1 00:00:15,560 --> 00:00:18,840 Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast. 2 00:00:19,160 --> 00:00:21,400 Speaker 1: My name is James Crumby. I'm a senior editor at 3 00:00:21,400 --> 00:00:25,840 Speaker 1: Bloomberg Today's Scasa Tasos Bossos who covers credit markets for 4 00:00:25,880 --> 00:00:28,920 Speaker 1: Bloomberg News in London. Check out all his recent scoops 5 00:00:28,920 --> 00:00:31,520 Speaker 1: on the meltdown in the banking sector. We're delighted to 6 00:00:31,520 --> 00:00:33,879 Speaker 1: have you on the show, James, thanks for having me. 7 00:00:34,240 --> 00:00:37,360 Speaker 1: We're also very pleased to welcome Jody Lewie. Hey, James, 8 00:00:37,360 --> 00:00:41,440 Speaker 1: how are you? Jody covers travel, leisure, casinos, and hotels, 9 00:00:41,440 --> 00:00:45,120 Speaker 1: among other things, for Bloomberg Intelligence in Princeton. Companies in 10 00:00:45,159 --> 00:00:47,680 Speaker 1: those industries are highly exposed to the tightening and financial 11 00:00:47,680 --> 00:00:50,400 Speaker 1: conditions that's happening as we speak, and we'll be getting 12 00:00:50,400 --> 00:00:53,760 Speaker 1: her insight in a little bit, but before we do. 13 00:00:54,200 --> 00:00:56,800 Speaker 1: Tassos Bossos with Bloomberg News in London, you've been at 14 00:00:56,800 --> 00:00:59,840 Speaker 1: the epicenter of the credit Swiss collapse. It's a Swiss bank, 15 00:01:00,120 --> 00:01:02,320 Speaker 1: had been struggling for a while. All of a sudden 16 00:01:02,320 --> 00:01:04,839 Speaker 1: it was gone. One of the biggest banks in the world, 17 00:01:04,920 --> 00:01:08,119 Speaker 1: over half a trillion dollars in assets, participation in all 18 00:01:08,120 --> 00:01:10,480 Speaker 1: the main markets globally. Can you walk us through what 19 00:01:10,520 --> 00:01:12,959 Speaker 1: happened there. I mean, indeed, it is a shark for 20 00:01:13,000 --> 00:01:16,680 Speaker 1: the banking community, that's what you call it GC for 21 00:01:16,840 --> 00:01:19,760 Speaker 1: normal people. That's a global systemically important bank, one of 22 00:01:19,800 --> 00:01:22,240 Speaker 1: the bank that's not supposed to go down that you 23 00:01:22,319 --> 00:01:25,119 Speaker 1: need in order to have a financial system that is function, 24 00:01:25,160 --> 00:01:28,040 Speaker 1: that's working properly. Now. The problem the Credit Swiss, though, 25 00:01:28,040 --> 00:01:31,280 Speaker 1: is that they were they were involved in so many 26 00:01:31,640 --> 00:01:34,520 Speaker 1: interesting things over the years, from financing of yours and 27 00:01:34,600 --> 00:01:39,720 Speaker 1: the securitization of it to Archie collapse for example, and 28 00:01:40,080 --> 00:01:43,399 Speaker 1: they suffered a social media storm back in late twenty 29 00:01:43,480 --> 00:01:46,120 Speaker 1: twenty two. This is when they saw out those because 30 00:01:46,120 --> 00:01:48,880 Speaker 1: people thought that Credit Swiss may not be around in 31 00:01:49,200 --> 00:01:51,320 Speaker 1: the month's time, for example, they want to take the 32 00:01:51,400 --> 00:01:53,920 Speaker 1: money out. They did manage to survive that, but they 33 00:01:54,000 --> 00:01:57,040 Speaker 1: reached the point earlier this month where they said, well, 34 00:01:57,040 --> 00:02:00,280 Speaker 1: the numbers that we were releasing to the investor over 35 00:02:00,320 --> 00:02:03,640 Speaker 1: the years, they may have some problems, and the USSC 36 00:02:04,240 --> 00:02:06,280 Speaker 1: I said that that could be the case. This is 37 00:02:06,280 --> 00:02:10,320 Speaker 1: when a panic ensued that was maximized by the fact 38 00:02:10,320 --> 00:02:12,600 Speaker 1: that there was already a brewing crisis in the regional 39 00:02:12,639 --> 00:02:16,080 Speaker 1: banking system in the US. So a number of counterparties 40 00:02:16,480 --> 00:02:20,359 Speaker 1: started getting credit insurance against Credit Swiss, that is, through 41 00:02:20,480 --> 00:02:23,600 Speaker 1: some contracts called credit default swaps. This is when everyone 42 00:02:23,840 --> 00:02:27,200 Speaker 1: started paying attention. They said, okay, something is wrong. Is 43 00:02:27,240 --> 00:02:30,680 Speaker 1: here this bank, even though it's massively important, seems to 44 00:02:30,680 --> 00:02:33,600 Speaker 1: be going past Now we have to do something, So 45 00:02:33,639 --> 00:02:36,120 Speaker 1: they started taking money out of it. At some point 46 00:02:36,280 --> 00:02:39,680 Speaker 1: out those reached ten billion dollars a day, and things 47 00:02:39,760 --> 00:02:42,120 Speaker 1: came to a head last weekend when the Swiss authority 48 00:02:42,200 --> 00:02:44,720 Speaker 1: said we need to do something. What is that a 49 00:02:44,800 --> 00:02:48,680 Speaker 1: shotgun marriage between the two national champions, that is UBS 50 00:02:48,680 --> 00:02:53,040 Speaker 1: and Credit Swiss. And as part of this agreement, they said, 51 00:02:53,960 --> 00:02:56,400 Speaker 1: somebody needs to take a loss. Who is that going 52 00:02:56,480 --> 00:02:58,960 Speaker 1: to be? That's going to be some people who hold 53 00:02:59,000 --> 00:03:02,919 Speaker 1: some funky instruments called additional tier one bonds. And this 54 00:03:02,960 --> 00:03:05,239 Speaker 1: is when all hell broke loose when they were written 55 00:03:05,280 --> 00:03:08,320 Speaker 1: down seventeen billion of them. So before we get that 56 00:03:08,400 --> 00:03:11,720 Speaker 1: there was a there's basically a shotgun marriage. Basically, UBS, 57 00:03:11,760 --> 00:03:13,760 Speaker 1: the biggest or one of the biggest banks, the other 58 00:03:13,760 --> 00:03:18,720 Speaker 1: biggest bank in Switzerland acquired Credit Swiss for three three 59 00:03:18,720 --> 00:03:23,560 Speaker 1: billion dollars or so um. Basically of course, sale, how's 60 00:03:23,600 --> 00:03:26,919 Speaker 1: that all shaking out what's going on at that point. Well, 61 00:03:26,960 --> 00:03:31,040 Speaker 1: at that point, UBS said, Credit Swiss has quite a 62 00:03:31,040 --> 00:03:34,560 Speaker 1: bit of um let's call it baggage. Chances are if 63 00:03:34,600 --> 00:03:36,560 Speaker 1: we acquire them, we're going to be taken to court 64 00:03:36,600 --> 00:03:40,000 Speaker 1: by some of their ex clients for a number of 65 00:03:40,040 --> 00:03:42,720 Speaker 1: different scandals that were involved over the years. There is 66 00:03:42,960 --> 00:03:45,560 Speaker 1: what in banking terms you're called a lot of accumulated 67 00:03:45,800 --> 00:03:49,119 Speaker 1: bad will. So somebody needed to take a loss. Now, 68 00:03:49,160 --> 00:03:52,280 Speaker 1: at first there was an issue of paying almost nothing 69 00:03:52,400 --> 00:03:55,600 Speaker 1: or a very lobal price for the share of Credit Swiss. 