 325 00:18:32,800 --> 00:18:34,120 Speaker 1: over there in Europe? No problems at all? 326 00:18:34,240 --> 00:18:35,680 Speaker 2: Yeah, we're very happy people here. 327 00:18:37,359 --> 00:18:40,160 Speaker 1: It's surely not. Come on this credit. We're worried about 328 00:18:40,200 --> 00:18:42,639 Speaker 1: things all the time. What are you concerned about? Where 329 00:18:42,640 --> 00:18:43,800 Speaker 1: are the potential risks? 330 00:18:44,320 --> 00:18:48,639 Speaker 2: Well's it's just investment grade first one in my world, 331 00:18:49,560 --> 00:18:53,800 Speaker 2: the tightest trading name in TMT. Investment Grade in Europe 332 00:18:53,840 --> 00:18:57,200 Speaker 2: is Deutsche Telecom. But one of the problems that I 333 00:18:57,240 --> 00:18:59,720 Speaker 2: think the market is not pricing in there is that, 334 00:19:00,119 --> 00:19:02,000 Speaker 2: and this is something we've written about for a while, 335 00:19:02,040 --> 00:19:05,600 Speaker 2: but it's got worse recently is the amount of structural 336 00:19:05,640 --> 00:19:10,520 Speaker 2: subordination faced by Deutsche Telecom's European debt. More and more 337 00:19:10,560 --> 00:19:14,480 Speaker 2: of the consolidated debt at the top level now is 338 00:19:14,520 --> 00:19:18,320 Speaker 2: accounted for by T Mobile in the US, which puts 339 00:19:18,400 --> 00:19:22,240 Speaker 2: the European debt in a subordinated position. Given they only 340 00:19:22,280 --> 00:19:25,600 Speaker 2: own fifty percent of that US business and the debt 341 00:19:25,600 --> 00:19:27,960 Speaker 2: there would have a priority claim over the cash flows 342 00:19:28,480 --> 00:19:31,600 Speaker 2: in the US, and that's becoming an increasingly large, increasingly 343 00:19:31,640 --> 00:19:37,480 Speaker 2: profitable part of their business now. Normally, SMP, in particular 344 00:19:37,480 --> 00:19:39,879 Speaker 2: of the rating acies in general, start to get concerned 345 00:19:40,520 --> 00:19:42,960 Speaker 2: when you have a very large amount of what they 346 00:19:43,000 --> 00:19:46,720 Speaker 2: call priority debt, which sits down at an operating company level. 347 00:19:47,520 --> 00:19:50,920 Speaker 2: That priority level of debt has actually crossed the fifty 348 00:19:50,960 --> 00:19:55,440 Speaker 2: percent threshold with SMP, where normally they would downgrade the ratings. 349 00:19:56,160 --> 00:19:58,760 Speaker 2: They've decided not to do that at this point, but 350 00:19:58,800 --> 00:20:02,560 Speaker 2: it's still a very real that investors have on the 351 00:20:02,600 --> 00:20:06,520 Speaker 2: European pod of Deutsche Telecom and that's you know, it's 352 00:20:06,520 --> 00:20:10,120 Speaker 2: a triple B plus name. It trades significantly tighter than 353 00:20:10,880 --> 00:20:14,320 Speaker 2: even something like an Orange, which is on positive outlook 354 00:20:14,320 --> 00:20:17,359 Speaker 2: at the same rating level. So we think that there's 355 00:20:17,800 --> 00:20:19,920 Speaker 2: a potential for spread widening in that name. 356 00:20:20,520 --> 00:20:22,240 Speaker 1: And I know it's not on your list, but I 357 00:20:22,280 --> 00:20:24,480 Speaker 1: did want to ask you about alties because you know, 358 00:20:24,840 --> 00:20:26,840 Speaker 1: not longer on this show, you described it as a 359 00:20:26,920 --> 00:20:31,560 Speaker 1: Jenga tower, tons of debt about to crash down and 360 00:20:32,240 --> 00:20:36,440 Speaker 1: spread across all markets, spreading you know, real panic and fear. 361 00:20:36,480 --> 00:20:39,200 Speaker 1: What's the story there. What's the latest on an altis in. 362 00:20:39,960 --> 