Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.
Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg.
Speaker 1: This week, we're very pleased to welcome it enly Garthia Pees,
Speaker 1: who covers distressed debt and also football for Bloomberg News
Speaker 1: in London. How are you, Renie?
Speaker 2: All good?
Speaker 3: Thank you? James.
Speaker 1: Ru also delighted to have Tolu Alamutu, who covers real
Speaker 1: estate and banks for Bloomberg Intelligence based in London. We'll
Speaker 1: be coming back to Tollu later in the show to
Speaker 1: talk about the crisis at SBB, the poster child for
Speaker 1: Sweden's property meltdown. But first it Garcia Pees with Bloomberg
Speaker 1: News traveled companies distress debt. Why are we seeing so
Speaker 1: much drama right now?
Speaker 3: Well, it's been a long time coming because a lot
Speaker 3: of companies accumulated a lot of debt during COVID times.
Speaker 3: Also some of them that had you know, big, big
Speaker 3: leverage because they were leveraged buyouts when that was cheap.
Speaker 3: Those kind of structures worked well while that was very cheap,
Speaker 3: not so much anymore, in particular when they face refinancings.
Speaker 3: So we are now starting to see the cracks showing
Speaker 3: up more often and higher interest rates is already hurting
Speaker 3: those that have floating dead, but also the ones that
Speaker 3: are trying to refinance. They know that it's going to
Speaker 3: be more expensive and in some cases just prohibitedly. So
Speaker 3: that's one and then the other thing is inflation, which
Speaker 3: of course it's also hurting. Not all the companies have
Speaker 3: the same pricing powers, so some have been able to
Speaker 3: pass through to consumers at least for most of last year,
Speaker 3: and others haven't. So we are also starting to see
Speaker 3: this disparity between borrowers of the ones that have this
Speaker 3: power and the ones that don't.
Speaker 1: So in basic terms, rates are going up. That means
Speaker 1: that debt service, you know, the cost of your debt increases. Also,
Speaker 1: the economy's slowing, so your earnings are going down. Consumption
Speaker 1: is probably suffering because of inflation across the world. But
Speaker 1: where are we in the cycle any Is it going
Speaker 1: to get worse from here?
Speaker 3: It does look like it's definitely going to get worse
Speaker 3: before it gets better. Part of the reason is because
Speaker 3: we're still seeing high levels of inflation, so central banks
Speaker 3: are not likely to lower rates anytime soon. And the
Speaker 3: other part of The reason is that we are coming
Speaker 3: from from an era where lenders or creditors in general,
Speaker 3: where keen on amending and extending the dead and wave covenance,
Speaker 3: et cetera, because they understood with COVID, they understood that
Speaker 3: most of the companies were in that situation for reasons
Speaker 3: that were outside of their control or had reasons that
Speaker 3: had little to do with their performance. Now that they
Speaker 3: are a lot of them are running out of passions
Speaker 3: in some cases, when you know, you've seen a lot
Speaker 3: of of the restructurings that we're seeing now actually are
Speaker 3: second time structurings. In some cases even third time companies
Speaker 3: that restructure during COVID, and that hasn't been enough because
Speaker 3: the business hasn't rebounded as strongly as expected. So they
Speaker 3: are coming back for a second or third round.
Speaker 1: So what kind of companies at most risks do you think?
Speaker 1: I mean, in the US, we've seen a lot of
Speaker 1: stress in retail and healthcare, and commercial real estate is
Speaker 1: under a lot of pressure as well. But what about
Speaker 1: in Europe? Is it the same kind of cast of characters,
Speaker 1: the same same same sectors that are in trouble.
Speaker 3: Yeah, it does look like it's it's very similar retail
Speaker 3: has been distressed for ages because of the change in
Speaker 3: in online shopping. It was a change of partying people
Speaker 3: not going to to shopping malls as often that that
Speaker 3: kind of of trend that was already the case before COVID,
Speaker 3: and of course with COVID things accelerated even further. And
Speaker 3: then for real estate it is now it's a sector
Speaker 3: that accumulated a lot of debt again when when it
Speaker 3: was cheap to do so. But now a lot of
Speaker 3: these structures are suffering because of property value going down
Speaker 3: also with the pandemic. In the case of the of
Speaker 3: the businesses that have offices, a lot of those are
Speaker 3: suffering because depending on the on the geographies, people are
Speaker 3: not going back to the office as often as for
Speaker 3: so not a lot of companies don't need the same
Speaker 3: office space that they used to. They need less, So
Speaker 3: landlords in that part of the market are are struggling.
