WEBVTT - Puerto Rico Emergency Funds Are Protected: Rossello (Podcast) 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.239 at Bloomberg dot com. Puerto Rico has been the focus 0:00:22.280 --> 0:00:24.759 of a lot of attention from the United States, both 0:00:24.760 --> 0:00:28.600 in terms of recovery from the devastating Hurricane Maria as 0:00:28.600 --> 0:00:31.400 well as in its attempt to restructure it's dead. I 0:00:31.440 --> 0:00:33.479 am very pleased to say that we have with US 0:00:33.640 --> 0:00:37.760 Governor card Rosseo. He is the twelfth governor of Puerto 0:00:37.880 --> 0:00:40.040 Rico and he joins us from our nitedal and studios 0:00:40.040 --> 0:00:44.000 in Washington, d C. Governor, I'm just wondering whether you 0:00:44.200 --> 0:00:47.440 have some particular item that you are hoping to hear 0:00:47.800 --> 0:00:50.560 from President Trump to night at the State of the Union. Well, 0:00:50.720 --> 0:00:53.479 there's uh, there's many items I would be very much 0:00:53.520 --> 0:00:56.440 interested in hearing. But I would say that from our 0:00:56.520 --> 0:00:59.760 vintage point, making sure that the recovery process in Puerto 0:00:59.840 --> 0:01:03.200 ric and elsewhere in the nation. UH is one of 0:01:03.240 --> 0:01:05.760 the priorities that we can focus on getting the funding 0:01:06.080 --> 0:01:08.600 to the places that have a need to rebuild UH 0:01:08.640 --> 0:01:11.720 and to recover. And I I think that is UH 0:01:11.760 --> 0:01:16.840 important to state that that is a priority and funds 0:01:16.880 --> 0:01:19.480 that are destined to those jurisdictions are not going to 0:01:19.560 --> 0:01:23.039 be utilized to say, build a wall. I think it's 0:01:23.080 --> 0:01:26.360 a it's an important outcome. So, Governor, how much has 0:01:26.400 --> 0:01:30.920 Puerto Rico received in UH A recovery funding funder federal government? 0:01:30.959 --> 0:01:33.920 And compare that to what you had hoped for at 0:01:33.920 --> 0:01:36.080 this stage? Are you sure? I'm guess you're gonna say 0:01:36.080 --> 0:01:38.360 you're short and there's a deficit. Just give us a 0:01:38.360 --> 0:01:40.880 sense of the scale, yep. So, So to give you 0:01:40.880 --> 0:01:42.840 a sense of the scale, we've been working with FEMA 0:01:42.959 --> 0:01:47.880 and other stakeholders on what the transformation and rebuild plans 0:01:47.880 --> 0:01:51.120 should be for Puerto Rico. The estimated cost at this 0:01:51.200 --> 0:01:54.960 juncture is it's a hundred and thirty nine billion dollars UH. 0:01:55.120 --> 0:02:00.320 Last year, UH, we've we've received probably from FEMA UH 0:02:00.360 --> 0:02:03.040 anywhere from three to three and a half billion dollars. 0:02:03.160 --> 0:02:06.600 And our expectation, of course is is to get that 0:02:06.680 --> 0:02:10.920 pumped much higher. UM we UH. There there are some 0:02:10.960 --> 0:02:13.960 reasons why this process has been slow, and it's because 0:02:13.960 --> 0:02:16.679 it's different in Puerto Rico than in other jurisdictions in 0:02:16.720 --> 0:02:20.280 the United States. For example, in Florida or Texas or 0:02:20.320 --> 0:02:24.560 any other state, the state controls the disimbursement process, whereas 0:02:24.560 --> 0:02:27.880 in Puerto Rico, FEMA controls it. And you might ask, well, 0:02:27.919 --> 0:02:31.600 what would be that outcome? Well, a comparison should should 0:02:31.639 --> 0:02:36.040 highlight what the order of magnitude differences. UH. Take Katrina 0:02:36.200 --> 0:02:40.959 when uh it impacted Louisiana by the same time after 0:02:41.000 --> 0:02:45.280 the hurricane UH that that we're measuring against Maria passing 0:02:45.320 --> 0:02:49.839 through Puerto Rico, they had already UH nine thousand, five 0:02:49.919 --> 0:02:54.400 hundred projects that were being moved forward, whereas in Puerto 0:02:54.520 --> 0:02:57.959 Rico we only have forty four. So there you can 0:02:58.000 --> 0:03:02.480 sort of sense a scale of the magnitude difference of 0:03:02.560 --> 0:03:05.359 what where we should be now in the recovery and 0:03:05.560 --> 0:03:10.440 