1 00:00:17,800 --> 00:00:21,320 Speaker 1: Hello, and welcome to the Credit Edge, a weekly market podcast. 2 00:00:21,600 --> 00:00:23,800 Speaker 1: My name is Ida Agathia Perez, and I'm a team 3 00:00:23,880 --> 00:00:25,240 Speaker 1: leader at Bloomberg. 4 00:00:25,040 --> 00:00:28,320 Speaker 2: And I'm David Haven's, a senior credit analyst a Bloomberg Intelligence. 5 00:00:28,840 --> 00:00:32,159 Speaker 2: This week, we're delighted to welcome Michael Gatto, a partner 6 00:00:32,200 --> 00:00:35,640 Speaker 2: and head of private side businesses at Silverpoint Capital. Michael, 7 00:00:35,680 --> 00:00:36,159 Speaker 2: how are you? 8 00:00:36,320 --> 00:00:38,360 Speaker 3: I'm great, Thanks for having me excellent. 9 00:00:38,400 --> 00:00:41,560 Speaker 2: We're delighted to have you here, as if being head 10 00:00:41,600 --> 00:00:44,280 Speaker 2: of privates at Silverpoint weren't enough. Michael is also an 11 00:00:44,320 --> 00:00:47,760 Speaker 2: adjunct professor at Columbia Business School in Fordham's Gibelli School 12 00:00:47,760 --> 00:00:50,920 Speaker 2: of Business, where he teaches credit analysis and distressed special 13 00:00:50,960 --> 00:00:53,560 Speaker 2: Situation investing. Now let me toss it back. 14 00:00:53,479 --> 00:00:57,960 Speaker 1: To your Silverpoint has its origins in distress debt, founded 15 00:00:58,000 --> 00:01:03,120 Speaker 1: by Edmulay and Boboshi, who came from GOLDMANSAC Special Situations Group. 16 00:01:04,480 --> 00:01:08,479 Speaker 1: You work with them at Goldman then joined them shortly after, 17 00:01:08,560 --> 00:01:11,200 Speaker 1: so you you're not a founding partner, but as close 18 00:01:11,240 --> 00:01:15,160 Speaker 1: as it gets. Pretty much of silver Point in recent years, 19 00:01:15,160 --> 00:01:18,880 Speaker 1: though it has expanded. I guess expanded is more accurate 20 00:01:19,000 --> 00:01:24,000 Speaker 1: than pivoted to private credit because of the stress strategy 21 00:01:24,040 --> 00:01:27,480 Speaker 1: is still a relevant one. But I wanted to ask 22 00:01:27,520 --> 00:01:30,040 Speaker 1: you you're under the private credit strategy, tell me more 23 00:01:30,040 --> 00:01:34,360 Speaker 1: about this expansion. What is the cell point or what's 24 00:01:34,400 --> 00:01:37,600 Speaker 1: the edge that your private credit strategy has, and how 25 00:01:38,520 --> 00:01:40,840 Speaker 1: have you convinced How difficult was it the conversation with 26 00:01:40,959 --> 00:01:45,080 Speaker 1: borrowers that yes, you have a loan to own strategy, 27 00:01:45,280 --> 00:01:46,920 Speaker 1: but you do more things on that. 28 00:01:47,400 --> 00:01:50,120 Speaker 3: Yeah, it's a great question, and I think it's a 29 00:01:50,120 --> 00:01:53,040 Speaker 3: little misunderstood in the maocket. And you know, as the 30 00:01:53,080 --> 00:01:56,680 Speaker 3: three of us was discussing earlier at silver Point, we 31 00:01:56,760 --> 00:02:01,120 Speaker 3: never really talked about ourselves a lot to the press 32 00:02:01,240 --> 00:02:06,240 Speaker 3: or other than our investors and our barwers. But we 33 00:02:06,360 --> 00:02:11,160 Speaker 3: started we were Amulet and Barboa Change said they started 34 00:02:11,240 --> 00:02:16,040 Speaker 3: all of the credit functions investing at Goldman Sachs and 35 00:02:16,440 --> 00:02:19,720 Speaker 3: they left two thousand and two and started silver Point, 36 00:02:20,360 --> 00:02:24,240 Speaker 3: and in that we are a credit fund. The press 37 00:02:24,800 --> 00:02:29,000 Speaker 3: has called us a distress debt fund, But in two 38 00:02:29,040 --> 00:02:33,440 Speaker 3: thousand and three we were doing private credit along with 39 00:02:34,000 --> 00:02:38,800 Speaker 3: investing in the secondary markets. So how we view ourselves 40 00:02:38,800 --> 00:02:43,000 Speaker 3: are we are investors in credit and that could be 41 00:02:43,200 --> 00:02:48,079 Speaker 3: performing credit, that could be originating new loans in private 42 00:02:48,160 --> 00:02:53,800 Speaker 3: credit and buying in the secondary market of credits that 43 00:02:53,880 --> 00:02:57,040 Speaker 3: are having problems. So what I want to make a 44 00:02:57,080 --> 00:03:01,120 Speaker 3: clear We've been in that private credit business since two 45 00:03:01,160 --> 00:03:04,920 Speaker 3: thousand and three, and in fact, coming into the Great 46 00:03:04,960 --> 00:03:10,800 Speaker 3: Financial Crisis, we had five billion dollars of our originated lots. 47 00:03:10,919 --> 00:03:14,200 Speaker 3: We had gone through the life into the financial crisis 48 00:03:14,240 --> 00:03:17,840 Speaker 3: about nine billion, and we had five billion that we 49 00:03:18,040 --> 00:03:22,480 Speaker 3: worked through successfully and in fact got very good returns 50 00:03:22,600 --> 00:03:26,239 Speaker 3: on our that they came in and out of the crisis. 51 00:03:26,600 --> 00:03:32,160 Speaker 3: But you're right, you have a perception of your distressed 52 00:03:32,160 --> 00:03:35,840 Speaker 3: that fund, so people will say on occasion, why would 53 00:03:35,840 --> 00:03:38,640 Speaker 3: I borrow from you? And if it's okay, I'd like 54 00:03:38,720 --> 00:03:44,920 Speaker 3: to break it up into two components. One is right now, 55 00:03:45,440 --> 00:03:49,160 Speaker 3: our fund has thirty eight billion of a vestible capital. 56 00:03:49,680 --> 00:03:55,000 Speaker 3: North of half of it is for performing credits four 57 00:03:55,040 --> 00:04:01,240 Speaker 3: billion dollars colos, sixteen billion dollars private credit. That's twenty 58 00:04:01,640 --> 00:04:09,240 Speaker 3: and the remainder is our special opportunities. When we're going 59 00:04:09,360 --> 00:04:13,920 Speaker 3: to the market in the private credit, we're trying to 60 00:04:14,040 --> 00:04:18,520 Speaker 3: fill a gap that's greatly appreciated. And as you know, David, 61 00:04:18,560 --> 00:04:22,320 Speaker 3: you follow private credit, a lot of lenders have a 62 00:04:22,720 --> 00:04:27,919 Speaker 3: very distinct box they lend it to. They want to 63 00:04:28,000 --> 00:04:31,719 Speaker 3: lend to a new LBO. They have a loan to 64 00:04:31,880 --> 00:04:35,640 Speaker 3: value they want, and they have industries that they like 65 00:04:35,920 --> 00:04:39,960 Speaker 3: and industries they don't like, and the minute something fits 66 00:04:40,000 --> 00:04:44,080 Speaker 3: in that box, they're gonna win. They're gonna go after it. 67 00:04:44,160 --> 00:04:46,800 Speaker 3: And they basically are saying, hey, tell me where I 68 00:04:46,920 --> 00:04:51,400 Speaker 3: need to be to win. And that's an overbank market. 69 00:04:51,440 --> 00:04:56,800 Speaker 3: Today won't be through cycles, but today it is. We 70 00:04:56,880 --> 00:05:01,760 Speaker 3: have a different conversation. One we're going to try to 71 00:05:01,800 --> 00:05:06,680 Speaker 3: target thirty forty percent of our loans will be two nonsponsors, 72 00:05:07,120 --> 00:05:12,760 Speaker 3: which is very underbanked because it's harder. You have to 73 00:05:12,800 --> 00:05:17,720 Speaker 3: be comfortable doing full due diligence. You can't rely on, Hey, 74 00:05:18,080 --> 00:05:21,520 Speaker 3: an equity sponsor's buying this company for a billion, they 75 00:05:21,560 --> 00:05:24,560 Speaker 3: want a five hundred billion dollar loan. I could go 76 00:05:24,600 --> 00:05:29,119 Speaker 3: to cent committee with a straight face, fifty percent loan 77 00:05:29,160 --> 00:05:32,280 Speaker 3: to value plus they're going to give me go all 78 00:05:32,360 --> 00:05:36,120 Speaker 3: their work, and then I could cut in paste that summarizon. 79 00:05:36,839 --> 00:05:40,599 Speaker 3: We we will do our own credit work, and we're 80 00:05:40,640 --> 00:05:45,000 Speaker 3: comfortable doing full level private and wey like due diligence 81 00:05:45,320 --> 00:05:48,360 Speaker 3: for a loan, and that allows you to attack that 82 00:05:49,760 --> 00:05:54,480 Speaker 3: our non sponsor space. Then that's not to say we're ignoring. 83 00:05:54,600 --> 00:05:58,040 Speaker 3: If that's thirty forty percent, well if I do the 84 00:05:58,080 --> 00:06:01,320 Speaker 3: math one hundred minus forty, that'd be sixty percent will 85 00:06:01,360 --> 00:06:07,000 Speaker 3: be sponsors. But we break sponsor's need for financing into 86 00:06:07,160 --> 00:06:12,280 Speaker 3: three buckets. Bug. The number one is that core LBO 87 00:06:12,640 --> 00:06:17,840 Speaker 3: it's fairly vanilla, and that we will look at all 88 00:06:17,920 --> 00:06:20,200 Speaker 3: of those we want to see it, but we're only 89 00:06:20,240 --> 00:06:22,800 Speaker 3: going to do very few. Now you say, well, why 90 00:06:22,839 --> 00:06:25,880 Speaker 3: would you even look at it if it's overbanked, Because 91 00:06:26,080 --> 00:06:31,320 Speaker 3: when the cycle turns, we want the relationships and we 92 00:06:31,480 --> 00:06:34,240 Speaker 3: want to be in that. And I'll give you an example. 