Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.
Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg.
Speaker 1: Today's guests are Jeremy Hill, who reports on distressed debt
Speaker 1: for Bloomberg News in New York. We're delighted to have
Speaker 1: you on the show.
Speaker 2: Hi, thanks for having me.
Speaker 1: We're also very pleased to welcome back Jamin Patel, who
Speaker 1: covers utilities for Bloomberg Intelligence.
Speaker 3: Good to join, James.
Speaker 1: We'll be coming back to Jamin shortly. Lost of exciting
Speaker 1: stuff going on in the utility sector, so do stay
Speaker 1: with us. But first, Jeremy Hill, with Bloomberg News, you've
Speaker 1: been digging deep into distressed debt and bankruptcy. We've had
Speaker 1: the pleasure of working together on that for years. A
Speaker 1: lot of companies are running into trouble at the moment,
Speaker 1: with interest rates rising and the economy slowing, potentially tipping
Speaker 1: into a recession. Volatility in the financial sector doesn't help.
Speaker 1: Regional banks are struggling, and that means less for the
Speaker 1: companies that really need it. On top of that, we
Speaker 1: have a growing anxiety about the debt ceiling. I'd have
Speaker 1: to go back to twenty eleven for the last time
Speaker 1: it's been this fraud. A debt default by the US
Speaker 1: government would be a huge and potentially catastrophic event for
Speaker 1: the global economy. So, Jeremy, why the big spike in
Speaker 1: bankruptcies right now?
Speaker 2: That's a really interesting question, James. I think what's so
Speaker 2: fascinating about this uptick over the weekend is that there
Speaker 2: isn't any one factor that caused it. There wasn't some
Speaker 2: sort of acute influence like in twenty twenty COVID. It
Speaker 2: was something that nobody really saw coming. It was something
Speaker 2: like a rogue wave that just pulled down a bunch
Speaker 2: of companies that were already on the edge, and then
Speaker 2: it receded and things got back to their you know, abnormal.
Speaker 2: But this time, interest rates are just starting to bite
Speaker 2: and it's very organic, and it is while interest rates
Speaker 2: increased relatively quickly, it's just such a fundamental problem for
Speaker 2: anybody that is exposed to floating rate debt.
Speaker 1: So the context, Sorry, just to interrupt this past weekend
Speaker 1: we're talking mid May. Now. It was the busiest weekend
Speaker 1: for US bankruptcy filings since when and how many were there?
Speaker 2: There were seven filings between Sunday and Monday, and those
Speaker 2: are seven large I'm doing air quotes filings that we
Speaker 2: define that to be fifty million dollars of debt or more.
Speaker 2: And it's just not something that we have seen in
Speaker 2: the roughly fifteen years that we've at Bloomberg have been
Speaker 2: tracking the data. A really busy couple of days is
Speaker 2: like three or four large bankruptcy filings. So these filings
Speaker 2: were across various sectors. There was some oil, some healthcare.
Speaker 2: There was a fire protection company, a company that makes
Speaker 2: like the smoke detectors and chemicals to put out fires.
Speaker 2: I mean, it was really across the spectrum. And the
Speaker 2: only thing that really unites almost all of them is
Speaker 2: that interest rates are higher now and lenders don't have
Speaker 2: the patience that they once did.
Speaker 1: So were they hitting a maturity will that was there
Speaker 1: a trigger in terms of, you know, you have to
Speaker 1: pay this debt by the weekend and if you don't,
Speaker 1: you go bust? I mean, what what what happened there?
Speaker 2: In the case of Envision, that was in Vision Healthcare
Speaker 2: is a KKR backed company that does physician staffing. Mostly
Speaker 2: they like provide doctors for medical practices, is my understanding.