Speaker 3: Depending on the on the countries, you do see more
Speaker 3: higher back vacancy rates in that part of the of
Speaker 3: the real estate market than in others. But but yeah,
Speaker 3: real estate companies are are suffering a lot with this
Speaker 3: combo of lower lower value of the properties plus higher rates.
Speaker 1: So the borrowers that are out there that are really
Speaker 1: struggling right now, but we think that they've got a future.
Speaker 1: They're not going to file for bankruptcy. What are they
Speaker 1: doing to relieve the pressure here?
Speaker 3: So we are seeing more and more companies that are
Speaker 3: trying to sell assets as a way to pay down debt,
Speaker 3: or they are that are announcing that they are doing
Speaker 3: reviews to sell assets to pay down that and for
Speaker 3: now it's non core assets. They're not selling the duels
Speaker 3: of the crowns or to speak, but they are starting
Speaker 3: to look into it, if not doing it already. One
Speaker 3: reason why there haven't been even more asset sales so
Speaker 3: far is because the mismatch in valuation in terms of
Speaker 3: what the sellers were hoping they would get for their
Speaker 3: assets and what the buyers want to pay for them.
Speaker 3: So the sellers that can hold to the asset are
Speaker 3: waiting for a better moment to sell it. But that's
Speaker 3: not the case for everyone.
Speaker 1: And you say they're not giving away the crown jewels,
Speaker 1: but are there any sort of being forced to sell
Speaker 1: assets or units that they really do need to keep
Speaker 1: in order to generate the cash that they'll need to
Speaker 1: stay alive over the long term.
Speaker 3: I think more than I mean perhaps Friends supermarket Casino
Speaker 3: is the best example. It's still holding to its its
Speaker 3: main business, which is Friends, but it did have a
Speaker 3: bigger stake in SAE, which is I think the third
Speaker 3: largest retailer in Brazil. That was a pretty good asset,
Speaker 3: but it had to sell part of those shares in
Speaker 3: order to raise money to to pay down debt. Again,
Speaker 3: it's holding to its core business, which is Friends, but
Speaker 3: it's also it also had to sell some of the
Speaker 3: businesses that were actually pretty good for its you know,
Speaker 3: existence so to speak. I guess what we are seeing
Speaker 3: more when it comes to that core part of the business.
Speaker 3: What we are seeing more is debt for equity swaps,
Speaker 3: so creditors to taking over the business because a private
Speaker 3: equity owner doesn't doesn't see a way forward for that
Speaker 3: for that company, so it's just giving up on it altogether.
Speaker 1: And on Casino, I mean, you've been all over that one.
Speaker 1: It's a really fascinating story. It's the biggest supermarket, one
Speaker 1: of the biggest supmarket chains in France, and so why
Speaker 1: is that one getting so much attention? What's the drama there?
Speaker 3: So it's a very interesting situation. It has been cooking
Speaker 3: for a long time.
Speaker 1: It was already.
Speaker 3: Short sellers had it on the radar many years ago.
Speaker 3: It started in twenty fifteen, and then in twenty eighteen
Speaker 3: the main accuisition of short sellers was that the company
Speaker 3: actually had more debt that it was reporting because of
Speaker 3: the way it was consolidating different assets in its portfolio
Speaker 3: in the group. And then from twenty eighteen the company
Speaker 3: compromised medias announcement that it was going to sell assets
Speaker 3: to reduce the debt because it was overlabored and it
Speaker 3: was doing so. But definitely COVID didn't help in terms
Speaker 3: of valuations and in terms of the calendar to some extent.