93 00:06:34,400 --> 00:06:36,240 Speaker 3: A lot of people say, well, there aren't a lot 94 00:06:36,240 --> 00:06:40,000 Speaker 3: of cycles. You had nineteen ninety eight, two thousand and two, 95 00:06:40,040 --> 00:06:43,159 Speaker 3: two thousand and eight and COVID, but you've got a 96 00:06:43,200 --> 00:06:47,880 Speaker 3: lot of mini cycles. So we were maybe doing ten 97 00:06:47,880 --> 00:06:52,040 Speaker 3: to fifteen percent in LBOs and then two thousand and 98 00:06:52,240 --> 00:06:55,880 Speaker 3: three hat men and the market shut down short period 99 00:06:55,920 --> 00:07:00,520 Speaker 3: of time. But you had our real fear of inflation. 100 00:07:01,360 --> 00:07:04,599 Speaker 3: You had interest rates going off for the first time 101 00:07:04,640 --> 00:07:08,600 Speaker 3: in a long time. You had banks with hung deals, 102 00:07:08,760 --> 00:07:11,320 Speaker 3: Twitter was stole hung, and you had all of a sudden, 103 00:07:11,440 --> 00:07:15,520 Speaker 3: Silicon Valley bank blows up. So you had this short 104 00:07:15,560 --> 00:07:20,320 Speaker 3: period of time where the market shut and we went 105 00:07:20,360 --> 00:07:24,600 Speaker 3: in and aggressively filled that cap. The golden moment, Yeah, 106 00:07:24,640 --> 00:07:27,840 Speaker 3: it's the golden moment, but you gotta have the capital, 107 00:07:28,480 --> 00:07:33,400 Speaker 3: the confidence, and the relationship. So that's one part of 108 00:07:33,440 --> 00:07:38,160 Speaker 3: how we're attacking the sponsor market. The second component is 109 00:07:38,960 --> 00:07:45,040 Speaker 3: what we call specialty LBOs, and that's where the sponsor 110 00:07:45,680 --> 00:07:49,760 Speaker 3: does not want to go to the broadly syndicated low 111 00:07:49,880 --> 00:07:53,160 Speaker 3: market or go to ten and fifteen lenders and play 112 00:07:53,280 --> 00:07:56,720 Speaker 3: one off the other. It could be a take private. 113 00:07:56,760 --> 00:08:00,920 Speaker 3: I'll give you just an example. Company has four billion 114 00:08:01,880 --> 00:08:06,960 Speaker 3: market cap goes down to a billion because it was 115 00:08:07,160 --> 00:08:12,880 Speaker 3: growing at high rates, their core business matured and the 116 00:08:13,240 --> 00:08:19,360 Speaker 3: throwing a lot of cash into potential growth businesses, none 117 00:08:19,360 --> 00:08:23,480 Speaker 3: of which are working. A sponsor comes in sees where 118 00:08:23,520 --> 00:08:27,679 Speaker 3: the prices knows, the industry knows, the management team knows, 119 00:08:27,840 --> 00:08:31,800 Speaker 3: the board and says, you shouldn't be a public, you 120 00:08:31,840 --> 00:08:37,280 Speaker 3: should be private. Wi'll pay a thirty percent premium and 121 00:08:37,320 --> 00:08:42,200 Speaker 3: cuts the deal. They got to go announce it, get 122 00:08:42,400 --> 00:08:49,360 Speaker 3: shareholder votes to close. They are not looking to fight 123 00:08:49,559 --> 00:08:54,760 Speaker 3: about every basis point. What they're fearful of. What if 124 00:08:54,800 --> 00:08:58,720 Speaker 3: this leaks before the shareholder meeting. What if the stock 125 00:08:58,840 --> 00:09:04,439 Speaker 3: price goes above our thirty percent premium. What if some 126 00:09:04,559 --> 00:09:08,480 Speaker 3: investment banks start calling the board and saying, I have 127 00:09:08,480 --> 00:09:11,320 Speaker 3: a buyer who could do better. They might be fishing, 128 00:09:11,640 --> 00:09:14,800 Speaker 3: but the board gets nervous, Oh, maybe I need They 129 00:09:14,880 --> 00:09:17,960 Speaker 3: want to go to one lender who they trust. 130 00:09:18,080 --> 00:09:20,080 Speaker 2: They want to have the assurance of getting the deal. 131 00:09:19,880 --> 00:09:25,760 Speaker 3: Done, deal done quietly. It's both exactly David is and 132 00:09:26,200 --> 00:09:30,480 Speaker 3: someone who the confident could step up and write a 133 00:09:30,600 --> 00:09:34,439 Speaker 3: check for three four hundred million. And if they're paying 134 00:09:34,440 --> 00:09:38,320 Speaker 3: a little more upfront, a little more call, a little 135 00:09:38,360 --> 00:09:44,480 Speaker 3: more coupon stronger docs. It's small in the overall thing 136 00:09:45,320 --> 00:09:51,480 Speaker 3: of private equity funds auctions. They know they paid more 137 00:09:51,760 --> 00:09:55,640 Speaker 3: than everyone else a proprietary deal that they might have 138 00:09:55,760 --> 00:10:01,080 Speaker 3: spent a year, two years developing the relationship. Everything falls 139 00:10:01,120 --> 00:10:05,280 Speaker 3: in line. They want to come to someone like us, 140 00:10:05,800 --> 00:10:10,040 Speaker 3: So we have core LBOs. We're going to attack that 141 00:10:10,760 --> 00:10:16,439 Speaker 3: in market dislocations, MIDI and major specialty finance. That's what 142 00:10:16,600 --> 00:10:20,840 Speaker 3: we're marketing and things that don't fit everyone's box. 143 00:10:21,360 --> 00:10:24,120 Speaker 2: Is that specialty finance component that the sort of the 144 00:10:24,520 --> 00:10:27,920 Speaker 2: private element that you just described is that pretty much 145 00:10:27,920 --> 00:10:28,440 Speaker 2: a niche. 146 00:10:28,559 --> 00:10:31,640 Speaker 3: Are there only a few places in that for sure? Okay, 147 00:10:31,920 --> 00:10:34,920 Speaker 3: it's a big niche. Yeah, you have to have you 148 00:10:34,960 --> 00:10:38,200 Speaker 3: have to have the capital, you have to have the relationships. 149 00:10:38,360 --> 00:10:40,520 Speaker 3: And when you go through it and you have to 150 00:10:40,640 --> 00:10:44,439 Speaker 3: drop everything and get it done quietly in a short 151 00:10:44,520 --> 00:10:48,760 Speaker 3: period of time, there are ready that many players that 152 00:10:48,880 --> 00:10:52,520 Speaker 3: could do that. That the sponsors are confident and when 153 00:10:52,559 --> 00:10:56,839 Speaker 3: I look at our core relationships they repeat. And then 154 00:10:57,000 --> 00:11:02,200 Speaker 3: finally there's a lot of deals in the sponsor world 155 00:11:02,520 --> 00:11:08,599 Speaker 3: that are not for new LBO add on acquisition refinancing. 156 00:11:09,040 --> 00:11:15,960 Speaker 3: The incumbent lender always has a massive advantage if everything 157 00:11:16,160 --> 00:11:19,880 Speaker 3: was going well, if there were a lot of hiccups 158 00:11:20,440 --> 00:11:23,720 Speaker 3: and all of a sudden it's three or four years later, 159 00:11:24,720 --> 00:11:30,520 Speaker 3: and the original incumbent lenders were reliant on the sponsor's 160 00:11:30,679 --> 00:11:34,480 Speaker 3: loan to value from three years ago. It's sort of 161 00:11:34,520 --> 00:11:39,080 Speaker 3: irrelevant now because things did not go as plan and 162 00:11:39,160 --> 00:11:43,199 Speaker 3: we market ourselves, come to us, we'll re underwrite it. 163 00:11:44,040 --> 00:11:48,880 Speaker 3: And while we're known to do much more due diligence 164 00:11:48,960 --> 00:11:53,760 Speaker 3: than most and structure more than most, we fit this 165 00:11:54,040 --> 00:12:00,040 Speaker 3: need so we're embraced by the sponsor community in it. 166 00:12:00,240 --> 00:12:03,440 Speaker 2: So you obviously have tremendous perspective on the market. I 167 00:12:03,440 --> 00:12:05,920 Speaker 2: mean you fledged from Goldman in two thousand and two 168 00:12:05,960 --> 00:12:08,360 Speaker 2: and got going in two thousand and three. Really at 169 00:12:08,400 --> 00:12:12,240 Speaker 2: silver Point, Techrek was winding down. Enron just happened. Financial 170 00:12:12,240 --> 00:12:15,520 Speaker 2: crisis was a few years away. Europe languished right after that. 171 00:12:15,920 --> 00:12:20,200 Speaker 2: COVID nineteen happened. Private credit is sort of described or 172 00:12:20,240 --> 00:12:21,880 Speaker 2: thought of as a new thing. It's not really a 173 00:12:21,920 --> 00:12:24,400 Speaker 2: new thing. I went through a chemical bank training program 174 00:12:24,880 --> 00:12:28,160 Speaker 2: back in nineteen eighty seven to do leverage loans to 175 00:12:28,160 --> 00:12:31,400 Speaker 2: middle market companies. But how have you seen this market evolve? 176 00:12:31,440 --> 00:12:33,960 Speaker 2: You've been here since the very beginning of what sort 177 00:12:33,960 --> 00:12:37,480 Speaker 2: of is referred to as private credit. So two decades 178 00:12:37,640 --> 00:12:40,120 Speaker 2: in two decades plus in how has it changed. 