WEBVTT - Coal Stocks Trading at Cheap Valuations in Distressed Universe, Schultze Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.080 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Right now, 0:00:32.120 --> 0:00:35.080 I want to dig a little bit into the distressed 0:00:35.360 --> 0:00:38.680 debt market. George Schultz is chief executive officer of Schultz 0:00:38.680 --> 0:00:41.800 Asset Management, which oversees about two million dollars and is 0:00:41.840 --> 0:00:44.839 based in Purchase, New York. And George, you know, when 0:00:44.880 --> 0:00:47.519 I talked to distressed debt investors, a lot of them 0:00:47.520 --> 0:00:49.720 are tearing their hair out because the size of the 0:00:49.760 --> 0:00:53.400 distressed debt market is shrunk to about the smallest since 0:00:53.600 --> 0:00:56.800 right before the financial crisis, and it seems like there 0:00:56.800 --> 0:00:59.480 just isn't enough to stress to go around. Are you trying? 0:00:59.520 --> 0:01:03.120 Are you tear in your hair out? What's left of 0:01:03.120 --> 0:01:06.480 it that I've already corned most of it out? But alright, then, 0:01:07.880 --> 0:01:11.080 are there any opportunities right now? There are? There are, 0:01:11.120 --> 0:01:13.720 There are a lot of opportunities, especially in the energy market. 0:01:13.760 --> 0:01:16.160 A lot of companies in the oil and gas space 0:01:16.600 --> 0:01:19.399 and in the coal industry have defaulted in the past 0:01:19.440 --> 0:01:22.360 eighteen months, and many of them have emerged now. So 0:01:22.440 --> 0:01:26.160 there are a lot of post reor equities trading as 0:01:26.160 --> 0:01:30.160 we call them, companies that have restructured, gone through a 0:01:30.200 --> 0:01:33.720 reorganization event and now trade as post reord equities, but 0:01:33.760 --> 0:01:36.839 many of them aren't that well known. UM. Interestingly, many 0:01:36.880 --> 0:01:39.800 of them are very cheap, but they're not in the 0:01:39.840 --> 0:01:43.759 form of debt anymore. They're they're mostly trading as equities now. 0:01:46.520 --> 0:01:50.240 Sure one is Energy twenty one, a company that's interesting 0:01:50.480 --> 0:01:54.880 UH and much cheaper. There's another one, Sampson Resources that 0:01:54.880 --> 0:02:00.000 that was formerly one of the largest natural gas leverage 0:02:00.120 --> 0:02:04.160 bios ever restructured, came out of bankruptcy last year. There's 0:02:04.160 --> 0:02:05.720 a lot of smaller ones, a lot of them aren't 0:02:05.760 --> 0:02:08.720 that well known. And then there are some companies in 0:02:08.720 --> 0:02:12.959 other industries that trade as UH post distress equities as well, 0:02:13.840 --> 0:02:18.000 like for example, came out of restructuring several years ago, 0:02:18.040 --> 0:02:20.680 and there's an interesting news with that today with a 0:02:20.760 --> 0:02:24.639 potential Chinese investor looking to buy the company. Another one, 0:02:24.760 --> 0:02:30.000 Hawaiian Telcom, which is a telecommunications company that restructured several 0:02:30.080 --> 0:02:34.200 years ago and was recently sold to Cincinnati Bell at 0:02:34.200 --> 0:02:37.520 a nice premium. And a third one also in a 0:02:37.520 --> 0:02:42.760 different industry, Tropicana, which is a casino company that's been 0:02:42.800 --> 0:02:45.919 that was restructured several years ago. UM had been trading 0:02:45.960 --> 0:02:50.040 as post distress equity and most recently benefited from a 0:02:50.120 --> 0:02:52.440 huge stock buy back. So there's plenty going on, it's 0:02:52.480 --> 0:02:55.919 just not in the form of distress debt UM. It's 0:02:55.960 --> 0:02:59.880 more post distress equities these days, although I would imagine 0:03:00.000 --> 0:03:02.240 it you have a lot of competition because it seems 0:03:02.320 --> 0:03:06.839 like investors are fighting for any scrap of an opportunity 0:03:06.919 --> 0:03:10.360 they can find, just because of the incredibly high valuations 0:03:10.360 --> 0:03:14.080 and public liquid markets right now. Have you found that 0:03:14.120 --> 0:03:16.400 there is a lot of competition here or are these 0:03:16.400 --> 0:03:19.880 opportunities too small and too speculative to really attract the 0:03:19.919 --> 0:03:25.320 big money. I think they're too small for the big money. 