Speaker 3: And also now it's got to a point where even
Speaker 3: after selling a lot of assets just in time to
Speaker 3: pay the next the dead that was the next maturity,
Speaker 3: it not has come to a point where it has
Speaker 3: to restructure and it has started talks with creditors and
Speaker 3: other stakeholders to decide how it's best to restructure the
Speaker 3: company for the business. It's also very interesting. It's also
Speaker 3: a very interesting case because it's for the French government.
Speaker 3: It's a very important asset because it employs over fifty
Speaker 3: thousand people in France, and it's also critical for feit
Speaker 3: security in some of the French regions. It's very important
Speaker 3: in Paris, for instance, in the Paris region, it's important
Speaker 3: in the Lyon region as well, and in the south
Speaker 3: of France. So of course for the French government it's
Speaker 3: a very it's a very important asset and also it's
Speaker 3: interesting and it has a massive capital structure. It's about
Speaker 3: seven billion of debt, so a lot of creditors involved,
Speaker 3: a lot of suppliers involved, and it also has very
Speaker 3: interesting characters involved in terms of well the chairman of
Speaker 3: the company is a very interesting character, but also Jean,
Speaker 3: but also different parties that have made offers for the
Speaker 3: company to inject equity. If you know, the company managed
Speaker 3: to cut debt to sustainable levels. We have a check
Speaker 3: billionaire called Daniel Kratinsky that has made such an offer,
Speaker 3: teaming up with an existing shareholder of the company. And
Speaker 3: we also have a tree of French businessmen that have
Speaker 3: done a separate bit for it. And Lastie is interesting
Speaker 3: because of the implications he may have in the French
Speaker 3: food retail industry in general. Because O'shan, for instance, has
Speaker 3: already approached Kratinski to team up if he's bid wins
Speaker 3: after the restructuring, and Carfu has expressed interest in the
Speaker 3: past for some of the assets. The company has already
Speaker 3: agreed to sell some some of the some of its
Speaker 3: sites to Antarache. It's another French retailer, so there is
Speaker 3: a lot of interest for the assets in France, so
Speaker 3: it will be it will be interesting to see how
Speaker 3: it plays out after the restructuring.
Speaker 1: Sounds like a fascinating story with It's like a Shakespeare
Speaker 1: in drama. What what scene? What actor we in the drama?
Speaker 1: Is it act three? Scene one? Or are we getting
Speaker 1: towards the end of the two? No more?
Speaker 3: Oh no, we're nowhere near the end. Because they just
Speaker 3: entered conciliation laid may May twenty fifth, so they have
Speaker 3: until October twenty fifth to negotiate the restructuring. Ideally they
Speaker 3: would like to have it earlier, of course, because it's
Speaker 3: also listed companies, so the earlier the better. And also
Speaker 3: summer is typically a very bad quarter for supermarkets in
Speaker 3: terms of liquidity because they need to do all the
Speaker 3: purchases for them for the Christmas season, so they need
Speaker 3: to stock basically, so Yeah, we were starting the talks
Speaker 3: of the restructuring and after that they will have to
Speaker 3: go to accord to validate the agreement, vote on etc.
Speaker 3: But yeah, we're starting.
Speaker 1: Okay. Interesting. So just going back to the asset sales generally,
Speaker 1: I mean, you're talking about European asset sales to support
Speaker 1: companies through difficult times. Is it confined to Europe orre
Speaker 1: you seeing it in other parts of the world.
Speaker 3: We are seeing it in other parts of the world
Speaker 3: as well. In the in the US, we've seen different
Speaker 3: cases and there was also a poll by EY that
Speaker 3: mentioned that in the US there were about forty four
Speaker 3: percent of chief executive officers that are planning to the
Speaker 3: investments this year. And we have already seen in Chapter eleven,
Speaker 3: although of course you can say Chapter eleven is the
Speaker 3: place you want to avoid if you can. But we
Speaker 3: are seeing examples of companies that Genesis Care, for instance,
Speaker 3: is an example. It's in the healthcare space. It has
Speaker 3: businesses in Australia, in Europe and in the US, but
Speaker 3: the US one is the one that wasn't working and
Speaker 3: that was dragging performance in general. So eventually they put
Speaker 3: the police a company in they file for Chapter eleven
Speaker 3: and they are announced that they are planning to sell
Speaker 3: the US business. But again that one's as part of
Speaker 3: the chapter eleven situation.