Speaker 2: They they had some sort of debt payment that they
Speaker 2: needed to make recently, but that wasn't like all of
Speaker 2: the It's not that like all of these companies were
Speaker 2: running into imminent maturities. It is more so that these
Speaker 2: are companies that were kind of struggling, had been for
Speaker 2: a long time, really didn't have any hope of repaying
Speaker 2: their debt load. And now that the economy is not
Speaker 2: so great and interest rates are higher, lenders are not
Speaker 2: taking the time to be like, let's try to work
Speaker 2: out a deal or extend the runway a little bit more,
Speaker 2: see if we can find a way to turn it around.
Speaker 2: It's more just like game over, guys, it's time to
Speaker 2: move on.
Speaker 1: And none of these names was surprised to us, right,
Speaker 1: We've been tracking a lot of these situations for a
Speaker 1: long time. I think all of these have been on
Speaker 1: our calendar.
Speaker 2: Yeah. I mean there were a couple that we didn't
Speaker 2: that we didn't see coming, the fire protection company, and
Speaker 2: there was a small biopharma company that makes cancer therapies
Speaker 2: that weren't necessarily on the radar, but mostly they were.
Speaker 2: I mean, these are the other companies. Some people might
Speaker 2: call them zombies. Maybe it's an overused term. But these
Speaker 2: were companies that I mean, the writing has been on
Speaker 2: the wall for a long time. They just had so
Speaker 2: much debt and it was difficult to see them ever
Speaker 2: being able to pay that off. The question was just
Speaker 2: when will time be up?
Speaker 1: So they've been just kept alive by this you know,
Speaker 1: flood of cheat money that we've seen over the last
Speaker 1: ten years, and that finally ended, so they died. Is
Speaker 1: that right?
Speaker 2: Absolutely? I mean, if you're a lender to one of
Speaker 2: these companies and even you know that they're not going
Speaker 2: to be able to fully repay this stet load, but
Speaker 2: interest rates are super low and you need yield, and
Speaker 2: you don't want to be dealing with it with a default,
Speaker 2: with a bankruptcy. Why not come with some really creative
Speaker 2: way to extend the runway. It's a it's a lottery ticket,
Speaker 2: it's it's it's a chance. But interest rates are higher,
Speaker 2: you can get yield elsewhere. Now it's time to move on.
Speaker 1: And that's not just a flash in the pan for
Speaker 1: this year. Right, This year has also been very busy
Speaker 1: for bankruptcies. How does that stuck up us his history?
Speaker 2: Yeah, it's already quite busy. I mean, the numbers, the
Speaker 2: precise numbers are escaping me in terms of the level
Speaker 2: of filings, but I can tell you about the pace
Speaker 2: relative to the historical levels. We're having about the busiest
Speaker 2: year for large bankruptcies that we have seen since two
Speaker 2: thousand and nine. Two thousand and nine wasn't a very
Speaker 2: happy time, so it's a little bit dark. But I
Speaker 2: will say this, we're still nowhere close to that two
Speaker 2: thousand and nine pace. It's usually it changes week to week,
Speaker 2: but it's usually about half as busy as two thousand
Speaker 2: and nine and just about as busy as twenty twenty.
Speaker 2: They sort of change places sometimes, but it only seems
Speaker 2: to be getting busier. We're seeing more and more filings.
Speaker 1: So it's as bad as the twenty twenty shutdown of
Speaker 1: the entire global economy, which really did throw a lot
Speaker 1: of companies against the wall.
Speaker 2: Yeah, that's exactly right. But as I said earlier, this
Speaker 2: time it's a it's more organic. It's not some wild
Speaker 2: rogue wave that was caused by, you know, a fatal virus.
Speaker 2: This is simply money is more more expensive now, the
Speaker 2: economy is a little rickety.
Speaker 1: So neither of those things seem like they're going to
Speaker 1: change anytime soon. If anything, rates probably stay higher for longer.
Speaker 1: The economy is not in great shape. Does that mean
Speaker 1: this trend continues? Does it get worse from here?
Speaker 2: For sure? I mean I haven't I haven't spoken to
Speaker 2: anyone recently who is under the impression that this building
Speaker 2: distress is just going to disappear. I mean your default forecasts, Ferry.