0:03:25.360 --> 0:03:29.360 A lot of the competition recently has been people pumping 0:03:29.400 --> 0:03:34.920 money into big name ets and index funds UM and, 0:03:34.920 --> 0:03:38.400 and there's also been a lot of chasing of returns 0:03:38.440 --> 0:03:40.920 in the sixth income market. Now we're clearly in a 0:03:41.040 --> 0:03:45.640 market where UH there's monetary tightening that's starting. UM interest 0:03:45.720 --> 0:03:48.160 rates are still at very low levels, but we expect 0:03:48.160 --> 0:03:51.280 them to rise. And now coming into the fall, it 0:03:51.280 --> 0:03:54.240 looks like the SAID will be starting to reverse. It's 0:03:54.360 --> 0:03:58.160 it's quantitative using program, and with that we expect six 0:03:58.240 --> 0:04:01.839 income securities to trade off. So we think the best 0:04:01.840 --> 0:04:04.760 opportunity right now is in equities, but but not in 0:04:04.880 --> 0:04:08.200 blindly throwing money at et s and the largest companies 0:04:08.240 --> 0:04:12.120 like Google and Facebook and Microsoft. Rather, I think it's 0:04:12.120 --> 0:04:15.400 going to pay more to work as an active manager 0:04:15.600 --> 0:04:19.719 and look for specific opportunities. And yes, sometimes they're smaller companies, 0:04:19.960 --> 0:04:23.480 but the but the valuation there makes it worthwhile to 0:04:23.720 --> 0:04:27.080 to focus there. How have you changed your mix of 0:04:27.279 --> 0:04:30.880 investments to more heavily weight equities versus debt? I mean, 0:04:30.920 --> 0:04:34.400 you're you completely out of your debt investments in preparation 0:04:34.560 --> 0:04:37.839 for some kind of market disruption in the wake of 0:04:37.880 --> 0:04:40.440 the end of QI or the beginning of the unwine. 0:04:40.440 --> 0:04:41.960 I don't want to make it sound so dramatic, since 0:04:42.000 --> 0:04:45.040 they want to put us to sleep with this unwined. Yeah, 0:04:45.040 --> 0:04:46.719 we we have a decent amount of cash on the 0:04:46.720 --> 0:04:51.040 sidelines ourselves right now. UM typically over a cycle, we 0:04:51.120 --> 0:04:55.400 will our portfolios will evolve from being more heavily weighted 0:04:55.480 --> 0:04:58.400 to distress debt when the default rate is high and 0:04:58.400 --> 0:05:01.560 when the opportunities are plentiful too, when the default rate 0:05:01.600 --> 0:05:04.640 drops and is expected to climb again, to focus more 0:05:04.680 --> 0:05:06.840 on the equity side. So right now we're much more 0:05:06.880 --> 0:05:09.880 focused on the equity side. I expect that going forward 0:05:09.920 --> 0:05:12.719 as the faults start to rise again with with higher 0:05:12.760 --> 0:05:16.200 interest rates, that's where we'll be shorting more equities and 0:05:16.279 --> 0:05:19.640 eventually growing our fixed income book again. But right now 0:05:19.680 --> 0:05:21.880 we're much more focused on equities and and and they 0:05:21.960 --> 0:05:26.000 tend to be event driven because usually when equities traded 0:05:26.080 --> 0:05:29.440 very cheap levels, good things happened to those companies over time, 0:05:29.839 --> 0:05:32.320 and that's what we've seen recently with a few names 0:05:32.360 --> 0:05:36.039 I mentioned earlier. Energy twenty one and Samson Resources caught 0:05:36.080 --> 0:05:38.520 my attention in particular because I remember back in two thousand, 0:05:38.560 --> 0:05:41.960 fourteen and two fifteen, these were just decimated. I mean, 0:05:41.960 --> 0:05:45.120 it was sort of watching a sort of train wreck 0:05:45.200 --> 0:05:46.840 in front of your eyes when you looked at the 0:05:47.040 --> 0:05:50.600 debt prices of these particular companies during that time. I'm 0:05:50.640 --> 0:05:53.719 sure they did go into bankruptcy, how much is your 0:05:53.800 --> 0:05:57.560 wager on their out of bankruptcy equity? How much does 0:05:57.600 --> 0:06:00.560 it depend on oil prices staying where they are or 0:06:00.880 --> 0:06:05.480 going higher. Well, these are commodity companies and they definitely 0:06:06.000 --> 0:06:10.640 are dependent