1 00:00:17,720 --> 00:00:20,480 Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast. 2 00:00:20,840 --> 00:00:23,480 Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg. 3 00:00:24,079 --> 00:00:25,919 Speaker 1: This week, we're very pleased to have on the show 4 00:00:26,079 --> 00:00:29,200 Speaker 1: Michael Tobin, who covers credit for Bloomberg News in New York. 5 00:00:29,600 --> 00:00:31,800 Speaker 1: Great to have you on show, Michael, Yeah, glad to 6 00:00:31,800 --> 00:00:34,080 Speaker 1: be here. Also on today's Credit Edge, we're going to 7 00:00:34,120 --> 00:00:36,800 Speaker 1: be talking to another Michael, Mike Holland, who covers the 8 00:00:36,800 --> 00:00:39,680 Speaker 1: healthcare sector for Bloomberg Intelligence, also in New York. How 9 00:00:39,680 --> 00:00:40,200 Speaker 1: are you doing, Mike? 10 00:00:40,320 --> 00:00:40,560 Speaker 2: Great? 11 00:00:40,640 --> 00:00:42,000 Speaker 3: Thanks, appreciate you being here. 12 00:00:42,080 --> 00:00:44,880 Speaker 1: Great so real Thanksgiving treat for all our listeners. We'll 13 00:00:44,920 --> 00:00:47,839 Speaker 1: be coming back to healthcare in a bit. But first, 14 00:00:48,440 --> 00:00:51,800 Speaker 1: Michael Tobin, you've written some great stories over the last 15 00:00:51,800 --> 00:00:54,600 Speaker 1: few weeks. Fascinating stuff. Well done. Let's start with the 16 00:00:54,720 --> 00:00:59,800 Speaker 1: Chicken Fingers. The restaurant chain raising canes recently came to 17 00:00:59,800 --> 00:01:02,280 Speaker 1: my tension. Everyone seems to be talking about it, with 18 00:01:02,400 --> 00:01:05,200 Speaker 1: shops popping up all over the place. They borrowed a 19 00:01:05,200 --> 00:01:07,119 Speaker 1: whole lot of money recently, which is why they make 20 00:01:07,160 --> 00:01:09,960 Speaker 1: it onto the Credit Edge. But what's all the fuss about? 21 00:01:10,000 --> 00:01:10,319 Speaker 4: Michael? 22 00:01:10,800 --> 00:01:13,959 Speaker 1: Chicken Fingers from Louisiana. Is there something special on the sauce? 23 00:01:14,120 --> 00:01:14,720 Speaker 1: What's going on? 24 00:01:14,959 --> 00:01:17,880 Speaker 2: Well, only in America can you become a chicken finger billionaire. 25 00:01:18,040 --> 00:01:21,160 Speaker 2: So Todd Graves, he's the founder of Raising Canes, which 26 00:01:21,200 --> 00:01:22,760 Speaker 2: is a Louisiana based. 27 00:01:23,280 --> 00:01:24,720 Speaker 4: Chicken finger only restaurant. 28 00:01:24,800 --> 00:01:26,679 Speaker 2: They do one sandwich as well, but they have a 29 00:01:26,720 --> 00:01:29,959 Speaker 2: really limited menu of chicken fingers, toast and or sauce 30 00:01:30,000 --> 00:01:31,240 Speaker 2: that everybody goes crazy for. 31 00:01:31,400 --> 00:01:33,000 Speaker 4: And they have fries too. 32 00:01:33,120 --> 00:01:35,560 Speaker 2: So they're a private company, but they came to the 33 00:01:35,600 --> 00:01:37,720 Speaker 2: market and they sold five hundred million dollars of junk 34 00:01:37,720 --> 00:01:40,000 Speaker 2: bonds a few weeks ago, and we found a real 35 00:01:40,040 --> 00:01:42,920 Speaker 2: seekert in the documents, which is Graves maintains a ninety 36 00:01:42,920 --> 00:01:46,600 Speaker 2: percent ownership stake in the company, and by our estimates, 37 00:01:46,680 --> 00:01:50,360 Speaker 2: we assigned a valuation to the company and we determined 38 00:01:50,400 --> 00:01:53,520 Speaker 2: that he is worth seven point six billion dollars. 