Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. I
Speaker 1: want to introduce Al Hunt, Bloomberg opinion columnist and expert
Speaker 1: in all Things Washington, to tell us a little bit
Speaker 1: about what we should pay attention to on this election day.
Speaker 1: Al Hunt, always a pleasure, Thanks for being with us.
Speaker 1: I want you to just tell us a little bit
Speaker 1: about Katie Hill. Now, this is not a name that
Speaker 1: many people may be familiar with. She is running in
Speaker 1: California's twenty five and you've written about Katie Hill and
Speaker 1: why this is an election to watch. Tell us, Well,
Speaker 1: it's a it's basically a Republican leaning district gets represented
Speaker 1: by an incomment named Steve Knight, who was one of
Speaker 1: the stronger incomments running for reelection. It's a district, it's
Speaker 1: north of l A. It's Ventura Simi Valley, home of
Speaker 1: the Reagan Library and suddenly this thirty one year old
Speaker 1: woman who is the daughter of a cop and a nurse,
Speaker 1: ran a large homeless organization, didn't have a lot of
Speaker 1: connections or anything, has run this dazzling campaign and come
Speaker 1: from clearly behind to the point where she is at
Speaker 1: least an even bet. She raised in the last quarter
Speaker 1: three point eight million dollars. Let me repeat that, three
Speaker 1: point eight million dollars even in Bloomberg terms, that's pretty big.
Speaker 1: And she's got two thousand volunteers every last weekend at
Speaker 1: least fanning out. So it's really kind of exciting to
Speaker 1: see that kind of grassroots enthusiasms. So when you look
Speaker 1: at the race specific details right now and from what
Speaker 1: you're hearing with respect turnout, what are you expecting for
Speaker 1: today's results? A huge turnout to begin with, and huge
Speaker 1: turnout under conventional standards would be an advantage for Democrats,
Speaker 1: and think it still might be. But one doesn't know
Speaker 1: whether Trump rallied people with his what I consider racist
Speaker 1: demogo agree on the caravan and other issues the last
Speaker 1: couple of days, so it's a little bit uncertain. I
Speaker 1: think the big turnout in suburban areas is clearly going
Speaker 1: to advantage Democrats. If there's a huge turnout in red
Speaker 1: rural areas, that may help Republicans. On balance, I think
Speaker 1: it's going to help democrats more. Al Hunt, are you
Speaker 1: looking to the Indiana Senate race as well? Big first
Speaker 1: six o'clock post closed in Kentucky and Indiana, And there
Speaker 1: are two really really huge races, one in the House
Speaker 1: and one of the Senate Senate that you just mentioned.
Speaker 1: Joe Donnally is probably one of the three or four
Speaker 1: most endangered Democratic income with This is a really bad
Speaker 1: map for Democrats this year, and if Joe Donally survives,
Speaker 1: that means that Democrats, you know, have a shot taking
Speaker 1: control of the Senate. It's a long shot, but it's
Speaker 1: one of Republicans think they have to win. It's a
Speaker 1: very Republican stage. Joe donny is a one term senator.
Speaker 1: Uh he voted against bred Cavanall and they have really
Speaker 1: I think I think Obama's excuse me, I think that
Speaker 1: Trump has been there four times. Kentucky. Amy McGrath, Marine
Speaker 1: combat pilot Amy McGrath is running against Republican income in
Speaker 1: Andy Barr in a district it's about plus ten GOP
Speaker 1: and I think she's got a real chance to win.
Speaker 1: It's a very exciting race, and that will be an
Speaker 1: indication of a of a wave of interesting candidates winning
Speaker 1: this year, a lot of them women and a disproportionate
Speaker 1: number of them veterans young. Do you think that Ted
Speaker 1: Cruz will no longer be part of the Senate? Come?
