Speaker 1: Welcome to the Bloomberg Markets Podcast.
Speaker 2: I'm Paul Sweeney.
Speaker 1: Alongside my co host Matt Miller.
Speaker 3: Every business day we bring you interviews from CEOs, market pros,
Speaker 3: and Bloomberg experts, along with essential market moven news.
Speaker 1: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever
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Speaker 4: For our Bloomberg television radio audiences worldwide. I'm David Western.
Speaker 4: We're welcome now, Mary bar She is the General Motors
Speaker 4: chair and CEO. So, Mary, you are the woman of
Speaker 4: the hour. I must say, whether you like it or not,
Speaker 4: let me ask the question I think on everyone's mind.
Speaker 4: What comes next? We know there's individual plans to instruct
Speaker 4: at all three of the big automakers in Detroit. How
Speaker 4: far away are we from layoffs as other plants really
Speaker 4: run out.
Speaker 5: Of the parts.
Speaker 6: Well, you know, David.
Speaker 7: First, I want to say, I'm extremely disappointed and frustrated
Speaker 7: that we're even on a strike. We didn't need to
Speaker 7: get here. General Motors has an exceptionally strong offer on
Speaker 7: the table.
Speaker 6: It's historic.
Speaker 7: It's the largest increase from a wage's perspective in our
Speaker 7: one hundred and fifteen year history, along with world class
Speaker 7: healthcare benefits and many other provisions job security, etc.
Speaker 6: And a cola adjustment.
Speaker 7: So when you look at the strength of the agreement
Speaker 7: we have on the table, you know, we really don't
Speaker 7: need to be here. Yes, they have one plant down
Speaker 7: right now, and you know it'll.
Speaker 6: Impact two three very important products.
Speaker 7: Two brand new our Chevrolet Colorado and our GMC Canyon,
Speaker 7: both mid size pickups that are in strong demand, as
Speaker 7: well as our Chevrolet cargo van that does exceptionally well
Speaker 7: in the market. So this is having an impact and
Speaker 7: we'll have to see where they go next. I will
Speaker 7: say we're ready for this, you know, as we've dealt
Speaker 7: with COVID and dealt with the semiconductor shortage as well
Speaker 7: as other supply chain challenges that have you know, continued
Speaker 7: to persist from COVID. Our team knows how to manage
Speaker 7: these situations. They are staying agile and we're going to
Speaker 7: do what's right for the company. We're going to make
Speaker 7: sure everyone stays safe. But this is a strike that
Speaker 7: didn't need to happen.
Speaker 4: As you say, you've made an offer already for rather
Speaker 4: substantial increase in wages it's not what the OW wants. Implicitly,
Speaker 4: you've agreed that they do need and deserve some increase
Speaker 4: in wages. But is this about more than that? Is
Speaker 4: this existential sense for the auto companies in terms of
Speaker 4: your need to move into electric vehicles and from the
Speaker 4: you at W point of view that they believe in
Speaker 4: effect moving to evs will actually cut the workforce by
Speaker 4: as much as forty percent.
Speaker 6: Well, you know, you're absolutely right.
Speaker 7: This is a once in a century transformation. We're in
Speaker 7: the middle of moving from internal combustion engine vehicles to
Speaker 7: electric vehicles, and at GM we're at a very pivotal
Speaker 7: point because we have so many electric vehicles ready to
Speaker 7: launch in the process of launching, and this is important
Speaker 7: to securing all of our futures. We need to get
Speaker 7: these vehicles out. We need to they're wonderful vehicles. We've
Speaker 7: got waiting lists for most of them or orders already
Speaker 7: in place, so it's important that we meet that demand.
Speaker 7: And one thing from a General Motors perspective, from job security,
Speaker 7: we have jobs for all of our people as we
Speaker 7: make this transformation. More than two years ago we started
Speaker 7: planning for this, and one of the reasons General Motors
Speaker 7: invested in doing our own power, which is a component
Speaker 7: that's very important on electric vehicle. We design them internally
Speaker 7: and we are now allocating that production to the plants
Speaker 7: that build internal combustion vehicle.
Speaker 6: Engines right now.
Speaker 7: So we have worked very carefully to have a job
Speaker 7: for everyone so we can make this transformation together. And frankly,
Speaker 7: when you put it up, have a strike and we're
Speaker 7: not making vehicles, you start to put that at risk.
Speaker 7: So it's a historic transformation. We need to make sure
Speaker 7: we can compete, and we need the company to be
Speaker 7: profitable because those profits get invested in new products. That again,
Speaker 7: it's a circle of when we invest in a new product,
Speaker 7: there's demand for that product from consumers that provides the jobs.
Speaker 7: Because we're building those vehicles in our plants. We need
Speaker 7: to invest in our future and we have a plan
Speaker 7: to take all of our employees along. I think this
Speaker 7: is very important. So that concern there's not a place
Speaker 7: for them is not true at General Motors.
Speaker 4: If Mary, you were to find it in your heart
Speaker 4: to come close to what they demand to accept it,
Speaker 4: what would it mean for the future of General Motors.
Speaker 4: You've just come outankruptcy fifteen years ago.
Speaker 7: As I recall, you know, I think that's a very
Speaker 7: important point because if we can't invest in new vehicles,
Speaker 7: which we need, we need to be profitable to do that,
Speaker 7: then we're not going to have a strong future. And David,
Speaker 7: do you know extremely well, this is a very competitive industry.
Speaker 7: There's new entrants that are not represented by the UAW
Speaker 7: that already had a lower wage structure, so we need
Speaker 7: to compete. I'm really proud of our manufacturing team, the
Speaker 7: way they managed through COVID, the way that they have
Speaker 7: worked and been very agile as we've dealt with all
Speaker 7: the supply chain shortages, and the fact that for the
Speaker 7: last two years, between our engineering our manufacturing teams, they've
Speaker 7: delivered world class quality as recognized by JD Powers. We
Speaker 7: have a strong team. We want to do everything in
Speaker 7: our power to win the future, secure their future, and
Speaker 7: lead for the next one hundred and fifteen years.
Speaker 6: We need to be able to do that.
Speaker 4: Mary, are the negotiating teams meeting today, to the best
Speaker 4: of your knowledge, and by the way, are you participating
Speaker 4: directly in any way?
Speaker 6: I have been participating.
Speaker 7: I've been involved since before July eighteenth, when the talks
Speaker 7: kicked off. I've been on call more than once a day, calls,
Speaker 7: text meetings, and I have been at the main table
Speaker 7: myself over the last few days. I'll continue to be
Speaker 7: extremely involved. Our team's ready, they're there waiting to negotiate.
Speaker 7: So my request is the UAW leadership needs to get
Speaker 7: back to the table so we can get these problems solved,
Speaker 7: get our people back to work. I think another important
Speaker 7: point is for every job that General Motors has, there's
Speaker 7: six more jobs in the economy that depend on us running.
Speaker 7: So this is broader than just General Motors. This is
Speaker 7: important for the plant cities especially, but really for the nation.
Speaker 4: Yeah, we talk about one hundred and fifty thousand petitions,
Speaker 4: a lot more than that. To your point there. Lastly, Mary,
Speaker 4: I'm mindful of the fact that your father was a
Speaker 4: tool and dime maker at Pontiac when my father was
Speaker 4: a tool and die maker at Acy Sparkplay, just some
Speaker 4: thirty miles apart, and as young people have gone through
Speaker 4: UAW strikes different from this one, but we've gone through them.
Speaker 4: What do you think our fathers, if they were with
Speaker 4: us today, what do you think they'd say to each
Speaker 4: other about what we're seeing right now.
Speaker 7: Well, you know, I think my father would say, as
Speaker 7: he looked at the historic deal that we put on
Speaker 7: the table, that the company is committed and wants to
Speaker 7: recognize our employees for their hard work and wants to
Speaker 7: make sure they have a secure future. So I think
Speaker 7: he would look at this offer and if it was
Speaker 7: on the table for him to vote, he'd vote yes.
Speaker 4: Okay, Mary, thank you so much for your time. As
Speaker 4: I say, I'm a very very busy day for I
Speaker 4: really appreciate. That's Mary Barr. She's General Motors chair and CEO.
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Speaker 1: All right, and well, Githa ranging enough and she covers
Speaker 1: all the Meatia stocks, which means she covers Disney, which
Speaker 1: means she's going down to their investor day.
Speaker 2: So all over the place.
Speaker 1: I'm sure, Hey, Githa, there's gonna be a lot to
Speaker 1: talk about at Disney.
Speaker 9: Here.
Speaker 1: Are they really gonna sell the ABC television network?
Speaker 10: It definitely seems like it, Paul. I mean, Bob Iger
Speaker 10: just a few weeks ago, of course, at that Sun
Speaker 10: Valley conference, said that, you know, they're not married to
Speaker 10: the linear TV network business. It's not core to Disney anymore.