39 00:01:53,880 --> 00:01:55,360 Speaker 1: But just back up a minute. Have you been to 40 00:01:55,360 --> 00:01:57,400 Speaker 1: one of these restaurants? Do they deserve all the hype? 41 00:01:57,680 --> 00:02:00,200 Speaker 2: So they have one in Times Square and then I 42 00:02:00,320 --> 00:02:02,280 Speaker 2: just learned that they have another one in Astroplace. I 43 00:02:02,280 --> 00:02:04,240 Speaker 2: went to the Times Square one this summer for the 44 00:02:04,240 --> 00:02:04,920 Speaker 2: first time. 45 00:02:04,920 --> 00:02:05,520 Speaker 4: Just to check it. 46 00:02:05,520 --> 00:02:08,480 Speaker 2: Out because I've heard about it and I did have 47 00:02:08,520 --> 00:02:10,679 Speaker 2: the chicken tenders and I got a lemonade as well. 48 00:02:11,000 --> 00:02:12,080 Speaker 4: Aymembered of cup? 49 00:02:12,200 --> 00:02:13,600 Speaker 1: What about you, Mike Holand you've been to. 50 00:02:14,680 --> 00:02:16,840 Speaker 4: I have not, but it sounds delicious. 51 00:02:17,280 --> 00:02:20,280 Speaker 1: So back up to the owner again, what's his name? 52 00:02:20,680 --> 00:02:21,360 Speaker 4: Todd Graves? 53 00:02:21,520 --> 00:02:23,639 Speaker 1: And he's a billionaire, multi billionaire. 54 00:02:23,280 --> 00:02:24,080 Speaker 4: Multi billionaire. 55 00:02:24,200 --> 00:02:25,600 Speaker 1: Why didn't we know about this already? 56 00:02:26,120 --> 00:02:28,160 Speaker 4: Because it wasn't a publicly traded company. 57 00:02:28,600 --> 00:02:30,960 Speaker 2: I mean, he does a lot of promotion and marketing 58 00:02:31,040 --> 00:02:34,160 Speaker 2: for the brand, So he's done a partnership with Post Malone, 59 00:02:34,160 --> 00:02:36,720 Speaker 2: who's a rapper. Sounds like he's friends with Snoop Dogg 60 00:02:36,760 --> 00:02:38,880 Speaker 2: as well, So he has a lot of. 61 00:02:38,880 --> 00:02:40,320 Speaker 4: Kind of popular culture clout. 62 00:02:40,400 --> 00:02:43,440 Speaker 2: But the financials of the company weren't really publicly known 63 00:02:43,520 --> 00:02:46,440 Speaker 2: until we got all the documents and parsed through them 64 00:02:46,880 --> 00:02:48,519 Speaker 2: and found all this information out. 65 00:02:48,600 --> 00:02:50,560 Speaker 1: So they sold some junk bonds. Is it a high 66 00:02:50,639 --> 00:02:53,680 Speaker 1: quality company? Is it a risky company? What kind of 67 00:02:54,480 --> 00:02:55,760 Speaker 1: credit risk are we talking about here? 68 00:02:55,840 --> 00:02:58,519 Speaker 2: Yeah, smp as signed the issuer rating a double B 69 00:02:58,639 --> 00:03:02,000 Speaker 2: minus rating, so kind of it's higher than double B. No, 70 00:03:02,040 --> 00:03:04,840 Speaker 2: it's higher than B plus, right, but it's not that 71 00:03:05,000 --> 00:03:08,600 Speaker 2: double B plus rating and then the issue level rating 72 00:03:08,639 --> 00:03:10,640 Speaker 2: for the bond itself was a B rated rating. 73 00:03:10,919 --> 00:03:13,519 Speaker 1: And what was the demand like for their bond issue? 74 00:03:13,720 --> 00:03:17,520 Speaker 2: They said that they were oversubscribed in under twenty four hours, 75 00:03:17,560 --> 00:03:19,280 Speaker 2: so there was a lot of demand, just like there 76 00:03:19,320 --> 00:03:21,600 Speaker 2: were for the chicken fingers. They sold five hundred million 77 00:03:21,639 --> 00:03:24,800 Speaker 2: dollars of drunk bonds. The initial price talk was for 78 00:03:24,840 --> 00:03:26,960 Speaker 2: a yield as high as ten percent or so, but 79 00:03:27,000 --> 00:03:30,760 Speaker 2: that came in significantly and it was nine three eights. 80 00:03:30,760 --> 00:03:33,920 Speaker 1: I believe why so much demand for a deal like this, I. 81 00:03:33,919 --> 00:03:37,760 Speaker 2: Mean, restaurants are doing pretty well. People like restaurants. Even 82 00:03:37,760 --> 00:03:40,320 Speaker 2: some of the riskier credits out there have found a market. 