UH our sense for petitioning that these restraints UH that 0:03:10.480 --> 0:03:13.240 are pre placed in Puerto Rico should be should be 0:03:13.280 --> 0:03:15.920 taken away. You you you started off saying that you 0:03:15.919 --> 0:03:19.000 want to see what President Trump has planned with respect 0:03:19.080 --> 0:03:23.480 to potentially diverting money away from Puerto Rico among other 0:03:23.520 --> 0:03:27.360 places to pay for the wall. What recourse would you 0:03:27.400 --> 0:03:29.880 potentially have if he goes ahead and does that, which 0:03:29.880 --> 0:03:32.520 is what he's threatened to do. So, so this is interesting. 0:03:32.560 --> 0:03:36.280 I've about four months ago. UH. You know, my job 0:03:36.280 --> 0:03:39.280 as governors is not only to act but also to anticipate, 0:03:39.840 --> 0:03:42.360 and UH I had a sense that this might be 0:03:42.400 --> 0:03:47.160 a discussion where funding for recovery would be utilized to 0:03:47.200 --> 0:03:50.320 build a wall. So we prepared our team, UH and 0:03:50.360 --> 0:03:53.160 we started studying all of the legal avenues that we have, 0:03:53.240 --> 0:03:56.320 and we have a very robust case. I mean some 0:03:56.400 --> 0:03:58.600 of the moneys that are coming to Puerto Rico, UH, 0:03:59.240 --> 0:04:02.360 the commu Unity Development blog rents that are used to 0:04:03.000 --> 0:04:07.840 uh TO for disaster relief. Those were passed by Congress 0:04:07.920 --> 0:04:11.000 and they were signed by the president. So UH, those 0:04:11.000 --> 0:04:13.960 are statute right now and we feel very comfortably confident 0:04:14.080 --> 0:04:16.080 that those moneys have to go to Puerto Rico. So 0:04:16.520 --> 0:04:19.800 if there was any dipping there, um, we would certainly 0:04:20.160 --> 0:04:23.600 battle it. So for most of the money's we have 0:04:23.800 --> 0:04:27.360 a strategy forward and of course we hope we don't 0:04:27.400 --> 0:04:29.200 have to get there. We hope that the president would 0:04:29.200 --> 0:04:33.640 see that. You know, rebuilding U s citizens lives is 0:04:33.720 --> 0:04:36.640 a priority. But if it gets to that point, we 0:04:36.800 --> 0:04:39.120 are ready to battle. So covernor let's talk about the 0:04:39.480 --> 0:04:42.320 rebuilding process in Puerto Rico. I'm sure you have a 0:04:42.400 --> 0:04:44.680 priority list. Give us a sense of given where you 0:04:44.760 --> 0:04:47.400 are right now, you know, a year plus removed from 0:04:47.440 --> 0:04:49.600 the hurricane, you know what are the t one of 0:04:49.720 --> 0:04:51.680 you know the one or two or three critical things 0:04:51.800 --> 0:04:55.440 that Puerto Ricans need right now to be addressed. I 0:04:55.600 --> 0:04:58.640 think in terms of projects, I would say the energy 0:04:58.680 --> 0:05:02.600 grid UH is a top priority. We have a very 0:05:02.680 --> 0:05:07.680 weak old energy grid that uses UH expensive fossil fuel, 0:05:08.200 --> 0:05:12.240 and our objective is to use recovery funding and private 0:05:12.279 --> 0:05:15.320 partners to leverage that and rebuild a modern energy grid 0:05:15.440 --> 0:05:18.160 that's more cost effective and that it is better for 0:05:18.400 --> 0:05:21.320 the environment and that frankly, can be a model towards 0:05:21.360 --> 0:05:24.159 the future. I think we're building roads in Puerto Rico 0:05:24.279 --> 0:05:30.520 and infrastructure is UH fundamental, fundamentally critical for our economy 0:05:31.040 --> 0:05:35.080 moving forward. And the other part is addressing our our 0:05:35.200 --> 0:05:38.640 labor force and the labor participation rate. UH. You know, 0:05:38.760 --> 0:05:41.159 with these recovery funds that are coming to Puerto Rico, 0:05:41.480 --> 0:05:44.400 with the incentives that are very competitive that we have 0:05:44.480 --> 0:05:48.200 on the island, with the opportunity zones that will bring 0:05:48.279 --> 0:05:52.520 about many investment opportunities to to the island, I think 0:05:52.560 --> 0:05:56.479 we have a window of opportunity to enhance and grow 0:05:56.560 --> 0:06:00.600 that labor participation rate. Governor