Speaker 10: I mean, that's so ironic considering you know, they've they
Speaker 10: bought ABAC for there was that huge deal back in
Speaker 10: nineteen ninety five for nineteen billion dollars. I mean, so
Speaker 10: much of you know, Disney's reputation has you know, kind
Speaker 10: of been tied to its TV network. So it's it's
Speaker 10: it's strange, but it really I think what it really
Speaker 10: tells us is that they see the writing on the
Speaker 10: wall and they think that the PayTV universe is probably
Speaker 10: going to implode sooner than the rest of us think.
Speaker 1: All right, so who could buy it? And what's it worth?
Speaker 10: Okay, So there are a lot of rumors and a
Speaker 10: lot of press reports right now circulating. So there has
Speaker 10: been some talk about Disney exploring a sale of ABC
Speaker 10: Networks and the owned and operated stations. They have about
Speaker 10: eight stations in top ten markets with Nextstar, which is
Speaker 10: the largest TV broadcaster right now in the US. So
Speaker 10: you know, Nexttar has said that they should they're very
Speaker 10: interested in the ABC assets, they should be able to
Speaker 10: acquire most of them without too much friction, Meaning there
Speaker 10: is an FCC ownership cap of about thirty nine percent
Speaker 10: for broadcast stations. But NEXTTAR, because it already has a
Speaker 10: presence in most of these stations with their CW network,
Speaker 10: thinks that it should be able to get the deal done. That'said.
Speaker 10: I mean, I think they still will have to you know,
Speaker 10: they have the swaps, so that is a little bit of.
Speaker 11: A question mark.
Speaker 10: So we think that the ABC stations are actually worth
Speaker 10: upwards of stations as well as a network are worth
Speaker 10: upwards of you know, four billion dollars. That's applying a
Speaker 10: pretty conservative seven x EBITDA multiple. Now Byron Allen, who
Speaker 10: is like this really pro media mogul, has put in
Speaker 10: a bid which apparently values those networks at about eight
Speaker 10: x ebitda, which means that those you know, those the
Speaker 10: ABC property would be worth a five billion nine and
Speaker 10: obviously Disney wants to get the most for it. The
Speaker 10: problem with most of these acquirers or the parties that
Speaker 10: are interested in possibly acquiring ABC's that they're all highly
Speaker 10: levered themselves. So most broadcasters, so even an Extra, for instance,
Speaker 10: currently has about seven billion dollars in debt. Alan Media
Speaker 10: obviously has a lot in debt, so we'll have to
Speaker 10: see how they kind of get the deal done.
Speaker 1: So Githa, I guess that calls into question. It's one
Speaker 1: thing to sell a declining broadcast network and some TV stations.
Speaker 1: I think most people would agree that are at the
Speaker 1: time of that business is probably past and all about streaming.
Speaker 1: The bigger question, I think for a lot of investors,
Speaker 1: and you'll probably talk about it next week when you're
Speaker 1: down visiting the Walt Disney folks, is ESPN. What do
Speaker 1: they do with ESPN? What do you think is kind
Speaker 1: of what do you think they will do? What should
Speaker 1: they do?
Speaker 6: So ESPN?
Speaker 10: I actually think they definitely want to keep the asset. Now,
Speaker 10: remember they are going to be breaking out the financials
Speaker 10: for ESPN in a few quarters. That is what they've promised.
Speaker 10: It's going to you know, kind of be its own segment.
Speaker 10: That's the first time that they're doing that in Disney's history.
Speaker 10: So they obviously want to clean up house before they
Speaker 10: do that. And we've seen a lot of you know,
Speaker 10: cost cutting, We've seen a lot of these new deals
Speaker 10: they had that deal with you know, Penn National, and
Speaker 10: most recently, and I think this is really transformative for
Speaker 10: the entire PATV universe, is the deal that they inked
Speaker 10: with Shoter. This is the first time in the history
Speaker 10: of of you know, the PATV media ecosystem that a
Speaker 10: content company is actually offering access to its streaming services. Okay,
Speaker 10: and for you know, kind of either a wholesale rate
Speaker 10: or even for free in certain cases. But the more
Speaker 10: important part is that they're actually going to offer access
Speaker 10: to the flagship ESPN streaming product when it goes out
Speaker 10: in full force, which probably will be sometime in twenty
Speaker 10: twenty five, twenty twenty six, we don't know, but they're
Speaker 10: definitely preparing for that future.
Speaker 1: That's what it So.
Speaker 10: I don't really think that they want to kind of
Speaker 10: get rid of this asset. Maybe they really want to
Speaker 10: clean it up, maybe they want to spin it out,
Speaker 10: but I still think they want to keep control of it.
Speaker 3: I wonder if this is, like Paul Au, the kind
Speaker 3: of shift that you saw when you know, radio used
Speaker 3: to be it. Radio used to be the thing for
Speaker 3: listeners and for advertisers, and that all went away. And
Speaker 3: it's probably a completely uninteresting business for most people.
Speaker 9: They went to TV.
Speaker 3: Right, is this linear TV going through that same transition,
Speaker 3: that same death, and then is streaming the new TV?
Speaker 2: Yeah? I mean it was.
Speaker 1: You know, we went from broadcast television when you had
Speaker 1: three networks and then four with Fox, and then cable
Speaker 1: TV came along, and that totally redefined what we watch,
Speaker 1: how we watch it, and it really made it so
Speaker 1: much more competitive.
Speaker 2: We got so much more product.
Speaker 1: Now you're even taking that to the next stage. And
Speaker 1: I GUESSKEITHA, that brings us to the question if all
Speaker 1: the big companies that you follow, the.
Speaker 2: Paramounts of the world, the Warner.
Speaker 1: Brothers, the Discoveries, is he when you talk to investors,
Speaker 1: do they believe that this transformation can actually work and
Speaker 1: they can make money on it, or does nobody want
Speaker 1: to talk to you anymore?
Speaker 6: A little bit of both.
Speaker 10: But I think the one thing, I mean, for any
Speaker 10: investor who had questions about whether streaming is a good business,
Speaker 10: I think we have our answer right because we've seen
Speaker 10: Netflix kind of turn things around. They are actually expected
Speaker 10: to generate about seven billion dollars in EBITDA this year
Speaker 10: twenty approximately twenty percent margins and the idea is that
Speaker 10: as they kind of gain subscribers and as they lower costs,
Speaker 10: they're able to kind of spread those costs over wider base,
Speaker 10: eventually getting to you know, a twenty five to thirty
Speaker 10: percent margin, which then kind of makes you agnostic because
Speaker 10: in its heyday, you know, TV networks were generating about
Speaker 10: thirty thirty five percent margins. So yes, streaming may not
Speaker 10: be better than the TV network business, but it could
Speaker 10: potentially be as good as Again that we're talking about Netflix,
Speaker 10: which is our see, the industry leader. It is going
Speaker 10: to be a much harder road for all these smaller companies,
Speaker 10: whether it's a paramount of Warner Brothers Discovery, but they
Speaker 10: are kind of doing a lot in terms of content
Speaker 10: cost rationalization. Again, Paul, I mean we've spoken about this
Speaker 10: many times, and I know you think too that there
Speaker 10: will be as streaming shakeout, at some point, there will
Speaker 10: be consolidation. So all that is going to play out
Speaker 10: I think over the next you know, eighteen months, eighteen
Speaker 10: to twenty four months. But yeah, I think we will
Speaker 10: be you know, we'll land up with maybe three four
Speaker 10: major streaming players who should be all profitable hopefully.
Speaker 1: All Right, now we've got some In addition to all
Speaker 1: of that. If that wasn't enough for the industry and
Speaker 1: for investors, there's also this thing of strikes. We've got
Speaker 1: writers on strikes, We've got actors on strikes. What's the
Speaker 1: impact on media, on the companies, on what you and
Speaker 1: I and other consumers will be able to see on
Speaker 1: our TV screens in theaters.
Speaker 10: Yeah, so definitely we're seeing some you know, small effects
Speaker 10: of that right now, nothing really major interms of disruption
Speaker 10: of s edules. But you know, as we kind of
Speaker 10: get deeper into like the film slate for twenty twenty
Speaker 10: three and even twenty twenty four, that's when we're really
Speaker 10: going to start having some problems. We've already seen some
Speaker 10: film delays. You know, Doom two, for instance, from Warner
Speaker 10: Brothers has already moved to twenty twenty four because they're
Speaker 10: not able to market the film, They're not able to
Speaker 10: do promotions. So that's you know, a lot of film
Speaker 10: studios are kind of running into that problem. In fact,
Speaker 10: from a financial aspect, though, what we're seeing is that
Speaker 10: most of these companies and have actually raised their free
Speaker 10: cash flow guidance through the rest of the year. They
Speaker 10: raise their free cash flow guidance, but they've lowered their
Speaker 10: EBITDA guidance because the lack of fresh programming is definitely
Speaker 10: going to have an impact on you know, advertising sales.
Speaker 10: And that's what they've all said. They've all said, you know,
Speaker 10: expect double digit ad declines because you're not going to
Speaker 10: have any fresh programming. We really have nothing to go
Speaker 10: to advertisers with. I think it really becomes a problem
Speaker 10: in twenty twenty four if you know, they're not able
Speaker 10: to resolve the strikes, if people are not going to
Speaker 10: get back, you know, to work and produce new ca
Speaker 10: and we're going to have a real, real headache in
Speaker 10: twenty twenty four.