Speaker 1: I guess well, no, I'm I I'm not saying I'm
Speaker 1: not weighing in a one way or another. Better artist
Speaker 1: certainly know you're being there, I'm not, but but better
Speaker 1: rockers certainly run a competitive campaign, and it seems like
Speaker 1: there is some uncertainty there though the leaning towards Ted Cruz, right,
Speaker 1: he's a rock star two thousand and eighteen. Uh, not
Speaker 1: not Ted Cruise, but better ur it's a it's a
Speaker 1: really tough state. It's a really really tough state to
Speaker 1: Wednesday wide. If you're a Democrat, it's probably moving that way,
Speaker 1: but slowly. I think the only the only reason Democrats
Speaker 1: think they may be an upset is because there is
Speaker 1: a massive surge of early voting there. And the question
Speaker 1: is do the polls and them and the modeling are
Speaker 1: they able to reflect that? Because they all show Cruise
Speaker 1: winning by about three or four. I don't know the
Speaker 1: answer that question, but it will be exciting to watch
Speaker 1: poles closed in Texas at eight, So stay tuned for
Speaker 1: then next door, you said that Better Rourke is the
Speaker 1: rock star of this election cycle. So you know, one
Speaker 1: sort of speculation is if he wins, he'll be considered
Speaker 1: a candidate for the presidency at some point, perhaps even
Speaker 1: as soon as Do you think that that's feasible? And
Speaker 1: do you think it's feasible even if he doesn't win? Well,
Speaker 1: I think all the standards change when Donald Trump one.
Speaker 1: Uh So therefore, you know, experience and gravitas and all
Speaker 1: that kind of stuff that used to count for something
Speaker 1: doesn't count much anymore. But I think that would be early.
Speaker 1: Uh Barack Obama they said was early, but Barack Obama
Speaker 1: has spent you know what, eight years in the state legislature,
Speaker 1: four years in the Senate. I think more of a
Speaker 1: you know, more ready say than Better would be in
Speaker 1: twenty But I'll tell you there's an awful lot of
Speaker 1: of of really movement Democrats who would put their hand
Speaker 1: to fire for better or work. Al Hunt tell us
Speaker 1: about the races in Florida, And I don't just mean
Speaker 1: the Senate race between Bill Nelson and it's it's it's
Speaker 1: really you know, if you if you're looking for a
Speaker 1: operations central tonight, it's Florida because it's the one state
Speaker 1: that has everything. Huge Senate race, which you just mentioned,
Speaker 1: Bill Nelson running against an incumbent Governor Rick Scott, I mean,
Speaker 1: and and the amount of money spent is has been colossal.
Speaker 1: Same time, you have a fantastic governor's race with a
Speaker 1: Trump supporting right wing Republican Congresman Rohn de Stantus running
Speaker 1: against uh. The African American mayor of Tallahassee, Andrew Gillham,
Speaker 1: has really been a It's been a very tough race.
Speaker 1: I was down there a couple of weeks ago, and
Speaker 1: I think, to the surprise of some Democrats in Washington least,
Speaker 1: Gillham is just one heck of a candidate, and I
Speaker 1: think the odds now favor him, and that would be
Speaker 1: huge because it would be the first time the Democrats
Speaker 1: control the state House in eight years. It affects redistricting
Speaker 1: after the two thousand and twenty cents and those two
Speaker 1: races at the top of Democrats win those by three
Speaker 1: or four or five points. And some think they will.
Speaker 1: That's that's going to affect the number of House seats
Speaker 1: two I think there right now Democrats think they're going
Speaker 1: to pick up two House seats in Florida. They have
Speaker 1: a chance to pick up as many as four or
Speaker 1: five if they have any kind of a blue wave night.
Speaker 1: So we're talking a lot about a potential blue waver
Speaker 1: of Democrats picking up seats. But there is the alternative here,
Speaker 1: which is that Republicans pick up both they win, they
Speaker 1: keep control over both houses, both the House for Presentatives
Speaker 1: as well as the Senate. And what's the likelihood of
Speaker 1: that and what would that do for President Trump? Well,
Speaker 1: the likelihood of that I think is probably you know,
Speaker 1: in the fifteen, you know, seventeen percent range. I think,
Speaker 1: you know, far greater than they'll keep controlling the Senate.
Speaker 1: But but our reach and the half. But if they do, uh,
Speaker 1: it's uh, you know, it's a free license for Donald Trump.