I meanwhile made all of 0:06:00.920 --> 0:06:05.400 the talk with President Trump. Meanwhile, Bankruptcy Court has approved 0:06:05.520 --> 0:06:08.799 a planned restructure some of the seventy four billion dollars 0:06:08.839 --> 0:06:12.000 of debt that the island has UH sales tax bonds 0:06:12.040 --> 0:06:15.000 are rallying on this news. It has been this is 0:06:15.200 --> 0:06:18.280 this accounts for about seventeen billion dollars of bonds and 0:06:18.400 --> 0:06:21.640 basically they were on according to my understanding, the sales 0:06:21.680 --> 0:06:24.720 tax collected by the state would be split between the 0:06:24.760 --> 0:06:28.000 bond holders and the state. How can you be sure 0:06:28.080 --> 0:06:30.839 that you'll get enough revenues to be able to engage 0:06:30.839 --> 0:06:34.239 in some of these projects without just the benevolence of Washington, 0:06:34.320 --> 0:06:37.440 d C. Right, So, so you know, the rebuild of 0:06:37.520 --> 0:06:41.800 Puerto Rico has many UH many faces. One is on 0:06:42.560 --> 0:06:45.800 the fiscal front, one is on the economic front, and 0:06:45.880 --> 0:06:49.599 of course now the Humanian, Humanitarian and Structural Fund UH. 0:06:50.320 --> 0:06:53.600 Once we devised. This is based on a fiscal plan 0:06:53.720 --> 0:06:58.320 that has been devised where implementing certain structural changes would 0:06:58.320 --> 0:07:01.520 allow us to get avings in government while at the 0:07:01.560 --> 0:07:04.480 same time enhance our our revenues because our economy is 0:07:04.760 --> 0:07:08.640 moving forward. We've implemented UH labor reform in Puerto Rico, 0:07:08.720 --> 0:07:12.640 We've implemented permits reform in Puerto Rico, tax reform UH, 0:07:13.200 --> 0:07:16.520 as well as other critical structural changes that we feel 0:07:16.880 --> 0:07:21.240 are going to help us enhance and UH Puerto Rico 0:07:21.840 --> 0:07:27.280 UH moving forward. So with with all of those components inline, UH, 0:07:28.040 --> 0:07:30.880 we we see a path that once we clear away 0:07:31.680 --> 0:07:36.200 restructuring of the debt, with the expected surplus or part 0:07:36.240 --> 0:07:38.640 of the expected surplus that there is, we're gonna have 0:07:38.720 --> 0:07:43.160 a nice runway forward to increase our economy and to 0:07:43.400 --> 0:07:49.280 add significant value. Look, we're betting on nascent markets UM, 0:07:49.440 --> 0:07:52.960 We're betting on medical cannabis in Puerto Rico. We're betting 0:07:53.000 --> 0:07:57.600 on cryptocurrency and UM and blood chain in Puerto Rico. 0:07:58.000 --> 0:08:01.080 We are betting on HEMP as a as an open 0:08:01.160 --> 0:08:04.480 market E gaming, sports booking. All of those are markets 0:08:04.520 --> 0:08:07.240 that are not readily available now in Puerto rican that 0:08:07.320 --> 0:08:10.600 we're pushing forward. So combined with a lot of the 0:08:10.680 --> 0:08:12.640 things that we have going on in our island, it's 0:08:12.640 --> 0:08:15.080 gonna be an exciting time moving forward if we get 0:08:15.200 --> 0:08:17.960 these debt process of governors. Thank you so much for 0:08:18.040 --> 0:08:21.200 joining us and sharing your valuable time. Governor Ricardo ros Yo, 0:08:21.320 --> 0:08:24.600 Governor of Puerto Rico, from the Bloomberg Studios in Washington, 0:08:24.720 --> 0:08:41.439 d C, Puerto Rico. We were just talking to the 0:08:41.480 --> 0:08:45.679 Governor Ricardo Rosseo about the situation on the island with 0:08:45.840 --> 0:08:48.240 respect to its seventy four billion dollars in debt. We 0:08:48.400 --> 0:08:51.280 do have an agreement with at least seventeen billion dollars 0:08:51.360 --> 0:08:53.840 of sales tax bonds joining us here in our Bloomberg 0:08:53.840 --> 0:08:56.719 Atta Active Brokers studios. Michelle Kaski, Puerto Rico, reporter for 0:08:56.840 --> 0:09:01.000 Bloomberg News, as well as Dan Salander, partner and director. 