Speaker 2: Some people are extremely bearish, think that there are going
Speaker 2: to be tons and tons of filings, it's going to
Speaker 2: be a big tsunami. Other people are more conservative, but
Speaker 2: the general consensus is up more defaults, more bankruptcies.
Speaker 1: And what does this say about the broad state of
Speaker 1: credit markets? I mean, we've been talking for a long
Speaker 1: time about a credit crunch, the easy money era being over,
Speaker 1: and as we've said, companies have too much debt. Is
Speaker 1: this really the beginning of the end.
Speaker 2: If you're a low quality borrower, you're going to have
Speaker 2: a hard time refinancing your opplique or getting reasonably priced debt.
Speaker 2: It is as simple as that. And there are a
Speaker 2: lot of low quality borrowers out there, so I would
Speaker 2: say that's that is the biggest takeaway so far.
Speaker 1: Is it isolated to a particular sector? You know, last
Speaker 1: time around, we saw a big retail crunch. We've seen
Speaker 1: energy get hit pretty hard in the past, but is
Speaker 1: you know, healthcare is also kind of undistressed. But are
Speaker 1: there any sectors that really stand out?
Speaker 2: You know, retail, We've seen a couple of retailers run
Speaker 2: into trouble this year, but a lot of the crummy
Speaker 2: retailers were shaken out in twenty twenty years before. Healthcare
Speaker 2: is a sector that comes up a lot because wages
Speaker 2: have been a big problem broadly in the healthcare space.
Speaker 2: So if those don't come down soon, you're going to
Speaker 2: see more trouble in that area. And of course, real estate,
Speaker 2: especially commercial real estate, just tons of debt and offices
Speaker 2: are not filling up the way that they need to
Speaker 2: to support those debt levels. So healthcare cri that they're
Speaker 2: coming up a lot.
Speaker 1: The word you use in your piece is zombies. That's
Speaker 1: an interesting concept. I mean, these companies, you know, they're
Speaker 1: sort of living dead. They're sort of stumbling through with
Speaker 1: you know, cheap money keeping them alive, but there is
Speaker 1: no reason for them to live. I mean, we may
Speaker 1: have an emotional attachments to companies like bed Bath and
Speaker 1: Beyond and Radio Chat for various reasons. And obviously there's
Speaker 1: a loss of jobs and there's a big impact on communities.
Speaker 1: But you know, in you know, harsh, you know there
Speaker 1: capitalistic terms, do we really care about their demise?
Speaker 2: Yeah, this is really interesting to me. I was speaking
Speaker 2: with Ed Altman, who is a pretty famous finance professor
Speaker 2: at NYU. He invented something called the Z score. It's
Speaker 2: a default prediction metric, and I asked him. We were
Speaker 2: talking about repeat bankruptcies, so called Chapter twenty two's, and
Speaker 2: I asked him, like, why does it matter if companies
Speaker 2: keep failing over and over again? Like who cares? The
Speaker 2: people stay employed and you know, we get to keep
Speaker 2: going to some some retailer that we like. And his
Speaker 2: take on that was, this is money and time and
Speaker 2: energy that could be put into more productive endeavors. That's
Speaker 2: why it matters. I thought it was fascinating. I haven't
Speaker 2: thought about it like that. So these these are these
Speaker 2: kind of zombie companies that maybe don't really have a
Speaker 2: reason to exist. The people that are taking care of
Speaker 2: these firms and employed by them, it'll be painful for
Speaker 2: them to disappear or shrink substantially, but it may be
Speaker 2: more productive overall to shift those resources that are propping
Speaker 2: up something that just shouldn't be alive in its current
Speaker 2: form and moving them into some other area of the economy.
Speaker 1: So short term pain, but maybe long term game for
Speaker 1: the US economy. But you mentioned repeat bankruptcies. I mean,
Speaker 1: as we call them chapter twenty twos, that just seems
Speaker 1: like a waste of time. I mean, you know, is
Speaker 1: the bankruptcy system really working in this country?