83 00:03:40,840 --> 00:03:44,160 Speaker 2: So American Airlines has been reselling some of its debt 84 00:03:44,160 --> 00:03:47,520 Speaker 2: as well to refinance. There's been some LBO debt that's 85 00:03:47,560 --> 00:03:49,800 Speaker 2: hit the market as well for variative So there's a 86 00:03:49,840 --> 00:03:51,960 Speaker 2: window that's opening credit markets. And I think part of 87 00:03:52,000 --> 00:03:54,120 Speaker 2: that is due to the soft landing thesis that we 88 00:03:54,200 --> 00:03:56,880 Speaker 2: keep hearing about all the time. The data's been supportive 89 00:03:56,920 --> 00:03:58,840 Speaker 2: and if there's a window to sell debt, people are 90 00:03:58,840 --> 00:03:59,520 Speaker 2: doing it right now. 91 00:04:00,120 --> 00:04:03,560 Speaker 1: You want to be exposed as an investor to this company, 92 00:04:03,600 --> 00:04:04,680 Speaker 1: you have to buy the bonds. 93 00:04:04,800 --> 00:04:07,240 Speaker 2: Yeah, there's a TLA, but I mean that's the bank 94 00:04:07,520 --> 00:04:09,920 Speaker 2: market and it's not available to investors. So this was 95 00:04:09,960 --> 00:04:12,880 Speaker 2: the only way that investors could get access to raising canes. 96 00:04:13,440 --> 00:04:15,680 Speaker 1: So TLA that's just for those who don't know. That's 97 00:04:15,680 --> 00:04:19,159 Speaker 1: a loan leverage loan. But again that's not easy to 98 00:04:19,200 --> 00:04:22,480 Speaker 1: access if your retail or any other investors. So this 99 00:04:22,839 --> 00:04:26,239 Speaker 1: is the only way in. But you know, the bond 100 00:04:26,240 --> 00:04:30,320 Speaker 1: has oversubscribe. It's done really well. Is there a lot 101 00:04:30,320 --> 00:04:32,400 Speaker 1: of froth now in the credit markets? I mean talking 102 00:04:32,440 --> 00:04:35,400 Speaker 1: about self landing, talking about access demand, I mean, what 103 00:04:35,839 --> 00:04:37,440 Speaker 1: does this say about the credit markets? If you kind 104 00:04:37,440 --> 00:04:37,960 Speaker 1: of step back a. 105 00:04:37,960 --> 00:04:40,320 Speaker 4: Bit, there is still support out there. 106 00:04:40,400 --> 00:04:42,400 Speaker 2: I mean, to be sure, there are some deals at 107 00:04:42,400 --> 00:04:46,800 Speaker 2: our Challenge for example, like there was a platinum deal 108 00:04:46,839 --> 00:04:49,120 Speaker 2: that got pooled platinum equity on the sponsors ended up 109 00:04:49,120 --> 00:04:53,039 Speaker 2: funding at themselves. There's you know, pockets that are having trouble. 110 00:04:53,160 --> 00:04:55,479 Speaker 2: So there's some stuff that was due earlier this month 111 00:04:55,560 --> 00:04:57,799 Speaker 2: that still hasn't found a home yet in the loan market. 112 00:04:58,440 --> 00:05:00,880 Speaker 2: But you know, just last week we saw Citrix, which 113 00:05:00,960 --> 00:05:04,560 Speaker 2: was kind of a notoriously troubled company that banks were 114 00:05:04,560 --> 00:05:06,960 Speaker 2: working to sell buyout debt for like all of last year, 115 00:05:07,400 --> 00:05:09,320 Speaker 2: and they took some like pretty steep losses on it. 116 00:05:09,360 --> 00:05:11,400 Speaker 2: But Citrix was able to come back to the market 117 00:05:11,440 --> 00:05:15,039 Speaker 2: last week and sell an upsize billion dollar leverage loan 118 00:05:15,120 --> 00:05:17,719 Speaker 2: to take out some preferred equity from the sponsors. So 119 00:05:18,000 --> 00:05:21,640 Speaker 2: there is like a credit by credit riskier market that 120 00:05:21,680 --> 00:05:22,400 Speaker 2: exists right now. 