Speaker 1: All right, Keitha, thanks so much for joining us. As always,
Speaker 1: keith is the expert, Keitha Ranganathan. She is covers all
Speaker 1: the media industry. She's going to the park and she's
Speaker 1: going down on Monday for the investors.
Speaker 3: I was thinking, kause Tucker asked when the last time
Speaker 3: I was there was, And I remember that the Corey
Speaker 3: Hart album Boy in a Box had just come out.
Speaker 3: I bought the cassette for my Walkman, and so I
Speaker 3: believe it was spring break of nineteen eighty six spring break.
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Speaker 1: All right, we talked about one of my favorite assa classes,
Speaker 1: wuld jump. My second unis another one of my all
Speaker 1: time faves. Really since the last ten years has been
Speaker 1: this private credit.
Speaker 9: I love it too.
Speaker 2: I love it man.
Speaker 1: And we had this person in a dare or two ago.
Speaker 1: She's more on the syndicated loan side, and I was saying,
Speaker 1: how much competitors are these guys to you?
Speaker 2: And she's just they're big. Yeah, think they're getting bigger.
Speaker 1: Randy Schwimmer, co head of Senior Lending and Senior Managing
Speaker 1: Director Churchill Asset Management, joins us. Randy, talk to us
Speaker 1: about your business, the private credit business. How's it been
Speaker 1: this year? Are are there deals? Because it seems like
Speaker 1: seems slow, But I don't know in your market?
Speaker 2: What do you sing?
Speaker 4: So?
Speaker 12: Last time I was here I promised you guys some
Speaker 12: good news September. Right, so post Labor Day, we're all
Speaker 12: we always wait for the post labor day rush. Well
Speaker 12: I'm here to report that we have a post labor
Speaker 12: day rush. Okay, So let's talk with the public markets
Speaker 12: right now. So high yield bond market, which was kind
Speaker 12: of you know, not very active all year, rates are
Speaker 12: very high issue and slow. They had an eleven billion
Speaker 12: dollar a week last week. Okay, that's the large issuance
Speaker 12: in two years.
Speaker 5: So that's good.
Speaker 12: So that's waking up the liquid loan market, which you
Speaker 12: talked about, probably syndicated loans twenty billion dollars so far
Speaker 12: and so stember first two weeks. That's that's more than
Speaker 12: any month, full month, all year long. So we're starting
Speaker 12: to see some activity in the public side. Why because
Speaker 12: things are starting to heal. The economy is better, inflation
Speaker 12: is under control. The other thing that's going on now
Speaker 12: is some of the as a result, the larger buyouts
Speaker 12: are starting to come to the market. We haven't seen
Speaker 12: any of those mega deals this year, going back once
Speaker 12: the Fed started raising rates. So we now have the
Speaker 12: ninth largest deal ever since the Great Recession, company called
Speaker 12: World Pay.
Speaker 2: That's what this other guest was talking to.
Speaker 12: Yes being launched this week and seventeen billion dollar LBO
Speaker 12: nine billion dollars in financing. That's a big deal, and
Speaker 12: so the private credit. So right now it's not clear.
Speaker 12: It looks like it's you know, some of it's going
Speaker 12: to be in that market, but that's a big number.
Speaker 1: Right for so that's something you would take a look at.
Speaker 12: Yeah, I think it's all about pricing instruction, but the
Speaker 12: fact that a large deal like that's coming out is
Speaker 12: a big deal. One of your all time favorite restaurant chains,
Speaker 12: Foga to Chow, which is you know, a billion dollar
Speaker 12: deal also coming out. So what's happening now in the
Speaker 12: large cat market. They're starting to wake up now that
Speaker 12: the direct lending market. Our business has actually been active
Speaker 12: all year long. We if you'd said to me back
Speaker 12: in January, Randy, what do you think the year is going.
Speaker 5: To be like?
Speaker 12: Just giving all the static on rates and inflation, I
Speaker 12: would have said, boy, we'll be lucky to get to
Speaker 12: where we were last year. We are now at and
Speaker 12: perhaps even ahead in some of our businesses of last year,
Speaker 12: in part because of this flow going from public to
Speaker 12: private so and then I think, you know, our skill
Speaker 12: now is growing. We have the ability to hold larger deals.
Speaker 12: Since the result of that is the sponsors. They keep
Speaker 12: coming back to us for Okay, we like the witch
Speaker 12: you did the last deal, Let's do it again. You know,
Speaker 12: we negotiated all the documents. That was a pain in
Speaker 12: the neck. Let's let's do just the same document and
Speaker 12: keep going. The other thing that's adding to the activity
Speaker 12: is these and I mentioned this to you last time.
Speaker 12: The number of acquisitions that the platform businesses are doing
Speaker 12: in order to grow has significantly increased. So we actually
Speaker 12: we just looked at the league tables for the quarter
Speaker 12: we are we're the most active lender in direct lending
Speaker 12: right now for for add on acquisition Churchill Asset Management,
Speaker 12: and we're like the second largest for all everything in
Speaker 12: the traditional direct lending business. So what's happening is our
Speaker 12: portfolio is actually generating deal flow. It's by just virtue
Speaker 12: of these are platform companies that are making acquisitions. You know,
Speaker 12: my wife calls it shopping in your closet. So this
Speaker 12: is what's happening. The portfolio companies are actually generating deal flow.
Speaker 12: So we are having a bigger year than we thought.
Speaker 12: And then in our junior capital business, which is mezzanine
Speaker 12: dat co investor equity, that team is having a significantly
Speaker 12: better year than last year because of the activity that
Speaker 12: the sponsors are looking for more equity to put into
Speaker 12: their deals because who knows when their next fundraising is
Speaker 12: going to happen. They have limited capital, so they go
Speaker 12: to their LP relationships say hey, Churchill, how would you
Speaker 12: like to put in some money into this deal.
Speaker 3: It's so interesting that this whole market that you guys,
Speaker 3: but also the whole industry is growing so quickly in
Speaker 3: the face of rising rates, right, or maybe because of
Speaker 3: rising rates. I was talking with Mark Liftschultz last week
Speaker 3: from Blue Owl, and he thinks that we're gonna see
Speaker 3: a ten billion dollar private credit deal, you know, shortly correct,
Speaker 3: which would be you know now, I think the biggest
Speaker 3: single direct lending deal is like five billion dollars, which
Speaker 3: is already huge. No question, is it because of rising
Speaker 3: rates that this industry is growing? I mean, why why
Speaker 3: are the banks letting so much of this high.
Speaker 11: Get away right away?
Speaker 5: Yeah?
Speaker 12: So they've been letting it get away since nineteen ninety three, right,
Speaker 12: because they've been regulated consolidated out of the leverage lending business,
Speaker 12: particularly in the middle market. So the deals that you're
Speaker 12: seeing now are very like corporatetty, double Beach, triple b
Speaker 12: those kinds of things for the For the direct lenders,
Speaker 12: what's happening is everything else is coming our way. All
Speaker 12: the middle market flow is coming our way. A lot
Speaker 12: of the sponsors who are trying to get quick executions
Speaker 12: in this market are trying to get this stuff done. Now,
Speaker 12: what's driving it. The investors who in a high rate
Speaker 12: environment are looking for yield right now are looking to
Speaker 12: private debt. That's what's actually fueling our activity because the
Speaker 12: more money that we raise, more fundraising that happens in
Speaker 12: our business, allows us to scale our platform. The most
Speaker 12: interesting stats.
Speaker 3: There's just so many more lenders out there, not as
Speaker 3: much about the borrowers.
Speaker 12: Well, it's more the investors who are focusing on the
Speaker 12: leading lenders like Churchill to dedicate their money to. So
Speaker 12: there was a survey I was at a conference Lase.
Speaker 12: We got on a panel. Sixty two percent of investors
Speaker 12: surveyed said they were under allocated private debt. That was
Speaker 12: that blew me away, Like wait a minute. The three
Speaker 12: of US have been talking about private debt for a
Speaker 12: couple of years now, right, you think this messagers out there,
Speaker 12: But because rates are higher, and now I can get
Speaker 12: at a twelve percent yield on a unleveraged senior debt
Speaker 12: investment you know, out of whether it's a Churchill or
Speaker 12: you know some of our other you know, uh providers
Speaker 12: out there, that's a that's a really good number. And
Speaker 12: so when you compare that to it even what you
Speaker 12: can get in the bond market. What's happening is investors
Speaker 12: are saying, you know, I need to do more.
Speaker 11: Even though I'm.
Speaker 12: Maybe allocated right now to private, I need to do more.
Speaker 12: So I feel I'm there's two thirds of the market
Speaker 12: saying they're under allocated in this asset class. And we
Speaker 12: haven't really gotten going yet. I mean, it's still there's
Speaker 12: still a lot of runway for us.
Speaker 2: So are you guys raising money at the moment currently?
Speaker 12: We're always raised always.
Speaker 2: Is that right?