0:09:01.360 --> 0:09:03.920 I was also head of municipal bonds at Lord Abbott 0:09:04.240 --> 0:09:06.320 UH normally in Jersey City, but he joins us here 0:09:06.320 --> 0:09:08.319 in New York. Michell, I want to start with you. 0:09:08.520 --> 0:09:11.280 There was an agreement reached and signed off on in 0:09:11.400 --> 0:09:15.040 bankruptcy court. What was it yesterday? The bankruptcy judge she 0:09:15.559 --> 0:09:19.040 approved this deal. It's it's the biggest deal so far 0:09:19.320 --> 0:09:23.920 throughout this Puerto Rico bankruptcy process. And right now Puerto 0:09:23.960 --> 0:09:27.400 Rico has about more than seventeen billion of sales tax bonds. 0:09:27.840 --> 0:09:30.920 This deal will cut that down to about twelve billion, 0:09:31.400 --> 0:09:34.400 and over the life of the debt, the government is 0:09:34.440 --> 0:09:36.920 saying that they're going to save seventeen point five billion 0:09:37.040 --> 0:09:39.960 in debt service savings. So, Dan, this is I guess 0:09:39.960 --> 0:09:42.160 we could characterize this as a very good and very 0:09:42.200 --> 0:09:44.920 welcome first step. Where do we go from here? Where 0:09:44.920 --> 0:09:46.719 does the Puerto Rico credit market go from here? In 0:09:46.760 --> 0:09:49.679 your opinion? Sure, Well, you know it's a very interesting stage. 0:09:49.760 --> 0:09:51.199 You know, if you if you thought about where we 0:09:51.240 --> 0:09:52.719 would be a couple of years ago. To reach the 0:09:52.760 --> 0:09:54.400 stage is taking a lot to get here. It's a 0:09:54.559 --> 0:09:57.079 very positive step that we have in agreement, um, but 0:09:57.160 --> 0:09:58.719 there is a lot more to do from here. You know. 0:09:58.920 --> 0:10:01.080 One of the big things in this whole process has 0:10:01.120 --> 0:10:03.040 been to figure out who gets a sales tax money. 0:10:03.080 --> 0:10:05.640 That's been the big first step. Now that that's been 0:10:05.640 --> 0:10:07.920 agreed upon and we have a deal. Once we get 0:10:07.960 --> 0:10:11.040 this finished, then the general Gation, shareholders and all the 0:10:11.080 --> 0:10:13.640 difference constituents there need to figure out how to divide 0:10:13.720 --> 0:10:16.040 up their sales tax and their money. So that's the 0:10:16.120 --> 0:10:18.920 next step that we'll see soon. Well, but Dan, just 0:10:19.040 --> 0:10:22.360 to follow up there, another question is how feasible will 0:10:22.480 --> 0:10:26.839 Porto Rico's capital structure be once it emerges from bankruptcy, 0:10:26.880 --> 0:10:29.680 and if it's splitting the sales tax revenue between bond 0:10:29.760 --> 0:10:34.559 holders uh and itself and its operations, how feasible is 0:10:34.640 --> 0:10:39.000 that with a shrinking population. Sure, the Portricos I was 0:10:39.080 --> 0:10:41.040 not a booming economy, but they're doing much better than 0:10:41.080 --> 0:10:43.719 people realize. Uh. You know that the revenue is this 0:10:43.840 --> 0:10:46.840 year away hundreds of millions, six hundred millions, something ahead 0:10:46.840 --> 0:10:50.200 of the forecast population drop and nowhere near what was expected. 0:10:50.640 --> 0:10:52.880 So things are doing much better than people might have expected. 0:10:52.920 --> 0:10:54.439 So there, and they're getting a lot of money from 0:10:54.440 --> 0:10:57.199 the federal government, so this helps them. It reduces their debt. 0:10:57.480 --> 0:10:59.280 Some of these bonds are zero coupons and don't want 0:10:59.280 --> 0:11:01.120 to pay interest or press went for a long time, 0:11:01.559 --> 0:11:03.920 so they're putting themselves in a good state to turn 0:11:04.000 --> 0:11:06.600 things around and really move towards the future. So, Michelle, 0:11:06.800 --> 0:11:09.920 how good is this agreement for bond holders? What do 0:11:10.000 --> 0:11:13.079 you think the recoveries will be for them. Um. Some 0:11:13.200 --> 0:11:15.400 people think that bond holders did very very well on 0:11:15.480 --> 0:11:19.000 this deal. The there's two types of the Cofeinea bonds. 0:11:19.040 --> 0:11:21.559 There's a senior tronch and a junior tron such subordinate. 