Speaker 1: Donald Trump can do anything he wants to. It will
Speaker 1: be the end of the Affordable Healthcare Act. He can
Speaker 1: really get done almost anything he wants. He dominates his party,
Speaker 1: and his party will dominate Washington. Al Hunt, thank you
Speaker 1: so much for being with us. All Hunt is a
Speaker 1: columnist with Bloomberg Opinion talking about the midterm elections. There
Speaker 1: certainly has been a lot of hype around financial technology
Speaker 1: fintech firms. A number of startups have version to the surface,
Speaker 1: so over the number of years, there is a question though,
Speaker 1: how much more room is there for startups at a
Speaker 1: time when the big banks are all trying to plow
Speaker 1: into financial technology fintech Joining us now to talk about
Speaker 1: that it should work such a volo. He is a
Speaker 1: general partner at Trinity Ventures in San Francisco. Shu Work,
Speaker 1: thank you so much for being with us. So let's
Speaker 1: just start there. I mean, do you see a lot
Speaker 1: of good potential opportunities out there with respect to fintech
Speaker 1: firms that you are interested investing in? Absolutely. I think
Speaker 1: fintech's uh is a pretty broad category. There's a lot
Speaker 1: of different kinds of opportunities up and down the financial
Speaker 1: services spectrum. Um. I do think the the levels of
Speaker 1: innovation in fact are just getting started. You had mentioned
Speaker 1: the big banks flowing in more. If anything, I think
Speaker 1: that actually creates a whole bunch of new opportunity because
Speaker 1: as these big banks effectively try to create new products
Speaker 1: and services there's a whole bunch of new technology platforms
Speaker 1: and so of us is that will be necessary in
Speaker 1: order to deliver them. A lot of opportunity there, and
Speaker 1: part of the reason why a lot of the large
Speaker 1: national institutions are getting more aggressive is because there's a
Speaker 1: whole bunch of new upstarts are effectively pushing the boundary
Speaker 1: and kind of forcing a lot more innovation faster. So
Speaker 1: all in all, I think there's still a lot of
Speaker 1: opportunity across the spectrum for fintech innovation. Now, you yourself
Speaker 1: are a serial entrepreneur in the world of fintech. You've
Speaker 1: created companies that have then been acquired by master Card,
Speaker 1: for example. How is it possible that on the consumer level,
Speaker 1: you're able to take an uber or to transact business
Speaker 1: completely on your phone instantly, without any friction, you can
Speaker 1: pay for things. But when it comes to the world
Speaker 1: of wholesale banking banks moving large amounts of money, why
Speaker 1: is that still a challenge and why is it still expensive?
Speaker 1: It's an excellent quite chin, and I think the simple
Speaker 1: answer is that the stakes are higher and and the
Speaker 1: infrastructure that is necessary to be built up in order
Speaker 1: to plane those spaces is higher simply because the regulatory
Speaker 1: um requirements that are required to play those spaces are
Speaker 1: substantially more um stringent, So you have a larger number
Speaker 1: of regulations that control, you know, things like k y
Speaker 1: C and m L that all are multiple three letter
Speaker 1: words that effectively are things that need to be done.
Speaker 1: To make sure that the consumer and all the participating
Speaker 1: parties in a transaction are protected and to make sure
Speaker 1: that all of those things are done is a much
Speaker 1: higher bar and a lot of cases actually quite boring stuff.
Speaker 1: So when you think about financial innovation, UH innovation first
Speaker 1: starts with the easier things, things that are easier to
Speaker 1: get done. But we've recently invested in a company that's
Speaker 1: actually making that a lot easier do um, a company
Speaker 1: called Synapse i f I that's actually creating a p
Speaker 1: I S to almost make access to wholesale banking almost
Speaker 1: as easy as Stripe has made payment services to be
Speaker 1: integrated into an over order left for example. And just
Speaker 1: to do the acronym definition, k y C means know
Speaker 1: your Customer and a m L for those in the
Speaker 1: financial world, no, it means anti money laundering rules. Sorry, no, no,
Speaker 1: no worries. It's good to point that out, because these
Speaker 1: acronyms do have purposes for for the regulators and for
Speaker 1: the banks. But Schwork, I'm wondering you mentioned payments and
Speaker 1: that was an area that you have expertise in yourself.