Speaker 12: So I'm headed to Scandinavia next week to people with
Speaker 12: our clients and potential clients there, going to Copenhagen, going
Speaker 12: to Stockholm, and I know your favorite Helsinki never been
Speaker 12: to hell sinking, So let me know, if you've got
Speaker 12: some good restaurants. But when I'm no, because it's out thinking, okay,
Speaker 12: do you like fish?
Speaker 13: Yeah.
Speaker 12: So I was in and I was in the West
Speaker 12: Coast this week, and I'm telling very sophisticated institutional investors
Speaker 12: are saying, we'd like to talk to you about your
Speaker 12: platform because we think we need to explore more in
Speaker 12: the private det space.
Speaker 2: So who's your competition.
Speaker 12: Well, it's funny, you know, we don't really have competition.
Speaker 12: We have collaborators, we have partners that we lend with.
Speaker 12: So what happens is since we're an investor in all
Speaker 12: of the funds with the sponsors that we're financing, we
Speaker 12: don't lose deals. They'll say, hey, even if let's say
Speaker 12: Blue Out perfect example, they say to Mark, hey, you know,
Speaker 12: we want you to lead this one, because you know,
Speaker 12: they tell us Church that you led the last too,
Speaker 12: so we're gonna give Mark one. They'll say to Mark, hey,
Speaker 12: would you please include Church on the deal because they're
Speaker 12: a significant LP investor in our fund, and Mark saying okay, fine,
Speaker 12: we'll give them a little piece. So that that makes
Speaker 12: us sort of invaluable to the sponsors because they know
Speaker 12: that we're always investing in their funds.
Speaker 1: Frankly, we're investing equity into their equity.
Speaker 5: Into their funds.
Speaker 12: And it also makes it invaluable for the other lenders
Speaker 12: out there because they know they can always count in
Speaker 12: Church for a good transaction to split the deal with them,
Speaker 12: lead the deal with them, and we we frankly, whether
Speaker 12: we lead or you know, we co lead with someone,
Speaker 12: all we really want to do is have split the
Speaker 12: deal fifty to fifty, be able to talk to the
Speaker 12: economics in terms of the transaction, so we control the deal.
Speaker 12: But other than that, you know, we have a lot
Speaker 12: of partners out there that we do business with, and
Speaker 12: we're very happy to do business with them.
Speaker 1: All Right, So you do a deal, how much do
Speaker 1: you sell off and how much do you keep?
Speaker 12: We just did it financing right now that it was
Speaker 12: five hundred million dollar hole that we're we're probably going
Speaker 12: to sell down to. I'm going to say like three
Speaker 12: hundred millions.
Speaker 2: You'll still hold three big un Is it typical?
Speaker 1: Because it Chase Bank we sell down to fifteen cents left.
Speaker 12: That's why you're not in the business anymore. Okay, But
Speaker 12: what's happening is we have mouths to feed too, right,
Speaker 12: We have all these investors, and so the more investors
Speaker 12: that we have, the more we want to spread that
Speaker 12: wealth out too, and so the more money we raise,
Speaker 12: now we're going to spread four hundred around. Now we
Speaker 12: do five hundred. But if you have forty funds that
Speaker 12: you're allocating across all forty funds, the amount of that
Speaker 12: deal per fund is really small. We don't have any
Speaker 12: exposure over two percent of the whole portfolio.
Speaker 9: What is the default rate?
Speaker 3: Because people look at these juicy yields and say, sure,
Speaker 3: I want to get in, but this is floating rate debt, right,
Speaker 3: So some of your deals previously would have been paying.
Speaker 9: I don't know, six percent interest, and.
Speaker 3: Now they're paying double that, right, So you that's got
Speaker 3: to be hard for some of the portfolio companies.
Speaker 2: Yea.
Speaker 12: So because we've been through this before, we pre model
Speaker 12: everything as if it's going to be a twelve percent,
Speaker 12: so we haven't had the kind of issues. Now the
Speaker 12: coverage has shrunk for sure. We did just a model
Speaker 12: the other day and it looks like instead of four
Speaker 12: times coverage, we're like two and a half times coverage
Speaker 12: because of that doubling of interest costs. But you know,
Speaker 12: the free cash flows of these companies and the growth
Speaker 12: of these businesses. I mentioned the add ons. All of
Speaker 12: that is helping to grow those companies to accommodate the
Speaker 12: higher debt. But still you've got every deal we do,
Speaker 12: we look at it and say, what's gonna happen if
Speaker 12: rates continue to go up, what's gonna happen if we
Speaker 12: go into recession. The result is we do only like
Speaker 12: five deals of every hundred that come in the door.
Speaker 12: Think about that. So I'm turning down ninety five percent
Speaker 12: of every deal that comes in the door. I mean,
Speaker 12: that's a tough commercial proposition. But the reason that we're successful.
Speaker 3: You're very picky, well very picky, but you know the
Speaker 3: people you're lending money to, you're working hand in hand
Speaker 3: with them.
Speaker 12: And we don't see hundred deals. We see a thousand deals.
Speaker 12: So we do fifty new transactions, one hundred and fifty
Speaker 12: add ons, and with each deal we're doing more and
Speaker 12: more per deal.
Speaker 9: So we'll still do six.
Speaker 12: Billion dollars or so of volume this year. And just
Speaker 12: senior lending.
Speaker 1: Man, what a business I want to be in that business?
Speaker 9: No, exactly what am I doing here?
Speaker 3: Exactly get Randy, I'm gonna I'm gonna pep up my
Speaker 3: resume and send it on.
Speaker 1: All right, Randy, thanks so much for joining us. We
Speaker 1: was appreciate getting some of your time. Randy Swimmer East
Speaker 1: cohead of Senior Lending and Senior Managing Director Churchill Asset Management,
Speaker 1: and more than anybody else, I think he schooled us.
Speaker 3: All right, Well, he schools I think the industry because
Speaker 3: he also is the publisher of The Left Lead, which
Speaker 3: is one of the most popular places to get information
Speaker 3: on this.
Speaker 8: Yep, you're listening to the team Ken's Are Live program
Speaker 8: Bloomberg Markets weekdays at ten am Eastern.
Speaker 5: On Bloomberg dot com, the iHeartRadio.
Speaker 8: App, and the Bloomberg Business App, or listen on demand
Speaker 8: wherever you get your podcasts.
Speaker 1: All right, let's switch gears do our C suite. Check
Speaker 1: in here today with Jenna Droso's CEO of Signet Jewelers.
Speaker 1: Signat Jewelers trades on New York Stock Exchange SIG based
Speaker 1: in Akron, Ohio. Se Matt, We've got you another Ohio
Speaker 1: company like good Stuff. It's got a market cap of
Speaker 1: three point four billion stocks up about twelve.
Speaker 3: And it's a very correlated town, right, because isn't that
Speaker 3: we're good good year.
Speaker 1: Yeah, one of the tire things. Man, Jinna, thanks so
Speaker 1: much for joining us here. Talk to us about your
Speaker 1: business here. What are the trends you're seeing so far
Speaker 1: this year and what are you telling your shareholders about
Speaker 1: next year.
Speaker 14: Yes, we're seeing some very interesting trends. In the second order,
Speaker 14: we were able to over deliver our revenue and bottom
Speaker 14: line guide. And some of the strength that we saw
Speaker 14: was in lower priced fashion jewelry, So jewelry under one
Speaker 14: thousand dollars, almost a back to school like trend, whether
Speaker 14: you go back to school or not. You know, people
Speaker 14: often refresh their look at that time of year, and
Speaker 14: we saw strong sales that boats well for jewelry being
Speaker 14: in the consideration set as people move toward holiday. I
Speaker 14: think the other really big trend that we've seen is
Speaker 14: that there has been a lull in engagements. So this
Speaker 14: year calendar year twenty three, engagements are down about twenty
Speaker 14: five percent versus a typical pre COVID year. That's a
Speaker 14: temporary COVID disruption. People usually get engaged three point two
Speaker 14: five years after they meet, and and you know, three
Speaker 14: years ago we were in lockdown and so people were
Speaker 14: not meeting in the same way.
Speaker 15: So that's for metic Yeah, yeah, exactly that.
Speaker 14: So that trough of engagements is happening right now, but
Speaker 14: we expect it to begin to come back in our
Speaker 14: fourth quarter and that provides a three year tailwind actually
Speaker 14: for us because about fifty percent of our business is
Speaker 14: in the bridle category.
Speaker 1: So do you care about the Chinese and coming in
Speaker 1: and buying stuff or is that really not your business
Speaker 1: Chinese consumer to you know, tourists coming into the States
Speaker 1: that or is that not really your business because I
Speaker 1: know for a lot of the folks here in New
Speaker 1: York City, they welcome they can't wait for the Chinese
Speaker 1: consumer to come back.
Speaker 14: That's not really a big part of our business. So
Speaker 14: it's not a strong impact one way or the other.