179 00:12:40,480 --> 00:12:47,760 Speaker 3: Oh, it's changed tremendously in the amount of capital. So 180 00:12:47,960 --> 00:12:51,360 Speaker 3: I agree. I was in I taught those training programs, 181 00:12:51,720 --> 00:12:54,160 Speaker 3: and we had, like I said, at Goldman Sachs, we 182 00:12:54,280 --> 00:12:58,000 Speaker 3: did private credit. I think what's changed the most is 183 00:12:58,160 --> 00:13:04,680 Speaker 3: how many players have come in since the Great Financial Crisis. 184 00:13:05,320 --> 00:13:08,920 Speaker 3: It was viewed the Great Financial Crisis opened this window 185 00:13:09,600 --> 00:13:14,640 Speaker 3: as banks had to worry about their own liquidity solvencies. 186 00:13:15,120 --> 00:13:21,880 Speaker 3: Regulators clos were not getting the same type of leverage 187 00:13:21,960 --> 00:13:26,000 Speaker 3: they needed to make their business model worked, and people 188 00:13:26,240 --> 00:13:30,520 Speaker 3: jumped in, which is great, And I actually think, you 189 00:13:30,559 --> 00:13:34,520 Speaker 3: know all this the private credit is somehow bad for 190 00:13:34,600 --> 00:13:39,000 Speaker 3: the economy. I don't get that in that it's phenomenal there. 191 00:13:39,120 --> 00:13:44,320 Speaker 3: When you think of economic crisises, they're driven and magnified 192 00:13:44,840 --> 00:13:50,040 Speaker 3: by a lack of capital to refinance loans to fund growth. 193 00:13:50,360 --> 00:13:56,360 Speaker 3: Private credit will fill has filled that vacancy. The real 194 00:13:56,559 --> 00:14:03,480 Speaker 3: question that people ask is it has gotten overheated, especially 195 00:14:04,000 --> 00:14:08,440 Speaker 3: in that core LB oh, and is it a bubble 196 00:14:08,480 --> 00:14:11,680 Speaker 3: that's gonna blow up? And the answer is, you know, 197 00:14:11,720 --> 00:14:14,840 Speaker 3: it's the warring buffet quote that everyone loves. When the 198 00:14:14,880 --> 00:14:19,880 Speaker 3: tide goes out, we're gonna see who's when we get 199 00:14:19,920 --> 00:14:25,080 Speaker 3: into the next cycle. There will be people who do fine. 200 00:14:25,560 --> 00:14:29,400 Speaker 3: There will be people who don't do well, and they 201 00:14:29,440 --> 00:14:33,760 Speaker 3: will work down their portfolio and go out of business, 202 00:14:34,440 --> 00:14:36,960 Speaker 3: and there will be a third category that not only 203 00:14:37,040 --> 00:14:42,920 Speaker 3: does fine, but has the dry powder and the expertise 204 00:14:43,800 --> 00:14:48,960 Speaker 3: to lean into that. What I love, what silver Point 205 00:14:49,120 --> 00:14:54,480 Speaker 3: loves is when the market is driven by fear of 206 00:14:54,760 --> 00:15:00,680 Speaker 3: missing out risk on to just constantly be saying, when 207 00:15:00,720 --> 00:15:05,160 Speaker 3: it changes, how is our portfolio going to do? Do 208 00:15:05,240 --> 00:15:09,960 Speaker 3: we know every potential problem and have a plan of attack, 209 00:15:10,440 --> 00:15:14,280 Speaker 3: and do we have the dry powder and the expertise 210 00:15:14,840 --> 00:15:18,280 Speaker 3: that when we go from fear of missing out to 211 00:15:18,680 --> 00:15:22,720 Speaker 3: fear that's where you want to be. And if you 212 00:15:22,760 --> 00:15:28,400 Speaker 3: have capital, don't you're not playing triage and you have 213 00:15:28,480 --> 00:15:33,080 Speaker 3: the confidence to step up when most people are not. 214 00:15:34,160 --> 00:15:36,920 Speaker 3: That's how you really win, and that's how you build 215 00:15:37,320 --> 00:15:42,320 Speaker 3: the long term relationships. When the market's heated, it's odd 216 00:15:42,400 --> 00:15:46,080 Speaker 3: everyone will do that deal. This monster in a core 217 00:15:46,280 --> 00:15:50,000 Speaker 3: LBO is not saying thank you, thank you, thank you. 218 00:15:50,480 --> 00:15:53,440 Speaker 3: They're saying you say thank you, thank you, thank you 219 00:15:53,520 --> 00:15:57,000 Speaker 3: to me because I have twenty term sheets. It's when 220 00:15:57,040 --> 00:16:02,160 Speaker 3: you're attacking the markets, in the segments that aren't as competitive, 221 00:16:03,120 --> 00:16:06,840 Speaker 3: or when everything shuts down, then you build the long 222 00:16:06,960 --> 00:16:08,600 Speaker 3: term relationships. 223 00:16:08,760 --> 00:16:13,640 Speaker 1: Right, speaking of dry powder, that combined with added pressure 224 00:16:13,760 --> 00:16:17,440 Speaker 1: to deploy, I'm not speaking about silver point sell, but 225 00:16:17,600 --> 00:16:21,280 Speaker 1: about like funding private credit in general that seems to 226 00:16:21,280 --> 00:16:25,280 Speaker 1: add to the risk to the bottom to just sign 227 00:16:25,680 --> 00:16:28,440 Speaker 1: any type of deal to some extent in terms that 228 00:16:28,480 --> 00:16:32,480 Speaker 1: are very favorable for favorable for borrowers, but not necessarily 229 00:16:32,640 --> 00:16:36,560 Speaker 1: the best terms for creditors with the best protections for creditors. 230 00:16:36,600 --> 00:16:40,360 Speaker 1: Are you seeing any opportunities from this type of loans 231 00:16:40,400 --> 00:16:43,760 Speaker 1: that for private credit loans that you know, offer very 232 00:16:44,080 --> 00:16:46,280 Speaker 1: few protections for creditors. And now I don't know if 233 00:16:46,280 --> 00:16:51,040 Speaker 1: you're seeing opportunities in perhaps private credit secondaries or other 234 00:16:51,160 --> 00:16:53,880 Speaker 1: sorts of like ways in for re. 235 00:16:54,000 --> 00:16:56,840 Speaker 3: No, I mean, I think that there's a lot and 236 00:16:56,880 --> 00:16:59,640 Speaker 3: you guys have written a lot, you guys meaning bloomberk 237 00:17:00,040 --> 00:17:04,320 Speaker 3: and trading of private credit, you know, And we're gonna 238 00:17:04,320 --> 00:17:07,560 Speaker 3: have a discussion around that because that's sort of interesting 239 00:17:07,600 --> 00:17:10,280 Speaker 3: because the whole idea and the whole part of the 240 00:17:10,320 --> 00:17:14,160 Speaker 3: benefit of private credit is I'm dealing with self appoint 241 00:17:14,440 --> 00:17:17,400 Speaker 3: you're my lendo. When we need to amend the doc, 242 00:17:17,480 --> 00:17:21,040 Speaker 3: I'm calling you. I know who universe is it? I 243 00:17:21,080 --> 00:17:23,720 Speaker 3: don't know who's the person I need to talk to. 244 00:17:24,280 --> 00:17:27,680 Speaker 3: But no, we're not seeing a lot of opportunities in 245 00:17:27,840 --> 00:17:32,359 Speaker 3: buying private credit, whether over time that trades or not. 246 00:17:33,160 --> 00:17:37,040 Speaker 3: What I would say is the race to the bontom 247 00:17:37,160 --> 00:17:41,320 Speaker 3: phenomenal is there. You got to avoid it. And it 248 00:17:41,400 --> 00:17:44,280 Speaker 3: goes back to We're not gonna know the winners and 249 00:17:44,320 --> 00:17:48,960 Speaker 3: the losers until things get bad. What you know? And 250 00:17:50,000 --> 00:17:54,440 Speaker 3: or investors will ask me, well, what questions should I ask? Well, One, 251 00:17:54,960 --> 00:17:58,119 Speaker 3: I look at it and say, what scares me the 252 00:17:58,160 --> 00:18:03,240 Speaker 3: most is a couple of things. One, small companies ten million, 253 00:18:03,400 --> 00:18:09,280 Speaker 3: fifty million EBDA doesn't have significant market share when there's 254 00:18:09,359 --> 00:18:16,200 Speaker 3: a problem. You might not have the senior secure downside protection. 255 00:18:16,840 --> 00:18:20,879 Speaker 3: You might be taking equity risk getting debt like returns. 256 00:18:21,280 --> 00:18:27,920 Speaker 3: So small business is scamming two documents. I'm like almost 257 00:18:27,960 --> 00:18:33,639 Speaker 3: shocked at how loans sometimes and this is also the 258 00:18:33,680 --> 00:18:38,480 Speaker 3: worldly syndicated loan market. The focus on the loan to 259 00:18:38,600 --> 00:18:44,399 Speaker 3: value day one the company, But then there's the docs. 260 00:18:44,400 --> 00:18:48,080 Speaker 3: Are the docks right? But if I'm landing five hundred 261 00:18:48,119 --> 00:18:51,719 Speaker 3: million dollars to a company that's worth a billion today, 262 00:18:51,880 --> 00:18:55,320 Speaker 3: But the docs say there's a carve out and they 263 00:18:55,400 --> 00:18:59,440 Speaker 3: could move two hundred and fifty million dollars of value 264 00:19:00,119 --> 00:19:04,199 Speaker 3: out of the companies that you're lending to to an 265 00:19:04,320 --> 00:19:08,119 Speaker 3: unrestricted sub that I cannot put a covenant on. I 266 00:19:08,160 --> 00:19:12,440 Speaker 3: can't go after the value. It's misleading to say I'm 267 00:19:12,480 --> 00:19:16,680 Speaker 3: fifty percent loans of value taking five hundred over the billion, 268 00:19:17,320 --> 00:19:22,000 Speaker 3: I would take five hundred divided by seven fifty because 269 00:19:22,040 --> 00:19:27,000 Speaker 3: the sponsor, of course, they should move assets out when 270 00:19:27,040 --> 00:19:31,080 Speaker 3: there's a problem. And unlike being a venture capitalist and 271 00:19:31,400 --> 00:19:38,320 Speaker 3: equity value growth equity, where you worry about good things 272 00:19:38,359 --> 00:19:42,359 Speaker 3: and bad things happening, as a lender, all you care 273 00:19:42,480 --> 00:19:44,440 Speaker 3: about is bad things. 