Speaker 1: I'm looking at squares shares, for example, and they're up
Speaker 1: more than a hundred and twenty percent so far year
Speaker 1: to date. Is the payment sector still ground zero when
Speaker 1: it comes to innovation in financial technology? What is the
Speaker 1: frontier for the next wave of innovation? Absolutely, I think
Speaker 1: it's definitely the early days square and of course is
Speaker 1: then innovating almost in and around the payment sectors, so
Speaker 1: they're actually kind of getting into things like lending and
Speaker 1: marketing and all the other kinds of services from payroll
Speaker 1: and so and so forth. So they the number of
Speaker 1: services they can offer their existing customer base um is
Speaker 1: still you know, they're still sketching the surface. I think
Speaker 1: there's a lot more upside there. And but if you
Speaker 1: look at broadly more fintech, I do think the the
Speaker 1: amount of innovation is almost poised to accelerate because one
Speaker 1: of the things that almost limits innovation and financial services
Speaker 1: is in fact regulatory um strength. If you may so,
Speaker 1: if the the regulators are are being very very cautious,
Speaker 1: then it almost limits innovation because people are scared to
Speaker 1: kind of push the boundary a little bit to kind
Speaker 1: of make sure figure out what it is that actually
Speaker 1: can be done. Um. But when the regulators tend to
Speaker 1: be a little bit more lax, then it tends to
Speaker 1: become a little bit more um encouraging of innovation. So lending,
Speaker 1: for example, has been innovated on many, many times over
Speaker 1: the last ten years because regulators were a little bit
Speaker 1: more friendly towards innovation in the lending space. So as
Speaker 1: regulators look favorably upon innovation in different areas, those actually
Speaker 1: tend to count alive with a lot more innovation. So
Speaker 1: I think lately, I think that regulators have been a
Speaker 1: little bit more encouraging our innovation. The occ is, for example,
Speaker 1: creating things like the Fintech Charter, so they're they're starting
Speaker 1: to think about innovation as part of the realm of
Speaker 1: the things that they want to encourage and push. And
Speaker 1: so as the regulators start to kind of look at
Speaker 1: this a little bit more favorably, I think innovation is
Speaker 1: only going to accelerate. Can you just tell us quickly
Speaker 1: about branch because we talked about the developed world, and
Speaker 1: Branch is a company that you've invested in that works
Speaker 1: in emerging markets. That's exactly right. I think if you
Speaker 1: really think about financial services, we tend it kind of
Speaker 1: almost always on fin techs especially, we tend to think
Speaker 1: about that as a very US phenomenon. But if you
Speaker 1: really look at the fintech innovation, it's actually happening across
Speaker 1: the world. In fact, because again regulation is a little
Speaker 1: bit more friendly innovation. In Europe, you actually find and
Speaker 1: DiNovo banks that have actually been created from scratch actually
Speaker 1: thriving in Europe, which is not quite played out almost
Speaker 1: the same way in the US yet. UM. But if
Speaker 1: you really think about consumers and consumer demand, UM, financial
Speaker 1: services in the US is almost one of the most
Speaker 1: well developed sectors. But across the rest of the world,
Speaker 1: financial services has very very low penetration, so very few
Speaker 1: consumers actually even have access to financial services as a
Speaker 1: fraction of the entire population. And what Brand is trying
Speaker 1: to do is kind of taking the device that is
Speaker 1: that actually does have very high penetration, which is a
Speaker 1: smartphone UM, which is rapidly increasing in its penetration rates
Speaker 1: across and developing world and using the the access and
Speaker 1: information that a smartphone provides in order to be able
Speaker 1: to create underwriting decisions, in order to give access to
Speaker 1: both loans and going forward even savings products to consumers
Speaker 1: um directly off of their phone. So a branchless banking,
Speaker 1: if you may, delivered by a smartphone into the very
Speaker 1: um deepest parts of Africa, India and Mexico and a
Speaker 1: bunch of other countries as as they go along. Thank
Speaker 1: you very much for spending time with us and talking
Speaker 1: about financial technology and the challenges and the opportunities. Schwark