0:11:22.000 --> 0:11:25.680 The seniors will get cents on the dollar subordinate fifty 0:11:25.760 --> 0:11:28.000 six cents on the dollar, and the bonds in the 0:11:28.080 --> 0:11:31.880 secondary have been trading um close to that. They're getting 0:11:31.880 --> 0:11:35.199 closer to that um and they've rallied in the past 0:11:35.640 --> 0:11:40.040 couple of days. The m so cents on the dollar 0:11:40.120 --> 0:11:42.280 is pretty good for seniors, all right, So Dan, would 0:11:42.320 --> 0:11:44.960 you be buying more Puerto Rico debt here? It's it's 0:11:45.040 --> 0:11:46.839 tough at this stage to say whether whether to buy 0:11:46.920 --> 0:11:48.520 or so. I think we've all been through a lot 0:11:48.640 --> 0:11:51.160 getting to this point. What's gonna be interesting is when 0:11:51.200 --> 0:11:54.079 the sales Tex deal comes to gets to agreed upon 0:11:54.160 --> 0:11:56.199 and issued, they're gonna be a lot of buyers out 0:11:56.200 --> 0:11:58.840 there didn't known Puerto Rico through this, so they're gonna 0:11:58.880 --> 0:12:00.520 have to make that decision. We would get the new 0:12:00.559 --> 0:12:02.559 bonds of what to do, Yeah, well, is it a 0:12:02.640 --> 0:12:04.760 net positive for you or not negative? That a lot 0:12:04.800 --> 0:12:08.360 of traditional mutual fund holders have gotten back into Puerto 0:12:08.400 --> 0:12:12.840 Rico debt, so we're at a traditional say through this time, UM, 0:12:12.920 --> 0:12:14.720 and when they're getting back in right now, they're getting 0:12:14.760 --> 0:12:17.240 back in through accrack and sewer bonds, things like that 0:12:17.400 --> 0:12:19.679 that are paying and have never been in default. I 0:12:19.760 --> 0:12:21.360 think it could be a big positive for us when 0:12:21.400 --> 0:12:24.240 this deal comes gets restructure. We have new bonds they're 0:12:24.240 --> 0:12:26.680 gonna want to buy and uh, you know, they're gonna 0:12:26.679 --> 0:12:28.520 be interest paying bonds in Puerto Rico that they don't know, 0:12:28.559 --> 0:12:30.240 and so it could be a good thing for us. 0:12:30.720 --> 0:12:33.160 So Michelle, well, this has been a fairly long process. 0:12:33.200 --> 0:12:35.200 I'm sure if you're a bond holder, a very long process. 0:12:35.400 --> 0:12:37.079 What do you think our next steps here as this 0:12:37.320 --> 0:12:39.080 as Puerto rican continues to try to get out from 0:12:39.360 --> 0:12:42.319 this financial crisis. Yeah, it's definitely important. Like Dan was 0:12:42.360 --> 0:12:45.839 mentioning earlier, it's important that Puerto Rico keeps on with 0:12:46.000 --> 0:12:49.400 this and Rick structures the general obligation debt so there 0:12:49.440 --> 0:12:51.640 can be some resolution to that, and then there will 0:12:51.640 --> 0:12:54.040 be some smaller portions of debt that they'll still need 0:12:54.160 --> 0:12:57.959 to work on. UM. And also the issue too of 0:12:58.200 --> 0:13:02.240 their their unfunded pension liabilities as those are a big 0:13:02.320 --> 0:13:06.360 issue for the island. Also the question of management, Dan, 0:13:06.600 --> 0:13:09.800 what's your confidence right now in the management of the island. 0:13:09.880 --> 0:13:12.000 The ability to take the money that they're receiving from 0:13:12.040 --> 0:13:14.640 the federal government and use it in an efficient way. Well, 0:13:14.880 --> 0:13:17.280 that's something they have to watch carefully. Obviously, the management 0:13:17.320 --> 0:13:20.079 got them in this situation originally, and that's why we've 0:13:20.080 --> 0:13:22.439 been working through this for so many years. The federal 0:13:22.520 --> 0:13:24.680 r government has been giving them money. It's not all 0:13:24.720 --> 0:13:26.280 been distributed to them yet, so we have to see 0:13:26.280 --> 0:13:27.679 what they do with that money when they get it. 0:13:27.840 --> 0:13:29.600 So much do you have a sense of how much. 0:13:30.160 --> 0:13:33.040 I saw some number like maybe sixty seventy eight billion 0:13:33.080 --> 0:13:35.439 dollars of potentially they can get from the government in 0:13:35.480 --> 0:13:37.240 different ways. So there is a lot of money going 0:13:37.320 --> 0:13:40.080 to them. And we had the governor on just earlier 0:13:40.160 --> 0:13:42.640 and he said quite emphatically that he's going to get 0:13:42.679 --> 0:13:46.240 that money. They they they've they've been granted it, so 0:13:46.320 --> 0:13:47.920 a lot of it has been already given to them, 0:13:48.000 --> 0:13:49.520 or at least the expectations been given to them, and 0:13:49.520 --> 0:13:51.520 they've been planning for us. It would be very difficult 0:13:51.520 --> 0:13:53.640 for them if they didn't get what was to they begetting. 