274 00:19:44,640 --> 00:19:48,080 Speaker 2: Yeah, your best outcome is getting repaid what you lent. 275 00:19:48,560 --> 00:19:52,439 Speaker 3: Par plus my coupons. Yeah, that's the game of our men. 276 00:19:53,000 --> 00:19:56,840 Speaker 3: And therefore I have to say, what could go wrong, 277 00:19:57,200 --> 00:20:03,040 Speaker 3: what's the probability of it going how much can value 278 00:20:03,240 --> 00:20:08,720 Speaker 3: deteriorate if that happens, and what does the document allow 279 00:20:09,359 --> 00:20:12,800 Speaker 3: that company to do. You know, I have a lot 280 00:20:12,840 --> 00:20:17,280 Speaker 3: of friends in VC and growth equity, and they'll say, Michael, 281 00:20:17,359 --> 00:20:21,960 Speaker 3: your job so easy, senior secured, And I'm like, no, No, 282 00:20:22,160 --> 00:20:26,320 Speaker 3: your job is so easy because you could do ten deals, 283 00:20:26,720 --> 00:20:31,040 Speaker 3: get a zero on three or four of them, mediocre 284 00:20:31,160 --> 00:20:35,200 Speaker 3: returns on three or four. As long as you have 285 00:20:36,880 --> 00:20:40,160 Speaker 3: of the deals being the next uber the next day, 286 00:20:40,280 --> 00:20:44,800 Speaker 3: are your hero. We can't lose money. We have to 287 00:20:44,880 --> 00:20:48,840 Speaker 3: be paranoid about everything that could go wrong and say, 288 00:20:48,960 --> 00:20:52,280 Speaker 3: if it goes wrong, do I think I'm gonna lose money. 289 00:20:52,920 --> 00:20:55,040 Speaker 3: We will, and that's a tough way to live a life. 290 00:20:56,040 --> 00:21:00,000 Speaker 1: We will go into more detail about liability management exercise. 291 00:20:59,680 --> 00:21:04,760 Speaker 3: Letter liability management as in you love to participate, Oh no, 292 00:21:04,760 --> 00:21:07,240 Speaker 3: I love talking, I love well, I will talk about 293 00:21:07,280 --> 00:21:09,200 Speaker 3: I love talking about it. It's interesting. 294 00:21:09,520 --> 00:21:13,399 Speaker 1: Okay, But before that, do you think investors are adequately 295 00:21:13,440 --> 00:21:16,040 Speaker 1: compensated for the risk of fill liquidity? 296 00:21:16,119 --> 00:21:19,320 Speaker 3: Yes and no. You know, it's gonna be the simple answer. 297 00:21:19,960 --> 00:21:23,800 Speaker 3: Certain segments of the market, I think you're getting fairly 298 00:21:24,000 --> 00:21:28,960 Speaker 3: to overcompensated for it. Again, these parts of the segments 299 00:21:29,480 --> 00:21:35,520 Speaker 3: where they're just less efficient, less capital. Yes, I think 300 00:21:35,560 --> 00:21:40,399 Speaker 3: in certain of the deals you're getting no ill liquidity premium. 301 00:21:40,840 --> 00:21:43,679 Speaker 3: But then again, you have some investors that are fine. 302 00:21:44,160 --> 00:21:47,840 Speaker 3: You know, it's also who are the investors of the fund. 303 00:21:48,440 --> 00:21:51,760 Speaker 3: If the investors of the fund have a very very 304 00:21:52,040 --> 00:21:57,040 Speaker 3: long term their capital, very long term, they don't want 305 00:21:57,200 --> 00:22:01,359 Speaker 3: market vowel of things going up and down just based 306 00:22:01,440 --> 00:22:08,040 Speaker 3: on something the president says. They actually value not having 307 00:22:08,200 --> 00:22:12,639 Speaker 3: all that liquidity. So it depends on a lot of things. 308 00:22:13,080 --> 00:22:16,640 Speaker 3: I think right now the core LBO market is what 309 00:22:17,119 --> 00:22:21,480 Speaker 3: I would call a beta trade. It's not there's no 310 00:22:21,680 --> 00:22:25,919 Speaker 3: excess return in it, and you're probably being adequate for 311 00:22:26,119 --> 00:22:29,400 Speaker 3: those who do it. Well, I think you're getting adequately 312 00:22:29,560 --> 00:22:34,640 Speaker 3: compensated for the risk and the liquidity. And my only 313 00:22:34,720 --> 00:22:40,240 Speaker 3: point before not everyone has the same illiquidity premium. So 314 00:22:40,280 --> 00:22:44,560 Speaker 3: the people who go into these assets aren't aren't going 315 00:22:44,600 --> 00:22:48,360 Speaker 3: to be someone who knew needs day to day liquidity 316 00:22:48,440 --> 00:22:52,719 Speaker 3: and therefore they don't need the same liquidity premium as others. 317 00:22:53,200 --> 00:22:54,080 Speaker 3: Does that make sense? 318 00:22:54,680 --> 00:22:57,719 Speaker 2: Yeah, So just sort of sticking with this liquidity issue 319 00:22:58,200 --> 00:23:01,159 Speaker 2: and pivoting a little bit. Private credit has been a 320 00:23:01,160 --> 00:23:05,080 Speaker 2: hot sector for a while. Is it suitable for retail 321 00:23:05,119 --> 00:23:08,679 Speaker 2: investors via ETFs with a private credit component? Don't we 322 00:23:08,920 --> 00:23:11,879 Speaker 2: have the risk of fundamentally illiquid assets being backed by 323 00:23:11,960 --> 00:23:14,120 Speaker 2: daily liquidity funding sort of? 324 00:23:15,080 --> 00:23:21,640 Speaker 3: Well, it's unambiguously a legitimate concern, right, So if you're 325 00:23:21,840 --> 00:23:26,959 Speaker 3: raising money to the retail market, you need to explain 326 00:23:27,920 --> 00:23:32,040 Speaker 3: what is the liquidity of this. Now you could have 327 00:23:33,800 --> 00:23:39,640 Speaker 3: liquidity backstabs, so allowing you could draw on to pay 328 00:23:39,720 --> 00:23:43,440 Speaker 3: out x percent of the investors, so you know there 329 00:23:43,560 --> 00:23:48,840 Speaker 3: is some liquidity. We're just early on in thinking about 330 00:23:49,080 --> 00:23:53,760 Speaker 3: whether we should or shouldn't raise money from the retail investors. 331 00:23:53,760 --> 00:23:57,919 Speaker 3: So there's a big learning curve of a fund saying 332 00:23:58,080 --> 00:23:59,879 Speaker 3: is that appropriate or not? 333 00:24:00,440 --> 00:24:02,360 Speaker 2: It seems to be a little bit of baby steps too, 334 00:24:02,400 --> 00:24:06,760 Speaker 2: because the private credit component is relatively low in these 335 00:24:06,760 --> 00:24:07,440 Speaker 2: funds so far. 336 00:24:08,359 --> 00:24:11,720 Speaker 3: Yeah, I agree with that. So to answer your question, 337 00:24:12,359 --> 00:24:16,840 Speaker 3: it's going to be I think, yes, it is appropriate 338 00:24:17,240 --> 00:24:23,440 Speaker 3: if it structured correctly and it's disclosed that marketed correctly. 339 00:24:24,080 --> 00:24:26,080 Speaker 3: But I'm not an expert on it. 340 00:24:26,960 --> 00:24:28,840 Speaker 1: In the book, one of the things and you were 341 00:24:29,040 --> 00:24:32,159 Speaker 1: discussing now, you mentioned the and you emphasized a lot 342 00:24:32,160 --> 00:24:34,280 Speaker 1: of importance of due diligence, and you were talking about 343 00:24:34,320 --> 00:24:36,960 Speaker 1: it just now. And in the book you mentioned the 344 00:24:37,000 --> 00:24:39,960 Speaker 1: anecdote of Mark Dreyer, the lawyer that was sentenced to 345 00:24:40,000 --> 00:24:43,560 Speaker 1: I think twenty years of prison for fraud. Yes, that 346 00:24:43,840 --> 00:24:47,359 Speaker 1: was you know, I was trying to sell loans that 347 00:24:47,400 --> 00:24:50,720 Speaker 1: were actually non existent. It was a fraud basically, and 348 00:24:52,200 --> 00:24:55,080 Speaker 1: was getting annoyed by the level of due diligence questions 349 00:24:55,119 --> 00:24:57,800 Speaker 1: that Silverpoint was asking. Was meant to have dinner with 350 00:24:57,840 --> 00:25:00,960 Speaker 1: you guys, but was actually the rest in Canada the 351 00:25:01,320 --> 00:25:05,160 Speaker 1: day before? I think is due diligence even more important 352 00:25:05,160 --> 00:25:09,920 Speaker 1: in private credit, equally importantness in public markets? Is there 353 00:25:09,960 --> 00:25:13,760 Speaker 1: something additional that investors would need to take into account. 