70 00:03:56,080 --> 00:03:59,240 Speaker 1: There was some pushback on that. Eventually that the price 71 00:03:59,320 --> 00:04:02,560 Speaker 1: tag was raised three billion, but still somebody needed to 72 00:04:02,600 --> 00:04:05,160 Speaker 1: take a loss because UBS was not going to acquire 73 00:04:05,640 --> 00:04:09,960 Speaker 1: the whole capital structure of Credit Twists. You mentioned a 74 00:04:10,000 --> 00:04:12,280 Speaker 1: type of debt that we've been looking at very closely, 75 00:04:12,320 --> 00:04:15,000 Speaker 1: and you've broken a lot of news on eighty one. 76 00:04:15,360 --> 00:04:19,320 Speaker 1: Some people refer to it as cocos that essentially became worthless. 77 00:04:20,040 --> 00:04:23,440 Speaker 1: Let's start with the obvious question, what is an eighty 78 00:04:23,520 --> 00:04:26,560 Speaker 1: one for? You know, the person on the street who's 79 00:04:26,600 --> 00:04:31,080 Speaker 1: not following this closely. When Lehman collapsed, people thought, the 80 00:04:31,160 --> 00:04:35,040 Speaker 1: regulators thought, okay, Lehman was capitalized to a certain extent, 81 00:04:35,200 --> 00:04:37,880 Speaker 1: but it was overleveraged. We need to come up with 82 00:04:37,920 --> 00:04:41,920 Speaker 1: some bonds that provide capital so when you are going 83 00:04:41,960 --> 00:04:44,560 Speaker 1: into trouble as a bank, you can rely on that 84 00:04:44,640 --> 00:04:47,760 Speaker 1: capital to stay alive. That's in very basic terms. So 85 00:04:47,800 --> 00:04:49,479 Speaker 1: they try to come up with a new type of 86 00:04:49,520 --> 00:04:53,919 Speaker 1: bonds that when your capital levels decline below a certain level, 87 00:04:54,680 --> 00:04:57,200 Speaker 1: these bonds can be triggered. What that means is that 88 00:04:57,240 --> 00:05:00,560 Speaker 1: they can be converted into equity or written to reduce 89 00:05:00,600 --> 00:05:04,880 Speaker 1: your liabilities. And that was called additional Tier one because 90 00:05:04,880 --> 00:05:08,800 Speaker 1: it stand just above common equity. And when it was 91 00:05:08,880 --> 00:05:11,799 Speaker 1: created back in twenty ten, that was the Basil Committee, 92 00:05:11,839 --> 00:05:14,600 Speaker 1: what we know as Basil three. It was hailed as 93 00:05:14,640 --> 00:05:17,680 Speaker 1: the greatest innovation we've seen of a several decades in 94 00:05:17,680 --> 00:05:20,479 Speaker 1: the banking market. This is what we're going to save 95 00:05:20,600 --> 00:05:23,359 Speaker 1: us from future crisis. I think this is going to 96 00:05:23,400 --> 00:05:26,400 Speaker 1: be the end of history for banking capital instruments. And 97 00:05:26,520 --> 00:05:29,120 Speaker 1: things went well for the past thirteen years. Well, there 98 00:05:29,120 --> 00:05:33,120 Speaker 1: were some wobbles along the line, some write offs in 99 00:05:33,160 --> 00:05:36,279 Speaker 1: Spain for example, and there was some concerns at some 100 00:05:36,360 --> 00:05:39,839 Speaker 1: point that Deutsche Bank several years ago couldn't pay coupons 101 00:05:39,839 --> 00:05:44,320 Speaker 1: of these bonds. But generally speaking, things were smooth. So 102 00:05:44,360 --> 00:05:48,719 Speaker 1: if these bonds essentially became worthless even after equity investors 103 00:05:48,720 --> 00:05:51,640 Speaker 1: recovered something, what does that mean for the eighty one 104 00:05:51,680 --> 00:05:54,799 Speaker 1: market as a whole. Well, you invest in the eighty 105 00:05:54,839 --> 00:05:58,560 Speaker 1: one market with a basic assumption that you are senior 106 00:05:58,600 --> 00:06:02,200 Speaker 1: to equity. So if anything wrong goes happens to the bank, 107 00:06:02,240 --> 00:06:05,960 Speaker 1: you would expect story shareholders to first of all burn 108 00:06:06,040 --> 00:06:09,719 Speaker 1: through entirely down to the last cent, and then be touched. 109 00:06:10,240 --> 00:06:12,839 Speaker 1: And now Credit Swiss, obviously they had tens of billions 110 00:06:12,880 --> 00:06:16,200 Speaker 1: of dollars in CT one capitalized. It's called that that's 111 00:06:16,279 --> 00:06:19,719 Speaker 1: common equity pretty much, and you could be rather safe 112 00:06:19,720 --> 00:06:23,039 Speaker 1: that nothing was going to happen to you. Now, there 113 00:06:23,120 --> 00:06:29,839 Speaker 1: was a very rare trading session happening on Sunday, extraordinarily 114 00:06:30,160 --> 00:06:34,240 Speaker 1: among bond holders and bond trading desks, especially in the US. 115 00:06:34,240 --> 00:06:36,760 Speaker 1: And when the news came out that Ubas is going 116 00:06:36,800 --> 00:06:40,279 Speaker 1: to pay something, or shareholders at least anything, this is 117 00:06:40,279 --> 00:06:43,000 Speaker 1: when you saw the prices of those bonds shooting up 118 00:06:43,440 --> 00:06:46,560 Speaker 1: because nobody could fathom the fact that they could take 119 00:06:46,640 --> 00:06:50,839 Speaker 1: any loss, even of one cent if shareholders are getting 120 00:06:50,920 --> 00:06:53,840 Speaker 1: something and this is what happened was a total shock afterwards. 