on a good stable price of either natural 0:06:10.680 --> 0:06:14.520 gas or oil depending on the company. But interestingly, for 0:06:14.560 --> 0:06:18.520 those two companies, they benefit from having left behind massive 0:06:18.560 --> 0:06:22.160 amount of debt when they're restructured. For Sampson, I think 0:06:22.160 --> 0:06:26.440 it left behind about six billion of of of debt 0:06:27.160 --> 0:06:29.880 in its restructuring and now there there's there's post re 0:06:30.040 --> 0:06:33.440 or equity, but it is private. It doesn't trade uh 0:06:33.760 --> 0:06:36.560 in too liquid of a fashion. Energy twenty one is 0:06:36.560 --> 0:06:39.200 also a little bit less liquid. That company I believe 0:06:39.279 --> 0:06:42.240 left behind about three billion in debt and other liabilities. 0:06:42.279 --> 0:06:45.760 So the good news with commodity companies when their restructure 0:06:46.360 --> 0:06:49.240 is yes, you're still dependent on a healthy commodity market, 0:06:49.680 --> 0:06:52.320 but fortunately the balance sheet can be much cleaner, and 0:06:52.400 --> 0:06:55.200 you basically get a fresh a fresh star at a 0:06:55.200 --> 0:06:57.600 new lease on life. That you think about it um 0:06:57.680 --> 0:06:59.599 and if you have a little luck over the longer 0:06:59.720 --> 0:07:04.000 term with commodities, you should do well. Another interesting sector 0:07:04.120 --> 0:07:07.719 is the coal space. In the coal industry, there have 0:07:07.800 --> 0:07:11.119 been just practically every major coal company in the US 0:07:11.160 --> 0:07:13.480 filed for bankruptcy in the past twenty four months and 0:07:13.480 --> 0:07:17.680 then came out. So companies like arch Coal and Peabody Energy, 0:07:18.160 --> 0:07:22.280 we're trading at extremely cheap prices. And the the interesting 0:07:22.320 --> 0:07:24.559 thing in the coal market is that there are several 0:07:24.560 --> 0:07:28.040 types of coal, not just steam coal, which gets burned 0:07:28.080 --> 0:07:32.320 to generate electricity, but also metallurgical coal, which is used 0:07:32.320 --> 0:07:36.119 in making steal um, and that market has recovered quite nicely. 0:07:36.280 --> 0:07:39.400 So a number of the coal companies are trading at 0:07:39.520 --> 0:07:43.560 very cheap valuations through their equities as well, and that's 0:07:43.560 --> 0:07:46.280 another area of focus for US lately. George, just in 0:07:46.360 --> 0:07:49.160 thirty seconds when you were talking about your preference for 0:07:49.200 --> 0:07:51.440 equities to bonds, it sounds like you think, I think 0:07:51.520 --> 0:07:56.240 that equities can keep rallying even if benchmark rates sell off. 0:07:57.080 --> 0:08:01.960 Thirty seconds. Why, yeah, Again, it's it's not at a 0:08:02.040 --> 0:08:04.080 high level. It's not you know, the biggest of the 0:08:04.080 --> 0:08:06.720 big names. It's not the SMP in general. It's more 0:08:06.760 --> 0:08:10.320 individual companies that are trading at extremely cheap prices. Again, 0:08:10.760 --> 0:08:13.080 you know, good things tend to happen the cheap companies 0:08:13.120 --> 0:08:16.000 over time when they're so cheap because their their distress 0:08:16.040 --> 0:08:17.720 and nobody wants to have anything to do with them. 0:08:17.760 --> 0:08:21.000 That's usually when you find some bargains. George Schultz, thank 0:08:21.040 --> 0:08:23.800 you so much for joining us. Truly, uh fascinating to 0:08:23.840 --> 0:08:26.440 dig into some of these specific names that hold probably 0:08:26.480 --> 0:08:30.280 more promised than broad indices at these incredibly high valuations. 