Speaker 14: What is interesting, though, is that people tend to buy
Speaker 14: jewelry associated with travel. And one of the things that
Speaker 14: we talked a lot about on our second quarter earnings
Speaker 14: call is the proprietary data that we now understand about
Speaker 14: couple's relationship formation. So we have forty five milestones that
Speaker 14: we look at that happened from you know, we went
Speaker 14: to a movie all the way to we met the parents,
Speaker 14: to we move in together, and so we can track
Speaker 14: that going on a romantic trip together is.
Speaker 15: One of those milestones.
Speaker 14: So for our business, it was actually good to see
Speaker 14: a lot of couples traveling together over the summer, attending
Speaker 14: a concert together. That kind of thing is good for
Speaker 14: future engagement ring sales.
Speaker 3: How about you know, I think of class rings, yep, I.
Speaker 9: Think of Super Bowl rings.
Speaker 3: I think of signet rings, and I assume that's where
Speaker 3: you got your name. Are those things anywhere near as
Speaker 3: important as engagement rings?
Speaker 5: To you?
Speaker 14: Not as important? But it's part of the you know,
Speaker 14: customers journey. I mean, what we try to do is
Speaker 14: meet customers at the point of market entry to the category,
Speaker 14: which is usually either getting your ears pierced or buying
Speaker 14: an engagement ring, and then we try to follow that
Speaker 14: customer and you know, throughout their life through other milestones
Speaker 14: like birthdays or graduations or you know, anniversaries, things like that.
Speaker 14: So rings itself, fashion rings are a big part of
Speaker 14: our business.
Speaker 15: Also, our k banner makes all of the NFL Hall
Speaker 15: of Fame.
Speaker 14: Rings, and our sales banner makes all of the rings
Speaker 14: for historically black colleges and universities and so we have
Speaker 14: a presence in those special kind of rings as well.
Speaker 1: Jina, talk to us about the cost side of your business.
Speaker 1: What are the key drivers in your cost structure and
Speaker 1: kind of where are they moving these days.
Speaker 15: Yeah, that's a great story for us.
Speaker 14: We've really developed a competitive advantage in sourcing.
Speaker 15: We are vertically integrated.
Speaker 14: We're one of only a small group of retailers who
Speaker 14: are site holders with de Beers.
Speaker 15: So we buy diamonds right from the mine.
Speaker 14: We own our own cutting and polishing facility in Botswana
Speaker 14: and contract with several others in India, and so we
Speaker 14: have very good visibility into how the prices move of
Speaker 14: diamonds at different times.
Speaker 15: What that gives us is an ability to.
Speaker 14: Continuously offer customers a great value, and it also is
Speaker 14: part of our responsible sourcing strategy. We know that all
Speaker 14: of the gemstones and metals that we sell are sourced
Speaker 14: in an ethical way and completely conflict free. That's something
Speaker 14: customers really care about. So I'm proud that our company
Speaker 14: can be.
Speaker 15: A leader in that.
Speaker 3: How about the cost of gold is that not a
Speaker 3: I mean that's what I think of. Of course, the
Speaker 3: diamond is I guess far more valuable than the gold
Speaker 3: ring that you put it in. But we have seen
Speaker 3: gold rise up right now we're just under one nine
Speaker 3: and thirty dollars a troy.
Speaker 15: Ounce, yes, so so that does matter. What I would
Speaker 15: say is.
Speaker 14: That while our product contains commodities like gold, like diamonds,
Speaker 14: it's not a commodity product, and so the retail pricing
Speaker 14: tends to have less fluctuation than the actual ingredient cost,
Speaker 14: and we tend to be able to price to cover
Speaker 14: that because you know, when when people want a great look,
Speaker 14: you know with a gold necklace or a chain or whatever,
Speaker 14: they are willing to pay to get the high quality
Speaker 14: that we can provide them. The other thing that we
Speaker 14: do in a time like this is we bring innovations
Speaker 14: to the market. So one of the innovations that we
Speaker 14: have for holiday, and the technical name of it is electroform.
Speaker 14: But think of it like putting gold around a straw,
Speaker 14: where you know, we have a metal in the inside
Speaker 14: that we actually can can chemically remove like straw, and
Speaker 14: so then the gold is just formed around the outside.
Speaker 14: So you get a very big look for a lot
Speaker 14: less cost because there's less actual gold in the product.
Speaker 14: And so innovations like that. We work, you know, years
Speaker 14: out with our vendors to be able to uniquely offer
Speaker 14: to our customers so they can get a great value
Speaker 14: no matter what the commodity price market looks like.
Speaker 1: Hi, Jenna, thanks so much for joining us. Really appreciate
Speaker 1: getting some of your time. Jennett draws us. She is
Speaker 1: the CEOP signa jewelers that trades on the New York
Speaker 1: Stock Exchange.
Speaker 8: You're listening to the tape cans our live program, Bloomberg
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 8: tune in app, Bloomberg dot Com, and the.
Speaker 5: Bloomberg Business App.
Speaker 8: You can also listen live on Amazon Alexa from our
Speaker 8: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 1: That certainly one of the key stories we are following
Speaker 1: today is the strike by the UAW against the big
Speaker 1: three auto makers. Ed Corey, he's an anchor and reporter
Speaker 1: for Bloomberg Radio. He is at the Detroit Auto Show,
Speaker 1: so we can get a little bit of a different
Speaker 1: view there from the floor. Ed, thanks so much for
Speaker 1: joining us here. What's the feeling there at the auto show?
Speaker 1: About you know, day one of this strike.
Speaker 11: You know, it's kind of a mixed vibe.
Speaker 16: The people who are behind the show promoting it, the
Speaker 16: people putting displays together, the people working refreshments and so on.
Speaker 16: They know that their goal is to continue to push
Speaker 16: the future, the electric future of the auto industry, show
Speaker 16: off what's new, and try to build some excitement. On
Speaker 16: the other hand, there is a lot of nervousness about
Speaker 16: this strike. How long will it last? Auto plans affected,
Speaker 16: which are very profitable for the automakers. So kind of
Speaker 16: a mixed bag of emotions here.
Speaker 9: In terms of the political fallout.
Speaker 3: Are they expecting, you know, President Biden, who is reportedly
Speaker 3: going to come out and make a statement on this today,
Speaker 3: to get behind the unions as he is, you know,
Speaker 3: as he proclaims himself the most pro union president and
Speaker 3: history of America.
Speaker 9: Or is he going to try and put us out
Speaker 9: to this strike.
Speaker 16: You know what we've been hearing from the President that
Speaker 16: he wants an agreement to be hammered out. He doesn't
Speaker 16: want the detrimental economic effects that we've all heard about
Speaker 16: to come to fruition. Now we're going to see some
Speaker 16: political political action this evening here at Huntington place in Detroit.
Speaker 16: There will be a charity preview for the auto show.
Speaker 16: They raise a ton of money for kids charities in Detroit.
Speaker 16: Outside just a block from here, the Bernie Sanders will
Speaker 16: be here with a bunch of uaw members. They will
Speaker 16: be demonstrating near the UAW Ford Center. So we're going
Speaker 16: to have that type of you know, again, mixed feelings
Speaker 16: about this evening and the strike. And I think it's
Speaker 16: safe to say that everyone involved on's a quick resolution.
Speaker 16: But right now, as you've been hearing, there doesn't seem
Speaker 16: to be one in at least not in the near future.
Speaker 1: So is there any sense out there of how strong
Speaker 1: or how together, how cohesive unit the rank and file
Speaker 1: are behind the strike.
Speaker 16: Oh, in Detroit there have been union members speaking out
Speaker 16: even at plants that are not affected yet by any
Speaker 16: type of walkout. As you know, selected plants have been
Speaker 16: picked for strike activity. But even those who are working
Speaker 16: today said they, you know, they feel a little nervousness
Speaker 16: about this.
Speaker 11: They don't want a lengthy strike.
Speaker 16: But you know, the thing you hear over and over
Speaker 16: again from the rank and file here at Detroit in
Speaker 16: the area auto factories, they want they want to go
Speaker 16: back to where they were.
Speaker 11: They lost some ground, you know, two thousand and eight
Speaker 11: was rough.
Speaker 16: They don't like the fact that some workers doing the
Speaker 16: same job or making more than others. So if they
Speaker 16: want that parody to be restored. And again they would
Speaker 16: like to see a pay increase because they hear and
Speaker 16: read about the increases that the CEOs have been giving.
Speaker 2: That's for sure.
Speaker 1: And you know ed David weston Bloomberg Television interviewed Borough
Speaker 1: of a borough of GM earlier today.
Speaker 2: Boy, she came across, at least to me, is quite upset.
Speaker 1: I mean, I think she feels that General Motors has
Speaker 1: put a very credible deal on the table. And I
Speaker 1: kind of came away from that interview thinking, boy, I
Speaker 1: don't think the auto guys are going to be at
Speaker 1: the company's going to be budging much, at least in
Speaker 1: the near near term.
Speaker 16: Well you might expect that kind of stance maybe, you know,
Speaker 16: in the initial phase of this strike. The automakers are,
Speaker 16: you know, trying to maintain the position that they've had.