121 00:06:54,760 --> 00:06:57,200 Speaker 1: So did that whole market collapse? I mean, if if 122 00:06:57,240 --> 00:07:00,080 Speaker 1: the credit Swiss at one bonds are worth nothing, it 123 00:07:00,120 --> 00:07:03,440 Speaker 1: doesn't mean all eighty ones are worth nothing. This is 124 00:07:03,440 --> 00:07:08,440 Speaker 1: what started happening on Monday morning when markets reopened in 125 00:07:08,480 --> 00:07:10,680 Speaker 1: Asia and Europe, and you saw the prices of these 126 00:07:10,720 --> 00:07:13,880 Speaker 1: bonds just collapse in historic terms where we're talking about 127 00:07:13,920 --> 00:07:16,720 Speaker 1: like prize drops of more than ten points. You never 128 00:07:16,760 --> 00:07:20,560 Speaker 1: see that whatever happens in the past. So there was 129 00:07:20,680 --> 00:07:24,240 Speaker 1: a really serious fear that the one capital instrument that 130 00:07:24,240 --> 00:07:27,240 Speaker 1: we had since the global financial crisis that we thought 131 00:07:27,240 --> 00:07:30,680 Speaker 1: we could rely on is becoming worthless and that could 132 00:07:30,720 --> 00:07:34,679 Speaker 1: have really serious repercussions for the global banking market. Really, 133 00:07:34,880 --> 00:07:37,400 Speaker 1: but this is when you had regulators, for example, the 134 00:07:37,440 --> 00:07:40,440 Speaker 1: European Central Bank in the Bank of England coming out 135 00:07:40,480 --> 00:07:43,280 Speaker 1: to say, what the Swiss did, It's not something we 136 00:07:43,360 --> 00:07:45,720 Speaker 1: will do if we are ever in their position. They 137 00:07:45,840 --> 00:07:48,880 Speaker 1: wanted to calm the market, and somehow they managed to 138 00:07:48,920 --> 00:07:52,360 Speaker 1: stave off at least in the immediate crisis. So it's 139 00:07:52,360 --> 00:07:56,120 Speaker 1: true that different countries, different regulators will treat these bonds 140 00:07:56,160 --> 00:07:58,240 Speaker 1: differently in the event of a collapse of a bank. 141 00:07:58,360 --> 00:08:01,720 Speaker 1: Is that right? That is correct, But the problem is 142 00:08:01,760 --> 00:08:04,040 Speaker 1: that you thought you had a certain degree of certainty 143 00:08:04,080 --> 00:08:05,880 Speaker 1: in the past that at least everyone is going to 144 00:08:05,920 --> 00:08:08,239 Speaker 1: follow the same rules, and this is not what happened 145 00:08:08,240 --> 00:08:11,240 Speaker 1: with Switzerland, and this is why people were rather concerned 146 00:08:11,280 --> 00:08:14,800 Speaker 1: about whether they can trust any authority really across the 147 00:08:14,880 --> 00:08:18,120 Speaker 1: major banking jurisdictions. So given that is this is still 148 00:08:18,280 --> 00:08:21,120 Speaker 1: still a viable market, you know, do we think that 149 00:08:21,160 --> 00:08:27,000 Speaker 1: this market survives? Broadly speaking, it should because well, frankly speaking, 150 00:08:27,000 --> 00:08:29,760 Speaker 1: there's no alternatives right now. You can't just move to 151 00:08:29,800 --> 00:08:32,520 Speaker 1: a different type of capital instrument because there's no regulation 152 00:08:32,559 --> 00:08:35,640 Speaker 1: that allows you to do so. For now, what investors 153 00:08:35,640 --> 00:08:39,680 Speaker 1: are doing they are pretty much blacklisting Swiss banks. They 154 00:08:40,080 --> 00:08:43,840 Speaker 1: have created what's what's called the premium, a yield premium 155 00:08:43,880 --> 00:08:46,560 Speaker 1: for Swiss banks. So if a Swiss bank would want 156 00:08:46,600 --> 00:08:48,439 Speaker 1: to issue another additional tier one that will have to 157 00:08:48,480 --> 00:08:50,920 Speaker 1: pay up quite a lot. At this stage they can't 158 00:08:50,920 --> 00:08:53,559 Speaker 1: possibly issue that. Nobody will want to buy that. But 159 00:08:53,600 --> 00:08:56,160 Speaker 1: at least in the secondary market you see a large 160 00:08:56,200 --> 00:08:59,679 Speaker 1: price gap between Swiss eighty ones and eighty ones from 161 00:08:59,679 --> 00:09:02,320 Speaker 1: other restrictions and that will most likely remain the case 162 00:09:02,320 --> 00:09:05,480 Speaker 1: for the forsueable future. Do you expect litigation as well? 163 00:09:06,120 --> 00:09:09,599 Speaker 1: Oh yes, I mean lawyers have already smelled blood in 164 00:09:09,640 --> 00:09:13,240 Speaker 1: the water. There was already some calls to day by 165 00:09:13,320 --> 00:09:16,640 Speaker 1: some large legal firms trying to drop up interest because 166 00:09:16,640 --> 00:09:19,920 Speaker 1: at this stage eighty one bond holders have absolutely nothing 167 00:09:19,920 --> 00:09:22,280 Speaker 1: to lose, and if anything, they have a lot of 168 00:09:22,320 --> 00:09:25,240 Speaker 1: game because they believe that the lawyers on their side. 169 00:09:25,240 --> 00:09:28,640 Speaker 1: There was even a presentation by Credit Swiss on March 170 00:09:28,720 --> 00:09:31,959 Speaker 1: the fourteen, that's like five days before they collapsed, before 171 00:09:32,000 --> 00:09:34,920 Speaker 1: these eighty ones were written down, that said that you 172 00:09:34,920 --> 00:09:37,960 Speaker 1: guys are senior to shareholders and that is they're in 173 00:09:37,960 --> 00:09:40,280 Speaker 1: black and white. So these bondholders believe they have the 174 00:09:40,360 --> 00:09:43,400 Speaker 1: law on their sides. They do have already some law 175 00:09:43,440 --> 00:09:45,360 Speaker 1: firms that are willing to represent them, so just a 176 00:09:45,360 --> 00:09:49,559 Speaker 1: matter of time. Well, they're broader credit market implications from 177 00:09:49,559 --> 00:09:52,760 Speaker 1: this and that the investors in the riskiest types of 178 00:09:52,840 --> 00:09:56,920 Speaker 1: bonds are getting pretty badly burned here, does that make 179 00:09:56,960 --> 00:09:59,920 Speaker 1: them more risk averse? That cuts off funding to other 180 00:10:00,360 --> 00:10:03,120 Speaker 1: companies and borrowers that need to get funding right now, 181 00:10:03,760 --> 00:10:05,600 Speaker 1: That is true and that's going to have a very bad, 182 00:10:05,880 --> 00:10:09,040 Speaker 1: very bad repercussions for the bank lending market, because if 183 00:10:09,080 --> 00:10:12,920 Speaker 1: your cost of capital is increasing in general, then you're 184 00:10:12,920 --> 00:10:14,720 Speaker 1: going to be you're going to be tightening your own 185 00:10:14,800 --> 00:10:17,559 Speaker 1: lending standards. This is something that a number of people 186 00:10:17,559 --> 00:10:21,360 Speaker 1: have mentioned as a potential risk because it means that 187 00:10:21,400 --> 00:10:25,480 Speaker 1: it's like several bank hikes by central banks, for example, 188 00:10:25,559 --> 