0:13:53.760 --> 0:13:56.160 So from the bond market perspective, how does the bond 0:13:56.200 --> 0:13:58.280 market view Puerto Rico now? I mean, you know, at 0:13:58.320 --> 0:13:59.840 some point they're gonna have to come back to the market. 0:13:59.880 --> 0:14:01.640 At some point they're going to have to you know, 0:14:01.720 --> 0:14:04.760 refinance and and continue to invest. How do you think 0:14:04.760 --> 0:14:07.200 they're gonna be received? That's the big challenge. I mean, 0:14:07.240 --> 0:14:09.439 coming out of this, they're gonna have to do much better. 0:14:09.480 --> 0:14:11.800 I mean one of the issues we've had over time 0:14:11.840 --> 0:14:14.400 as they have not had audited state financials on time, 0:14:14.679 --> 0:14:17.319 they have not presented information shows they need to bottles 0:14:17.320 --> 0:14:19.600 that need to provide. So coming out of this, they're 0:14:19.600 --> 0:14:21.520 gonna be on watch. I mean, they're gonna have to 0:14:21.600 --> 0:14:23.520 do things much better than they did before to get 0:14:23.560 --> 0:14:25.920 the confidence in the market. And until they do, if 0:14:26.000 --> 0:14:27.680 they want to borrow, the rates are going to be very, 0:14:27.760 --> 0:14:30.560 very high compared to other similarly rated credits. So it's 0:14:30.720 --> 0:14:33.360 something to watch. They it's hard. You know, everyone's gonna 0:14:33.360 --> 0:14:34.760 remember this for a long period of time. We have 0:14:34.840 --> 0:14:38.800 long memories. Dan Salinder, congratulations on being in the bonds 0:14:38.920 --> 0:14:41.840 through this rocky period because the prices have way more 0:14:41.920 --> 0:14:43.800 than double. Depending on what we're looking at, when you 0:14:43.840 --> 0:14:46.560 look at the Cofinea bonds. Dan Salinder is partner and 0:14:46.640 --> 0:14:49.120 director as well as head of Municipal Bonds at Lord 0:14:49.200 --> 0:14:53.360 Abbott in Jersey City. Michelle Kaski's Puerto Rico reporter, dutifully 0:14:53.440 --> 0:14:55.760 covering all things having to do with the saga as 0:14:55.800 --> 0:14:59.240 it drags out over the years. Uh. For us here 0:14:59.280 --> 0:15:17.520 at Bloomberg News, well, it's been a widely held story 0:15:17.640 --> 0:15:19.840 and news that the newspaper business has been in a 0:15:19.960 --> 0:15:22.840 secular decline for twenty to thirty years. No news, no 0:15:22.960 --> 0:15:25.640 surprise there, but what we've seen over the last several 0:15:25.720 --> 0:15:28.160 years as a growth of digital media companies, digital news 0:15:28.240 --> 0:15:31.480 companies such as Vice and BuzzFeed and huff Posts. But 0:15:31.600 --> 0:15:34.640 even it looks like they are facing their day of reckoning. 0:15:34.720 --> 0:15:37.280 We'll dig in a little bit there. So help us 0:15:37.760 --> 0:15:40.280 dive into those details is Build. Drewelry Bills, a founding 0:15:40.320 --> 0:15:43.000 partner of Pursuit Advisory based here in New York City. 0:15:43.040 --> 0:15:45.080 He joins us in our Bloomberg eleven three oh Studios 0:15:45.560 --> 0:15:48.480 builds a longtime investment banker and research channels following the 0:15:48.560 --> 0:15:51.600 media sector. So so build these companies the vices of 0:15:51.640 --> 0:15:54.840 the world, these digital news companies. They were getting big valuations, 0:15:54.840 --> 0:15:56.840 attracting a lot of money, and I think they were 0:15:56.880 --> 0:16:00.880 perceived maybe as the future of news, maybe replace the newspapers. 