Speaker 16: You know that we came through tough economic times, that
Speaker 16: there is a bright future ahead. And you heard Mary
Speaker 16: Barrs say that her salary is based on the performance
Speaker 16: of the company, and the company has earned money, and
Speaker 16: then just part of her contract she gets increases too.
Speaker 16: But the rank and file, the union members, say, hey, look,
Speaker 16: you know we are a huge part of the of
Speaker 16: the of the success that the company has had. Models
Speaker 16: are coming in as a new models are coming on
Speaker 16: the scene, and as we head into an electric future.
Speaker 16: They want to make sure that they're not going to
Speaker 16: be behind. They at least want to recoup some of
Speaker 16: what they believe they've lost over the last few years.
Speaker 3: Had you been at the auto show for a couple
Speaker 3: of days now? I used to go every single year.
Speaker 3: It was like the biggest event of my on my calendar,
Speaker 3: and it has dwindled, right, I mean back in the
Speaker 3: day everybody was at the Detroit Auto Show is the
Speaker 3: most important one for the industry. What's it like this
Speaker 3: year and have you seen anything cool?
Speaker 16: Well, you know, the good news is it is bigger
Speaker 16: than last year. There was you know, the pandemic when
Speaker 16: we didn't see any activity, and so yeah, it is
Speaker 16: bigger than last year. No, it's not up to pre
Speaker 16: pandemic levels. But there's a lot of excitement at the show.
Speaker 16: I mean, sure, you have the prototypes, you know, the
Speaker 16: whiz bang models that may or may not go into
Speaker 16: production ten years from now, but models that you can buy,
Speaker 16: you know, in the very near future are are pretty
Speaker 16: hot here. I mean, Ford is out with a new
Speaker 16: F one fifty. There is a jeep that's coming out
Speaker 16: and it's attracting a lot of excitement. And also the
Speaker 16: Cadillac CT five has a new look this year and
Speaker 16: that's been a very very popular model. So those big
Speaker 16: three Detroit automakers with a strong showing of something you know,
Speaker 16: people can really check out and then you know, put
Speaker 16: a deposit on or go, you know, order from the
Speaker 16: automaker too.
Speaker 11: So there's still is some excitement here.
Speaker 1: And thanks so much for joining us. So I appreciate
Speaker 1: getting it ten and reporting from you. Ed Query's anchor
Speaker 1: and reporter for Bloomberg Radio in the great city of Detroit.
Speaker 8: You're listening to the tape ketch Are live program Bloomberg
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 8: tune in app, Bloomberg dot Com, and the.
Speaker 5: Bloomberg Business app.
Speaker 8: You can also listen live on Amazon Alexa from our
Speaker 8: flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
Speaker 3: I've been looking forward all day to this. We have
Speaker 3: somewhat of a Wall Street legend. Nice joining us right now.
Speaker 3: Todd Harrison is founding partner and chief investment officer at
Speaker 3: CB one Capital Management.
Speaker 9: But he has spent decades.
Speaker 3: On Wall Street working for the big banks, including Morgan Stanley.
Speaker 3: He founded a company that I think a lot of
Speaker 3: us loved very much, Minyonville Media back in the day,
Speaker 3: which won Emmy Awards, And as I said, he founded
Speaker 3: the Ruby Peck Foundation for Children's Education, which is an
Speaker 3: important charity that I think a lot of people on
Speaker 3: Wall Street like to support as well. Todd, first of all,
Speaker 3: great to see you, Thanks so much for joining us.
Speaker 3: Tell us what you're doing now at CB one Capital Management.
Speaker 3: What's that business?
Speaker 17: I mean, we've been involved in the cannabis space for
Speaker 17: over a decade now. I actually just uncovered an interview
Speaker 17: that we did about ten years ago talking about how
Speaker 17: cannabis was going to be my single best investment idea
Speaker 17: for the next decade, and that was actually.
Speaker 13: Nine years ago and it hasn't been.
Speaker 17: But recently there's been some news that we think is
Speaker 17: going to change the space and change the fortunes and
Speaker 17: really move this in a better direction. But CB one
Speaker 17: Capital we have an investment arm, we have an advisory.
Speaker 13: Arm, and we have an advocacy arm where we.
Speaker 17: Help Weldon Angelis and Mission Green to get people out
Speaker 17: of prison for this plant.
Speaker 13: So it's pretty comprehensive.
Speaker 3: It surprises me that potstocks haven't done better considering the
Speaker 3: uptake of the product.
Speaker 9: You know, on I think right now twenty three.
Speaker 3: States have legalized recreational marriaorrijuana, and you only have to
Speaker 3: walk around New York City for a few minutes to
Speaker 3: understand that people are consuming cannabis. Is there a disconnect
Speaker 3: between the sales, the outlook, and you know, the performance
Speaker 3: of the stocks.
Speaker 13: Certainly.
Speaker 17: I think it's one of the biggest asymmetric opportunities right now,
Speaker 17: right here that I've seen in my thirty four years
Speaker 17: on Wall Street.
Speaker 13: And and why now is very.
Speaker 17: Much because of how we got here, right so, because
Speaker 17: cannabis has been a Schedule one narcotic for so long,
Speaker 17: and we won't go into that rabbit hole of why,
Speaker 17: But because of that, the big takeaways that US cannabis
Speaker 17: companies can't deduct normal operating expenses it's called Section two
Speaker 17: eighty of the tax code. So they're being taxed at
Speaker 17: an effective rate right now of seventy five to eighty percent,
Speaker 17: and they have been for years, which is why only
Speaker 17: the best have been able to survive.
Speaker 13: And the industry was up until two weeks ago.
Speaker 17: Really you know, looking at an extinction event because of
Speaker 17: the regulatory construct. But as you probably know, the HHS
Speaker 17: came out two weeks ago on Wednesday.
Speaker 13: It was the last couple of days of summer. I
Speaker 13: was here, but not many people were.
Speaker 17: They recommended cannabis go to a Schedule three, which would
Speaker 17: importantly remove.
Speaker 13: That two way to e tax code. And now we're
Speaker 13: just waiting on the DEA to codify that opinion.
Speaker 17: We think that could happen by year end and then
Speaker 17: buy to consign it into law before next year's election.
Speaker 17: That's just one thing that's happening. Safe banking we heard
Speaker 17: last night. It was broke news broke last night, and
Speaker 17: it's moving around today or getting out today that safe
Speaker 17: Banking is going to go through a Senate committee markup.
Speaker 17: This is the sign or the tell that the Senate's
Speaker 17: going to pass safe banking for the first time. The
Speaker 17: Upper Chamber and then conceivably be tacked onto a must
Speaker 17: pass bill by year end. So there's a few things right,
Speaker 17: and if they all happened, this could get really spicy.
Speaker 13: But just on the math alone, without anything else.
Speaker 17: If we moved to a schedule three, if that gets codified,
Speaker 17: talking about a two to three x turn on.
Speaker 13: Some of these names, just on map.
Speaker 1: So explain to us why it's developed this way. Ten
Speaker 1: years ago you thought it would be a much better
Speaker 1: proposition than it has been. What have been the big missteps?
Speaker 1: Maybe what is the industry missed? What has Washington missed
Speaker 1: over the last decade.
Speaker 13: You know, it's interesting.
Speaker 17: We spent a lot of time in Washington, and they
Speaker 17: had explained to us that the states are designed to
Speaker 17: be nimble and the federal government's designed to move slow.
Speaker 17: And then added, but the thing about the federal government
Speaker 17: is that when change happens, it tends.
Speaker 13: To happen all at once.
Speaker 17: But because of the disconnect between state and federal laws,
Speaker 17: because the politicians have been very slow on the uptake,
Speaker 17: because cannabis is a complex issue with a lot of stakeholders,
Speaker 17: stakeholders that have a.
Speaker 13: Legitimate claim to participate in the industry.
Speaker 17: It's really become muddled down in a lot of different
Speaker 17: cross currents as the illicit markets really proliferated, you know,
Speaker 17: as this comes online and becomes a legal framework, which
Speaker 17: we just took again a seismic shift two weeks ago
Speaker 17: for the first time.
Speaker 13: That they're two and a half year bear market.
Speaker 17: This is the first domino and it's a big one,
Speaker 17: and if the others fall, it can get spicy. But
Speaker 17: we need this to sort of relax the arbitrage between
Speaker 17: federal and state law.
Speaker 13: Allow these companies to operate on an even playing field.
Speaker 17: And after what they've just been through, I would argue
Speaker 17: that they're they're pretty lean and mean and ready to
Speaker 17: ready to.
Speaker 13: Go to work.
Speaker 15: I look across the.
Speaker 3: Market, there are a lot of different participants, right, not
Speaker 3: just in North America, but mainly right in the US
Speaker 3: and Canada. Are there companies you think that really have
Speaker 3: got it right? Are the companies you think that are solid,
Speaker 3: you know, investible that we should be looking at more closely?
Speaker 5: And sure? So, yeah, of.
Speaker 13: Course, And I say this, you know word, we have positions.
Speaker 17: We advise some of these companies, but we got to
Speaker 17: know a lot of companies very well.