Speaker 2: Such a good question. Yeah, I mean, we have seen
Speaker 2: more chapter twenty twos again, in line with the general
Speaker 2: rise in bankruptcies, more chapter twenty twos this year than
Speaker 2: we've seen since two thousand and nine. And what does
Speaker 2: it say about the bankruptcy system. I mean, it's a
Speaker 2: little bit embarrassing because in the US, restructuring plans aren't
Speaker 2: supposed to get approved by a federal judge unless there's
Speaker 2: some specific language. But the general idea is that you
Speaker 2: need to not go bankrupt again. It needs to be
Speaker 2: pretty clear that this plan is going to fix the
Speaker 2: company's problems, because the bankruptcy court can do all kinds
Speaker 2: of things that you can't get anywhere else. You can
Speaker 2: just reject leases, you can force people to accept less
Speaker 2: than their owne all in the name of restructuring a company.
Speaker 2: So it's not great. It doesn't mean the bankruptcy system
Speaker 2: is broken. But seeing an uptick in repeat filers is
Speaker 2: it's it's ugly. You don't love it.
Speaker 1: It's supposed to be the best system in the world.
Speaker 1: But that's that's that's an interesting statement. But before we
Speaker 1: talk to jam and platel Boomberg Intelligence, what's the next
Speaker 1: big story to watch on your beat? Jeremy, what else
Speaker 1: do we need to worry about?
Speaker 2: What is the next big story? That's a hard one
Speaker 2: to answer, James, because all of a sudden, we've gotten
Speaker 2: so busy that I feel like I'm treading water. This
Speaker 2: is this is the thing that we have been waiting for.
Speaker 2: It's it's it's felt like when are rate's going to
Speaker 2: go up? And what is that going to mean? And
Speaker 2: kind of out of nowhere here it seems like the
Speaker 2: mood has just flipped and there are lots of companies
Speaker 2: that are that are on the cusp. Lenders are organizing
Speaker 2: all the time and they're concerned about their debt holdings.
Speaker 2: So the big story is, uh, stay glued to your
Speaker 2: terminals at Bloomberg dot com because there are many more
Speaker 2: markruptcies to come.
Speaker 1: Great stuff. Jeremy Hill from Bloomberg News, thanks so much
Speaker 1: for joining us. Do as Jeremy said, read all of
Speaker 1: his scoops on the Bloomberg terminal and of course at
Speaker 1: Bloomberg dot com. Moving on to another big topic. As
Speaker 1: I mentioned earlier, we are very fortunate to have with
Speaker 1: us Jamin Patel, who looks at utilities for Bloomberg Intelligence.
Speaker 1: What's going on with utilities?
Speaker 3: Jam in?
Speaker 1: Tons of bad news out there is Jeremy's just outlined
Speaker 1: for us. Shouldn't we just be taking all our cash
Speaker 1: and keeping it in a mattress right now, or at
Speaker 1: very least in an easy access saving his account with
Speaker 1: a five percent yield? I mean, why should we be
Speaker 1: looking at utilities?
Speaker 3: Well, that easy access account may give you a five
Speaker 3: percent yield, but how long is they're going to give
Speaker 3: you that for? Right? If reads start coming down and
Speaker 3: I'm not calling for indecline anytime soon, but if they do,
Speaker 3: then you want to start looking at something that you
Speaker 3: can tie your money up in for a little bit longer.
Speaker 3: And that's why utilally bond. A lot of people would
Speaker 3: say utili stocks too, but we'll talk about the differences
Speaker 3: between those two. It's interesting that, you know, we started
Speaker 3: this off talking about bankruptcies, because bankruptcies in the utility
Speaker 3: sector and one of the reasons why the sector, at
Speaker 3: least at the operating utilities level, is considered a refuge
Speaker 3: during times of turmoil. We've had very few bankruptcies. They've
Speaker 3: always been related to something very specific going on as
Speaker 3: opposed to what happens with the sector as a whole.