00:10:28,560 Speaker 1: happening all at once in one day. Because eighty ones 189 00:10:28,679 --> 00:10:30,600 Speaker 1: used to be a cheap way of having up your 190 00:10:30,600 --> 00:10:34,760 Speaker 1: balance sheets and then being able to lend onto corporate clients, 191 00:10:34,800 --> 00:10:37,560 Speaker 1: normal people. If that's becoming much more expensive, then you 192 00:10:37,559 --> 00:10:39,840 Speaker 1: have to tighten your lending standards. That's going to have 193 00:10:40,600 --> 00:10:43,520 Speaker 1: a second effect impact on put much. To be comma, 194 00:10:44,520 --> 00:10:46,160 Speaker 1: I've got to ask on the point that you know, 195 00:10:46,559 --> 00:10:49,920 Speaker 1: invest want to litigate here. It was pretty clear from 196 00:10:49,960 --> 00:10:52,800 Speaker 1: the paperwork. Maybe it's very deep on page one hundred 197 00:10:52,800 --> 00:10:54,920 Speaker 1: and fifty of the perspectives, but it was clear that 198 00:10:54,960 --> 00:10:57,000 Speaker 1: this is what this is what would happen in the 199 00:10:57,000 --> 00:10:59,559 Speaker 1: event of a collapse, and it was also apparently on 200 00:10:59,600 --> 00:11:02,800 Speaker 1: the Swiss regulators website. I mean, this is information that 201 00:11:02,880 --> 00:11:05,240 Speaker 1: was available. Why is everyone surprised now and why they 202 00:11:05,280 --> 00:11:07,720 Speaker 1: why do they think they've got a chance to litigate. Well, 203 00:11:07,760 --> 00:11:10,240 Speaker 1: I'm not going to go into the legal details. Also 204 00:11:10,320 --> 00:11:12,439 Speaker 1: because a number of people who are bit unclear about 205 00:11:12,480 --> 00:11:15,520 Speaker 1: that this was a risk factor and not a m 206 00:11:15,679 --> 00:11:17,480 Speaker 1: Some of the detractors would say, some of the people 207 00:11:17,480 --> 00:11:19,800 Speaker 1: who wanted to litigate, what that means is that you 208 00:11:19,840 --> 00:11:24,120 Speaker 1: were just being told what may happen in case, you know, 209 00:11:24,200 --> 00:11:28,480 Speaker 1: a resolution or any other intervention had to take place, 210 00:11:28,559 --> 00:11:31,680 Speaker 1: didn't tell you what will definitely happen. So they believe 211 00:11:32,360 --> 00:11:34,960 Speaker 1: there's the belief that because that was just a risk factor, 212 00:11:35,320 --> 00:11:38,400 Speaker 1: they can litigate against that. And also, yes, that was 213 00:11:38,440 --> 00:11:41,280 Speaker 1: a fine print, the larger print, as I mentioned before 214 00:11:41,280 --> 00:11:44,800 Speaker 1: the presentation that came out a few days before the collapse, 215 00:11:44,920 --> 00:11:47,240 Speaker 1: that was actually quite unequivocal as well. At the end 216 00:11:47,280 --> 00:11:51,480 Speaker 1: of the day, though bondholder is not lawmakers, lawmakers are 217 00:11:51,480 --> 00:11:55,040 Speaker 1: actual lawmakers. And what they did was they tweaked the 218 00:11:55,120 --> 00:11:57,760 Speaker 1: rules in the weekend in order to allow a shotgun 219 00:11:57,800 --> 00:12:01,280 Speaker 1: marriage to happen. And I guess you have good ahead 220 00:12:01,280 --> 00:12:03,400 Speaker 1: with that or just trying to see the government and 221 00:12:03,480 --> 00:12:06,840 Speaker 1: that's going to be a rather difficult proposition. So before 222 00:12:06,880 --> 00:12:09,160 Speaker 1: we talk to Jody Lurie at Bloomberg Intelligence about the 223 00:12:09,200 --> 00:12:12,079 Speaker 1: impact that the banking cresis is having on US companies, 224 00:12:12,080 --> 00:12:15,600 Speaker 1: and you know all of that call out, what's the 225 00:12:15,600 --> 00:12:17,679 Speaker 1: big takeaway for you here, Teslas? It may be too 226 00:12:17,679 --> 00:12:19,160 Speaker 1: soon to say because we're still kind of in the 227 00:12:19,200 --> 00:12:21,560 Speaker 1: eye of the storm. But what are the lessons learned? 228 00:12:21,640 --> 00:12:24,960 Speaker 1: Is it simply another case of by everywhere for credit 229 00:12:25,000 --> 00:12:27,200 Speaker 1: markets investors need to read the small print or is 230 00:12:27,200 --> 00:12:30,160 Speaker 1: there something more nuanced and sophisticated we can pull from 231 00:12:30,200 --> 00:12:33,079 Speaker 1: the wreckage right now? Well, the problem with a two 232 00:12:33,120 --> 00:12:36,760 Speaker 1: ones so eighty ones became very popular among European investors 233 00:12:36,840 --> 00:12:39,280 Speaker 1: during the era of zero interest rates. So when you 234 00:12:39,320 --> 00:12:42,680 Speaker 1: were getting nothing or even negative interest rates on senior bonds, 235 00:12:42,960 --> 00:12:45,600 Speaker 1: these junior bonds were paying you six seven, eight nine percent, 236 00:12:46,120 --> 00:12:50,760 Speaker 1: so you wanted to believe that there isn't going to 237 00:12:50,800 --> 00:12:53,000 Speaker 1: be any negative avecome from that. You just even get 238 00:12:53,000 --> 00:12:55,760 Speaker 1: the bonds, get the nine percent coople every year and 239 00:12:55,840 --> 00:13:00,280 Speaker 1: hopefully get called five years time. What it means got 240 00:13:00,320 --> 00:13:01,880 Speaker 1: out of it is that, first of all, as you 241 00:13:01,880 --> 00:13:04,600 Speaker 1: said before, everyone needs to read the fine print, even 242 00:13:04,600 --> 00:13:08,000 Speaker 1: if it is a risk factor. Take it seriously. When 243 00:13:08,040 --> 00:13:11,280 Speaker 1: you see a ten percent Cooper Normalscent Coopers credit risk 244 00:13:11,920 --> 00:13:15,160 Speaker 1: issued last year. Well, you have to think that it 245 00:13:15,160 --> 00:13:17,360 Speaker 1: comes with a certain risk. You don't just get it 246 00:13:17,400 --> 00:13:22,160 Speaker 1: for free. And whenever a band goes into trouble, just 247 00:13:22,320 --> 00:13:25,480 Speaker 1: think of the seniority ladder, even a two ones. Yes, 248 00:13:25,559 --> 00:13:27,800 Speaker 1: I know that they're seeing into equity, but when it 249 00:13:27,800 --> 00:13:30,280 Speaker 1: comes to death, they were like rock bottom. So if 250 00:13:30,280 --> 00:13:32,800 Speaker 1: anything goes wrong, chances are you can be here as well. 251 00:13:34,520 --> 00:13:36,920 Speaker 1: Prot Us from Bloomberg News, thanks so much for joining us. 252 00:13:36,960 --> 00:13:39,600 Speaker 1: This is a really fascinating story with broad implications, and 253 00:13:39,640 --> 00:13:41,960 Speaker 1: we look forward to reading all of your scoops on 254 00:13:42,000 --> 00:13:44,640 Speaker 1: the Bloomberg terminal and of course at Bloomberg dot com. 255 00:13:45,080 --> 00:13:48,120 Speaker 1: Thank you. Switching gears here a bit. As I mentioned earlier, 256 00:13:48,120 --> 00:13:51,120 Speaker 1: we're very fortunate to have Jody Lewie from Bloomberg Intelligence. 