Speaker 13: You know, iron sharpens iron.
Speaker 17: During the two and a half year bear market, this
Speaker 17: was a ninety one percent drawdown for MSOs, which is
Speaker 17: the ETF that we advise. But you know, certainly you
Speaker 17: can learn a lot just by watching how some of
Speaker 17: these companies did during that trough. As we think it
Speaker 17: is as in front of all these states onboarding.
Speaker 13: On the East coast, and you know, you look at.
Speaker 17: The Veranos, the Terra sends the green thumbs, and there's
Speaker 17: others right at Glasshouse in California.
Speaker 13: You know, as two way to eges away.
Speaker 17: As the federal government starts to move out of the way,
Speaker 17: it has to be incremental the change, and that change
Speaker 17: because it's incremental, like we don't have the political wherewithal
Speaker 17: capacity to move this to a deschedule where it should be.
Speaker 17: But Schedule three is a stepping stone to descheduling.
Speaker 13: Happens to play right.
Speaker 17: Into the MSOs and the publicly traded companies hands because
Speaker 17: they still have some of the protections and the barriers
Speaker 17: to entry and a very regulated market at the state level.
Speaker 17: But the federal government's moving to really support the tenth
Speaker 17: Amendment and let the states become the laboratories of democracy.
Speaker 17: And those industries evolve at the state level as the
Speaker 17: federal framework pick shit. So this is a big you know,
Speaker 17: this is a big, big catalyst. I don't think people
Speaker 17: really understand it. What's interesting a is that there is
Speaker 17: a pretty significant structural short in these names, we feel
Speaker 17: because of without getting too far into the weeds, because
Speaker 17: the US cannabis companies have to list on the Canadian
Speaker 17: Stock Exchange. They can't list on US stock exchanges, but
Speaker 17: the MSOs ETF is on the New York Stock Exchange.
Speaker 17: There's been a pretty pernicious algorithm that's been hitting these
Speaker 17: stocks down. Naked short we believe, naked short in these stocks,
Speaker 17: routing them through Europe, however it may be.
Speaker 13: But we think they're still there. We think they're still trapped,
Speaker 13: and we'll see how that plays out over the time
Speaker 13: to come.
Speaker 17: But the other interesting part is all the institutions and
Speaker 17: you know, you know, we talked to a.
Speaker 13: Lot of these guys. We made a lot of calls
Speaker 13: after this news.
Speaker 17: And even the institutions or the funds of the family
Speaker 17: offices that can buy US cannabis are telling us, a
Speaker 17: lot of them are telling us. After so many disappointments,
Speaker 17: we want to actually see it happen. We want to
Speaker 17: see this play through. We want to see it get
Speaker 17: done before we're going to believe it. And I think
Speaker 17: that's incredibly bullish.
Speaker 1: Also, Tod, given all that background, what types of investments
Speaker 1: are you making in the space today?
Speaker 17: I mean we mentioned some of them. You know, there's
Speaker 17: only a handfeit. There's really only so many tradable names
Speaker 17: in this space.
Speaker 3: I mean the top holdings in MSOs or Green Thumb,
Speaker 3: cure Leaf, Verano, truly, Cresco.
Speaker 1: So that's is there anything in the private space you're
Speaker 1: looking at?
Speaker 5: Sure?
Speaker 17: I mean, just to talk about MSOs, the way that
Speaker 17: that portfolio is constructed is that fang on one side
Speaker 17: that you know, if you look at Y two K
Speaker 17: as sort of a preamble of what we're going through.
Speaker 13: Everything they said.
Speaker 17: Technology was going to be happened, but not before the
Speaker 17: tech crash. I think cannabis is that is at that
Speaker 17: spot right now. But I think that you know the
Speaker 17: fang if you will, those five names on one side
Speaker 17: and then forgotten as we say, some of these lower
Speaker 17: tiered MSOs on the other side, I think are having
Speaker 17: more beata because a lot of them were treating at
Speaker 17: their cash levels a couple of weeks ago, because there
Speaker 17: was no visibility on how they were going to service
Speaker 17: their debt, on what they're on, what their cash generation
Speaker 17: levels are we're going to be and that's starting to
Speaker 17: come into view right now. So both of the I
Speaker 17: think that portfolio as well positioned MSS and.
Speaker 13: Again we're involved.
Speaker 17: But on the private side, Yes, the capital markets have
Speaker 17: been shut.
Speaker 13: Down for a number of years, and I think that
Speaker 13: you know, not only for the stocks, but for the
Speaker 13: research and for the sentiment. This will help close the
Speaker 13: chasm between the state and the federal sort of discrepancies.
Speaker 3: Do you have a view on what the heck has
Speaker 3: gone wrong in New York State?
Speaker 9: I mean, it is an absolute mess, right.
Speaker 3: There's only a few licensed dispensaries here. They only sell
Speaker 3: a select number of products, the best stuff that everybody wants.
Speaker 3: You know, the Kana and the Camino products are only
Speaker 3: in like Empire, and then you know the million other
Speaker 3: shops around town that aren't licensed.
Speaker 9: How did they do such a bad job in New York?
Speaker 13: Well, you sound like a consumer, my man.
Speaker 17: I mean you you just rattled a couple of brands
Speaker 17: right there that this is not your first rodeo, I
Speaker 17: could tell.
Speaker 13: But New York, I mean, you know, it's a cautionary tale.
Speaker 13: And listen, well intentioned, right, I mean, they tried to
Speaker 13: do the right thing.
Speaker 17: But what happened was when when COVID hit and and
Speaker 17: you know, again follow the money. The reason this was
Speaker 17: coming online in all these states was because the tax
Speaker 17: revenues are ridiculous, the job creations are ridiculous, and oh,
Speaker 17: by the way, it's good for you, like as we're
Speaker 17: finding out more and more. But when the COVID, when
Speaker 17: COVID hit, and the federal government just completely you know,
Speaker 17: flushed all these budgets with cash. New York in particular said,
Speaker 17: you know, we're going to create this framework that we
Speaker 17: think is just and rights the wrongs of the war
Speaker 17: on drugs, And like I said, well intentioned, But anybody
Speaker 17: that's been around the block a few times knows that
Speaker 17: you can't legislate wealth, right. And there's a big difference
Speaker 17: between criminal justice. People shouldn't be in prison for a
Speaker 17: plant and social justice. Right, they necessarily shouldn't be at
Speaker 17: the front of the line either. And I think that
Speaker 17: there is there's a balance there, and there's a Toget.
Speaker 13: You know, we can do this together. I believe that.
Speaker 17: But New York never really allowed the opportunity. Maryland did
Speaker 17: it right, Missouri did it right.
Speaker 13: They levered the medical industry into an adult use industry,
Speaker 13: and then when they made money, they you know, sort
Speaker 13: of address the social issues, justice issues. New York tried
Speaker 13: to do that the opposite way. Now you walk down
Speaker 13: there's fourteen thousand, you know street, fourteen thousand shops in
Speaker 13: New York.
Speaker 17: Most New Yorkers think that's the legal framework. But that's
Speaker 17: going to transition, right, So.
Speaker 13: It's a process. Over time, prices will come down, the
Speaker 13: ilestle market will get crowded out.
Speaker 17: Besides, they're selling pest size and a multification agents that
Speaker 17: are literally poison, so that'll go away like bathtub Gin
Speaker 17: once went.
Speaker 3: Dude, imagine if you could only buy Brooklyn Lauger. Yeah,
Speaker 3: you want a Lagunitas or you want Sierra Nevada, and
Speaker 3: they're telling you you can't get that at.
Speaker 2: A legal show. The social injustice of it all.
Speaker 1: Todd Harrison, thank you so much for joining us founding
Speaker 1: partner and CIO at c B one Capital Management.
Speaker 8: You're listening to the tape cansur live program Bloomberg Markets
Speaker 8: weekdays at ten am Eastern on Bloomberg Radio, the tune
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Speaker 5: Bloomberg Business App.
Speaker 8: You can also listen live on Amazon Alexa from our
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Speaker 9: Let's get to what I'm driving this week?
Speaker 2: Yeah, what are you driving? I?
Speaker 3: Well, I just a disclaimer that you know, the car
Speaker 3: makers allow me to use these cars to test drive.
Speaker 3: You've been covering the industry for twenty years now, and
Speaker 3: so I often get a new car or a truck
Speaker 3: or a motorcycle to test out. This week, I have
Speaker 3: something special, and so the purpose of this hit is twofold.
Speaker 9: Number one, I want to tell.
Speaker 3: Our viewers about a product, and number two, I'm trying
Speaker 3: to convince you to get to get one of these cars.
Speaker 3: I'm going to bring in my buddy Matt Hart agree
Speaker 3: to help me do that. He was the editor in
Speaker 3: chief of Jalopnik. He's now working on a site called Autopia,
Speaker 3: but he's been also in the industry for a couple
Speaker 3: of decades here at covering cars. Matt, you know it's
Speaker 3: long been the dream of I think every auto journalist
Speaker 3: to get an absolute stripper of a nine to eleven,
Speaker 3: that is, to order the base model with no options
Speaker 3: at all, and I have almost achieved that in this
Speaker 3: test Dride. It's a Carrera T, which is like already
Speaker 3: the stripped down version of the nine to eleven. It
Speaker 3: only has the essentials, the things you need, like a
Speaker 3: short throw shifter, and it has almost no options on it.