00:20:42,320 Speaker 2: So with art East France in particular, which is the 363 00:20:42,320 --> 00:20:46,040 Speaker 2: silo that we were discussing. I think you know, there 364 00:20:46,119 --> 00:20:49,680 Speaker 2: was when when everything kind of blew up earlier this year. 365 00:20:50,800 --> 00:20:53,040 Speaker 2: It was really when they gave their their updates with 366 00:20:53,080 --> 00:20:56,000 Speaker 2: the fourth quarter results and they gave an outlook for 367 00:20:56,560 --> 00:20:59,840 Speaker 2: twenty twenty four where they said that they thought, you know, 368 00:21:00,160 --> 00:21:04,280 Speaker 2: be a certain percentage deterioration in EBITDA this year, and 369 00:21:04,359 --> 00:21:06,920 Speaker 2: the market said, oh, well, maybe they're just being conservative 370 00:21:07,000 --> 00:21:10,400 Speaker 2: because they want to get a better deal in terms 371 00:21:10,440 --> 00:21:13,920 Speaker 2: of potentially potential haircuts they might need to be to debt, 372 00:21:14,119 --> 00:21:15,760 Speaker 2: and I think what was what we've seen with the 373 00:21:16,119 --> 00:21:20,080 Speaker 2: first quarter earnings in particular, as we saw actually things 374 00:21:20,119 --> 00:21:23,240 Speaker 2: were maybe deteriorating even faster than the company guided, and 375 00:21:23,359 --> 00:21:27,920 Speaker 2: they revised the guidance even lower again. And I think, 376 00:21:28,280 --> 00:21:30,320 Speaker 2: you know, if you start to extrapolate that kind of 377 00:21:30,400 --> 00:21:34,560 Speaker 2: deterioration in ebit DAR, then you start to see leverage 378 00:21:34,680 --> 00:21:37,879 Speaker 2: heading well above seven times in twelve to eighteen months 379 00:21:38,400 --> 00:21:41,919 Speaker 2: up towards eight and it just it looks ever less sustainable, 380 00:21:42,000 --> 00:21:44,520 Speaker 2: and the amount of haircuts you need to take just 381 00:21:44,560 --> 00:21:49,080 Speaker 2: to stabilize this business seem even greater. So in terms 382 00:21:49,160 --> 00:21:52,879 Speaker 2: of public publicly sort of released results and things like that, 383 00:21:52,920 --> 00:21:58,399 Speaker 2: seems that things seems to have been getting worse. I 384 00:21:58,440 --> 00:22:01,400 Speaker 2: think we're it's it's been a lot quieter in terms 385 00:22:01,400 --> 00:22:05,760 Speaker 2: of newsflow lately, I think because obviously they're having negotiations 386 00:22:05,760 --> 00:22:09,919 Speaker 2: with creditor groups, so those things happen kind of behind 387 00:22:09,920 --> 00:22:13,240 Speaker 2: closed doors, So there's a limited amount of kind of 388 00:22:13,320 --> 00:22:18,000 Speaker 2: newsflow about that publicly that we see, but clearly from 389 00:22:18,040 --> 00:22:20,800 Speaker 2: an earning side and a leverage point of view, that 390 00:22:20,840 --> 00:22:22,080 Speaker 2: the pressure is still building. 391 00:22:22,680 --> 00:22:24,440 Speaker 1: Most of Europe takes August off, so it shall we 392 00:22:24,480 --> 00:22:29,560 Speaker 1: expect some big event in September that triggers something big 393 00:22:29,640 --> 00:22:30,760 Speaker 1: in lties. 