257 00:13:51,360 --> 00:13:53,280 Speaker 1: You get to cover all the fun stuff. Thanks for 258 00:13:53,280 --> 00:13:55,640 Speaker 1: being on the show. Thank you for having me, James, 259 00:13:55,640 --> 00:13:58,520 Speaker 1: I'm so excited to be here. The companies you look at, 260 00:13:58,600 --> 00:14:00,840 Speaker 1: let's talk about how they're acted by what's going on 261 00:14:00,880 --> 00:14:03,200 Speaker 1: in the banking sector. I mean, it's not just credit sweets. 262 00:14:03,559 --> 00:14:06,920 Speaker 1: As TESSAs mentioned, several regional banks also blew up over 263 00:14:06,920 --> 00:14:08,800 Speaker 1: the last few weeks. That doesn't help at all. How's 264 00:14:08,840 --> 00:14:14,680 Speaker 1: this crisis playing out? Sure, So, just for an aside, 265 00:14:14,679 --> 00:14:17,679 Speaker 1: I mean the process of reading Treasury Gitner's book on 266 00:14:17,760 --> 00:14:20,920 Speaker 1: stress testing and on the two thousand and eight events, 267 00:14:20,960 --> 00:14:26,240 Speaker 1: and it's interesting to listen to Tassos and the parallels 268 00:14:26,280 --> 00:14:29,800 Speaker 1: of words that he's using that were words that we 269 00:14:30,000 --> 00:14:33,240 Speaker 1: used as everyday jargon in two thousand and eight. And 270 00:14:33,280 --> 00:14:37,000 Speaker 1: I think the clear issue here is the question of 271 00:14:37,040 --> 00:14:40,600 Speaker 1: whether this issue with credit sweets as well as the 272 00:14:40,640 --> 00:14:43,960 Speaker 1: regional banks becomes more of a lack of a better word, 273 00:14:44,000 --> 00:14:47,000 Speaker 1: contagent for the general market if it reaches from Wall 274 00:14:47,040 --> 00:14:50,840 Speaker 1: Street to Main Street, and what that echo effect has 275 00:14:51,000 --> 00:14:54,600 Speaker 1: on sectors like mine where it's more directly associated with 276 00:14:54,680 --> 00:14:57,160 Speaker 1: consumers and what consumers like to do when they feel 277 00:14:57,200 --> 00:15:02,160 Speaker 1: more comfortable in the economy. These companies U cover. I mean, 278 00:15:02,160 --> 00:15:04,840 Speaker 1: we should probably talk about which companies and which sectors 279 00:15:05,120 --> 00:15:07,240 Speaker 1: a bit more detail. But they are seeing a big 280 00:15:07,280 --> 00:15:09,680 Speaker 1: revival in demand as people get back to what they 281 00:15:09,680 --> 00:15:12,040 Speaker 1: were doing before the pandemic. And at the same time, 282 00:15:12,080 --> 00:15:13,520 Speaker 1: a lot of them have a ton of debt that 283 00:15:13,680 --> 00:15:16,720 Speaker 1: got suddenly got a lot more expensive to refinance into 284 00:15:16,800 --> 00:15:20,880 Speaker 1: services as rates jumped. What sectors and companies are the 285 00:15:20,920 --> 00:15:24,680 Speaker 1: most exposed to a list and why? Sure, James, So 286 00:15:24,720 --> 00:15:26,680 Speaker 1: I think I think we need to take a step 287 00:15:26,720 --> 00:15:28,280 Speaker 1: back and think about two thousand and twenty. So in 288 00:15:28,320 --> 00:15:31,360 Speaker 1: two thousand and twenty, the companies in my sect sector, 289 00:15:31,440 --> 00:15:33,960 Speaker 1: so we're talking the cruise lines, we're talking the theme parks, 290 00:15:33,960 --> 00:15:37,720 Speaker 1: we're talking the hotels and the restaurants, they issued eighty 291 00:15:37,720 --> 00:15:40,760 Speaker 1: five billion in two thousand and twenty in debt alone 292 00:15:40,840 --> 00:15:43,840 Speaker 1: in the US markets. You compare that two and twenty 293 00:15:43,840 --> 00:15:45,600 Speaker 1: one and it was forty nine billion, and then in 294 00:15:45,600 --> 00:15:48,720 Speaker 1: twenty twenty two is thirty six billion. So these are 295 00:15:48,880 --> 00:15:52,400 Speaker 1: large scale amounts as compared to pre pandemic levels that 296 00:15:52,440 --> 00:15:55,200 Speaker 1: were only small margins of what we saw in two 297 00:15:55,200 --> 00:15:57,640 Speaker 1: thousand and twenty and onward. So these companies have been 298 00:15:57,680 --> 00:16:00,640 Speaker 1: pretty dependent on the capital markets to help finance their 299 00:16:00,680 --> 00:16:04,200 Speaker 1: operations while people have sort of backed off from what 300 00:16:04,240 --> 00:16:07,800 Speaker 1: they normally do. As we've seen people return to normalcy, 301 00:16:07,840 --> 00:16:10,800 Speaker 1: we've seen fewer and fewer companies come to market because 302 00:16:10,840 --> 00:16:14,760 Speaker 1: they're able to finance their operations with cash flows, as 303 00:16:14,800 --> 00:16:17,640 Speaker 1: companies should do. But you take the cruise lines, for example, 304 00:16:17,640 --> 00:16:20,440 Speaker 1: they're still heavily dependent on the capital markets to fill 305 00:16:20,480 --> 00:16:23,440 Speaker 1: in cash gaps, as they get more people on the ships, 306 00:16:23,800 --> 00:16:27,080 Speaker 1: as they get back to normalcy, as they start generating 307 00:16:27,080 --> 00:16:29,200 Speaker 1: cash flow, and I think we're probably a year out 308 00:16:29,320 --> 00:16:34,040 Speaker 1: before these companies feel really comfortable with their operational standpoint 309 00:16:34,360 --> 00:16:38,040 Speaker 1: to finance their business without use of the capital markets. 