354 00:25:14,080 --> 00:25:17,680 Speaker 3: Our firm believes due diligence is the core of who 355 00:25:17,720 --> 00:25:21,600 Speaker 3: we are. In fact, we have certain core principles, and 356 00:25:21,680 --> 00:25:25,639 Speaker 3: one is we dig deeper we enjoy due diligence. You know, 357 00:25:25,720 --> 00:25:31,080 Speaker 3: we think it's really important. Now. The less liquid your 358 00:25:31,280 --> 00:25:37,440 Speaker 3: investment is, the more due diligence you need, because if 359 00:25:37,480 --> 00:25:42,080 Speaker 3: you make a mistake, you can't get out. So if 360 00:25:42,080 --> 00:25:46,800 Speaker 3: it's a public investment, you might have done eighty percent 361 00:25:46,840 --> 00:25:49,480 Speaker 3: of your work and say, I am going to start 362 00:25:49,560 --> 00:25:55,400 Speaker 3: to buy because I think I have a unique investment thesis. 363 00:25:55,840 --> 00:25:58,479 Speaker 3: I think I'm ahead of the curve, and even though 364 00:25:58,840 --> 00:26:02,480 Speaker 3: I still have work to do, the price is trading 365 00:26:02,560 --> 00:26:08,520 Speaker 3: at today compensates me for buying without all of my 366 00:26:08,640 --> 00:26:12,080 Speaker 3: due diligence done, because if I wait until I'm done 367 00:26:12,119 --> 00:26:15,679 Speaker 3: and the price moves up ten twenty points, well I 368 00:26:15,720 --> 00:26:20,639 Speaker 3: didn't do my job. So when there's liquidity, you could 369 00:26:20,800 --> 00:26:25,280 Speaker 3: start to buy and then change your mind and get out, 370 00:26:25,280 --> 00:26:29,199 Speaker 3: and you might take a loss. If you're doing on 371 00:26:29,280 --> 00:26:33,840 Speaker 3: the other extreme, your private equity fund, you have to 372 00:26:33,880 --> 00:26:38,280 Speaker 3: finish your due diligence before you invest. So I would 373 00:26:38,280 --> 00:26:42,280 Speaker 3: say if you're lending to private deals, you're going to 374 00:26:42,400 --> 00:26:47,120 Speaker 3: have to do more due diligence because you can't decide 375 00:26:47,119 --> 00:26:50,560 Speaker 3: to make a mistake and move out, or if you're 376 00:26:50,600 --> 00:26:58,080 Speaker 3: doing nonsponsor loans, that even magnifies that because you can't 377 00:26:58,119 --> 00:27:02,600 Speaker 3: piggyback on the work sponsor has done. So I think 378 00:27:02,720 --> 00:27:07,800 Speaker 3: due diligence is really really critical, and it will go 379 00:27:07,920 --> 00:27:11,960 Speaker 3: back to one of the themes when the cycle changes. 380 00:27:13,000 --> 00:27:16,959 Speaker 3: Those who were deep in due diligence have confidence in 381 00:27:17,000 --> 00:27:22,359 Speaker 3: their investment, will not only do better on how their 382 00:27:22,440 --> 00:27:28,080 Speaker 3: existing investments performed, but I also think they'll do better 383 00:27:28,359 --> 00:27:33,320 Speaker 3: in building the relationships with their barers because if you 384 00:27:33,440 --> 00:27:37,159 Speaker 3: did all your work and then there's a downturn in 385 00:27:37,200 --> 00:27:42,520 Speaker 3: the economy, but you have ultimate confidence in the value 386 00:27:42,600 --> 00:27:47,960 Speaker 3: cushion to your loone that this is very temporary, that 387 00:27:48,080 --> 00:27:52,239 Speaker 3: this company is going to have some problems and then 388 00:27:52,400 --> 00:27:56,320 Speaker 3: come out of this recession as good, if not better, 389 00:27:56,359 --> 00:28:01,040 Speaker 3: because some of their competitors might disappear, you are going 390 00:28:01,119 --> 00:28:06,320 Speaker 3: to be more accommodating to that ball. Versus if you 391 00:28:06,359 --> 00:28:09,879 Speaker 3: didn't do a lot of due diligence, you were not deep, 392 00:28:10,600 --> 00:28:14,320 Speaker 3: and then you're worried, which one of your credits are 393 00:28:15,240 --> 00:28:19,840 Speaker 3: high likelihood of impairment versus one you should be leading 394 00:28:19,920 --> 00:28:21,400 Speaker 3: in and support it well. 395 00:28:21,440 --> 00:28:23,200 Speaker 2: Due diligence has to be the name of the game, 396 00:28:23,320 --> 00:28:27,160 Speaker 2: right I believe so, sort of leveraged lending, which sort 397 00:28:27,200 --> 00:28:29,639 Speaker 2: of brings up a question about the way again, the 398 00:28:29,640 --> 00:28:32,600 Speaker 2: way that the market has evolved over time. When you 399 00:28:33,320 --> 00:28:36,119 Speaker 2: were early on getting involved in private credit, it was 400 00:28:36,920 --> 00:28:39,760 Speaker 2: it wasn't terror incognita, but it was not far off 401 00:28:40,360 --> 00:28:43,120 Speaker 2: from that. There seemed to be cruise line liners coming 402 00:28:43,160 --> 00:28:46,280 Speaker 2: in now, you know, bringing tourists to the space. And 403 00:28:46,320 --> 00:28:48,760 Speaker 2: I'm just wondering what sort of an impact you're seeing 404 00:28:49,320 --> 00:28:51,920 Speaker 2: at your business in terms of, you know, sort of 405 00:28:51,960 --> 00:28:58,440 Speaker 2: the underwriting expectations, the documentation, the rationality of pricing, the 406 00:28:58,520 --> 00:29:01,840 Speaker 2: rationality of extending credit in the market today, Like, are 407 00:29:01,880 --> 00:29:04,480 Speaker 2: we overheated? There's certainly a lot of concern we are. 408 00:29:05,080 --> 00:29:10,000 Speaker 3: Yeah, I yes, we are overheated in certain segments, I 409 00:29:10,040 --> 00:29:13,640 Speaker 3: think incerting segments. No, they expect you to come in 410 00:29:14,440 --> 00:29:17,240 Speaker 3: do due diligence. I find, you know, in the non 411 00:29:17,320 --> 00:29:19,840 Speaker 3: sponsored deals, I find you know, we did a deal 412 00:29:19,920 --> 00:29:23,680 Speaker 3: to a family owned business big close to a billion 413 00:29:23,760 --> 00:29:29,200 Speaker 3: dollars of sales or EBDA ranging from eighty million to 414 00:29:29,280 --> 00:29:32,520 Speaker 3: one hundred and twenty million, then a massive pop up 415 00:29:32,600 --> 00:29:37,000 Speaker 3: due to COVID, a massive pop down as a COVID correction. 416 00:29:37,720 --> 00:29:42,520 Speaker 3: But I found like those businesses, they actually embrace due diligence. 417 00:29:43,000 --> 00:29:48,040 Speaker 3: They know every detail of their company, and they actually 418 00:29:48,240 --> 00:29:51,920 Speaker 3: enjoy you coming in and asking. So I think there's 419 00:29:51,920 --> 00:29:56,160 Speaker 3: segments where they understand you're a lender, You're gonna come in, 420 00:29:56,400 --> 00:30:00,160 Speaker 3: you're gonna ask a ton of questions, and that that's 421 00:30:00,200 --> 00:30:02,320 Speaker 3: part of the process, and you're going to have a 422 00:30:02,400 --> 00:30:06,000 Speaker 3: normal document. You know, you're gonna have a loan document 423 00:30:06,040 --> 00:30:08,880 Speaker 3: that says what you can and can't do. So I 424 00:30:08,960 --> 00:30:14,280 Speaker 3: find there's those segments that everything is a good risk 425 00:30:14,320 --> 00:30:19,520 Speaker 3: adjusted return, including the documents. And then but if you 426 00:30:19,600 --> 00:30:24,680 Speaker 3: go back to just pure a very vanilla LBO, the 427 00:30:24,760 --> 00:30:30,280 Speaker 3: sponsors are doing what they should do is saying a 428 00:30:30,320 --> 00:30:34,320 Speaker 3: lot of capital wants to lend to a new LBO, 429 00:30:35,000 --> 00:30:37,240 Speaker 3: and if you want to do it, I need the 430 00:30:37,280 --> 00:30:43,720 Speaker 3: best terms, including the best documents for there. And you 431 00:30:43,760 --> 00:30:45,960 Speaker 3: know it goes back. You know, it's almost I don't 432 00:30:45,960 --> 00:30:48,760 Speaker 3: want to be the repeat. There'll be three sets of 433 00:30:48,840 --> 00:30:52,640 Speaker 3: funds who are in this business, ones that do fine 434 00:30:52,920 --> 00:30:57,719 Speaker 3: continue to exist, ones that are prepared for the downturn 435 00:30:57,880 --> 00:31:00,959 Speaker 3: and wants to fill those void and then they are 436 00:31:01,000 --> 00:31:05,200 Speaker 3: all going to be players who are done. And I'm 437 00:31:05,240 --> 00:31:08,400 Speaker 3: not going to say who zoo. Well, we'll all find out. 438 00:31:08,680 --> 00:31:12,040 Speaker 3: But there's plenty of LBO deals where they tell the 439 00:31:12,160 --> 00:31:17,040 Speaker 3: lenders zero access to management, can't even have a conversation. 