Speaker 3: In fact, I beyond the pg and E bankruptcies which
Speaker 3: we're all familiar with, I can only remember in the
Speaker 3: thirty years I've covered this sector Public Service in New
Speaker 3: Hampshire and Texas New Mexico Power, and in both those cases,
Speaker 3: bondholders came out whole, and the same with PGEN. In fact,
Speaker 3: with PGNE, bondholders weren't secured at the utility level and
Speaker 3: they came out secure.
Speaker 1: Other than those companies. Just my, what what are we
Speaker 1: talking about in utilities? Because it does cover a huge
Speaker 1: range of companies, right it does?
Speaker 3: It does? You've got you know, over over one hundred
Speaker 3: different utilities around the country. Uh, most of them are
Speaker 3: fall on the investor owned utility sector. And then you've
Speaker 3: you've got the you've got the holding companies. Now, if
Speaker 3: you're down at the operating utility level, imagine you know,
Speaker 3: you're in a situation where you have a monopoly in
Speaker 3: your service territory. Your rates, the rates that you charge
Speaker 3: your customers, and therefore your revenues and your earning stream
Speaker 3: based on a return on equity is almost guaranteed, regardless
Speaker 3: of what the usage is, what weather impact there is,
Speaker 3: and so on. Uh. In the event of a crisis,
Speaker 3: as we saw with Hurricane Katrina in New Orleans, we've
Speaker 3: seen with fpn L in Florida, we saw in Houston
Speaker 3: with CNP, if your assets are destroyed or or very
Speaker 3: heavily damaged, you have the right to have an adjustment
Speaker 3: made your rates to cover those costs over a period
Speaker 3: of time. UH. And you can go out and issue
Speaker 3: debt in the meanwhile, right, So you had you know,
Speaker 3: PGIN was very much a one off sort of case
Speaker 3: in my opinion. But you've got the situation where at
Speaker 3: the operating utility level, you've almost got a quasi treasury
Speaker 3: type of bond.
Speaker 1: So as you say there are a refuge, we are
Speaker 1: saying great economic financial turmoil right now. So in terms
Speaker 1: of you know, the utility picks. You know, what what
Speaker 1: do you where do you look in terms of like
Speaker 1: what types of utilities? You know, where do you look?
Speaker 1: What's what's the best place to be in right now?
Speaker 3: Okay, So with that safety comes a price, and that's
Speaker 3: generally lower yels, right as you would expect. And at
Speaker 3: the operating utility level you've got, you know, you've got
Speaker 3: a fair narrow range depending upon the maturity that you're
Speaker 3: looking at a narrow range of bond spreads. So the
Speaker 3: real interest tends to come in and the real credit
Speaker 3: risk tends to come in at the parent level, right
Speaker 3: because the parent itself is not regulated. It's reliant on
Speaker 3: dividends coming up from the utilities to service both the
Speaker 3: shareholder dividend as well as to service its own debt. Now,
Speaker 3: if you have a parent with what just one utility,
Speaker 3: clearly that's that's a high risk situation, right. So and
Speaker 3: that's what we had with PG and E. What investors
Speaker 3: see with Edison International. If you if PGN owned more
Speaker 3: than one utility, the parent may not have had quite
Speaker 3: the same problems that it did. But in this case,
Speaker 3: the parent filed for bankruptcy. So what we look for
Speaker 3: our companies that have multiple diverse utilities operating across multiple jurisdictions,
Speaker 3: Companies like Excellent Duke Energy, American Electric Power, and so on.
Speaker 3: These these are companies that do rely on the dividends
Speaker 3: coming up to the parent to service their debt. But
Speaker 3: in the event that you have a situation at one
Speaker 3: particular utility, you still have cash flows coming up from
Speaker 3: the others.
Speaker 1: So you're looking essentially for diversification.
Speaker 3: Yes, across jurisdictions as well as geographies.
Speaker 1: Okay, but you mentioned there are credit risks. Are you
Speaker 1: concerned about liquidity or access to capital markets there?