0:08:30.280 --> 0:08:33.600 George Schultz is chief executive officer of Schultz Asset Management, 0:08:33.720 --> 0:08:36.320 which oversees about two hundred million dollars and is based 0:08:36.559 --> 0:08:51.559 in Purchase, New York. Herbal life it is the story 0:08:51.600 --> 0:08:54.280 that just keeps on giving. Met Townsends is here in 0:08:54.320 --> 0:08:56.400 the Bloomberg eleven three our studios. Met Townsend is a 0:08:56.440 --> 0:08:59.760 global business reporter for Bloomberg News. And I know that. 0:09:00.000 --> 0:09:02.080 And all of a sudden, you saw the shares surging 0:09:02.120 --> 0:09:04.480 this morning. You just got this excitement in you in 0:09:04.600 --> 0:09:07.679 pre market, you know, you're shaking your head back. It's back. 0:09:07.840 --> 0:09:09.760 You get to talk about it to get what's going on. 0:09:09.800 --> 0:09:11.600 So so this has to do with Carl I can. 0:09:11.720 --> 0:09:15.480 Of course, herbal life was brought into our consciousness when 0:09:15.520 --> 0:09:18.920 there was a spat between Bill Ackman and Carl Icon 0:09:19.120 --> 0:09:23.640 over at Acman very in a high profile manner departed 0:09:23.640 --> 0:09:26.800 from the company. Now we have carl Icon remaining. Why 0:09:26.840 --> 0:09:29.040 are the shares surging so much this morning? So the 0:09:29.080 --> 0:09:31.360 company came out and said that they are going to 0:09:32.200 --> 0:09:35.680 do a tender offer to buy back roughly six million 0:09:35.720 --> 0:09:38.800 dollars worth of shares um at sixty eight bucks. So 0:09:38.840 --> 0:09:42.080 the stock basically has been trading up towards sixty eight dollars. 0:09:42.800 --> 0:09:47.040 And they also said that they were in buyout talks 0:09:47.120 --> 0:09:50.360 or preliminary biot talks with someone which they didn't name, 0:09:50.600 --> 0:09:54.079 which we're trying to figure out that to think the 0:09:54.120 --> 0:09:57.199 company public. And they had been in talks roughly since November, 0:09:57.240 --> 0:10:00.160 and these talks ended roughly last week. And so the 0:10:00.200 --> 0:10:03.880 company take the company private. Yes, take the company private, 0:10:04.480 --> 0:10:07.160 and which is something that Icon was rumored to be 0:10:07.240 --> 0:10:10.080 looking at as well. Um, So that news kind of 0:10:10.280 --> 0:10:12.720 creates this idea that, oh, maybe this will happen eventually, 0:10:12.720 --> 0:10:14.839 a company will like a private equity firm, will take 0:10:14.840 --> 0:10:18.199 a private another reason for the shares to go up, okay. 0:10:18.280 --> 0:10:22.120 And then there also was this agreement that carl Icon, Yes, 0:10:22.320 --> 0:10:25.199 I agreed to back off, right, so I kind of 0:10:25.200 --> 0:10:28.240 agreed not to buy any shares for two years and 0:10:28.320 --> 0:10:30.959 sort of let this this process play out of their 0:10:31.040 --> 0:10:34.880 sort of strategy and how they're going forward. Um again, Icon, 0:10:35.320 --> 0:10:38.560 biggest shareholder of Verbal Life, has five representatives on the 0:10:38.559 --> 0:10:41.439 Third Team member board, so he's heavily invested in this 0:10:41.480 --> 0:10:45.360 company doing well. Um and you know this is a 0:10:45.400 --> 0:10:48.240 fight that goes back. Actman first short of the stock 0:10:48.320 --> 0:10:52.280 or publicly announced his his short in uh the end 0:10:52.320 --> 0:10:55.040 of two thousand and twelve, so we're four plus years 0:10:55.040 --> 0:10:59.200 now into this. Shortly after Acman disclosed his short, Icon 0:10:59.280 --> 0:11:00.920 came out as a bull on the stock, bought a 0:11:00.960 --> 0:11:03.600 big steak, and they've had this public They've had a 0:11:03.600 --> 0:11:06.640 couple of public sparring matches going back and forth over 0:11:06.679 --> 0:11:10.760 the years. Obviously, Wall Streets loved all this drama. And 0:11:11.000 --> 0:11:14.720 here we are. So so Herbal Life is a company 0:11:14.760 --> 0:11:18.160 that is under this FTC order. This is kind of 0:11:18.160 --> 0:11:21.360 this convoluted story. So into down sixty and the FTC 0:11:21.520 --> 0:11:24.520 came out after an investigation and said, Herbal Life, we 0:11:24.520 --> 0:11:26.120 don't like some parts of your business in the US. 0:11:26.160 --> 0:11:28.839 You need to change there. In the process of doing that, 0:11:29.080 --> 0:11:30.720 Actmin is still n in their belief that this will 0:11:30.760 --> 0:11:34.280 eventually hurt the company and in the stockwell decline. Well, 0:11:34.360 --> 0:11:36.120 right now, I'm looking at Herbal Life shares that are 0:11:36.200 --> 0:11:39.640 up more than fort so far this year. So uh, 0:11:39.920 --> 0:11:43.720 Acman got out probably rightly so at least based on 0:11:43.840 --> 0:11:46.679 this year's performance when it came to betting against this company. 