310 00:16:38,760 --> 00:16:40,440 Speaker 1: But they all said, you said they'd borrowed a ton 311 00:16:40,600 --> 00:16:42,360 Speaker 1: during you know, when they really needed the money, and 312 00:16:42,360 --> 00:16:46,160 Speaker 1: that money eventually comes to you. Are they building themselves 313 00:16:46,200 --> 00:16:48,600 Speaker 1: into a massive putting to a massive problem with the 314 00:16:48,640 --> 00:16:53,120 Speaker 1: maturity will eventually? So the maturity wall is definitely a 315 00:16:53,200 --> 00:16:55,600 Speaker 1: question that we have. In twenty twenty four and two 316 00:16:55,920 --> 00:16:59,960 Speaker 1: twenty five, you see a large spike in maturities, particularly 317 00:17:00,000 --> 00:17:03,520 Speaker 1: the high yield market, particularly in the consumer discretionary area, 318 00:17:03,600 --> 00:17:06,359 Speaker 1: which is where my companies fall. And a lot of 319 00:17:06,400 --> 00:17:09,120 Speaker 1: the companies have already started tapping the debt markets before 320 00:17:09,720 --> 00:17:13,359 Speaker 1: the SVB and credit suites fallout, so a lot of 321 00:17:13,359 --> 00:17:17,880 Speaker 1: them have locked in financing in advance of this. However, 322 00:17:18,160 --> 00:17:20,879 Speaker 1: we are seeing that there's probably a separation between the 323 00:17:20,880 --> 00:17:22,800 Speaker 1: companies that are in good standing and the companies that 324 00:17:22,840 --> 00:17:25,280 Speaker 1: are still a little bit more in the transitional period. 325 00:17:25,560 --> 00:17:27,840 Speaker 1: By that, I mean you take a company in like Marriott, 326 00:17:27,880 --> 00:17:31,159 Speaker 1: and they've already repaid all of their debt that they 327 00:17:31,240 --> 00:17:34,399 Speaker 1: borrowed during the pandemic, So they they took down their 328 00:17:34,400 --> 00:17:37,720 Speaker 1: whole entire credit line. Now they've repaid it, they brought 329 00:17:37,720 --> 00:17:41,399 Speaker 1: themselves back to pre pandemic credit ratings of triple B flat, 330 00:17:41,880 --> 00:17:45,080 Speaker 1: and they've tapped the capital market the excuse me, the 331 00:17:45,080 --> 00:17:48,840 Speaker 1: commercial paper markets in order to anancer business. And you 332 00:17:48,880 --> 00:17:51,560 Speaker 1: hear commercial paper markets, you get concerned because it's short 333 00:17:51,640 --> 00:17:55,360 Speaker 1: term financing. However, when a company reaches a certain credit quality, 334 00:17:55,520 --> 00:17:58,200 Speaker 1: when a company is in good standing and they feel comfortable, 335 00:17:58,320 --> 00:18:01,280 Speaker 1: they feel comfortable using the commercial paper markets as opposed 336 00:18:01,280 --> 00:18:05,280 Speaker 1: to using something like their longer term vehicle like a revolver, 337 00:18:05,720 --> 00:18:08,160 Speaker 1: to finance any sort of cash gaps that they have. 338 00:18:08,440 --> 00:18:10,560 Speaker 1: So you take a company like Marriott, you pair that 339 00:18:10,600 --> 00:18:14,320 Speaker 1: with a company like Carnival Cruise Lines that has thirty 340 00:18:14,359 --> 00:18:17,880 Speaker 1: five thirty six billion of debt outstanding. They've paired back 341 00:18:17,880 --> 00:18:21,840 Speaker 1: their short term debt maturities significantly, but they still have 342 00:18:22,000 --> 00:18:24,400 Speaker 1: thirty three billion in long term debt outstanding that they'll 343 00:18:24,400 --> 00:18:27,000 Speaker 1: need to address over the next few years. Right, So 344 00:18:27,200 --> 00:18:32,120 Speaker 1: the ones that are most exposed other than cruise lines, 345 00:18:32,160 --> 00:18:35,640 Speaker 1: who are you most worried about him? So, I think 346 00:18:35,680 --> 00:18:39,320 Speaker 1: when we think about any sort of contagion risk or 347 00:18:39,320 --> 00:18:42,800 Speaker 1: any sort of broader sort of market eco effects, I 348 00:18:42,840 --> 00:18:44,879 Speaker 1: think you have a couple of different areas that you 349 00:18:44,920 --> 00:18:48,159 Speaker 1: could see this as problematic. Firsus the casinos. If we 350 00:18:48,240 --> 00:18:51,439 Speaker 1: talk more broadly of a recession, which has been a 351 00:18:51,480 --> 00:18:54,480 Speaker 1: discussion point since the beginning of this year, you could 352 00:18:54,560 --> 00:18:58,960 Speaker 1: definitely see the casinos feeling a little bit stretched or 353 00:18:59,000 --> 00:19:04,560 Speaker 1: a little bit pressured by lack of financing, lack of 354 00:19:05,040 --> 00:19:08,840 Speaker 1: market liquidity, lack of the ability to access the capital markets, 355 00:19:08,880 --> 00:19:12,240 Speaker 1: as well as consumers pulling back on their on their spending. 356 00:19:13,040 --> 00:19:16,320 Speaker 1: Separate from that, a sort of niche area that we've 357 00:19:16,320 --> 00:19:21,879 Speaker 1: been trying monitor is the relationships that things like hotels 358 00:19:21,960 --> 00:19:26,080 Speaker 1: have with their counterparties. And by that we mean the reets, 359 00:19:26,520 --> 00:19:30,000 Speaker 1: we mean the hotel owners and franchisees. Those are the 360 00:19:30,040 --> 00:19:35,720 Speaker 1: companies that might be caught off guard by regional bank 361 00:19:35,800 --> 00:19:39,280 Speaker 1: issues that you might not necessarily see otherwise with such 362 00:19:39,520 --> 00:19:44,880 Speaker 1: large companies. Similarly, you might see something happen with companies 363 00:19:44,880 --> 00:19:47,760 Speaker 1: such as McDonald's that rely so heavily on the franchise business, 364 00:19:47,920 --> 00:19:52,320 Speaker 1: so their franchisees depend on regional banks more so than 365 00:19:52,720 --> 00:19:55,360 Speaker 1: you'd see at these large scale companies that work with 366 00:19:55,400 --> 00:19:59,440 Speaker 1: the largest investment banks out there. Okay, and the winners 367 00:19:59,440 --> 00:20:01,720 Speaker 1: other than are there any other companies that are in 368 00:20:01,760 --> 00:20:04,080 Speaker 1: good shapes to kind of withstand all these pressures that 369 00:20:04,119 --> 00:20:07,080 Speaker 1: we're seeing right now. So I think you have to 370 00:20:07,119 --> 00:20:09,600 Speaker 1: think about it from a standpoint of brand. I think 371 00:20:09,640 --> 00:20:11,280 Speaker 1: you have to think about it from a standpoint of 372 00:20:11,280 --> 00:20:14,520 Speaker 1: companies that have really put themselves in good standing. The 373 00:20:14,840 --> 00:20:17,520 Speaker 1: theme parks that have been doing pretty well over the 374 00:20:17,640 --> 00:20:20,080 Speaker 1: past year