Speaker 1: Sayavolo is the general partner for Trinity Ventors. Joining us
Speaker 1: from San Francisco. The energy and pharmaceutical industries stand to
Speaker 1: potentially be disrupted depending on the outcome of today's midterm
Speaker 1: elections in the United States. Joining us now, Brian Rice
Speaker 1: in your healthcare policy analyst four Brick Intelligence coming to
Speaker 1: us from our nig n WIN studios in Washington, d C. Brian,
Speaker 1: thank you so much for joining us. Let's start with
Speaker 1: the pharmaceutical industry. What is the sort of range of
Speaker 1: outcomes from today's election that could potentially affect this industry? Sure,
Speaker 1: and I think the one that pharmaceutical industry would be
Speaker 1: most concerned with is if you have the true blue
Speaker 1: wave where Democrats control not only the House but also
Speaker 1: the Senate, and in that instance, they would have the
Speaker 1: ability to not only hold a lot of hearings that
Speaker 1: would create a lot of noise and headlines, but then
Speaker 1: also potentially send some legislation to President Trump's desk. And
Speaker 1: I think the concern for the industry is that if
Speaker 1: you've listened to President Trump over the past couple of years,
Speaker 1: you know his personal leanings from time to time appear
Speaker 1: to be more aligned with the Democrats on things like
Speaker 1: giving the federal government more direct influence over the prices
Speaker 1: of prescription drugs in the part deep program for example. Now,
Speaker 1: if it's just a split where our gridlock situation where
Speaker 1: Democrats maybe win control of the House, but Republicans retain
Speaker 1: control of the Senate, and I think those more draconian
Speaker 1: things are are taken off the table. But again, the
Speaker 1: Democrat controlled House would have the ability to dictate a
Speaker 1: number more hearings and things that would put pharmaceutical companies
Speaker 1: UM in more of a spotlight than they are are already.
Speaker 1: Brian Ryan, I just want to let you know that
Speaker 1: we have a group of future voters of America joining
Speaker 1: us here in our Bloomberg Interactive Broker studios. We have
Speaker 1: all the members of a Girl Scout a troop nineteen
Speaker 1: fifty six from Edgemont in Scarsdale. So they're all listening
Speaker 1: to you because they want to understand how the midterm
Speaker 1: elections figure into not just this election cycle, but the cycle.
Speaker 1: Are these the same issues you believe are going to
Speaker 1: dominate the next election or is this something that is
Speaker 1: specific to this mid term because typically you think, oh,
Speaker 1: however the economy goes, that's how the vote goes. Well.
Speaker 1: First of all, I'm honored to be speaking in front
Speaker 1: of such a distinguished group. Welcome girls, and uh. Secondly,
Speaker 1: I think the healthcare UH situation is one that will
Speaker 1: continue to be of particular interest to voters, not only
Speaker 1: drug pricing, but then also starting tomorrow probably will cycle
Speaker 1: very quickly into the presidential campaign, in particular the intra
Speaker 1: Democratic party fight about how far left do you want
Speaker 1: to go? Are we going to nominate someone who believes
Speaker 1: in the Bernie Sanders Medicare for All perspective? Or is
Speaker 1: it maybe not quite that far down that stretch. So
Speaker 1: you know, I think twenty nineteen is going to be
Speaker 1: a very interesting year from a healthcare perspective, and that
Speaker 1: obviously sets up the battle versus President Trump in twenty
Speaker 1: depending on the outcome of these UH midterm elections tomorrow
Speaker 1: and what policies emanate from there, that will obviously drive
Speaker 1: a lot of the conversation UM UH in heading into
Speaker 1: and certainly, you know, healthcare, so one that I think
Speaker 1: both parties will be forced to talk about, even if
Speaker 1: they don't want to. Brian, one thing that I'm struck
Speaker 1: by is that no matter who wins, we're going to
Speaker 1: probably deepen US deficit right with spending, possibly either with
Speaker 1: infrastructure spending or a more permanent tax cut. Would you
Speaker 1: say that that's an accurate statement? And what are the
Speaker 1: most likely spending scenarios should we see a blue wave
Speaker 1: or a red wave? Yeah, I think in certainly history
Speaker 1: suggests that's a pretty safe bet no matter what the
Speaker 1: what the outcome of an election is, UM, certainly you
Speaker 1: have either a blue wave or a split Congress. UM.