Speaker 1: Right, got it. So basically, these companies that are trying
Speaker 1: to sell assets they think are worth more than the
Speaker 1: market is willing to pay. At the same time rates
Speaker 1: are going up and the economy is slowing. It all
Speaker 1: sounds like a recipe for disaster. It seems going to
Speaker 1: get worse.
Speaker 3: Yeah, it is complicated because, for instance, or Pea, which
Speaker 3: is a French care home operator, it had to restructure
Speaker 3: twice last year. And part of the reason for that
Speaker 3: was that in the first restructuring it made a deal
Speaker 3: with the French banks, but it also was planning to
Speaker 3: sell a lot of assets to cut down that. But
Speaker 3: then because of the valuations, it realized, well, if we
Speaker 3: do this now, it's we're going to get paid less
Speaker 3: than we think they're worth. So it's better if we
Speaker 3: do a broader structuring and then we sell the assets
Speaker 3: as we see fit. The other thing is that when
Speaker 3: everyone in the market knows or thinks you have problems,
Speaker 3: of course the price that they're willing to pay for
Speaker 3: those assets are not necessarily the best or fair value
Speaker 3: or what you could get if they thought your situation
Speaker 3: was more stable. And that's something that SBB, for instance,
Speaker 3: is facing. That they announced they were planning to do
Speaker 3: asset sales, but then the new management was very clear.
Speaker 3: Now it remains a question on whether they will be
Speaker 3: able to stick to the plan, but that they don't
Speaker 3: want to do fire sales, so that they will try
Speaker 3: to sell them, that there are a lot of parties
Speaker 3: interested in their assets, and so that they will do
Speaker 3: them as they see fit, slowly but surely. Slowly will
Speaker 3: depend I guess on the offers that they get, but
Speaker 3: they don't. They're not planning to sell at deep discounts.
Speaker 1: So just to be clear, you're talking about SBB there
Speaker 1: from Sweden, right correct? Yeah, okay, great, we all get
Speaker 1: to catch up with Tolu al Mutu in the moment
Speaker 1: from Bloomberg intalience about that, but before we do, only
Speaker 1: what's the next big story to watch on your beat?
Speaker 1: Are there any big football scoops out there coming? That's
Speaker 1: soccer for our US listeners.
Speaker 3: It is. It is getting busy. That's busy. It's definitely
Speaker 3: getting busy. I guess in that front, we're all watching
Speaker 3: what happens with the Italian League if they're going to
Speaker 3: sell their broadcasting rights the same well revenue from their
Speaker 3: broadcasting rights the same way that the Spanish and the
Speaker 3: French league did. And also any any clubs that are
Speaker 3: potentially for sale, that's something we're always looking for. And
Speaker 3: then in the stress, Yeah, it's it's a matter to see,
Speaker 3: well what what the owners of the companies are going
Speaker 3: to do, if they're willing to inject more money in
Speaker 3: their companies, or if they will give up and just
Speaker 3: hand the cues to creators, and to what extent we
Speaker 3: will see like real fights or it will be you know,
Speaker 3: less less aggressive.
Speaker 1: Great stuff. Gartha Perez with Bloomberg News, thanks so much
Speaker 1: for joining us. Thank you for having me read all
Speaker 1: of it and is great scoops on the Bloomberg terminal
Speaker 1: and of course at Bloomberg dot com. So, as I
Speaker 1: mentioned earlier, we're very pleased to have with us. Tolu Alamutu,
Speaker 1: who looks at real estate and banks for Bloomberg Intelligence
Speaker 1: based in London. What's going on in real estate toler
Speaker 1: It seems like nothing but bad news when it comes
Speaker 1: to offices with not enough people going back to work.
Speaker 1: After the pandemic.