440 00:31:17,480 --> 00:31:21,520 Speaker 2: Yikes. So so you've got this specialty area, you've had 441 00:31:21,520 --> 00:31:24,360 Speaker 2: it for a while that I would say probably gives 442 00:31:24,400 --> 00:31:26,680 Speaker 2: you an edge over people that are sort of a 443 00:31:26,720 --> 00:31:29,280 Speaker 2: little bit less established or haven't been doing it as long. 444 00:31:29,680 --> 00:31:33,640 Speaker 2: Does that business come to you through long term relationships 445 00:31:33,400 --> 00:31:36,880 Speaker 2: that you guys have with sort of succession planners and 446 00:31:38,200 --> 00:31:40,840 Speaker 2: sort of firms like that, or where does it come from? 447 00:31:41,480 --> 00:31:43,880 Speaker 3: I would wreak it up. It comes from a lot. 448 00:31:44,360 --> 00:31:48,520 Speaker 3: We we want to see everything and that's why we're 449 00:31:48,520 --> 00:31:52,520 Speaker 3: doing the core LBOs. We're doing but very few of them, right, 450 00:31:52,720 --> 00:31:55,320 Speaker 3: but we want to see them. We're doing what we 451 00:31:55,440 --> 00:31:58,479 Speaker 3: call this specialty LBO. One lene that come to us 452 00:31:58,560 --> 00:32:01,600 Speaker 3: the RIVA and the nons sponsor. So it'd say on 453 00:32:01,680 --> 00:32:08,880 Speaker 3: the sponsor side we have seventy five core relationships. You know, 454 00:32:09,640 --> 00:32:13,080 Speaker 3: a third of those were doing that repeat deal. It 455 00:32:13,120 --> 00:32:16,960 Speaker 3: always is where we're coming to us and they understand. 456 00:32:18,360 --> 00:32:21,360 Speaker 3: And then when you go outside of that, it is 457 00:32:22,240 --> 00:32:25,800 Speaker 3: a lot of advisory firms, It is a lot of 458 00:32:25,960 --> 00:32:31,640 Speaker 3: legal firms. You know, we are You have all these 459 00:32:32,880 --> 00:32:39,160 Speaker 3: banks that are dealing with these large family owned non 460 00:32:39,240 --> 00:32:43,720 Speaker 3: sponsor companies and when they come in like the one 461 00:32:43,800 --> 00:32:50,000 Speaker 3: I described to you, they are needed alone. They were 462 00:32:50,080 --> 00:32:54,640 Speaker 3: only using an ABL revolver from a bank. That advisor 463 00:32:54,760 --> 00:32:58,120 Speaker 3: called us and said would you be interested? And we 464 00:32:58,240 --> 00:33:01,360 Speaker 3: got into a dialogue and I don't think they called 465 00:33:01,400 --> 00:33:05,360 Speaker 3: anyone else, And if they did, it wasn't we were. 466 00:33:05,480 --> 00:33:09,520 Speaker 3: It was not a situation where there were ten term sheets. 467 00:33:09,560 --> 00:33:15,400 Speaker 3: It was more normal. Again, if we didn't price it appropriately, 468 00:33:16,800 --> 00:33:19,560 Speaker 3: we would be opening the door for ten term sheets. 469 00:33:19,600 --> 00:33:25,400 Speaker 3: So you're pricing it at a level you feel you're 470 00:33:25,440 --> 00:33:30,640 Speaker 3: getting a premium because it's under banked, but not such 471 00:33:31,280 --> 00:33:37,320 Speaker 3: that it's where the their their advisor and the family says, well, 472 00:33:37,360 --> 00:33:38,480 Speaker 3: this is selling. 473 00:33:39,080 --> 00:33:42,480 Speaker 1: For the funds that won't make it. What do you 474 00:33:42,520 --> 00:33:45,520 Speaker 1: think could be the triggers in the medium term. 475 00:33:45,560 --> 00:33:49,160 Speaker 3: I don't see. I think in the medium term you 476 00:33:49,560 --> 00:33:52,920 Speaker 3: will have it will be hot you're going to need 477 00:33:52,960 --> 00:33:56,520 Speaker 3: the event, right. I think if you look at funds 478 00:33:56,520 --> 00:34:00,240 Speaker 3: and say, how much of your loans were originated with 479 00:34:00,360 --> 00:34:03,479 Speaker 3: pick interest paid in kind? How much of your loans 480 00:34:03,520 --> 00:34:07,440 Speaker 3: today is paid in kind? The first, the first red 481 00:34:07,480 --> 00:34:13,000 Speaker 3: flag of problems is for funds that are dealing with 482 00:34:13,200 --> 00:34:20,160 Speaker 3: problems but not directly, is pick interest the barrow. And 483 00:34:20,200 --> 00:34:24,839 Speaker 3: it's different if you originated a loan, they're integrating an acquisition, 484 00:34:25,400 --> 00:34:28,760 Speaker 3: you're giving them a holiday on a covenant. You're saying 485 00:34:28,840 --> 00:34:32,319 Speaker 3: you could pay x percent and Pick you came in 486 00:34:33,200 --> 00:34:37,200 Speaker 3: making that decision. It's different when it's all of a 487 00:34:37,239 --> 00:34:40,560 Speaker 3: sudden it wasn't pick and today it's Pick. It's come 488 00:34:40,680 --> 00:34:46,880 Speaker 3: to maturity and you're refinancing it, not because you want 489 00:34:46,920 --> 00:34:51,840 Speaker 3: to extend the maturity, but because you have no choice. 490 00:34:51,880 --> 00:34:54,160 Speaker 3: They can't pay you and the market is in there. 491 00:34:54,640 --> 00:34:58,359 Speaker 3: So I think you will see red flags out there. 492 00:34:58,880 --> 00:35:03,319 Speaker 3: And the vests that a vest in these funds have 493 00:35:03,400 --> 00:35:07,520 Speaker 3: a checklist and they should be asking how much pick 494 00:35:08,200 --> 00:35:11,920 Speaker 3: how much is not on performing? But then when the 495 00:35:11,960 --> 00:35:16,120 Speaker 3: cycle changes, I think that the game will be over 496 00:35:16,280 --> 00:35:19,080 Speaker 3: for those funds. And I want to be clear, I 497 00:35:19,120 --> 00:35:22,400 Speaker 3: don't think it's everyone. I don't think it's close to everyone. 498 00:35:22,719 --> 00:35:25,520 Speaker 3: But we see every deal that's getting done. There's some 499 00:35:25,560 --> 00:35:28,880 Speaker 3: good deals and there's some bad deals. And if someone 500 00:35:29,000 --> 00:35:33,080 Speaker 3: is doing too many bad deals, they won't exist. And 501 00:35:33,120 --> 00:35:36,520 Speaker 3: that's every cycle. That's nothing like I'm not saying anything 502 00:35:36,600 --> 00:35:42,120 Speaker 3: that is controversial. Of course, money comes in, then you'll 503 00:35:42,160 --> 00:35:45,239 Speaker 3: see who does well with it, and then money will 504 00:35:45,280 --> 00:35:46,000 Speaker 3: come out. 505 00:35:46,120 --> 00:35:50,200 Speaker 2: Yeah, it's actually you know, I follow the BDC is 506 00:35:50,239 --> 00:35:52,839 Speaker 2: and it's actually quite interesting to look at the data 507 00:35:52,840 --> 00:35:55,960 Speaker 2: that I've been able to compile on unpick and non accruals. 508 00:35:55,960 --> 00:35:59,520 Speaker 2: Non acrules have remained I would say surprisingly low, particularly 509 00:35:59,560 --> 00:36:01,520 Speaker 2: after five hundred and twenty five basis points at base 510 00:36:01,600 --> 00:36:03,919 Speaker 2: rate hikes in twenty two and twenty three. I think 511 00:36:03,960 --> 00:36:06,480 Speaker 2: that probably has something to do with base rates coming 512 00:36:06,480 --> 00:36:10,719 Speaker 2: off a zero boundary. Yes, but pick rates have also 513 00:36:10,840 --> 00:36:14,120 Speaker 2: remained pretty steady in the six to seven percent range. 514 00:36:14,160 --> 00:36:16,759 Speaker 2: Are you seeing sort of similar trends in your own portfolio? 515 00:36:17,160 --> 00:36:21,239 Speaker 3: Yeah, we're not. We our portfolio is holding it in 516 00:36:21,560 --> 00:36:25,759 Speaker 3: very well, are so. Yeah. I don't follow like you 517 00:36:25,840 --> 00:36:30,280 Speaker 3: do all the BDCs. So my point was, really that's 518 00:36:30,320 --> 00:36:33,960 Speaker 3: where you start to see the potential red flags. But 519 00:36:34,960 --> 00:36:40,040 Speaker 3: when there is markets where there's a lot of capital, 520 00:36:40,760 --> 00:36:45,480 Speaker 3: the mistakes are less easy to spot because more money 521 00:36:45,520 --> 00:36:49,160 Speaker 3: constantly comes in. It is when that tide goes out 522 00:36:49,239 --> 00:36:52,239 Speaker 3: that you figure out who's doing a good job and 523 00:36:52,280 --> 00:36:52,920 Speaker 3: who is it. 524 00:36:53,480 --> 00:36:57,200 Speaker 2: So it's it's impossible, Michael, impossible to have a podcast 525 00:36:57,239 --> 00:37:00,520 Speaker 2: without bringing up AI. Since we're talking about objects, do 526 00:37:00,640 --> 00:37:04,880 Speaker 2: sure not telling about the seventy six ers Great Alan 527 00:37:05,000 --> 00:37:10,120 Speaker 2: iverson artificial intelligence. We can go lots of ways with AI, 528 00:37:10,200 --> 00:37:13,160 Speaker 2: but maybe you could walk us through the benefits of 529 00:37:13,200 --> 00:37:17,200 Speaker 2: it to the private lending space and the drawbacks. Specifically, 530 00:37:17,239 --> 00:37:21,040 Speaker 2: there's concern that software attack and some services, big components 531 00:37:21,040 --> 00:37:24,280 Speaker 2: of many private lending portfolios may be disrupted by AI, 532 00:37:24,360 --> 00:37:25,480 Speaker 2: but maybe it has benefits too. 533 00:37:26,000 --> 00:37:30,720 