Speaker 1: I think infrastructure is an area where the President has
Speaker 1: expressed a lot of interest and Democrats UM also would
Speaker 1: want to to maybe uh, provide more stimulus In that standpoint,
Speaker 1: I think the political question that the Democrats would then
Speaker 1: have to ask though, is do they want to hand
Speaker 1: the president a win? Do they want to be seen
Speaker 1: on stage at a bill stigning ceremony for example, where
Speaker 1: the president is getting something that he wants. And then
Speaker 1: for the president, would he be willing to to cave
Speaker 1: in on some Democratic demands? How much would he ask
Speaker 1: for in return, whether it's the wall or other infrastructure
Speaker 1: priorities that perhaps the Democrats, um, you know, aren't aligned with,
Speaker 1: but that I think is an area that investors are
Speaker 1: going to want to focus on. But that's certainly that's
Speaker 1: certainly not a deficit cutting program that we're going to see, Brian,
Speaker 1: there are a lot of ballot initiatives that voters are
Speaker 1: going to have to decide on. Tell us the ones
Speaker 1: that you believe are the most relevant. Well, a couple
Speaker 1: uh that that I think are in our various analysts
Speaker 1: are focused on here at Bloomberg Intelligence out in California.
Speaker 1: Prop eight I think has a lot of a lot
Speaker 1: of interest within the healthcare community, in particular dialysis providers,
Speaker 1: you know, Uh, Divita in particular has been very keen
Speaker 1: on on that one. UH, several ballot initiatives could could
Speaker 1: I guess further the trend towards cannabis legalization. I think
Speaker 1: Michigan is a state in particular that that our analysts
Speaker 1: are focused on, given the UH the potential market in
Speaker 1: that state. So those are a couple that across the
Speaker 1: country a number of ballot initiatives. This is much more
Speaker 1: than just the battle for control of Congress. Thank you
Speaker 1: so much for being with us, Brian, Ryan. I'm sure
Speaker 1: you've got a long night ahead of you, and we
Speaker 1: may not even know the results right come tomorrow morning,
Speaker 1: and there might be some pretty hairy races there. That's right,
Speaker 1: you know, ballot I guess the post closed around eleven
Speaker 1: o'clock tonight Eastern time in California. A number of those
Speaker 1: races could ultimately decide which way the no the Congress
Speaker 1: goes next year. Well, Brian, right, I have a wonderful
Speaker 1: time drinking coffee from now until tomorrow this time, Brian
Speaker 1: Ryce and your healthcare policy analyst for Bloomberg Intelligence coming
Speaker 1: to us from the Capital of the United States, Washington,
Speaker 1: d C. The creditors of Seers are asking the court
Speaker 1: to probe transactions that involve the bankrupt retailer's biggest shareholder,
Speaker 1: Eddie Lampert. And here to tell us about it is
Speaker 1: Noel Hebert, director of credit research for Bloomberg Intelligence. No
Speaker 1: just set out for us exactly what kinds of transactions
Speaker 1: do they want to investigate? It? Well, pretty much all
Speaker 1: of them. Uh. So mean, over the last several years
Speaker 1: is in order to keep Sears afloat at these done
Speaker 1: a number of things to basically inject capital into the business.
Speaker 1: The biggest one being the transaction where they spun out
Speaker 1: a bunch of real estate into what's called Siritage, which
Speaker 1: is a real estate investment trust that took on a
Speaker 1: bunch of the stores owned by Sears. But then more
Speaker 1: recently there's been a number of deals which were more
Speaker 1: direct lending, whereas Eddie Lampert through his E s L
Speaker 1: investment font would basically lend dollars secured by new real
Speaker 1: estate or intellectual property or some of the other assets
Speaker 1: of the company. So what's its stake here? I mean,
Speaker 1: could Eddie Lampert have to pay the credit or something
Speaker 1: or would you just stand or recover less? Uh it's
Speaker 1: a great question. Hi, I wish I knew the answer. Uh,
Speaker 1: you know, I think realistically it's a tactic by creditors
Speaker 1: to try and extract more from Eddie Lamper to kind
Speaker 1: of move the process along, because if it doesn't happen quickly,
Speaker 1: the problem is, as we saw with Toys r Us,
Speaker 1: that you end up in a situation where you risk
Speaker 1: moving from a chapter eleven into a Chapter seven. Um
Speaker 1: that he doesn't want that because of his Sriitage ownership
Speaker 1: Steak and because Seritage still collects a lot of rent
Speaker 1: from scares. So to be clear, chapter seven means that
Speaker 1: the whole place to stands liquidates and is done, whereas
Speaker 1: Chapter eleven is more restructuring. Who are the creditors? I
Speaker 1: mean these are these mostly hedge funds. It's going to
Speaker 1: be predominantly hedge funds because you gotta remember, you know,
Speaker 1: esl controlled, you know, of the equity. He also controlled
Speaker 1: of you know, the lending part of the portfolio. So
Speaker 1: between him and fair Home before they had equity exited
Speaker 1: much of their equity stak. I mean those two collectively
Speaker 1: owned you know, three quarters of the capital structure. Almost
Speaker 1: no al How far back will this are they looking
Speaker 1: for this investigation to go? So they're they're trying to
Speaker 1: roll up everything going back until which is when you
Speaker 1: saw Siries Home Town spun out, as well as some
Speaker 1: of the deals with Sears Canada. Uh those I mean
Speaker 1: because a lot of those deals, including Land's End as well,
Speaker 1: which was a lot of those deals were just done
Speaker 1: as distributions spun out pro rata or everybody, all the
Speaker 1: shareholders had equal right to participate. So those look like
Speaker 1: a tough lift, I would think from the creditor standpoint.