Speaker 2: Well, it definitely seems like that from where we're sitting
Speaker 2: in London. Not only are you seeing some of the
Speaker 2: real estate issuers report negative valuation adjustments, but you're seeing
Speaker 2: that result in losses at some of the companies. You're
Speaker 2: also seeing negative actions from the rating agencies, and you're
Speaker 2: not seeing the supply that you would have expected in
Speaker 2: the bond markets from these issues. So there's concerned about
Speaker 2: financing as well. So a lot going on and the
Speaker 2: concerns are not going away. It seems I think, you know,
Speaker 2: looking forward to the second half of the many of
Speaker 2: the issues that people had earlier in the year are
Speaker 2: going to carry through to that period unfortunately.
Speaker 1: So let's talk about SBB. It's the landlord at the
Speaker 1: center of Sweden's property crisis, which is wearying a lot
Speaker 1: of people, especially in Europe. They loaded up on cheap
Speaker 1: debt to snap up schools and healthcare centers that local
Speaker 1: governments were looking to offload. Now they're facing off against
Speaker 1: local councils who want the properties back. That sorry. They
Speaker 1: recently postponed dividend payment for at least a year to
Speaker 1: try and ease a funding crunch caused by sharply higher
Speaker 1: interest rates. And we know that SPB has about eight
Speaker 1: billion dollars in debt, So what is the situation TOALU,
Speaker 1: how bad is it going to get? Do you think?
Speaker 2: Okay? Well, SPB is being seen as I guess you know,
Speaker 2: the canary and the coal mine in some ways in
Speaker 2: some ways, and there are a number of reasons for that. First,
Speaker 2: they've been under pressure since at least the early part
Speaker 2: of i'd say last year because there was a short
Speaker 2: Sellar report that targeted them. And since then, SBB has
Speaker 2: done a number of things, including a spin off, including
Speaker 2: changing some of its reporting to include some alternative reporting measures.
Speaker 2: They've also carried out some asset sales, but none of
Speaker 2: this has really worked. And most recently they got downgraded
Speaker 2: by Pitch, SM and Scope, so they lost their investment
Speaker 2: grade ratings at S and P and Fitch and a Scope.
Speaker 2: There is a possibility of a further downgrade and as
Speaker 2: a result of the S and P downgrade, as you mentioned,
Speaker 2: they decided to skip the dividend. They also postponed a
Speaker 2: rights issue with SBB. It's basically at a point where
Speaker 2: we're getting at least one headline or one story a day.
Speaker 2: So yesterday we had a story about them converting a
Speaker 2: mandatory convertible of about I think two billion krona or
Speaker 2: so into shares, which I think would have been expected.
Speaker 2: And today we had the pleasure of a headline saying
Speaker 2: that the Swedish FSA will be probing SBB's accounting, primarily
Speaker 2: focused on the twenty twenty one reporting, but also potentially
Speaker 2: twenty twenty and SBB has has responded to that sorry,
Speaker 2: saying that in their view the valuations and other metrics
Speaker 2: that they reported are correct and they're looking forward to
Speaker 2: having a constructive dialogue with the Swedish FSA. The problem
Speaker 2: from a bondholder perspective is clearly the headline risk is
Speaker 2: extremely elevated at this point on SBB, and every day
Speaker 2: the headlines that we're getting and not particularly encouraging. In
Speaker 2: the meantime, we are waiting for the outcome of what
Speaker 2: SBB is calling a broad broader strategic review, which is
Speaker 2: supposed to look at whether they should sell all or
Speaker 2: some of their assets and so on, and I think
Speaker 2: what this probe from the FSA does is increase the
Speaker 2: urgency of them completing that review.
Speaker 1: And as you say, they were cut to junk in May,
Speaker 1: and since then the share price has dropped very deeply.
Speaker 1: Now hedge funds and rival landlords are circling the trebled
Speaker 1: company's holdings. You mentioned, you know, we're kind of getting
Speaker 1: this bad headline to day. What exactly we're looking for next?
Speaker 1: Is there a deadline on the horizon that we're trying
Speaker 1: to you know, focus on and what could happen next?