0:11:46.720 --> 0:11:48.120 Met Towns, and thank you so much for joining us, 0:11:48.160 --> 0:11:51.040 Matt town saying, global business reporter for Bloomberg News. And 0:11:51.040 --> 0:11:57.000 speaking of Carl Icon, he resigned from his special regulatory 0:11:57.080 --> 0:12:02.119 advisory role to President Trump. Tendered his letter of resignation 0:12:02.200 --> 0:12:04.600 on Friday. Sort of odd letter. I want to bring 0:12:04.600 --> 0:12:08.440 in Mario Parker. He's agricultural reporter for Bloomberg News in 0:12:08.440 --> 0:12:11.640 our Chicago bureau. And uh, Mario, can you just tell 0:12:11.720 --> 0:12:15.960 us a little bit about why Carl Icon, a billionaire investor, 0:12:16.240 --> 0:12:21.320 resigned from this position and what this position was? Sure? Absolutely, Lisa, 0:12:21.640 --> 0:12:27.880 so Uh. Carl Icon was named special advisor on regulations 0:12:28.000 --> 0:12:32.240 to President Trump. Um uh a little over a month 0:12:32.600 --> 0:12:38.360 um or so after Trump's victory in November. He was 0:12:38.400 --> 0:12:44.120 an early endorser of President Trump's campaign. Um. Someone that's 0:12:44.360 --> 0:12:47.559 President Trump name checked quite a bit on the stop um, 0:12:47.840 --> 0:12:52.920 particularly about his business acumen, etcetera. And so what was 0:12:52.960 --> 0:12:57.880 happening during the same time was that Icon is a 0:12:57.920 --> 0:13:03.920 major owner of an independent oil refiner, CVR Energy, and 0:13:04.120 --> 0:13:08.000 CVR Energy, among with a select few of other refiners, 0:13:08.000 --> 0:13:12.000 had been pushing for changes to UH the US ethanol 0:13:12.080 --> 0:13:15.560 mandate UM, saying that the cost to comply with the 0:13:15.600 --> 0:13:20.640 program were too onerous, and so Icon had become kind 0:13:20.640 --> 0:13:23.720 of the public face of this campaign as well, UH 0:13:23.760 --> 0:13:28.880 really kind of pushing the Environmental Protection Agency to UM 0:13:28.920 --> 0:13:34.920 to make these changes UM. After President Trump assumed office 0:13:35.200 --> 0:13:39.760 and after again UM Mr Icon's UM designation or appointment 0:13:39.800 --> 0:13:44.160 as a special regulatory Advisor, there was increased scrutiny about 0:13:44.200 --> 0:13:46.880 whether or not he would be using that position to 0:13:47.480 --> 0:13:50.160 kind of influence UM that change that he had been 0:13:50.160 --> 0:13:53.600 advocating for H for the better part of the the 0:13:53.760 --> 0:13:58.640 last year. And UH was there any evidence that this 0:13:58.960 --> 0:14:04.520 increased rutiny and potential legal jeopardy. As a New Yorker 0:14:04.640 --> 0:14:07.640 article kind of put it right after UH Carl Icon 0:14:07.760 --> 0:14:10.000 resigned from the board, that this was the reason for 0:14:10.080 --> 0:14:15.959 his resignation. Well, the letter that Mr Icon sent UM 0:14:16.160 --> 0:14:20.600 sent to President Trump on Friday, you know, referring to 0:14:20.680 --> 0:14:25.120 this departure, he specifically mentioned that he only spoke about 0:14:25.160 --> 0:14:29.840 broad matters of policy affecting the refining industry. UM and 0:14:29.880 --> 0:14:34.160 that UM, you know, he shared, you know, his limited 0:14:34.200 --> 0:14:39.320 knowledge about certain insights with uncertain subjects. But what we 0:14:39.480 --> 0:14:44.040 know and what are reporting has shown. Uh, both myself 0:14:44.080 --> 0:14:48.720 and our colleague Jen de Louis and Washington was that UM. 0:14:48.840 --> 0:14:51.280 Earlier this year, Mr Icon was trying to broke her 0:14:51.320 --> 0:14:56.320 a deal between the administration and the biofuels lobby. What 0:14:56.480 --> 0:15:00.800 happened once that that news broke UM, it had an 0:15:00.920 --> 0:15:04.440 impact on different markets ranging from corn to crude oil 0:15:04.520 --> 0:15:09.080 to gasoline UM out of concern or speculation that Mr 0:15:09.240 --> 0:15:11.440 Icon would prevail in this rule he was trying to 0:15:11.440 --> 0:15:13.520 get changed. Essentially, the rule he was trying to get 0:15:13.600 --> 0:15:16.920 changed