394 00:22:31,160 --> 00:22:34,600 Speaker 2: That might be too soon for negotiations to conclude. I 395 00:22:34,640 --> 00:22:37,680 Speaker 2: suspect it might take longer. They're not under an imminent 396 00:22:37,760 --> 00:22:41,439 Speaker 2: liquidity threat. They've got really through until at least the 397 00:22:41,520 --> 00:22:44,199 Speaker 2: end of this year and into next year before they 398 00:22:44,240 --> 00:22:46,040 Speaker 2: start to come across some of them, or the twenty 399 00:22:46,119 --> 00:22:49,000 Speaker 2: twenty five maturity, So it could drag on a little 400 00:22:49,040 --> 00:22:49,560 Speaker 2: longer than that. 401 00:22:50,080 --> 00:22:51,720 Speaker 1: I got it. We'll watch out for that. So I 402 00:22:51,720 --> 00:22:54,640 Speaker 1: want to ask you both from all of these ideas, 403 00:22:55,000 --> 00:22:57,640 Speaker 1: they're across the board, they're in all industries and sectors, 404 00:22:57,760 --> 00:23:00,760 Speaker 1: there are lots of them, and it's great research, great stuff. 405 00:23:01,000 --> 00:23:04,120 Speaker 1: Are there any kind of macro themes that you kind 406 00:23:04,119 --> 00:23:05,760 Speaker 1: of draw from this? I mean in terms of like 407 00:23:05,880 --> 00:23:08,560 Speaker 1: let's go home with the consumer for example, or you know, 408 00:23:08,600 --> 00:23:11,320 Speaker 1: the economy in general, Steve, what do you think about that? 409 00:23:11,760 --> 00:23:13,600 Speaker 3: Yeah, So we talked a little bit about the shifting 410 00:23:14,600 --> 00:23:19,280 Speaker 3: consumer trends. There some weakness overall in the consumer. Yeah, 411 00:23:19,320 --> 00:23:21,359 Speaker 3: there were some some items and we talked about earlier 412 00:23:21,400 --> 00:23:24,520 Speaker 3: that really stuck out as as as being resilient so far, 413 00:23:24,600 --> 00:23:27,840 Speaker 3: including cruise lines, and we've kind of talked about that 414 00:23:27,880 --> 00:23:31,920 Speaker 3: with some of our ideas, I'd say, you know, digging 415 00:23:32,119 --> 00:23:36,119 Speaker 3: deeper into the communications sector in high yield kind of 416 00:23:36,119 --> 00:23:38,120 Speaker 3: off of what Aiden was talking about there. I do 417 00:23:38,160 --> 00:23:41,960 Speaker 3: think we're going to see a lot of liability management 418 00:23:42,080 --> 00:23:46,160 Speaker 3: exercises in the sector in the second half of this year. Uh, 419 00:23:46,160 --> 00:23:49,600 Speaker 3: there's a lot of over leverage capital structures, there's a 420 00:23:49,680 --> 00:23:53,720 Speaker 3: lot of debt maturities that are going to start creeping up, 421 00:23:54,320 --> 00:23:56,000 Speaker 3: and there's a lot of very low price bonds. So 422 00:23:56,000 --> 00:23:58,000 Speaker 3: I think that's something that we could, you know, see 423 00:23:58,080 --> 00:24:01,920 Speaker 3: as a theme in the back hand for junk communications. Now, 424 00:24:02,000 --> 00:24:05,800 Speaker 3: communications is by far the widest sector in high yield, 425 00:24:05,920 --> 00:24:08,800 Speaker 3: it's one of the worst performing sectors in high yield 426 00:24:08,840 --> 00:24:12,600 Speaker 3: this year. There's a lot of structural issues going on 427 00:24:12,640 --> 00:24:18,520 Speaker 3: in the industry, between competition for broadband, shifting, video consumption landscape, 428 00:24:19,160 --> 00:24:23,080 Speaker 3: and just you know, big debt loads. You know, earlier 429 00:24:23,160 --> 00:24:25,240 Speaker 3: this year we saw loom into a massive debt for 430 00:24:25,320 --> 00:24:29,320 Speaker 3: debt exchange. Just the other day, AMC Entertainment, the movie 431 00:24:29,320 --> 00:24:33,840 Speaker 3: theater company, announced a large debt for debt exchange in 432 00:24:33,920 --> 00:24:36,920 Speaker 3: agreement with lenders. As Adan talked about, with all ties 433 00:24:36,960 --> 00:24:39,480 Speaker 3: Europe and in the US here, there's been plenty of 434 00:24:39,520 --> 00:24:43,679 Speaker 3: news stories of just different creditor groups forming creditor groups, 435 00:24:43,680 --> 00:24:47,960 Speaker 3: companies hiring financial advisors, hiring legal advisors. So I think 436 00:24:48,040 --> 00:24:50,040 Speaker 3: that is definitely a theme that we'll see in the 437 00:24:50,080 --> 00:24:51,880 Speaker 3: back half of this year with regard to high YELD 438 00:24:51,880 --> 00:24:53,400 Speaker 3: communications and. 439 00:24:53,600 --> 00:24:55,560 Speaker 1: On your side, aiden that you're looking ahead. 