year and a half, and that's because people 375 00:20:20,119 --> 00:20:24,400 Speaker 1: have been wanting to go and do and the companies 376 00:20:24,440 --> 00:20:27,520 Speaker 1: have taken advantage of that by bringing down their debtload 377 00:20:29,320 --> 00:20:32,639 Speaker 1: having cash put away. They have been spending their cash 378 00:20:32,640 --> 00:20:35,560 Speaker 1: on shareholders, but I think that they'd probably opt to 379 00:20:35,600 --> 00:20:38,480 Speaker 1: squirrel away some cash if they thought that it weren't 380 00:20:38,480 --> 00:20:40,800 Speaker 1: so easy to do that. If you look at the 381 00:20:40,840 --> 00:20:43,880 Speaker 1: rental card companies, they're an interesting sort of situation because 382 00:20:43,920 --> 00:20:49,000 Speaker 1: they have a combination of better credit quality, lower leverage, 383 00:20:49,280 --> 00:20:52,800 Speaker 1: but they also have created an exposure for themselves by 384 00:20:52,880 --> 00:20:55,360 Speaker 1: way of risk vehicles and by that we mean those 385 00:20:55,359 --> 00:20:57,520 Speaker 1: are the vehicles that they're buying outright that they're going 386 00:20:57,560 --> 00:21:00,200 Speaker 1: to have to offload themselves, as opposed to the program 387 00:21:00,280 --> 00:21:03,359 Speaker 1: vehicles that they can give back to the autos. So 388 00:21:04,040 --> 00:21:07,000 Speaker 1: I think there's pockets of opportunity. I think it's really 389 00:21:07,040 --> 00:21:09,880 Speaker 1: a question of company by company basis. If you look 390 00:21:09,920 --> 00:21:12,480 Speaker 1: at something that Kilton, they've been doing very well for themselves, 391 00:21:12,640 --> 00:21:14,760 Speaker 1: but they also don't care to bring down their debtload 392 00:21:14,760 --> 00:21:17,160 Speaker 1: as much as Marriott does. So you have these sort 393 00:21:17,200 --> 00:21:20,600 Speaker 1: of opportunities both in high yield and in investment grade. 394 00:21:20,600 --> 00:21:23,560 Speaker 1: And I think it's really a question of individual companies 395 00:21:23,560 --> 00:21:28,520 Speaker 1: and also managements policies towards ratcheting in or bringing in 396 00:21:28,600 --> 00:21:31,440 Speaker 1: any sort of shareholder spending that they're doing, as well 397 00:21:31,480 --> 00:21:34,720 Speaker 1: as being a little bit more prudent on capex if 398 00:21:35,080 --> 00:21:38,080 Speaker 1: times get tough, if purse strings get get a little tighter. 399 00:21:39,320 --> 00:21:41,160 Speaker 1: So we came into this year and everyone was talking 400 00:21:41,200 --> 00:21:43,080 Speaker 1: about the Year of the bond, because last year was 401 00:21:43,080 --> 00:21:46,640 Speaker 1: so terrible for the fixed income. Everyone was really excited 402 00:21:46,680 --> 00:21:49,680 Speaker 1: about these sectors that got so beaten up, including these 403 00:21:49,720 --> 00:21:52,679 Speaker 1: consumer sectors that we're talking about here. The bonds have 404 00:21:52,800 --> 00:21:54,879 Speaker 1: rallied quite a lot in the first two months of 405 00:21:54,920 --> 00:21:58,280 Speaker 1: the year. Obviously the banking crisis didn't help, but there's 406 00:21:58,320 --> 00:22:01,520 Speaker 1: still pretty tight you know, based on history, is the 407 00:22:01,640 --> 00:22:05,000 Speaker 1: risk all these risks? Are they properly priced in right now? 408 00:22:05,080 --> 00:22:09,040 Speaker 1: You're thinking too credit monkeys. I think you have two 409 00:22:09,119 --> 00:22:11,240 Speaker 1: sides of the coin at the moment, James. I think 410 00:22:11,680 --> 00:22:15,160 Speaker 1: on the one side, you have consumers that are still 411 00:22:15,280 --> 00:22:17,919 Speaker 1: very much spending. Consumers want to spend, and they're not 412 00:22:18,000 --> 00:22:20,679 Speaker 1: spending on goods, they're spending on services. So that's a 413 00:22:20,720 --> 00:22:23,359 Speaker 1: really good thing for my sector. That means that people 414 00:22:23,480 --> 00:22:27,119 Speaker 1: who have been stuck inside, who are tired of looking 415 00:22:27,160 --> 00:22:30,920 Speaker 1: at their same house and now office as they return 416 00:22:31,000 --> 00:22:33,840 Speaker 1: to the office, want to go and do. They want 417 00:22:33,880 --> 00:22:36,360 Speaker 1: to go on lavish vacations. They want to go on cruises. 418 00:22:36,400 --> 00:22:38,320 Speaker 1: They want to do things that they didn't feel comfortable 419 00:22:38,359 --> 00:22:41,520 Speaker 1: doing before we had vaccines, before we made COVID A 420 00:22:41,600 --> 00:22:45,440 Speaker 1: sort of common problem. Not that people don't really appreciate 421 00:22:45,480 --> 00:22:47,720 Speaker 1: getting COVID at this point as much as they didn't 422 00:22:47,720 --> 00:22:49,880 Speaker 1: appreciate it a year ago. But I think people are 423 00:22:49,920 --> 00:22:53,840 Speaker 1: just fatigued by the general sentiment of a pandemic, and 424 00:22:53,920 --> 00:22:56,080 Speaker 1: so people are going and doing, and we're seeing that 425 00:22:56,119 --> 00:22:58,359 Speaker 1: in the data. Still, we're seeing that people are still 426 00:22:58,400 --> 00:23:02,040 Speaker 1: wanting to go and do. So that's a really positive situation. Now, 427 00:23:02,080 --> 00:23:04,919 Speaker 1: the other side of the coin is in the event 428 00:23:05,080 --> 00:23:07,199 Speaker 1: of a recession, or in the event of an uptick 429 00:23:07,240 --> 00:23:12,480 Speaker 1: and unemployment rate, in a situation where we have runaway inflation, 430 00:23:13,160 --> 00:23:16,879 Speaker 1: or a situation where we have just a pullback in 431 00:23:16,920 --> 00:23:19,760 Speaker 1: general of people saying, Okay, I don't really know what's 432 00:23:19,800 --> 00:23:21,720 Speaker 1: going on with these banks. I don't really know what's 433 00:23:21,720 --> 00:23:25,119 Speaker 1: going on with my own personal savings situation and my 434 00:23:25,280 --> 00:23:28,840 Speaker 1: own personal spending account. So I'm gonna stop spending on 435 00:23:28,840 --> 00:23:31,439 Speaker 1: these lab vish vacations. And I think that's where you 436 00:23:31,480 --> 00:23:35,840 Speaker 1: sort of see the problem. Similarly, businesses and business spending 437 00:23:36,000 --> 00:23:40,440 Speaker 1: and conferences have started to really boom recently, and if 438 00:23:40,480 --> 00:23:42,840 Speaker 1: we if we see that cut short, that could be 439 00:23:42,880 --> 00:23:46,680 Speaker 1: problematic form my area. So I'm a credit guy, which 440 00:23:46,720 --> 00:23:49,840 Speaker 1: generally means I'm pretty pretty negative, you know, pretty pessimistic. 