Speaker 3: Certainly not at the operating utility level. At the parent level,
Speaker 3: one of the concerns we've seen is that as we've
Speaker 3: enter this period of high growth, largely driven by renewables
Speaker 3: and perhaps accelerated by the Inflation Reduction Act, there's been
Speaker 3: a significant amount of capex projected and actual down at
Speaker 3: the utility level. Now, that comes with borrowing. Right now,
Speaker 3: if you think of traditional utility, the way they've financed
Speaker 3: their capex and investments is approximately fifty percent debt and
Speaker 3: fifty percent equity. Now that equity comes from retain cash flow.
Speaker 3: Right If the capex is higher than you expect. Where
Speaker 3: is that additional equity going to come in from. We've
Speaker 3: seen in many instances it's a reduction in dividends that
Speaker 3: would go up to the parent, and we've actually seen
Speaker 3: equity coming down from the parent level. Right So where
Speaker 3: does the parent get that cash? Utilally generally don't issue equity.
Speaker 3: They tend to be very e retician to do that.
Speaker 3: Although we've seen a little bit of convertible equity being
Speaker 3: picking up a little bit here, but they don't buy
Speaker 3: that back there stocks either. They just don't have the
Speaker 3: cash flow to do that. So what we've been seeing
Speaker 3: is an increasing level of parent debt and that raises
Speaker 3: a little bit of a concern. Right now, where does
Speaker 3: that concern come in? It's if you're looking at purely statistics,
Speaker 3: credit statistics and regular metrics like leverage and debt service
Speaker 3: and so on, yes, then it's a little bit of
Speaker 3: a concern. But we did we did a little bit
Speaker 3: of a study recently where we looked at across the
Speaker 3: entire sector. We looked at the book equity of the
Speaker 3: operating utilities, took a multiple of that based upon where
Speaker 3: these have traded or sold or where pieces of them
Speaker 3: have sold recently, which was about a two times multiple.
Speaker 3: That gave us almost a trillion dollars of equity. Potential
Speaker 3: equity that can be released and released not in the
Speaker 3: sense that the utility would have to go in and
Speaker 3: the parent would have to go in and sell that utility.
Speaker 3: They're able to monetize pieces of this and we've seen
Speaker 3: that happening with First Energy Douke Energy recently where they've
Speaker 3: sold pieces of their subsidiaries uh to to pay down
Speaker 3: debt at the parent level.
Speaker 1: And listeners can get that. So they they look up
Speaker 1: your bio on the terminal, can they change?
Speaker 3: Yes, Yes, it's in. It's in something that I called
Speaker 3: over nine hundred billion equity value could drive utilities firepower.
Speaker 1: Okay, well look that up, thank you. The other big
Speaker 1: concern right now is rising interest rates. How does that
Speaker 1: affect utilities in comparison to other sectors.
Speaker 3: So, because utilities are regulated and all of their costs
Speaker 3: or most of their costs based upon how the regulators
Speaker 3: view them and whether they approve them or not, are
Speaker 3: passed through, right, So if you've got any short term
Speaker 3: debt that's floating, you can apply for that to be
Speaker 3: passed through as an increation rate. Most of their death though,
Speaker 3: is fixed. Right. Utilities are very very big borrowers, but
Speaker 3: they tend to and they are able to borrow for
Speaker 3: thirty year bonds. So a lot of their debt, at
Speaker 3: least at the operating level, is thirty year bonds. So
Speaker 3: in the immediate term they are perhaps more protected from
Speaker 3: higher interest rates than pretty much any other sector.
Speaker 1: But on the flip side, if you're a holder, you've
Speaker 1: been hit pretty hard on the duration.
Speaker 3: Right, yes, But then that's you know, pretty much any sector,
Speaker 3: right if you're going to own a twenty or thirty
Speaker 3: year moond in technology or banks or where have you.
Speaker 3: So that's the choice pot hold the right and the
Speaker 3: risks that they run pretty much in any sector.