0:16:01.120 --> 0:16:05.960 What's going on on that space? Well, interesting, interesting times 0:16:06.080 --> 0:16:08.200 for everybody in the media sector right now, Paul, I 0:16:08.320 --> 0:16:12.000 think that you're correct. In the last five or six years, 0:16:12.160 --> 0:16:15.320 there was a new sort of wave of of darling 0:16:15.480 --> 0:16:19.840 companies Fist being one of them, BuzzFeed, Vox, etcetera, that 0:16:19.960 --> 0:16:23.160 really rose up and and competed in the in the 0:16:23.280 --> 0:16:28.280 digital arena in terms of news content and general entertainment content. 0:16:28.800 --> 0:16:33.840 They were experiencing very rapid revenue growth and market share 0:16:34.240 --> 0:16:37.360 and as a result were accorded major valuations with a 0:16:37.400 --> 0:16:41.520 lot of investment from old line media strategics like NBC. 0:16:41.720 --> 0:16:45.600 Universal invested in both BuzzFeed and Fox in the summer 0:16:46.800 --> 0:16:52.280 at billion dollar valuations, and Disney invested in Vice twice 0:16:52.880 --> 0:16:55.960 and at the last round that Disney invested it was 0:16:56.080 --> 0:16:58.840 over four billion dollars. And they also formed a joint 0:16:58.960 --> 0:17:02.160 venture with Ice uh taking one of their A and 0:17:02.240 --> 0:17:05.840 E cable networks and converting it into Viceland. So it 0:17:05.960 --> 0:17:09.160 was the new media entering the arena to the old 0:17:09.240 --> 0:17:13.280 traditional media, but they were getting valuations that were based 0:17:13.320 --> 0:17:16.480 on revenue multiples and not the traditional cash flow metrics. 0:17:17.000 --> 0:17:19.440 And over the last two years, I think that what 0:17:19.560 --> 0:17:22.400 we've seen is a lot of these companies now start 0:17:22.480 --> 0:17:27.200 to see growth rates recede and and not being able 0:17:27.280 --> 0:17:31.240 to reach profitability with you know, aggressive investment and not 0:17:31.400 --> 0:17:33.679 a lot of cost management, and as a result, all 0:17:33.720 --> 0:17:36.320 of a sudden, they're starting to hit the wall. Okay, 0:17:36.400 --> 0:17:38.960 so how much is this bad management on the part 0:17:39.119 --> 0:17:42.960 of these uh, these media companies, these digital media companies 0:17:43.200 --> 0:17:46.960 or imprudent management And how much is this some sort 0:17:47.080 --> 0:17:51.440 of shift in the news business towards say the facebooks 0:17:51.480 --> 0:17:53.800 of the world and the apples of the world. Yeah, 0:17:54.320 --> 0:17:56.159 well two questions there, and I think that on the 0:17:56.280 --> 0:17:58.480 on the first one, you know, it's just a classic 0:17:58.680 --> 0:18:03.560 case of of companies that are getting high valuations and 0:18:03.640 --> 0:18:07.920 a lot of inflows of investment capital and then rapidly 0:18:08.040 --> 0:18:11.240 deploying that to go after revenue growth with no real 0:18:11.359 --> 0:18:14.920 fundamental cost management attached to it. We've seen this for 0:18:15.520 --> 0:18:18.280 multiple cycles over the last twenty years with the rise 0:18:18.359 --> 0:18:23.080 of digital. Every cycle has been marked by companies unable 0:18:23.160 --> 0:18:26.560 to reach profitability and and the third time around it's 0:18:26.600 --> 0:18:28.880 the same story. So I think that, you know, it's 0:18:28.920 --> 0:18:31.840 it's very classic in that regard. On the other side, 0:18:31.960 --> 0:18:34.680 I think that you know, you've seen this this this 0:18:35.080 --> 0:18:38.439 rise of these new digital platforms up and they produce 0:18:38.640 --> 0:18:42.959 excellent news content, but they can't monetize it because Google, Facebook, 0:18:43.119 --> 0:18:46.280 and to some degree now Amazon have basically just sucked 0:18:46.359 --> 0:18:49.000 all the oxygen out of the market. They are growing 0:18:49.480 --> 0:18:53.920 and basically taking over a hundred percent share of incremental opportunity, 0:18:54.160 --> 0:18:57.919 and there's nothing left for the next generation. It's unique 0:18:57.960 --> 0:19:00.680 in that regard. So that sounds is like, you know, 0:19:00.760 --> 0:19:02.760 if you think about the profit challenges that you talked about, 0:19:02.760 --> 