Speaker 2: So there are to me every day it seems like
Speaker 2: a deadline at the at the moment because of the
Speaker 2: level of headlines that we're getting, all the amount of
Speaker 2: headlines that we're getting. But there is one date that
Speaker 2: people are focusing on at the moment, and that is
Speaker 2: towards the end of this month, I think around twenty
Speaker 2: ninth of this month. The reason for that is that
Speaker 2: according to a report, there are bondholders that have written
Speaker 2: a letter to SBB stating that they have reached an
Speaker 2: interest coverage ratio covenant and SBB has i think ninety
Speaker 2: days to respond to that or to remedy that. SBB
Speaker 2: has already publicly said that they meet the covenants or
Speaker 2: the covenants under their Euroborn documentation. At least that's what
Speaker 2: we know in terms of what they said publicly. We
Speaker 2: don't know whether there's been any bilateral negotiations between them
Speaker 2: and this bondholder group, but if the report of the
Speaker 2: bondholder action is correct, then I guess the bondholders will
Speaker 2: expect some action from SBB before the end of this month.
Speaker 2: Having said that, there is another bondholder group that's on
Speaker 2: the other side of that argument that's stating that SBB
Speaker 2: actually has not reached that covenant, and I think one
Speaker 2: can understand why there would be players on that side
Speaker 2: as well. That's because if SBB were forced to in
Speaker 2: default at this point, that would obviously potentially mean that
Speaker 2: they'd have to pay off all the debt that they
Speaker 2: have or the senior debt that they have, and they
Speaker 2: don't necessarily have the cash on hand to do that.
Speaker 2: So the outcome for the bondholders may not be positive
Speaker 2: if they were to precipitate a default at this point.
Speaker 1: And is that the base case right now, that they
Speaker 1: will default on the debt and there will be a restructuring.
Speaker 2: I wouldn't say so. I think that there is still hope.
Speaker 2: I guess that some kind of resolution can be reached
Speaker 2: and that there will be progress with the broader strategic
Speaker 2: review and that there will be some way to appease
Speaker 2: these bondholders that have raised concerns. I should say that
Speaker 2: the issue is all around definitions and so on, and
Speaker 2: it's the definitions of the interest coverageeration that of its
Speaker 2: obviously have come into focus in this instance. The problem
Speaker 2: is there are many ways that one, I guess, can
Speaker 2: calculate that, and I guess SBB is justifying its own calculation.
Speaker 2: The bondholders will be justifying their own. The issue with
Speaker 2: SBB is that they restated their Q one results, and
Speaker 2: restatements are never could right, and the restatement didn't contain
Speaker 2: as much information as the initial reporting, and I think
Speaker 2: that's also added to the worry basically, and is one
Speaker 2: of the reasons I guess why you're seeing this bondholder action.
Speaker 1: But in a worst case scenario, which we have to
Speaker 1: be kind of always looking out for, what do we
Speaker 1: think recoveries might look like.
Speaker 2: That's a tricky fun because what normally well, these are
Speaker 2: never normal circumstances. What can happen in these disorderly situations
Speaker 2: is that the amount of secured that the people that
Speaker 2: maybe was reported was last reported might be higher, the
Speaker 2: valuations that they get for the properties might be lower
Speaker 2: than was last reported, and so as an unsecured bondholder,
Speaker 2: which all these people would be, you end up in
Speaker 2: a worse position than maybe you were bargaining for based
Speaker 2: on the last reported figures. And that is the primary concern,
Speaker 2: right that you know, all those that rank ahead of
Speaker 2: you might do much better, or might be there might
Speaker 2: be greater amounts ahead of you, and there might be
Speaker 2: less security left for you to claim.
Speaker 1: That was a fascinating story for Sweden, and you know,
Speaker 1: there's tons of really interesting things going on that we'll
Speaker 1: be watching very closely. But when you sort of zoom
Speaker 1: out a bit, how much is this a Sweden and
Speaker 1: or credit specific SBB story and to what extent could
Speaker 1: it become a bigger issue for credit markets.
Speaker 2: I think that you really hit on what the concern is,
Speaker 2: which is that this may not be SBB specific and
Speaker 2: that when or if the SBB situation is resolved, there
Speaker 2: might be concerns about whoever the next weekest link is.