Speaker 1: So if you're looking at just sort of you know,
Speaker 1: the big picture now as we're heading into potentially a recession,
Speaker 1: you know, potentially stagflation, there's all sorts of other big
Speaker 1: risks out there. Is the utility sector a hedge against this?
Speaker 1: Is it something that you can just you know, protect
Speaker 1: your your returns with and clip the coup? I mean,
Speaker 1: how do you how do you envisage it as a
Speaker 1: big part of a credit portfolio.
Speaker 3: Yeah, so I don't know if I would call it
Speaker 3: a hedge, but I would I would say that if
Speaker 3: you want to look at increasing your waiting to protect
Speaker 3: your portfolio from volatility, then that's something that you may
Speaker 3: want to consider, right. You know, Perhaps the biggest risk
Speaker 3: that we've got here, other than what I talked about
Speaker 3: at the holding company, is that as you go through inflation,
Speaker 3: customers are being hit on multiple fronts, right, and less
Speaker 3: able to afford increases in the utility bills. Now, if
Speaker 3: you go back several years when natural gas prices was
Speaker 3: seven eight nine dollars in mcf, and then we saw
Speaker 3: that decline coming down to two three dollars, it was
Speaker 3: very easy, or I should say much easier for regulators
Speaker 3: to allow increase in rates for the energy component excuse
Speaker 3: me for the delivery component of a utility bill, because
Speaker 3: the energy portion was coming down, so customer bills weren't
Speaker 3: actually going up, right. And then, of course, as we
Speaker 3: saw natural gas prices rally through the last year, that
Speaker 3: became much more difficult. Now, regulators usually loath to give
Speaker 3: rate increases that are in excess of inflation. So with
Speaker 3: inflation being as high as it is that gives them
Speaker 3: a little bit more room. Gas prices having come down
Speaker 3: again gives them a little bit more room for their
Speaker 3: transmission distribution. But if you start tee natural gas prices
Speaker 3: and power prices escalate from here for whatever reason, then
Speaker 3: rate increases may become a little bit more contentious.
Speaker 1: And on the consumer side, no matter how how they
Speaker 1: get hit by inflation. Mean, you can easily dispense with
Speaker 1: eating out and buying luxury goods, but you have to
Speaker 1: pay your utility bills. You need the heat and light.
Speaker 3: Right absolutely, and if you can't afford them, that's one
Speaker 3: you know, this is one sector where low income families
Speaker 3: can get help from the state.
Speaker 1: Right before we sign off, Jamie, I wanted to ask
Speaker 1: you about ESG because it is such a big topic
Speaker 1: for investors, and you know, some of these companies aren't
Speaker 1: the cleanest, there are some issues. You know, How does
Speaker 1: how does this fit with an ESG credit portfolio?
Speaker 3: Well, I think I think it fits in very well
Speaker 3: because utilities are the biggest issues of green bonds in
Speaker 3: the in the country as as a sector. If you
Speaker 3: go back, I want to say maybe ten or fifteen years,
Speaker 3: coal accounted for fifty percent of the fuel used for
Speaker 3: generation that is now more a percentage that applies to
Speaker 3: natural gas, and you've seen solar and wind pick up significantly,
Speaker 3: So you know, we many of these companies have committed
Speaker 3: to zero carbon, depending on the time period that's involved.
Speaker 3: The government is completely behind them. Nuclear is becoming a
Speaker 3: bigger factor, a bigger factor from the standpoint. It's not
Speaker 3: going to decline to the extent that we thought it
Speaker 3: was maybe just a decade ago, because it's recognized as
Speaker 3: a clean fuel.
Speaker 1: Thanks very much, Jamon Patel of Bloomberg Intelligence. You can
Speaker 1: read all of his great analysis on the Bloomberg Terminal.
Speaker 1: Do check it out, and thanks again to Jeremy Hill
Speaker 1: from Bloomberg News. Read all of his scoops on the
Speaker 1: terminal and at Bloomberg dot Com. I'm James Crombie. It's
Speaker 1: been a pleasure having you. See you next week on
Speaker 1: the Credit Edge.