Speaker 3: Yeah. Yeah, I mean when we when silver Point discuss risks, 534 00:37:31,920 --> 00:37:35,200 Speaker 3: that's one of the risks of every company. So you 535 00:37:35,280 --> 00:37:40,640 Speaker 3: have all this tariffs, inflation, interest rates, you'll have the 536 00:37:40,760 --> 00:37:44,160 Speaker 3: geopolitical risks of what's going on in the world, but 537 00:37:44,320 --> 00:37:48,799 Speaker 3: you also have the AI risk. And AI risk is 538 00:37:49,040 --> 00:37:54,240 Speaker 3: tough because it is so new, so that every in 539 00:37:54,320 --> 00:37:59,279 Speaker 3: every loan that you make, you have to say how 540 00:37:59,400 --> 00:38:05,240 Speaker 3: vulnerable is this to AI? And you've got to really 541 00:38:05,480 --> 00:38:12,360 Speaker 3: have that discussion and you don't have the seeing the 542 00:38:12,560 --> 00:38:17,400 Speaker 3: story over. Like there's a lot of things between people 543 00:38:17,400 --> 00:38:22,279 Speaker 3: at have Fund that have twenty thirty years, multiple cycles, 544 00:38:22,920 --> 00:38:25,040 Speaker 3: they say, I know how this is going to play out. 545 00:38:26,120 --> 00:38:29,160 Speaker 3: This is very different, this is new. So what I 546 00:38:29,160 --> 00:38:32,960 Speaker 3: would say about it is we're scared of it, but 547 00:38:33,040 --> 00:38:35,799 Speaker 3: in a good way. That's what we do. We get paranoid, 548 00:38:35,880 --> 00:38:39,560 Speaker 3: we talk, We ask a lot of questions, we talk 549 00:38:39,719 --> 00:38:45,319 Speaker 3: to people outside and that's on the investing side. On 550 00:38:45,600 --> 00:38:50,680 Speaker 3: the productivity per hour of work, it's amazing and we're 551 00:38:50,719 --> 00:38:55,080 Speaker 3: embracing it as everyone should. It is another tool so 552 00:38:55,320 --> 00:38:59,480 Speaker 3: that you could quickly go through a doc, find the area, 553 00:38:59,480 --> 00:39:05,160 Speaker 3: issue spot patterns. So it's helpful, but it's scaring. 554 00:39:05,400 --> 00:39:05,600 Speaker 2: Yep. 555 00:39:06,640 --> 00:39:09,600 Speaker 1: Moving on to Lemes. It sounds like reading the docks. 556 00:39:09,600 --> 00:39:13,400 Speaker 1: It's necessary but not sufficient, and you need to to 557 00:39:13,480 --> 00:39:16,239 Speaker 1: take into account like all the game theory that goes 558 00:39:16,239 --> 00:39:20,160 Speaker 1: into the flexibility of the dogs. How have lemies changed 559 00:39:20,160 --> 00:39:24,240 Speaker 1: the way you approach distress investing And in the cases 560 00:39:24,280 --> 00:39:27,600 Speaker 1: where you see that that company will need a second round, 561 00:39:28,320 --> 00:39:29,560 Speaker 1: how do you factor that in? 562 00:39:29,840 --> 00:39:32,120 Speaker 3: Yeah? And as I said before, and I was joking 563 00:39:32,160 --> 00:39:36,720 Speaker 3: but only slightly jumping, I love talking about les because 564 00:39:36,719 --> 00:39:41,279 Speaker 3: they were interesting and they are new and everyone's figuring 565 00:39:41,400 --> 00:39:45,120 Speaker 3: them out are and the press loves them because they 566 00:39:45,160 --> 00:39:50,320 Speaker 3: are new and interesting, right. Creditor on creditor violence, distress 567 00:39:50,480 --> 00:39:54,120 Speaker 3: dead exchanges. I even had someone try to call them 568 00:39:54,600 --> 00:39:59,600 Speaker 3: position enhancing transaction pats. Never caught on because that's a 569 00:39:59,719 --> 00:40:03,719 Speaker 3: part positive tone and I think we all know positivity 570 00:40:03,800 --> 00:40:08,880 Speaker 3: doesn't sell as well. But when you break lmemes, this 571 00:40:09,360 --> 00:40:14,880 Speaker 3: is documents, every loan, every bond, there is a legal 572 00:40:14,920 --> 00:40:18,600 Speaker 3: document between the borrower and the lender of what can 573 00:40:18,800 --> 00:40:23,359 Speaker 3: and can't be done. And an LMA transaction is when 574 00:40:23,400 --> 00:40:28,040 Speaker 3: a company is in search of liquidity to avoid a 575 00:40:28,120 --> 00:40:31,919 Speaker 3: crisis and potentially a bankruptcy. They're going to look at 576 00:40:32,000 --> 00:40:35,040 Speaker 3: every aspect of that doc and says what can I 577 00:40:35,239 --> 00:40:40,400 Speaker 3: do now? There was big two pictures. One is moving 578 00:40:40,600 --> 00:40:44,920 Speaker 3: assets away. That was the J crew walk up and 579 00:40:45,000 --> 00:40:49,319 Speaker 3: the intellectual property was no longer your collateral. The other 580 00:40:49,440 --> 00:40:54,480 Speaker 3: type is the SURTA where half the lenders say we're 581 00:40:54,520 --> 00:40:58,879 Speaker 3: going to change the documents. Whereas prior no debt could 582 00:40:58,880 --> 00:41:02,720 Speaker 3: come ahead of the senior secured, we're going to amend 583 00:41:02,719 --> 00:41:06,640 Speaker 3: the docs as we are allowed a majority to allow 584 00:41:06,800 --> 00:41:10,040 Speaker 3: debt come ahead, and then we're gonna lend money to 585 00:41:10,160 --> 00:41:16,360 Speaker 3: the company senior to the originally broadly syndicated loan, which 586 00:41:16,440 --> 00:41:23,120 Speaker 3: doesn't adversely affect anyone disportionately because it hurts everyone by 587 00:41:23,200 --> 00:41:27,480 Speaker 3: pushing them down. Except the second part of the transaction 588 00:41:27,719 --> 00:41:30,880 Speaker 3: is we're gonna lend you money. Part of it you 589 00:41:30,920 --> 00:41:33,960 Speaker 3: could use to turn around the company, and part of 590 00:41:34,000 --> 00:41:37,920 Speaker 3: it you're gonna use to buy back my debt. That 591 00:41:38,080 --> 00:41:42,000 Speaker 3: effectively primes. So now when you look at that and 592 00:41:42,360 --> 00:41:47,520 Speaker 3: all variations, you have to understand it and you have 593 00:41:47,640 --> 00:41:52,640 Speaker 3: to incorporate that in your investing, and let me go through, 594 00:41:52,680 --> 00:41:56,120 Speaker 3: you have clos. For the most part, this is really 595 00:41:56,160 --> 00:42:01,880 Speaker 3: bad for clos, especially colos that are not linked to 596 00:42:03,840 --> 00:42:09,440 Speaker 3: a special situations, to those that are real experts and 597 00:42:09,520 --> 00:42:14,520 Speaker 3: those that are not large, because in all of this 598 00:42:15,320 --> 00:42:19,000 Speaker 3: it only hurts them. And in an overheated market, if 599 00:42:19,040 --> 00:42:23,760 Speaker 3: the docs allow it, what are you gonna do? Not invest? 600 00:42:24,480 --> 00:42:28,040 Speaker 3: So you got the clos, then you have the special 601 00:42:28,120 --> 00:42:33,279 Speaker 3: situation players like us, And for us it's only positive 602 00:42:33,840 --> 00:42:38,560 Speaker 3: in that we understand it, we can make bets and 603 00:42:38,600 --> 00:42:42,280 Speaker 3: that's what we are paid for it. So in certain 604 00:42:42,360 --> 00:42:47,359 Speaker 3: situations we might think the secure debt is trading at 605 00:42:47,400 --> 00:42:52,160 Speaker 3: an inappropriate discount because we don't think an LME is 606 00:42:52,239 --> 00:42:55,799 Speaker 3: gonna happen, but the market does, and we could buy 607 00:42:56,560 --> 00:43:01,239 Speaker 3: This is like about Shalam an other situation. We could 608 00:43:01,280 --> 00:43:04,800 Speaker 3: be part of the majority and help create a solution 609 00:43:04,960 --> 00:43:09,600 Speaker 3: of liquidity. And then it's less impactful in the private 610 00:43:09,760 --> 00:43:16,600 Speaker 3: credit because there upcheering. Well, that's not an issue if 611 00:43:16,640 --> 00:43:20,120 Speaker 3: you own everything, because you're not gonna change the docs 612 00:43:20,600 --> 00:43:24,680 Speaker 3: to hurt yourself. But it is a big issue in 613 00:43:24,840 --> 00:43:29,520 Speaker 3: the moving the assets the j crew. Some people call 614 00:43:29,600 --> 00:43:34,520 Speaker 3: it trapdoor drop down, and again you have to know 615 00:43:35,040 --> 00:43:36,120 Speaker 3: what you're agreeing to. 616 00:43:36,360 --> 00:43:38,680 Speaker 1: It's a documents game, but it's also a size game 617 00:43:38,800 --> 00:43:42,160 Speaker 1: because clearly bigger funds that can. 618 00:43:42,160 --> 00:43:44,760 Speaker 3: Write the big checks have an advantage. 619 00:43:44,400 --> 00:43:47,040 Speaker 1: Have an advantage. Do you think small funds can actually 620 00:43:47,280 --> 00:43:48,919 Speaker 1: like successfully play this game. 621 00:43:49,200 --> 00:43:51,840 Speaker 3: I think they're at a massive disadvantage. 