would move the owners from refiners like the one 0:15:16.960 --> 0:15:21.000 that he owns closer to the customer UM that that 0:15:21.120 --> 0:15:26.120 delivers the gas, the gas and ethanol to two gasoline stations. Yeah. 0:15:26.120 --> 0:15:28.680 And you guys did some great reporting on how much 0:15:28.720 --> 0:15:32.080 money he made off of just market speculation that the 0:15:32.160 --> 0:15:35.840 rule would be changed. Uh. And his letter is fascinating 0:15:35.960 --> 0:15:38.600 and very odd, and I recommend everybody read it. UH. 0:15:38.680 --> 0:15:40.640 Sort of him resigning from a non job where he 0:15:40.680 --> 0:15:55.280 did nothing, but it's not illegal and he's resigning. Well. 0:15:55.400 --> 0:15:57.080 For a number of years we heard quite a bit 0:15:57.120 --> 0:15:59.880 about pure to pure lending. It was going to completely 0:16:00.000 --> 0:16:04.760 disrupt the big financial firms in the industry. Then there 0:16:04.840 --> 0:16:07.640 was some skepticism. Now we're kind of getting to this 0:16:07.760 --> 0:16:12.920 new equilibrium where big banks are trying to incorporate more 0:16:13.280 --> 0:16:16.680 peer to peer type technology into their day to day routines. 0:16:16.720 --> 0:16:19.720 Here to join us is Jared Hecked. He's CEO and 0:16:19.840 --> 0:16:23.040 co founder of Fundera, which is based in New York 0:16:23.280 --> 0:16:28.400 and is an online lender specifically trying to hook up 0:16:28.800 --> 0:16:33.240 businesses with people that have money, whether it's banks, or 0:16:33.280 --> 0:16:37.240 whether it's hedge funds, or whether it's you name it. Jared, 0:16:37.280 --> 0:16:41.160 can you give me a sense of how many transactions 0:16:41.360 --> 0:16:46.280 your platform has been facilitating of late? Uh, it's about 0:16:46.320 --> 0:16:48.760 three years old, right, Yeah, so we're first off, thanks 0:16:48.760 --> 0:16:51.640 for having me, Lisa. Um. So we're around three years old. 0:16:51.760 --> 0:16:54.640 To date, we've done close to half a billion dollars 0:16:54.640 --> 0:16:57.680 in volume through our platform, servicing around eight thousand different 0:16:57.680 --> 0:17:01.600 small business owners. Uh, and currently around twenty five million 0:17:01.600 --> 0:17:04.600 dollars a month is facilitated through our platform. So what's 0:17:04.640 --> 0:17:08.119 the model. Here, a business wants to get a loan, 0:17:08.600 --> 0:17:10.800 how do you come into the picture here. Yeah, So, 0:17:10.840 --> 0:17:13.600 generally speaking, a small business owner has a problem or 0:17:13.640 --> 0:17:16.280 an opportunity, and they think that some form of credit 0:17:16.359 --> 0:17:19.159 can be a viable solution for that. UM they'll do 0:17:19.200 --> 0:17:21.720 a search for something like small business loans or line 0:17:21.720 --> 0:17:24.840 of credit in in search of actually educating themselves on 0:17:24.840 --> 0:17:28.240 what they're eligible for, and they'll they'll stumble on fundera UM. 0:17:28.320 --> 0:17:31.120 We then provide business owners an immense amount of education 0:17:31.119 --> 0:17:33.359 and literature about the different types of products that are 0:17:33.400 --> 0:17:36.159 accessible to business owners and the different types of lenders 0:17:36.160 --> 0:17:39.119 that actually service them. We also provide them what we 0:17:39.160 --> 0:17:42.560 call a common application, so it's a very easy way 0:17:42.600 --> 0:17:45.040 for a business owner to enter in a bit of information, 0:17:45.200 --> 0:17:48.159 provide a little bit of documentation. We then verify some 0:17:48.240 --> 0:17:51.000 of that information and determine which lenders and products in 0:17:51.000 --> 0:17:54.440 our network they're actually eligible for. Those products spanned from 0:17:54.440 --> 0:17:56.960 things like business credit cards that would be provided by 0:17:57.119 --> 0:18:00.000 the American Expresses, Capital, wand and Chases of the world 0:18:00.000 --> 0:18:02.800 old to online loans and lines of credit that are 0:18:02.840 --> 0:18:05.840 provided by companies like Lending Club, on Deck, Cabbage, and 0:18:05.880 --> 0:18:09.640 Swift Capital. So This is