441 00:23:50,280 --> 00:23:53,239 Speaker 1: Sorry for that, but you know, you mentioned contagion, and 442 00:23:53,320 --> 00:23:55,080 Speaker 1: just just to end, not to end on a loan note, 443 00:23:55,080 --> 00:23:57,719 Speaker 1: but but after so many years of easy money and 444 00:23:57,800 --> 00:24:01,920 Speaker 1: cheap borrowing, and you know, money slashing around the system. 445 00:24:01,960 --> 00:24:04,840 Speaker 1: Suddenly it's getting a lot more expensive. Suddenly the consumers 446 00:24:04,880 --> 00:24:07,199 Speaker 1: under a lot more pressure because of inflation. You know, 447 00:24:07,280 --> 00:24:11,440 Speaker 1: there are so many to me, you know, potential negatives 448 00:24:11,440 --> 00:24:13,800 Speaker 1: out there. Should we expect a lot more distress and 449 00:24:13,920 --> 00:24:18,960 Speaker 1: defaults or does this all blow over? So I think 450 00:24:19,000 --> 00:24:23,120 Speaker 1: that that the default situation is always that's always a problem. 451 00:24:23,280 --> 00:24:25,560 Speaker 1: And you, like me, James, I'm always looking at the 452 00:24:25,560 --> 00:24:27,960 Speaker 1: boogeyman over my shoulder, and I always sort of wonder 453 00:24:28,000 --> 00:24:30,679 Speaker 1: what the next shooter drop is. Not to mix metaphors, 454 00:24:30,720 --> 00:24:34,560 Speaker 1: but I will say that that on the one hand, 455 00:24:34,640 --> 00:24:38,199 Speaker 1: I'm optimistic about my my sector, which you know I 456 00:24:38,240 --> 00:24:44,400 Speaker 1: always called pause too. But I think that really, when 457 00:24:44,400 --> 00:24:48,320 Speaker 1: you're talking about financing, it's been expensive for my sector, 458 00:24:48,359 --> 00:24:50,199 Speaker 1: you know, for over a year now. I mean you 459 00:24:50,240 --> 00:24:52,480 Speaker 1: look at some of the cruise lines and they had 460 00:24:52,520 --> 00:24:57,000 Speaker 1: to issue double digit bonds a year ago to finance 461 00:24:57,040 --> 00:25:01,720 Speaker 1: their operations. And so I don't necessar necessarily think that 462 00:25:02,240 --> 00:25:04,360 Speaker 1: right now is going to be different than what they've 463 00:25:04,359 --> 00:25:06,560 Speaker 1: already been faced with for a year now that they've 464 00:25:06,560 --> 00:25:09,840 Speaker 1: already had to digest. I think the bigger question is 465 00:25:10,320 --> 00:25:14,000 Speaker 1: if there's a massive pullback in market liquidity, meaning the 466 00:25:14,040 --> 00:25:17,640 Speaker 1: ability for companies to access the capital markets. What does 467 00:25:17,640 --> 00:25:19,720 Speaker 1: that mean for these companies? Will they have to get 468 00:25:19,720 --> 00:25:22,720 Speaker 1: creative in other ways? Will we start seeing a large 469 00:25:23,359 --> 00:25:26,840 Speaker 1: segments of their business, the non core portion of their 470 00:25:26,880 --> 00:25:29,760 Speaker 1: business gets sold off. We already saw with the casinos 471 00:25:29,800 --> 00:25:33,720 Speaker 1: that they got creative to increase their liquidity as they're 472 00:25:33,800 --> 00:25:36,760 Speaker 1: waiting for things like China to open up again, so 473 00:25:36,800 --> 00:25:40,760 Speaker 1: that Macau was operational, and so what we saw was 474 00:25:40,800 --> 00:25:43,639 Speaker 1: things like sale leasebacks, meaning they sold off their actual 475 00:25:43,640 --> 00:25:46,600 Speaker 1: property and now they're just the property manager. We saw 476 00:25:46,640 --> 00:25:48,159 Speaker 1: that with the hotels as well, that a lot of 477 00:25:48,200 --> 00:25:51,320 Speaker 1: them are asset light, which is a little bit worrisome 478 00:25:51,520 --> 00:25:53,440 Speaker 1: when you think about it from a standpoint of if 479 00:25:53,440 --> 00:25:56,160 Speaker 1: they needed to get creative with their balanchies, how would 480 00:25:56,160 --> 00:25:57,920 Speaker 1: they do that. I mean, the brand is only worth 481 00:25:58,040 --> 00:26:02,320 Speaker 1: so much, So we are constantly viewing this as a 482 00:26:02,880 --> 00:26:05,440 Speaker 1: what's next and what could these companies do to get 483 00:26:05,480 --> 00:26:09,320 Speaker 1: creative to sort of fill in any cash gaps in 484 00:26:09,320 --> 00:26:13,240 Speaker 1: the event of a significant market pullback and the inability 485 00:26:13,280 --> 00:26:16,439 Speaker 1: for companies to finance operations. Let's hope you're right on 486 00:26:16,480 --> 00:26:19,879 Speaker 1: the sunnier outlook that I have very important to keep 487 00:26:19,920 --> 00:26:24,480 Speaker 1: on top of those sectors. Very important to keep on 488 00:26:24,480 --> 00:26:26,440 Speaker 1: top of those sectors right now, not just for those 489 00:26:26,480 --> 00:26:29,479 Speaker 1: who like going on cruises. Thank you, Jody sure Thing. 490 00:26:30,400 --> 00:26:33,800 Speaker 1: Read all Josie's and Jody's analysis on the Bloomberg Terminal. 491 00:26:33,840 --> 00:26:36,520 Speaker 1: Thank you very much, Jody Lourie at Bloomberg Intelligence. I 492 00:26:36,600 --> 00:26:39,080 Speaker 1: look forward to catching up again very soon. And thanks 493 00:26:39,119 --> 00:26:41,919 Speaker 1: again to Tassos Bossels from Bloomberg News. Read all of 494 00:26:41,920 --> 00:26:44,320 Speaker 1: his scoops on the terminal and at Bloomberg dot Com. 495 00:26:44,400 --> 00:26:46,080 Speaker 1: Keep an eye on the bank story right now. No 496 00:26:46,080 --> 00:26:48,639 Speaker 1: matter what part of the market you're in, Tassos and 497 00:26:48,680 --> 00:26:50,359 Speaker 1: his team will continue to break a lot of news 498 00:26:50,400 --> 00:26:53,639 Speaker 1: about that incoming weeks. I'm James Crombie. It's been a 499 00:26:53,680 --> 00:26:56,320 Speaker 1: pleasure having you. See you next week on the Credit Edge.