121 00:05:22,640 --> 00:05:25,080 Speaker 1: And as you mentioned, the sector itself has done quite well. 122 00:05:25,200 --> 00:05:27,839 Speaker 1: Is that a sign that the consumer, the US consumer 123 00:05:27,920 --> 00:05:31,080 Speaker 1: is in decent shape, that discretionary spending is strong, or 124 00:05:31,120 --> 00:05:33,560 Speaker 1: in this case, is it more story of budget dining 125 00:05:33,880 --> 00:05:35,840 Speaker 1: affordable treats. I mean, I look this, looked up some 126 00:05:35,880 --> 00:05:39,080 Speaker 1: of their combo platses recently, and it seems, you know, 127 00:05:39,240 --> 00:05:41,800 Speaker 1: not bad pricing for New York City, certainly better than 128 00:05:41,880 --> 00:05:44,640 Speaker 1: alternatives like shakesheck, but you know, maybe closer to Chick 129 00:05:44,680 --> 00:05:46,760 Speaker 1: fil A. But is it just a budget option for 130 00:05:46,760 --> 00:05:48,600 Speaker 1: people that are kind of struggling with the inflation. 131 00:05:48,920 --> 00:05:51,080 Speaker 2: That's the funny thing that I've noticed is like reading 132 00:05:51,120 --> 00:05:52,760 Speaker 2: some of the commentary that people were talking about on 133 00:05:52,839 --> 00:05:56,680 Speaker 2: social media, like fifteen dollars for chicken tenders seems like 134 00:05:56,760 --> 00:05:58,520 Speaker 2: kind of a standard New York City price but other 135 00:05:58,560 --> 00:06:01,600 Speaker 2: people think that that's really expected. But the consumer is 136 00:06:01,839 --> 00:06:04,360 Speaker 2: still holding up right, right. You can think about like travel, 137 00:06:04,360 --> 00:06:06,560 Speaker 2: which is doing fairly well, like the cruise lines are 138 00:06:06,560 --> 00:06:09,359 Speaker 2: doing well as well. So I think that discretionary spending 139 00:06:09,440 --> 00:06:11,280 Speaker 2: is still out there. And if you want to spend 140 00:06:11,320 --> 00:06:13,360 Speaker 2: fifteen dollars on chicken tenders, go for it. 141 00:06:13,880 --> 00:06:16,039 Speaker 1: And on that point, though, couldn't anyone make this stuff? 142 00:06:16,080 --> 00:06:17,600 Speaker 1: I mean, you know, me and Mike Holland could just 143 00:06:17,600 --> 00:06:21,159 Speaker 1: set up a restaurant tomorrow. What's the risk that someone leaner, better, 144 00:06:21,600 --> 00:06:24,080 Speaker 1: cheaper comes and takes all their business away and this 145 00:06:24,440 --> 00:06:27,320 Speaker 1: big boom for Raising Kaine suddenly goes bus Should we 146 00:06:27,360 --> 00:06:28,000 Speaker 1: worry about that? 147 00:06:28,120 --> 00:06:29,680 Speaker 2: Well, you need to get the sauces, not about the 148 00:06:29,720 --> 00:06:32,200 Speaker 2: chicken tenders. So the sauce is really what makes it. 149 00:06:32,800 --> 00:06:35,279 Speaker 2: But I mean, they have seven hundred and fifty locations, 150 00:06:35,320 --> 00:06:38,240 Speaker 2: they're expanding. They did three point three billion in sales 151 00:06:38,600 --> 00:06:40,160 Speaker 2: in the twelve months end of June, and they want 152 00:06:40,160 --> 00:06:41,799 Speaker 2: to hit ten billion by the end of the decade. 