something more than just peer 0:18:09.640 --> 0:18:13.080 to peer lending or even pure lending. This is more 0:18:13.280 --> 0:18:18.480 like being an online business advisor, some kind of combination 0:18:18.640 --> 0:18:23.040 between a robo advisor and UH an online platform to 0:18:23.080 --> 0:18:25.280 hook you up with lending. That's exactly right, with the 0:18:25.320 --> 0:18:28.359 core focus on, you know, advisory services and education and 0:18:28.400 --> 0:18:32.200 then the matchmaking and taking a lot of the cumbersome 0:18:32.200 --> 0:18:34.720 issues and applying for a loan and uncertainty out of 0:18:34.760 --> 0:18:37.280 that process. How do you make money? We make money. 0:18:37.320 --> 0:18:40.200 Every time alone is offered and accepted on our platform, 0:18:40.520 --> 0:18:42.800 a lender or an issuer will pay us what is 0:18:42.920 --> 0:18:46.240 essentially the equivalent of a referral fate. And that's largely 0:18:46.240 --> 0:18:48.399 done because we're stripping out a lot of marketing costs 0:18:48.400 --> 0:18:51.800 and operational costs from their system because we really take 0:18:51.840 --> 0:18:54.399 care of all the search for the business owner and 0:18:54.440 --> 0:18:57.479 the packaging process as well. It sounds like kind of 0:18:57.480 --> 0:19:00.760 the business model for some of the middle get lenders, 0:19:00.800 --> 0:19:02.879 of which there are many, and I imagine that the 0:19:02.880 --> 0:19:07.640 competition is pretty fierce. Is that right? Yeah? I think 0:19:07.640 --> 0:19:10.640 the business model is similar to some of the companies 0:19:10.680 --> 0:19:13.880 on the consumer end, like credit Karma or potentially nerd 0:19:13.880 --> 0:19:17.440 wallet UM where We're really focused on orienting a potential 0:19:17.480 --> 0:19:20.840 borrower around what's actually out there for them. UM. But 0:19:20.880 --> 0:19:23.840 the competition, to your point, is fierce, right, there's a 0:19:23.880 --> 0:19:25.640 lot of people that are trying to get in front 0:19:25.680 --> 0:19:28.040 of small business owners. We just take I think, a 0:19:28.119 --> 0:19:31.000 very deliberate and focused approach that's not about selling a 0:19:31.000 --> 0:19:34.000 business owner, but more of oriented around educating a business owner. 0:19:34.280 --> 0:19:37.000 So what types of businesses have used your platform? Who 0:19:37.080 --> 0:19:39.880 runs the gamut? I'd say the most popular industries are 0:19:40.040 --> 0:19:44.400 somewhat conventional mainstream businesses, whether those are retail shops or restaurants. 0:19:44.480 --> 0:19:46.520 We do a lot of work with independent consultants and 0:19:46.560 --> 0:19:50.160 contractors as well. They might be veterinarians or doctor's offices. 0:19:50.200 --> 0:19:51.800 I think the thing that we've learned is that no 0:19:51.920 --> 0:19:55.040 too small business owners are alike, so we really try 0:19:55.080 --> 0:19:58.000 and provide a comprehensive solution to all the business owners 0:19:58.000 --> 0:20:00.320 that are out there. Interesting, and you said that you 0:20:00.359 --> 0:20:04.080 did raise a twenty million dollars equity financing UM, And 0:20:04.119 --> 0:20:07.160 I'm wondering whether you put any of your own money 0:20:07.280 --> 0:20:10.320 up or is it purely in operations that you have 0:20:10.480 --> 0:20:14.680 to continue as far as having the educational resources and 0:20:15.160 --> 0:20:18.639 arranging all of the connecting lenders to the platform. So 0:20:18.720 --> 0:20:21.840 did I put any of my own personal money? Now? 0:20:21.920 --> 0:20:24.040 I mean, like on an ongoing basis, is there the 0:20:24.080 --> 0:20:27.760 company's money capital up in the platform. We don't lend 0:20:27.800 --> 0:20:31.159 a single dollar. We think that that's really important because 0:20:31.200 --> 0:20:34.280 it enables us to maintain a high degree of objectivity. 0:20:34.640 --> 0:20:37.399 Um the second we start lending capital, all of our 0:20:37.480 --> 0:20:40.760 lender partners would generally believe that we're trying to actually 0:20:40.800 --> 0:20:43.480 be the primary lender of record. And I also think 0:20:43.480 --> 0:20:46.000 it biases us in a way that's unfavorable to the 0:20:46.040 --> 0:20:49.680 business owner because then our intentions may not be quite clear. 