0:19:06.240 you think about the competitive landscape, this looks like an 0:19:06.320 --> 0:19:08.840 environment that might be right for some consolidation. Do you 0:19:08.920 --> 0:19:11.960 think that we will see some of these companies merged 0:19:12.040 --> 0:19:14.480 to try to get some scale to compete against spoken 0:19:14.520 --> 0:19:17.840 like a true banker, like a true banker opportunity. Absolutely, 0:19:17.880 --> 0:19:21.000 I think that I think that it's it's going to 0:19:21.160 --> 0:19:24.760 be inevitable, and probably sooner rather than later. Paul. Part 0:19:24.800 --> 0:19:26.760 of the question is going to be how many of 0:19:26.840 --> 0:19:29.880 these companies can even really survive just in the last 0:19:30.320 --> 0:19:34.720 twelve to eighteen months, we've seen several companies go bankrupt. 0:19:34.960 --> 0:19:38.040 DeFi Media is one good example, a company that had 0:19:38.119 --> 0:19:42.400 over a hundred million of dollars of revenue just year 0:19:42.480 --> 0:19:47.600 before last major investment from UM, large complexes like Wellington 0:19:47.720 --> 0:19:52.879 and shareholders like Viacom, lions Gate and zell Nick Media, 0:19:53.000 --> 0:19:55.480 and the company basically just went out of business in 0:19:55.560 --> 0:19:59.560 the last six months exited UM and And we've also 0:19:59.640 --> 0:20:04.800 seen several other smaller companies that had strategic shareholders sell 0:20:04.960 --> 0:20:08.560 for valuations far less than where they last raised capital. 0:20:08.640 --> 0:20:11.680 So it's inevitable that they have to consolidate. The question 0:20:11.800 --> 0:20:14.159 is who can survive through that? So content is king, 0:20:14.240 --> 0:20:18.159 but only if it's content on Apple, Amazon, or Google. 0:20:18.359 --> 0:20:20.080 I think that I think that's a good point. It 0:20:20.440 --> 0:20:25.639 is virtually impossible to build scale now in this market, 0:20:26.000 --> 0:20:29.200 revenue scale with a real profit margin attached to it, 0:20:29.320 --> 0:20:33.720 and compete against the three or four behemoths. Interesting times 0:20:34.040 --> 0:20:36.000 it is I have to wonder it is. It is 0:20:36.040 --> 0:20:39.840 fascinating because I have to wonder what the competition will 0:20:39.880 --> 0:20:42.360 end up looking like, what conglomerate of some of these 0:20:42.480 --> 0:20:45.320 online media sources will look like. Because they were successful. 0:20:45.359 --> 0:20:47.240 It's not. You know, it's been of throwing the baby 0:20:47.280 --> 0:20:49.720 out with about bathwaters and I'll tell you and builds 0:20:49.760 --> 0:20:51.600 a long time new newspaper animals. I'll tell you where 0:20:51.640 --> 0:20:53.520 the whole is that the digital world has not filled, 0:20:53.560 --> 0:20:56.640 and that is local news. We've got national, global news, 0:20:56.680 --> 0:20:59.040 but we have no local news and that is a problem. 0:20:59.119 --> 0:21:01.640 And whoever can figure about that model, I think we'll 0:21:01.680 --> 0:21:05.159 have a real opportunity. Bill Drewy, if you're listening, you 0:21:05.280 --> 0:21:08.879 are listening. Paul is giving some We'll have to have 0:21:09.000 --> 0:21:11.000 you back and you'll have to weigh in on the 0:21:11.080 --> 0:21:14.119 local news. Bill Drewery, founding partner of Pursuit Advisors in 0:21:14.359 --> 0:21:17.320 New York, joining us here in our Bloomberg Interactive Broker Studios. 0:21:31.240 --> 0:21:34.399 The Fed is patient and investors you that is all 0:21:34.520 --> 0:21:37.920 clear to dive back into risk, fueling one of the 0:21:38.240 --> 0:21:41.840 best rallies on record for it certainly high old bonds 0:21:42.080 --> 0:21:44.240 to start the year. Joining us now is Tom Kennedy, 0:21:44.320 --> 0:21:46.800 had a fixed income strategy at JP Morgan Private Bank, 0:21:47.400 --> 0:21:50.040 which has assets of more than five hundred billion dollars. 0:21:50.160 --> 0:21:54.320 Tom worked at the New York Fed for nearly a decade. 0:21:54.760 --> 0:21:58.240 Knows how the Fed thanks so Tom what does the 0:21:58.320 --> 0:22:00.280