153 00:06:41,920 --> 00:06:44,160 Speaker 2: So if you want to compete with Raisin Kines, you 154 00:06:44,240 --> 00:06:46,960 Speaker 2: got to scale. And they have a really limbed menu 155 00:06:47,200 --> 00:06:50,040 Speaker 2: and pretty narrow options and a very devoted fan base, 156 00:06:50,080 --> 00:06:52,200 Speaker 2: so I think would be hard for to set up 157 00:06:52,360 --> 00:06:53,520 Speaker 2: James Chicken shop. 158 00:06:53,800 --> 00:06:56,039 Speaker 1: I don't know. I've got some good sources. I'll bring 159 00:06:56,080 --> 00:06:58,360 Speaker 1: those back to the show next week. But so before 160 00:06:58,400 --> 00:07:01,720 Speaker 1: we talk to Mike Holland over Bloomberg Intelligence, what else 161 00:07:01,760 --> 00:07:03,560 Speaker 1: is on your radar? Michael? You had a great story 162 00:07:03,640 --> 00:07:08,080 Speaker 1: out recently on items seized from criminals by US marshals, 163 00:07:08,160 --> 00:07:10,520 Speaker 1: which is then auctioned off. What kinds of things are 164 00:07:10,520 --> 00:07:12,200 Speaker 1: we talking about here and how much is it selling for? 165 00:07:12,600 --> 00:07:13,239 Speaker 4: No bonds? 166 00:07:13,760 --> 00:07:19,080 Speaker 2: There were roll X's, Lamborghini's Ferraris, yachts, all sorts of 167 00:07:19,200 --> 00:07:23,920 Speaker 2: wild things that criminals got in either illicit gains or 168 00:07:24,320 --> 00:07:27,160 Speaker 2: property that was used to commit crimes, and the government 169 00:07:27,200 --> 00:07:30,600 Speaker 2: has auctioned off and it's part of the US Marshalls auctions. 170 00:07:30,960 --> 00:07:33,560 Speaker 2: There were no bonds, There were no stocks at least 171 00:07:33,600 --> 00:07:35,480 Speaker 2: that I saw. But there was a lot of cryptocurrency 172 00:07:35,480 --> 00:07:38,840 Speaker 2: as well that was used in darknet drug dealing operations 173 00:07:38,840 --> 00:07:39,480 Speaker 2: and that kind of thing. 174 00:07:39,760 --> 00:07:41,040 Speaker 1: Are they selling at high prices? 175 00:07:41,360 --> 00:07:41,560 Speaker 4: Oh? 176 00:07:41,600 --> 00:07:44,320 Speaker 2: The government got probably the best crypto trade of all time. 177 00:07:44,400 --> 00:07:45,080 Speaker 4: They sold. 178 00:07:46,480 --> 00:07:48,640 Speaker 2: A lot of bitcoin right at the very top pretty 179 00:07:48,680 --> 00:07:50,840 Speaker 2: much about two years ago. So they timed it perfectly, 180 00:07:51,040 --> 00:07:52,679 Speaker 2: perhaps coincidentally. 181 00:07:52,480 --> 00:07:55,120 Speaker 1: That story is actually on the website. Do check it out, 182 00:07:55,320 --> 00:07:57,440 Speaker 1: and thank you so much, Michael Tobin, the Bloomberg News 183 00:07:57,440 --> 00:07:58,720 Speaker 1: in New York. Thank you for joining us, Thanks for 184 00:07:58,760 --> 00:08:01,000 Speaker 1: having me read all of my great scoops on the 185 00:08:01,040 --> 00:08:04,960 Speaker 1: Bloomberg terminal and of course at Bloomberg dot com. So, 186 00:08:05,000 --> 00:08:07,600 Speaker 1: as I mentioned earlier, we're also joined by Mike Holland 187 00:08:07,640 --> 00:08:10,400 Speaker 1: with Bloomberg Intelligence. How's it going, Mike, Well, great to 188 00:08:10,440 --> 00:08:13,560 Speaker 1: be here. And you look at the healthcare sector, which 189 00:08:13,600 --> 00:08:16,200 Speaker 1: is obviously a huge part of US credit markets, especially 190 00:08:16,240 --> 00:08:19,160 Speaker 1: at the risky end. I'm always surprised how badly these 191 00:08:19,160 --> 00:08:21,560 Speaker 1: companies are doing when you consider the aging population and 192 00:08:21,600 --> 00:08:23,640 Speaker 1: all of the illnesses that come with it, plus the 193 00:08:23,680 --> 00:08:26,880 Speaker 1: new era of coronavirus, and you think of health care 194 00:08:26,960 --> 00:08:29,200 Speaker 1: being you know, something that you know is really in need. 195 00:08:29,560 --> 00:08:31,320 Speaker 1: We all need a lot more of it as we're 196 00:08:31,360 --> 00:08:34,880 Speaker 1: loading up on chicken fingers, and yet we do see 197 00:08:34,880 --> 00:08:38,000 Speaker 1: these big earnings disappointments. Debt from some of the big 198 00:08:38,040 --> 00:08:40,559 Speaker 1: providers is really selling off. Why is that, Mike? Why 199 00:08:40,600 --> 00:08:43,160 Speaker 1: is it doing so bad? Is it just bad management? 