622 00:43:52,040 --> 00:43:54,759 Speaker 2: And then just final thing for me, because we're just 623 00:43:54,760 --> 00:43:59,440 Speaker 2: talking about banks. Are banks friends? Are they friendly foes 624 00:43:59,560 --> 00:44:03,320 Speaker 2: or they the frenemies or they both? We're going to 625 00:44:03,360 --> 00:44:07,439 Speaker 2: see them re engage in direct lending. You know that's 626 00:44:07,440 --> 00:44:09,279 Speaker 2: what banks always did. 627 00:44:09,360 --> 00:44:12,360 Speaker 3: I thought correct, no, with their friends. In fact, we 628 00:44:12,520 --> 00:44:18,000 Speaker 3: really embrace banks because our view is and a lot 629 00:44:18,040 --> 00:44:21,560 Speaker 3: of times we want to partner with them, and we have. 630 00:44:21,719 --> 00:44:24,440 Speaker 3: We have so many of where because we have a 631 00:44:24,480 --> 00:44:28,319 Speaker 3: clo business, we see a struggling deal, we could come 632 00:44:28,360 --> 00:44:32,760 Speaker 3: in and say you make these tweaks, will be the anchor. 633 00:44:33,800 --> 00:44:37,000 Speaker 3: If you want to take it to private, we'll do it. 634 00:44:37,360 --> 00:44:39,600 Speaker 3: We'll do the whole thing. But if you want to 635 00:44:39,600 --> 00:44:43,880 Speaker 3: be involved, you want certain clients. We want banks to 636 00:44:44,080 --> 00:44:50,440 Speaker 3: view us as a creative lender that thinks about solutions 637 00:44:50,520 --> 00:44:54,480 Speaker 3: but isn't looking to box them out, is looking to 638 00:44:54,640 --> 00:44:58,160 Speaker 3: do things where they leave and the happy they made 639 00:44:58,280 --> 00:45:02,799 Speaker 3: a call to us. So virtually every bank we have 640 00:45:03,080 --> 00:45:06,759 Speaker 3: done deals with, some of the time they're leading it 641 00:45:07,440 --> 00:45:11,960 Speaker 3: and we're an anchor, but we help structure it. Some 642 00:45:12,080 --> 00:45:17,800 Speaker 3: cases we said we're fine. Underrated will be a backstop 643 00:45:18,360 --> 00:45:22,040 Speaker 3: that's inside the flex so you could go with confidence. 644 00:45:22,680 --> 00:45:28,280 Speaker 3: We want to be extremely helpful to banks because some 645 00:45:28,360 --> 00:45:31,680 Speaker 3: of the private credit lenders they're going to be really 646 00:45:31,760 --> 00:45:35,759 Speaker 3: fearful of that is saying this is an existential risk. 647 00:45:36,400 --> 00:45:39,920 Speaker 3: So we want to be very commercial and figure out 648 00:45:39,960 --> 00:45:43,799 Speaker 3: ways to work together to do good deals that we 649 00:45:43,880 --> 00:45:44,960 Speaker 3: both are happy with. 650 00:45:45,760 --> 00:45:48,440 Speaker 1: Michael's final question from me because Sally, we have to 651 00:45:48,480 --> 00:45:48,960 Speaker 1: wrap up. 652 00:45:49,080 --> 00:45:49,319 Speaker 3: Yes. 653 00:45:50,080 --> 00:45:53,799 Speaker 1: Another hot topic industress investing is this qualified lenders list. 654 00:45:53,840 --> 00:45:57,560 Speaker 1: In the US it's called the blacklist, and in the 655 00:45:57,680 --> 00:46:01,319 Speaker 1: US they have the white list equivalent. What is your 656 00:46:01,400 --> 00:46:05,239 Speaker 1: view on those and should there be limitations on the 657 00:46:06,440 --> 00:46:08,880 Speaker 1: US for sponsors of those lists? 658 00:46:09,040 --> 00:46:15,000 Speaker 3: Yeah, the disqualified lenders list, they used to be for competitors. Right, 659 00:46:15,239 --> 00:46:18,840 Speaker 3: A company would say, look, if my loan's trading around, 660 00:46:19,160 --> 00:46:22,359 Speaker 3: a competitor or someone who owns a competitor can buy it. 661 00:46:22,840 --> 00:46:27,040 Speaker 3: They've expanded over time or we're not on many of 662 00:46:27,080 --> 00:46:31,200 Speaker 3: those lists because, as I said, we're providing value to 663 00:46:31,280 --> 00:46:36,759 Speaker 3: the sponsor. And even on the side that people call distress, 664 00:46:36,840 --> 00:46:40,720 Speaker 3: which we don't, we call special situation. US buying into 665 00:46:40,800 --> 00:46:45,560 Speaker 3: someone's loan is usually helpful because then we're pitching ideas 666 00:46:45,880 --> 00:46:48,680 Speaker 3: to get in more capital and I know we're running 667 00:46:48,680 --> 00:46:52,839 Speaker 3: out of time. I go through examples, so we don't 668 00:46:52,840 --> 00:46:55,719 Speaker 3: find it a big deal. For silver Point, we end 669 00:46:55,800 --> 00:46:59,480 Speaker 3: up on them every once in a while. More for 670 00:46:59,600 --> 00:47:03,000 Speaker 3: the I think you google us, And that said, we're 671 00:47:03,040 --> 00:47:06,880 Speaker 3: on in most cases. If we talk to the sponsors, 672 00:47:06,880 --> 00:47:10,360 Speaker 3: say reach out to these other sponsors, we get off 673 00:47:11,200 --> 00:47:14,839 Speaker 3: then you go to So that's me answering it from 674 00:47:14,880 --> 00:47:18,479 Speaker 3: my perspective at silver point. The me answering it from 675 00:47:18,480 --> 00:47:24,920 Speaker 3: the market perspective is I think sponsors are really smart 676 00:47:25,160 --> 00:47:29,000 Speaker 3: and they do things that make economic sense. I think 677 00:47:29,040 --> 00:47:34,439 Speaker 3: if you put too much on a DQ list when 678 00:47:34,480 --> 00:47:40,480 Speaker 3: the market gets more normalized, the clos need liquidity. They 679 00:47:40,520 --> 00:47:44,480 Speaker 3: have caps on how much Tripless they could own, They 680 00:47:44,560 --> 00:47:49,480 Speaker 3: have caps on default things, so they need to know 681 00:47:50,280 --> 00:47:55,160 Speaker 3: if a company doesn't do as well as expected, I 682 00:47:55,280 --> 00:48:01,080 Speaker 3: can move out. If one sponsor has every single buyer 683 00:48:01,560 --> 00:48:06,399 Speaker 3: of Triple c's on their DQ list, the clos are 684 00:48:06,400 --> 00:48:09,920 Speaker 3: going to say that's a tougher deal for me, and 685 00:48:10,000 --> 00:48:12,520 Speaker 3: they might now do the deal, or they might demand 686 00:48:13,080 --> 00:48:16,680 Speaker 3: a higher rate. So I think what and Alon winded. 687 00:48:16,960 --> 00:48:20,279 Speaker 3: I think that it gets market regulated. I think sponsors 688 00:48:20,400 --> 00:48:25,799 Speaker 3: will put certain lenders that they think will not be 689 00:48:26,000 --> 00:48:30,000 Speaker 3: supportive of them on those lists. I think if it 690 00:48:30,040 --> 00:48:35,000 Speaker 3: gets too broad, their cost of capital goes up. And 691 00:48:35,080 --> 00:48:37,680 Speaker 3: from our perspective, we do not want to be on 692 00:48:37,760 --> 00:48:41,239 Speaker 3: those lists. We're not on a lot. If we're on them, 693 00:48:41,640 --> 00:48:44,879 Speaker 3: we're going to really engage in a conversation to ask 694 00:48:45,040 --> 00:48:46,480 Speaker 3: why reach stuff. 695 00:48:46,480 --> 00:48:49,239 Speaker 1: Michael Gatto partner at silver Point. Many things for joining 696 00:48:49,360 --> 00:48:51,600 Speaker 1: us on the Credit Edge, and of course we're very 697 00:48:51,640 --> 00:48:55,880 Speaker 1: grateful to David Havens from Bloomberg Intelligence. We appreciate you 698 00:48:56,120 --> 00:49:00,719 Speaker 1: joining us today. Make sure you check Michael Spook. The 699 00:49:00,760 --> 00:49:06,240 Speaker 1: Credit Investor's Handbook has a lot of anecdotes, particularly useful 700 00:49:06,280 --> 00:49:10,439 Speaker 1: for people looking to ramp up their knowledge or get 701 00:49:10,480 --> 00:49:16,520 Speaker 1: into credit investing different It's very focused on elborage, loans 702 00:49:16,520 --> 00:49:19,160 Speaker 1: and how you bonds. There's a part on the stress 703 00:49:19,239 --> 00:49:23,080 Speaker 1: as well. Bloomberg Intelligence is part of our research department, 704 00:49:23,120 --> 00:49:26,520 Speaker 1: with five hundred analysts and strategies working across all markets. 705 00:49:26,920 --> 00:49:30,440 Speaker 1: Coverage includes over two thousand equities and credits and outlooks 706 00:49:30,520 --> 00:49:35,000 Speaker 1: on more than nineteen industries and one hundred markets, indices, currencies, 707 00:49:35,000 --> 00:49:38,600 Speaker 1: and commodities. Please do subscribe to the Credit Edge wherever 708 00:49:38,640 --> 00:49:42,200 Speaker 1: you get your podcasts. We are on Apple, Spotify and 709 00:49:42,360 --> 00:49:45,960 Speaker 1: all other good podcast providers, including the Bloomberg terminal at 710 00:49:46,040 --> 00:49:49,719 Speaker 1: deepod Go. Give us a review, Tell your friends, help 711 00:49:49,800 --> 00:49:52,480 Speaker 1: spread the word. I mean Anagathia Pereth. It's been a 712 00:49:52,480 --> 00:49:55,160 Speaker 1: pleasure having you join us again next week on the 713 00:49:55,160 --> 00:50:12,440 Speaker 1: Credit Edge.