440 00:24:55,320 --> 00:24:59,520 Speaker 2: Too, Yeah, I think stated the consumers is the main one. 441 00:25:00,720 --> 00:25:03,080 Speaker 2: I think, you know, in some sectors you've seen it 442 00:25:03,280 --> 00:25:06,760 Speaker 2: perhaps a little bit more resilient up until now, but 443 00:25:07,160 --> 00:25:09,480 Speaker 2: just this last beta results. We're any part way through 444 00:25:09,480 --> 00:25:12,199 Speaker 2: the earning season here in Europe, but we've very clearly 445 00:25:12,240 --> 00:25:17,119 Speaker 2: seen some of the earning's tail winds that you know, 446 00:25:17,119 --> 00:25:19,280 Speaker 2: if I'm thinking about TMT, some of the earnings tail 447 00:25:19,280 --> 00:25:22,240 Speaker 2: winds that they had on the inflation side have started 448 00:25:22,280 --> 00:25:25,800 Speaker 2: to erode, and there's a lot of companies walking back 449 00:25:25,840 --> 00:25:29,280 Speaker 2: on guidance for the rest of this year. So that's 450 00:25:29,280 --> 00:25:31,399 Speaker 2: something that's still kind of playing out through this this 451 00:25:31,440 --> 00:25:34,359 Speaker 2: particular earning season. I think it's something that you know, 452 00:25:34,400 --> 00:25:38,000 Speaker 2: we've seen some very negative price action in the last 453 00:25:38,400 --> 00:25:40,280 Speaker 2: few days, and I think that that's something that we 454 00:25:40,640 --> 00:25:41,720 Speaker 2: really need to keep an eye on. 455 00:25:42,520 --> 00:25:45,600 Speaker 1: Everyone who comes on this show, is quite concerned about 456 00:25:45,600 --> 00:25:49,160 Speaker 1: the politics. You know, we've seen a lot of volatility 457 00:25:49,200 --> 00:25:51,760 Speaker 1: in European politics. We're now going through a bottle hele 458 00:25:51,840 --> 00:25:54,720 Speaker 1: time in the US. Is there a trade in credit 459 00:25:54,760 --> 00:25:57,280 Speaker 1: related to that? I mean, we've seen people be as 460 00:25:57,320 --> 00:26:01,560 Speaker 1: simplistic as by high yield because Trump's got to win. Steve, 461 00:26:01,680 --> 00:26:03,720 Speaker 1: is there is there anything developing that is it too 462 00:26:03,720 --> 00:26:05,040 Speaker 1: early to say? Yeah? 463 00:26:05,080 --> 00:26:07,800 Speaker 3: No, So listen, US highyield is doing very well. Right 464 00:26:07,880 --> 00:26:10,200 Speaker 3: so your date return of four point two percent, we're 465 00:26:10,240 --> 00:26:13,159 Speaker 3: seeing spreads you know to very low levels. All in 466 00:26:13,240 --> 00:26:16,159 Speaker 3: yield you know has come in. It's it's close to 467 00:26:16,200 --> 00:26:18,800 Speaker 3: the to the tights for the the lowest for the year. 468 00:26:19,520 --> 00:26:21,439 Speaker 3: So that seems to be the trade that that that 469 00:26:21,480 --> 00:26:23,920 Speaker 3: people are are are working with right now is long 470 00:26:24,040 --> 00:26:25,119 Speaker 3: US junk? 471 00:26:25,800 --> 00:26:27,480 Speaker 1: What about in Europe aid and the you know the 472 00:26:27,640 --> 00:26:31,399 Speaker 1: big swing in the UK political scene as there's been 473 00:26:31,480 --> 00:26:36,080 Speaker 1: volatility in France. Are there any political trades around what 474 00:26:36,119 --> 00:26:38,480 Speaker 1: you do or just just stay out of it? No. 475 00:26:38,560 --> 00:26:42,240 Speaker 2: I think it's been the same pattern as as Steve described. Really, 476 00:26:42,480 --> 00:26:46,240 Speaker 2: I think maybe in the sort of utility sector there's 477 00:26:46,280 --> 00:26:49,919 Speaker 2: the potential for a lot more state involvement. So our 478 00:26:49,960 --> 00:26:53,000 Speaker 2: analyst Paul Vickers has written an awful lot about Thames 479 00:26:53,080 --> 00:26:57,560 Speaker 2: Water and the bankruptcy there, so you know the potential 480 00:26:57,640 --> 00:27:01,560 Speaker 2: for state to start getting involved in a name like that. 481 00:27:02,920 --> 00:27:05,080 Speaker 2: So I think that's that's probably where you need to look. 482 00:27:05,560 --> 00:27:07,960 Speaker 1: Where do we find all this great research we're talking about? 483 00:27:08,040 --> 00:27:10,200 Speaker 1: Is it BI cred on the Terminal? Is that where 484 00:27:10,240 --> 00:27:10,399 Speaker 1: we go? 485 00:27:11,119 --> 00:27:11,280 Speaker 2: Yes? 486 00:27:11,359 --> 00:27:13,000 Speaker 3: If you're going to b I cred on the Terminal, 487 00:27:13,040 --> 00:27:16,399 Speaker 3: you could, you know, dig down into anything that that 488 00:27:16,440 --> 00:27:18,800 Speaker 3: you like. There's tons of information, there are tons of research. 489 00:27:19,040 --> 00:27:20,560 Speaker 3: But within that you should be able to see a 490 00:27:20,560 --> 00:27:23,640 Speaker 3: list of all of our focus ideas on the credit side. 491 00:27:23,640 --> 00:27:26,760 Speaker 3: If you're looking for overall Bloomberg intelligence focus ideas, including 492 00:27:26,800 --> 00:27:29,680 Speaker 3: those from our equity counterparts, you would just type BI 493 00:27:29,840 --> 00:27:32,000 Speaker 3: Space focus on the Terminal. 494 00:27:32,920 --> 00:27:35,159 Speaker 1: Great stuff. Okay, So I'm going to finish up by 495 00:27:35,160 --> 00:27:37,840 Speaker 1: asking you both what is your biggest fear? A lot 496 00:27:37,880 --> 00:27:41,760 Speaker 1: of people on this show worry about geopolitics, cybersecurity, economic slowdown, 497 00:27:41,960 --> 00:27:45,280 Speaker 1: commercial real estate, consumers throwing in the towel, But what 498 00:27:45,320 --> 00:27:47,719 Speaker 1: do you worry about most? Or when you're chatting to clients, 499 00:27:47,720 --> 00:27:49,600 Speaker 1: what do they you know, what's already giving them gray 500 00:27:49,640 --> 00:27:53,840 Speaker 1: hair right now, well covering hild communications. 501 00:27:54,359 --> 00:27:56,399 Speaker 3: There is a lot for people to worry about, right like, 502 00:27:56,400 --> 00:27:57,800 Speaker 3: so I think, you know, I talked about it earlier. 503 00:27:57,840 --> 00:27:59,720 Speaker 3: The secretor trades really why there's a lot of low 504 00:27:59,760 --> 00:28:01,560 Speaker 3: price bards. There's a lot of people been trying to 505 00:28:02,040 --> 00:28:05,639 Speaker 3: catch falling knives this year across the sector. You've even 506 00:28:05,680 --> 00:28:08,439 Speaker 3: seen an you know, investment grade with what's going on Paramount, 507 00:28:08,920 --> 00:28:11,919 Speaker 3: some of the risks around Warner Brothers, Discovery and the 508 00:28:11,960 --> 00:28:14,600 Speaker 3: concerns across the board. So you know, that's the secret 509 00:28:14,680 --> 00:28:16,320 Speaker 3: I focus on. That's most of what I'm hearing. If 510 00:28:16,320 --> 00:28:18,960 Speaker 3: you talk about the overall credit markets, I think the 511 00:28:18,960 --> 00:28:21,080 Speaker 3: topic that you've hit with regard to the commercial real 512 00:28:21,200 --> 00:28:23,919 Speaker 3: estate exposure and risk there is also a big one 513 00:28:24,359 --> 00:28:24,960 Speaker 3: anything on yours. 