200 00:08:43,320 --> 00:08:45,080 Speaker 1: Too much debt too quickly? What's going on here. 201 00:08:45,200 --> 00:08:47,560 Speaker 3: You know, I think it's a lot to do with 202 00:08:47,960 --> 00:08:51,960 Speaker 3: dispersion across the space. There are some providers that have 203 00:08:52,040 --> 00:08:55,400 Speaker 3: been investing smartly over the last decade, and there's some 204 00:08:55,440 --> 00:08:58,000 Speaker 3: that have been over levered for the past decade. And 205 00:08:58,120 --> 00:09:00,760 Speaker 3: you know, case in point is Maybe Writing, which just 206 00:09:00,760 --> 00:09:03,880 Speaker 3: filed for bankruptcy after maybe ten years of pressure. You know, 207 00:09:03,920 --> 00:09:06,959 Speaker 3: it's they've been lagging for a very long time. And 208 00:09:07,559 --> 00:09:10,920 Speaker 3: when the tide goes out, as we were starting to 209 00:09:10,920 --> 00:09:13,320 Speaker 3: see the companies that are over levered and that have 210 00:09:13,360 --> 00:09:17,920 Speaker 3: pressured earnings with legacy earnings, you know, drivers, you know, 211 00:09:17,960 --> 00:09:20,800 Speaker 3: they struggle. If you don't mind, I'd like to do 212 00:09:20,840 --> 00:09:24,400 Speaker 3: a quick shameless plug for our annual Bloomberg Intelligence Credit 213 00:09:24,480 --> 00:09:29,320 Speaker 3: Outlook conference. You know, as we head into what's shaping 214 00:09:29,320 --> 00:09:31,400 Speaker 3: to be shaping up to be a very tumultuous twenty 215 00:09:31,440 --> 00:09:35,600 Speaker 3: twenty four with rising rates, momenting price volatility, and growing 216 00:09:35,679 --> 00:09:39,800 Speaker 3: risk dispersion across highield and investment great credit markets. We've 217 00:09:39,800 --> 00:09:43,280 Speaker 3: got a great lineup of very smart credit folks with 218 00:09:43,320 --> 00:09:47,560 Speaker 3: practiced views that we'll be sharing risks and opportunities that 219 00:09:47,600 --> 00:09:51,600 Speaker 3: we see on December seventh here at Bloomberg Headquarters, If 220 00:09:51,600 --> 00:09:53,680 Speaker 3: you'd like to sign up, you can go check me 221 00:09:53,720 --> 00:09:57,800 Speaker 3: out on my LinkedIn page. I just posted a registration 222 00:09:57,920 --> 00:10:01,160 Speaker 3: link last night, and we'd love to have anyone and 223 00:10:01,200 --> 00:10:04,600 Speaker 3: everyone join us to share in our views. As I said, 224 00:10:04,760 --> 00:10:07,520 Speaker 3: you know, the tide is going out. And over the 225 00:10:07,600 --> 00:10:10,520 Speaker 3: past year we've seen a significant pick up in the 226 00:10:10,600 --> 00:10:15,280 Speaker 3: number of bankruptcies names under my coverage, names like air Methods, 227 00:10:15,280 --> 00:10:19,560 Speaker 3: which is you know, air Medical Transport, or Envision Healthcare, 228 00:10:19,600 --> 00:10:23,240 Speaker 3: which is a big private deck we owned LBO all 229 00:10:23,280 --> 00:10:25,520 Speaker 3: the way to you know, specialty pharm and names like 230 00:10:25,600 --> 00:10:30,280 Speaker 3: Lynette and Acorn to Malancrat, as well as the Smile 231 00:10:30,320 --> 00:10:32,840 Speaker 3: Direct which has the braces you know, the Smile Direct 232 00:10:32,880 --> 00:10:36,280 Speaker 3: filed as well as a series of other names. And 233 00:10:36,520 --> 00:10:39,400 Speaker 3: I think what's pressuring these folks is, you know, they're 234 00:10:39,440 --> 