0:20:49.720 --> 0:20:51.520 We're really there to help find them the best product 0:20:51.520 --> 0:20:54.080 and lender for their needs. You know, one thing that 0:20:54.160 --> 0:20:56.919 a lot of big banks have complained about is that 0:20:56.960 --> 0:21:01.360 the demand for loans, specifically among size and smaller businesses 0:21:01.400 --> 0:21:05.359 just isn't there. That people aren't investing in UH, in 0:21:05.480 --> 0:21:10.040 their infrastructure or their businesses. Do you find the same thing, Well, 0:21:10.440 --> 0:21:12.880 we're not really talking about mid market loans here at Fondera, 0:21:12.960 --> 0:21:15.320 you know, generally speaking, or the average sized loan that 0:21:15.359 --> 0:21:18.400 a customer wants to our platform is around sixty dollars. 0:21:19.040 --> 0:21:22.399 We don't see any slowdown demand or appetite for business 0:21:22.440 --> 0:21:24.760 owners who are looking for working capital to invest in 0:21:24.800 --> 0:21:27.439 their growth. And what about due diligence? What kind of 0:21:27.480 --> 0:21:30.400 due diligence is there on the system on the platform 0:21:30.560 --> 0:21:32.280 UM SO, I think it's two fold. We do due 0:21:32.280 --> 0:21:34.800 diligence on every single small business owner that comes to 0:21:34.800 --> 0:21:37.760 FUNDERA and starts to submit an application. We work with 0:21:37.880 --> 0:21:40.120 third party credit bureaus and a bunch of third party 0:21:40.200 --> 0:21:42.359 data providers to make sure that the business is real 0:21:42.880 --> 0:21:45.520 UM and that's really done so that we're making sure 0:21:45.520 --> 0:21:47.040 that the business owner has to do as little work 0:21:47.240 --> 0:21:50.720 as possible, and it's a high quality service for our 0:21:50.760 --> 0:21:52.680 lender partners so they know that the information that they're 0:21:52.680 --> 0:21:55.880 getting is real inbedded. And then we also do due 0:21:55.880 --> 0:21:58.119 diligence in regards to the types of lenders that we 0:21:58.160 --> 0:22:01.520 work with. Since we're providing us service to a business owner, 0:22:01.520 --> 0:22:02.920 we want to make sure that the lenders that are 0:22:02.960 --> 0:22:07.679 on our platform are high integrity, you know, technology enabled 0:22:07.760 --> 0:22:10.600 lenders that are going to provide a great service with 0:22:10.680 --> 0:22:13.480 competitive and compelling rates out there. Where do you think 0:22:13.520 --> 0:22:16.200 the peer to peer industry is heading right now? UM 0:22:16.280 --> 0:22:18.840 that's a great question. I think that in the peer 0:22:18.840 --> 0:22:22.560 to peer industry or just online lending, non bank lending, 0:22:22.800 --> 0:22:25.199 I think what we're seeing is the bigger lenders are 0:22:25.240 --> 0:22:29.120 becoming more stable and increasingly big overtime, and I think 0:22:29.119 --> 0:22:32.280 that we're seeing a hyper competitive market for the smaller 0:22:32.280 --> 0:22:34.639 players where it makes them very difficult for them to 0:22:34.680 --> 0:22:38.479 actually get traction and prove that they're sustainable, viable businesses. So, 0:22:38.960 --> 0:22:41.080 like most markets, as they mature, the bigger players are 0:22:41.080 --> 0:22:44.320 getting bigger and becoming increasingly viable and stronger in the market. 0:22:44.880 --> 0:22:47.040 Jared hec thank you so much for joining me. Thank you. 0:22:47.520 --> 0:22:52.320 It's a fascinating time for online lending and uh, frankly 0:22:52.400 --> 0:22:55.200 online advising and kind of margically two is really interesting. 0:22:55.280 --> 0:22:58.480 Jared Hect is chief executive officer and co founder of Fondero, 0:22:58.520 --> 0:23:01.720 which is based in New York and has been around 0:23:01.760 --> 0:23:17.560 since two thousand fourteen. Well, starting at the beginning of 0:23:17.720 --> 0:23:20.560 next year, a new regime of regulations will go into 0:23:20.600 --> 0:23:25.720 effect in Europe that potentially could vastly change the way 0:23:25.880 --> 0:23:30.360