Speaker 1: Same with Siritage because I got a fairness opinion and
Speaker 1: Eddie Lamport in the ESL paid an extra forty million
Speaker 1: a couple of years after that deal was done to
Speaker 1: settle shareholder litigation at that point, so you know, it's
Speaker 1: a good reach for them. I think the more recent
Speaker 1: deals where you know they lent directly against specific assets
Speaker 1: of the last call it two years, are probably more
Speaker 1: doable for for the hedge funds and the people on
Speaker 1: the other side of the ledger here um. But but
Speaker 1: they're going after everything. I'm just wondering there have been
Speaker 1: some kinks some people who are looking to lend a
Speaker 1: Sears while they're in bankruptcy adator and possessions loan have
Speaker 1: sort of balked at the idea of Eddie Lambert being
Speaker 1: orally in alved where is that and sort of how
Speaker 1: much are they going to be able to actually borrow
Speaker 1: to keep themselves afloat during this whole process. Well, it
Speaker 1: sounds like at least the latest iteration is that the
Speaker 1: other creditors are willing to put up another three hundred million,
Speaker 1: which is what Eddie and E. S l Are trying
Speaker 1: to do as a second leaned that are in possession
Speaker 1: financing loan um. So it looks like they're willing to
Speaker 1: take on that liability, which is okay from the standpoint
Speaker 1: of you still have plenty of coverage from your working capital,
Speaker 1: so your inventory, etcetera. Um. And basically they're trying to
Speaker 1: keep Eddie from getting more engaged because if he had
Speaker 1: gotten into the debtor possession role that he would leap
Speaker 1: frog right the other term loan lenders and some of
Speaker 1: the other first leans which are still out there as creditors.
Speaker 1: So I think the banks and a lot of people
Speaker 1: who've sort of bought into this process over time and
Speaker 1: kept you know, kind of maybe seeing the silver lining
Speaker 1: on the gray cloud that kept building, or maybe now
Speaker 1: feeling a little more disenchanted with the whole thing and
Speaker 1: less inclined to the sort of let Eddie have a
Speaker 1: bigger say and just quickly no time. You mentioned time.
Speaker 1: Do they have time to let this happen while the
Speaker 1: company still operates? No, would be my my gut answer here, right.
Speaker 1: I mean, the reality is, if you don't have something
Speaker 1: in place, in a real firm plan by the very
Speaker 1: early part of next year, call it mid February early March,
Speaker 1: it'll be very hard to keep this thing from spiraling
Speaker 1: into liquidation because the company consumes so much cash um,
Speaker 1: so you need to be able to wipe away all
Speaker 1: the incremental costs, whether you're talking just the cost of
Speaker 1: learning the bankruptcy, the cost of the incremental stores, etcetera.
Speaker 1: So it's going to be an interesting an interesting road,
Speaker 1: as it has for the number of years that this
Speaker 1: has been ongoing. Noal Hebert, thank you so much for
Speaker 1: being with us. Noal Hebert, Director of Credit Research for
Speaker 1: Bloomberg Intelligence. Thanks for listening to the Bloomberg P and
Speaker 1: L podcast. You can subscribe and listen to interviews at
Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm
Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on
Speaker 1: Twitter at Lisa Abramowitz. One before the podcast, you can
Speaker 1: always catch us worldwide on Bloomberg Radio