00:10:41,440 Speaker 3: they're not skating to where the puck's going to be. 235 00:10:41,880 --> 00:10:43,400 Speaker 3: In a lot of ways, it seems like to me 236 00:10:43,920 --> 00:10:46,640 Speaker 3: genera we could get into the particulars of all those subsectors, 237 00:10:46,640 --> 00:10:48,559 Speaker 3: but for now, all this pause and well. 238 00:10:48,440 --> 00:10:51,720 Speaker 1: In simple terms, why are some of these companies just 239 00:10:51,920 --> 00:10:56,080 Speaker 1: doing so badly? Are they in particular sectors that you know, 240 00:10:56,360 --> 00:10:58,760 Speaker 1: just there isn't much demand for that kind of healthcare 241 00:10:58,800 --> 00:11:01,240 Speaker 1: service or is it merely the fact that they just 242 00:11:01,320 --> 00:11:03,120 Speaker 1: loaded up on debt and they can't pay it back 243 00:11:03,120 --> 00:11:04,400 Speaker 1: now because the interest rates of spike. 244 00:11:05,400 --> 00:11:07,640 Speaker 3: I think it's a there's a couple different things going 245 00:11:07,679 --> 00:11:10,480 Speaker 3: on right. So if you look at hospitals in the US, 246 00:11:11,000 --> 00:11:13,679 Speaker 3: you've got three names that jump out to me in 247 00:11:13,760 --> 00:11:17,400 Speaker 3: high yield and now high grade. HCA was rising Starlass 248 00:11:17,600 --> 00:11:20,280 Speaker 3: or two couple of years ago. You've got companies that 249 00:11:20,480 --> 00:11:24,520 Speaker 3: spent years, like HCA being smart and strategic using their 250 00:11:24,520 --> 00:11:27,079 Speaker 3: cash flow to invest in new ancillary sites of care 251 00:11:27,080 --> 00:11:32,360 Speaker 3: and new opportunities for growth. Companies like Tenant did so, 252 00:11:32,520 --> 00:11:34,880 Speaker 3: but it took them a little more time, they didn't 253 00:11:34,880 --> 00:11:39,120 Speaker 3: do so as quickly as HCA. And then on the 254 00:11:39,120 --> 00:11:42,600 Speaker 3: bottom end, you've got Community Health, which their second leans 255 00:11:42,640 --> 00:11:45,679 Speaker 3: are trading in the forties right now after being trading 256 00:11:45,720 --> 00:11:49,640 Speaker 3: above par during COVID. COVID really boosted the liquidity of 257 00:11:49,640 --> 00:11:54,080 Speaker 3: the hospital space through various mechanisms and emergency COVID measures. 258 00:11:54,480 --> 00:11:57,720 Speaker 3: And today, as the tide goes out from COVID and 259 00:11:57,840 --> 00:12:02,199 Speaker 3: those liquidity measures, we're really seeing pressure on the companies 260 00:12:02,240 --> 00:12:05,760 Speaker 3: that were not preparing for a future without that sort 261 00:12:05,760 --> 00:12:06,200 Speaker 3: of support. 262 00:12:06,520 --> 00:12:09,200 Speaker 1: So Community Health the Second Leans. Is this the bonds 263 00:12:09,200 --> 00:12:09,880 Speaker 1: we're talking about. 264 00:12:10,080 --> 00:12:12,120 Speaker 3: They are Second Lean bonds that were trading around one 265 00:12:12,160 --> 00:12:14,920 Speaker 3: oh three back in twenty twenty one, and now they're 266 00:12:14,920 --> 00:12:16,160 Speaker 3: trading around forty cents. 267 00:12:16,360 --> 00:12:18,280 Speaker 1: Does that mean they're going to go bust or file 268 00:12:18,320 --> 00:12:19,040 Speaker 1: for bankruptcy? 