Speaker 2: I mean, if we look at how some of the
Speaker 2: other issuers have performed year today, not just in Sweden,
Speaker 2: and I'm talking about the performance of their bonds. It
Speaker 2: tells you that the concerns are definitely not restricted to
Speaker 2: just that Nordic country. I was looking at some of
Speaker 2: the year to day performance figures today and looking at
Speaker 2: the likes of time Staden, the around town perps and
Speaker 2: so on. They haven't done very well year to date.
Speaker 2: So I think what the market is telling us is
Speaker 2: that they are concerned about real estate more broadly than
Speaker 2: just SBB. Of course SPB is it seems to be
Speaker 2: in the eye of the storm at the moment, but
Speaker 2: there are definitely broader concerns.
Speaker 1: So there could be some contagion if SPP goes down.
Speaker 2: In a sense. Yes. The other thing I guess I
Speaker 2: should say is in the last few weeks we have
Speaker 2: had statements from the Swedish FSAs stating that leverage is
Speaker 2: too high in the commercial real estate sector, which I
Speaker 2: guess will make lenders more cautious towards that sector, which
Speaker 2: is not positive for the other entities in Sweden that
Speaker 2: are operating in real estate. So the regulators already sounding
Speaker 2: out their concerns, or was already sounding out their concerns
Speaker 2: even before the probe was launched against SBB today that.
Speaker 1: It is something also that resonates beyond just Sweden, of course. Yes, okay,
Speaker 1: so I'm the one on this podcast that I saw
Speaker 1: the dumb questions and I have one, just very simple
Speaker 1: one about real estate generally. You've got all these companies
Speaker 1: that have, for example, office buildings that you know, no
Speaker 1: one wants to use anymore because they're not going back
Speaker 1: to work. Why can't they just be repurposed? Because you know,
Speaker 1: cities have a lack of housing, they have a lack
Speaker 1: of schools, they have a lack of all sorts of
Speaker 1: other infrastructure. Why can't they just be repurposed.
Speaker 2: The simple answer is that it's not that easy, and
Speaker 2: it's all it's never that straightforward. So first let's just
Speaker 2: consider what's going on in parts of the office space.
Speaker 2: It is true, of course, many people prefer working from
Speaker 2: home for at least a portion of the week now,
Speaker 2: and so the demand for offices is not as strong
Speaker 2: as it was maybe prior to the pandemic. But when
Speaker 2: you have people still coming in for part of the week,
Speaker 2: you still do need to maintain some office space, but
Speaker 2: you need to be flexible around it. And in some
Speaker 2: cases the issuers are not organized in a way that
Speaker 2: allows for such flexible working, so it's almost like an
Speaker 2: all or nothing approach. The second issue for the issuers
Speaker 2: is the quality of the building. So we're finding that
Speaker 2: if the doings are basically greener, and we are privileged
Speaker 2: here to have a building that has like one of
Speaker 2: the highest green ratings if you like. But with greener
Speaker 2: buildings there is great demand, but it takes a lot
Speaker 2: of time and finances to meet those standards, and it's
Speaker 2: not always easy for the issuers to make those investments.
Speaker 2: And in terms of repurposing them into flats or whatever else,
Speaker 2: the location of the offices may not be ideal. You
Speaker 2: need permissions to do that, you need funding to repurpose
Speaker 2: them as well, So it's not as straightforward as I
Speaker 2: guess it might seem, and it can take a lot
Speaker 2: of time to do as well, and that time that
Speaker 2: maybe some of the lead issuers probably don't have in abundance.
Speaker 1: Thank you very much, Tollu al Mutu of Bloomberg Intelligence.
Speaker 1: Read all of her great analysis on the Bloomberg Terminal.
Speaker 1: Do check it out and hope to see back on
Speaker 1: the show soon.
Speaker 2: Tollu, thank you so much. James, hope to be back
Speaker 2: on the show soon.
Speaker 1: Thanks and thanks again to Erni Gartier Perez from Bloomberg News.
Speaker 1: Get all her great distressed debt and football scoops on
Speaker 1: the Bloomberg Terminal and at Bloomberg dot Com. I'm James Crombie.
Speaker 1: It's been a pleasure having you join us again next
Speaker 1: week on the Credit Edge