Speaker 3: I absolutely love it, with one exception, and.
Speaker 9: That is the color.
Speaker 2: I love.
Speaker 9: The color.
Speaker 3: I don't know, Matt, you I probably can't see it,
Speaker 3: but maybe you've seen. The color is called ruby star Neo.
Speaker 2: It's like a.
Speaker 9: Purple pink, like a Barbie pink.
Speaker 18: You mean, it's the best color. You got the best color,
Speaker 18: and you're complaining.
Speaker 9: My daughter thinks so as well. But give me your thoughts.
Speaker 3: First off, on the Carrera T, the nine to eleven
Speaker 3: Carrera Tea, it's great.
Speaker 18: I mean, I think what Portia has done is realized that,
Speaker 18: as with a lot of things in life, the more options,
Speaker 18: the better and the more money they can get. And
Speaker 18: you know, for an enthusiast, I am not likely to
Speaker 18: buy a nine to eleven Turbo. It's a little pricey,
Speaker 18: but if I'm in a nine to eleven range. They
Speaker 18: have created something that fits between the true bass Carrera
Speaker 18: and the Korera S and they call it the Karrera Tea.
Speaker 18: And somehow by creating a cheaper version of the Karrera S,
Speaker 18: they've made it more desirable than a Korera S. They
Speaker 18: are selling at a pretty high levels for people I've
Speaker 18: spoken to. And the problem is even though it's the
Speaker 18: stripper version, it's a little bit faster than the base Carrera.
Speaker 18: I'm I did one myself. I built one before the
Speaker 18: show and I was like, oh, you know, it starts
Speaker 18: a one hundred and thirty. That's such a great price.
Speaker 18: I'm only going to add a couple of options. And
Speaker 18: you get on a port of personalization page and then
Speaker 18: you're like, well, I need Hardiburg yellow seatbelts. I definitely
Speaker 18: need to have this special I like it in brown,
Speaker 18: the special brown color. I need this, I need that,
Speaker 18: And then all of a sudden it's you're one hundred
Speaker 18: and forty thousand dollars into a car. So it's genius.
Speaker 18: I think it's genius. You got it with the manual.
Speaker 18: Who cares what color it is as long as it
Speaker 18: has a manual that is the right cardigat well.
Speaker 9: And that's the beauty of this.
Speaker 3: So the base model Carrera, the absolute cheapest one you
Speaker 3: could get, doesn't have the manual as an option. You
Speaker 3: have to get the PDK, which is a very amazing
Speaker 3: automatic transmission, but it's still an automatic transmission. And Matt
Speaker 3: the benefit that the T has over the Carrera S.
Speaker 9: I was talking Luke.
Speaker 3: With Luke van Derzany, you know who runs PR for
Speaker 3: the nine to eleven at Portia in the US. He
Speaker 3: told me you can't get the short throw shifter on
Speaker 3: the S. You have to go up a level to
Speaker 3: the GTS to get that, And that to me has
Speaker 3: been the revelation with this car. You know, I had
Speaker 3: a Carrera ass a nine nine to one Carrera ass sure,
Speaker 3: and I I had never thought about changing out the stick.
Speaker 9: This little stick is so much better than the big stick.
Speaker 9: I don't like a big stick.
Speaker 1: I like a little students.
Speaker 9: You know. The other revelation for me with this car
Speaker 9: is the.
Speaker 3: Cloth seats are amazing. I've never preferred cloth over leather,
Speaker 3: and these are just I'd rather have them. So I
Speaker 3: feel like it's an opportunity for Paul Sweeney to get
Speaker 3: a new car and save a little bit of money
Speaker 3: because he's not buying the turbos.
Speaker 18: It's a great deal. Oh all right, I think you
Speaker 18: would really not to buy it at this point.
Speaker 1: Hey, Matt, how about you're you would like matter a
Speaker 1: car guy and you're at the high end here. I
Speaker 1: can't imagine the Ferraris, the Lamborghinis, the portions of the
Speaker 1: world they are going electric willingly. Are they scratching and
Speaker 1: clawing to remain in the ice world.
Speaker 18: No. If you look at especially in Germany, there's been
Speaker 18: a big push with the EU regulations coming up the
Speaker 18: theoretically that in a decade, you know, we're going to
Speaker 18: have to have essentially no gas powered cars to get
Speaker 18: that legislation through Brussels. Basically, the Germans said, specifically, Portia
Speaker 18: of Volkswagen said, you know what, E fuels, give us
Speaker 18: an exception for carbon neutral e fuels because no matter what,
Speaker 18: even if they build electric cars, even if they sell
Speaker 18: primarily electric cars. No one I've talked about Ferrari, no
Speaker 18: one I've talked about Portia has given up on a
Speaker 18: gas powered car because for a sports car, even though
Speaker 18: an electric car might be faster. Nothing just sounds, and
Speaker 18: I love driving sports cars. Nothing sounds right. You don't
Speaker 18: get that feel of a short throw shifter like you
Speaker 18: need that visceral reaction because that's what you're paying where.
Speaker 18: You're not paying to get somewhere faster, You're paying to
Speaker 18: get somewhere with more excitement, with more joy.
Speaker 3: That's this car definitely fits that bill. I mean, it
Speaker 3: isn't the fastest car on the road. It doesn't feel
Speaker 3: as quick as my Carrera S, and it doesn't have
Speaker 3: as much horse powers three hundred and seventy nine horse power.
Speaker 3: You know, my Carera had I think four hundred and
Speaker 3: now the Carrera S.
Speaker 9: Has probably four thirty.
Speaker 3: But it's got that build up, it's got that uh
Speaker 3: you know, the gradual acceleration and the sound from the
Speaker 3: sport exhausted just amazing that I absolutely love. Plus it
Speaker 3: only weighs like thirty one hundred pounds, so that's incredibly light.
Speaker 3: By the way, maybe you can help Paul out with
Speaker 3: his conundrum veering away from the nine to eleven for
Speaker 3: a moment. He has the last manual five series. He
Speaker 3: has the twenty fourteen five point thirty five Eye with
Speaker 3: a stick, and now he's worried that it's gonna start
Speaker 3: getting old and he's gonna have to make repairs. Should
Speaker 3: he get something else or should he just make the
Speaker 3: repairs and keep the car that he loves the most.
Speaker 18: He should get rid of it and give it to me,
Speaker 18: because I have a I have a two thousand and
Speaker 18: three five Series five thirty I with the five speed,
Speaker 18: and it has two hundred and thirty five thousand miles
Speaker 18: on it.
Speaker 9: Two hundred thirty five thousand miles two.
Speaker 18: D and thirty five. The look twenty fourteen. It's a
Speaker 18: little sketchy. You're you're on the edge where the car
Speaker 18: is so modern that sometimes fixing things becomes cost prohibitive.
Speaker 18: But you're just on the right side of the edge.
Speaker 18: I think, I think you can make this car last.
Speaker 18: And it's not like mine. Mine is like Legos. You
Speaker 18: can pop something out, you can pop something in, you
Speaker 18: can generally fix the car. Your car isn't Legos, unfortunately,
Speaker 18: it's tech Lego technic. It's a little bit more advanced.
Speaker 18: But no, you're never going to find this is the problem.
Speaker 18: You're never going to find something new that feels as
Speaker 18: good as that car, because they can't make cars like
Speaker 18: that anymore. So either put it on, bring a trailer,
Speaker 18: and regret it for the rest of your life, or
Speaker 18: you know, spend two or three thousand dollars a year
Speaker 18: with your mechanic getting out. I think that's the best move.
Speaker 18: Got to keep the car or give it to me also.
Speaker 1: Exactly that could be an option, all right, Matt, thanks
Speaker 1: so much for joining us.
Speaker 2: Lots for me to think about over the weekend.
Speaker 1: Matt Hart agree, he's a publisher of the Auto Utopian.
Speaker 1: Sorry and talking cars with Matt Miller. Matt driving the
Speaker 1: Barbie Pink Portie.
Speaker 2: Carrera T love it.
Speaker 9: I have to give it back.
Speaker 3: Unfortunately I only had it for a week. But I
Speaker 3: joined The Utopian so I get that membership I think
Speaker 3: for a whole year. And plus they're gonna send me
Speaker 3: like a velvet T shirt.
Speaker 2: Oh cool, very good.
Speaker 1: And I'll tell you the Bloomberg Courtyard is a great
Speaker 1: place to kind of showcase cars.
Speaker 2: It looks cool.
Speaker 1: Yeah, I mean you could rent that out, maybe make
Speaker 1: up a couple of bucks where our owns this place.
Speaker 3: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 3: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 3: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 3: at Matt Miller nineteen seventy three.
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
Speaker 1: Before the podcast, you can always catch us worldwide at
Speaker 1: Bloomberg Radio