514 00:28:25,880 --> 00:28:28,160 Speaker 2: Yeah, So I think from my side, it's just how 515 00:28:28,200 --> 00:28:32,639 Speaker 2: thin confidence is in current asset valuations. So we've had 516 00:28:32,680 --> 00:28:35,400 Speaker 2: a strong run, whether we're talking about equities or credit, 517 00:28:35,480 --> 00:28:37,280 Speaker 2: there's been a kind of a strong run. But it 518 00:28:37,320 --> 00:28:40,200 Speaker 2: seems like it takes very little negative news to really 519 00:28:40,280 --> 00:28:44,880 Speaker 2: knock that. Whether it's confidence in banking after what happened 520 00:28:44,960 --> 00:28:49,640 Speaker 2: last year, whether it's idiosyncratic risk in companies falling over 521 00:28:49,720 --> 00:28:53,800 Speaker 2: like Thames Water or potentially of some of the communications 522 00:28:53,880 --> 00:28:57,760 Speaker 2: names we've discussed. And you know, just a few bad 523 00:28:57,960 --> 00:29:01,600 Speaker 2: earnings as we've seen just lately, can have a very 524 00:29:01,800 --> 00:29:05,200 Speaker 2: disproportionate impact on equity market valuations as well. So it 525 00:29:05,320 --> 00:29:07,920 Speaker 2: just seems to be a lack of confidence in the 526 00:29:08,000 --> 00:29:11,480 Speaker 2: sort of rarefied valuation levels we're at, and I'd say 527 00:29:11,480 --> 00:29:13,880 Speaker 2: that that's something that can unwind pretty quickly. 528 00:29:13,960 --> 00:29:17,480 Speaker 1: On you, absolutely great stuff. Aidan Chesslin with Bloomberg Intelligence 529 00:29:17,480 --> 00:29:20,480 Speaker 1: in London, Thank you, thank you. And the great Steve 530 00:29:20,520 --> 00:29:23,160 Speaker 1: Flinn with BI in New York. Thanks very much, thank you. 531 00:29:23,680 --> 00:29:25,280 Speaker 1: It's been a pleasure having you on the Credit Edge. 532 00:29:25,360 --> 00:29:27,680 Speaker 1: Check out all of Aiden and Steve's excellent analysis on 533 00:29:27,680 --> 00:29:30,920 Speaker 1: the Bloomberg terminal. Bloomberg Intelligence is part of our research department, 534 00:29:30,960 --> 00:29:33,960 Speaker 1: with five hundred analysts and strategists working across all markets. 535 00:29:34,240 --> 00:29:37,360 Speaker 1: Coverage includes over two thousand equities and credits and outlooks 536 00:29:37,360 --> 00:29:40,160 Speaker 1: on more than ninety industries and one hundred market industries, 537 00:29:40,360 --> 00:29:44,160 Speaker 1: currencies and commodities. Thanks so much for listening. Please note 538 00:29:44,160 --> 00:29:46,479 Speaker 1: we will take off the week of August fifth, so 539 00:29:46,600 --> 00:29:49,800 Speaker 1: no episode of Credit Edge on August eighth, but full 540 00:29:49,880 --> 00:29:52,760 Speaker 1: service resumes on August fifteenth, when we will be back 541 00:29:52,840 --> 00:29:56,440 Speaker 1: with another great show. Please do subscribe to The Credit 542 00:29:56,520 --> 00:29:59,360 Speaker 1: Edge wherever you get your podcasts. We're on Apple, Spotify, 543 00:29:59,440 --> 00:30:02,959 Speaker 1: and all other good podcast providers, including the Bloomberg terminal 544 00:30:03,000 --> 00:30:06,000 Speaker 1: at bpod Go. Give us a review. It makes us 545 00:30:06,160 --> 00:30:09,920 Speaker 1: easier to be found by other listeners. Tell your friends, 546 00:30:10,040 --> 00:30:14,040 Speaker 1: or email me directly at Jcrombie eight at Bloomberg dot net. 547 00:30:14,640 --> 00:30:16,800 Speaker 1: I'm James Crombie. It's been a pleasure having you join 548 00:30:16,880 --> 00:30:20,080 Speaker 1: us again, next time on the Credit Edge.