269 00:12:19,200 --> 00:12:21,720 Speaker 3: It's a long story with Community Health. I followed this 270 00:12:21,840 --> 00:12:24,880 Speaker 3: name for longer than I like to suggest, But back 271 00:12:24,880 --> 00:12:28,400 Speaker 3: in twenty eighteen they did a distress debt tender where 272 00:12:28,640 --> 00:12:33,600 Speaker 3: the liability management exercise basically layered on Second Lean debt 273 00:12:34,040 --> 00:12:38,120 Speaker 3: to turn out the unsecured. And they've never really grown 274 00:12:38,120 --> 00:12:41,200 Speaker 3: into the capital structure since they did a big M 275 00:12:41,200 --> 00:12:44,880 Speaker 3: and A deal back in twenty ten twenty eleven with 276 00:12:45,160 --> 00:12:46,520 Speaker 3: buying Hma. 277 00:12:46,920 --> 00:12:49,000 Speaker 1: So forty cents on the dollar for their junk bonds. 278 00:12:49,000 --> 00:12:51,280 Speaker 1: That suggests the market is at least selling us a 279 00:12:51,320 --> 00:12:52,679 Speaker 1: very high probability of default. 280 00:12:53,559 --> 00:12:53,960 Speaker 4: That's right. 281 00:12:54,080 --> 00:12:55,920 Speaker 1: What would your restumate be? I mean, is it going 282 00:12:56,000 --> 00:12:58,720 Speaker 1: to be a blow up twenty twenty four? 283 00:12:59,240 --> 00:13:03,240 Speaker 3: It depends, right, the actors that are involved in that name. 284 00:13:03,280 --> 00:13:06,719 Speaker 3: I won't specify which, but they've been very smart in 285 00:13:08,320 --> 00:13:12,640 Speaker 3: doing what they could to extend maturities whether it be 286 00:13:13,040 --> 00:13:15,880 Speaker 3: just literally extending the maturity on one bond, which was 287 00:13:16,240 --> 00:13:20,880 Speaker 3: an interesting liability management exercise, but also tendering us trading 288 00:13:20,920 --> 00:13:25,400 Speaker 3: debt for equity and cash as well. So communities debt load, 289 00:13:25,600 --> 00:13:29,160 Speaker 3: you know, it's not really come down substantially, or their 290 00:13:29,200 --> 00:13:32,080 Speaker 3: leverage rather has gone up. So they're levered eight nine 291 00:13:32,120 --> 00:13:36,040 Speaker 3: times right now, and hospitals typically trade around eight nine times. 292 00:13:36,160 --> 00:13:38,280 Speaker 1: But they I mean, how much does we talking about? 293 00:13:38,720 --> 00:13:39,319 Speaker 3: Twelve billion? 294 00:13:39,480 --> 00:13:41,160 Speaker 1: All right? That's quite a big holding for a lot 295 00:13:41,160 --> 00:13:44,880 Speaker 1: of junk bond investors, So they are heading for trouble. 296 00:13:44,880 --> 00:13:46,000 Speaker 1: I mean, let's flip it around. 297 00:13:46,040 --> 00:13:46,160 Speaker 4: Though. 298 00:13:46,200 --> 00:13:48,439 Speaker 1: Let's say that FED is done hiking, as some people saying, 299 00:13:48,640 --> 00:13:51,120 Speaker 1: am We're going to avoid recession and maybe even see 300 00:13:51,120 --> 00:13:53,480 Speaker 1: some rate cuts next year. Doesn't that take the pressure off. 301 00:13:53,520 --> 00:13:55,400 Speaker 1: Isn't there a turnaround insight for some of these companies. 302 00:13:55,400 --> 00:13:57,680 Speaker 1: Couldn't they just wing it and get to the end 303 00:13:57,720 --> 00:13:58,760 Speaker 1: of next year? Would be okay? 304 00:13:58,840 --> 00:14:01,240 Speaker 3: It sounds like a rosy scenari. As a credit guy, 305 00:14:01,320 --> 00:14:03,720 Speaker 3: I'm a lot more cynical and as what we're seeing 306 00:14:03,800 --> 00:14:06,840 Speaker 3: right now, it seems like there, you know, this looming 307 00:14:06,880 --> 00:14:09,280 Speaker 3: recession that everyone keeps talking about We're already really seeing 308 00:14:09,320 --> 00:14:13,559 Speaker 3: it in healthcare. We're already seeing pullbacks and volumes. We're 309 00:14:13,600 --> 00:14:17,440 Speaker 3: seeing trends pushing folks away from patients, away from the 310 00:14:17,440 --> 00:14:21,640 Speaker 3: hospital and into outpatient centers, which is detrimental to hospitals 311 00:14:21,640 --> 00:14:24,840 Speaker 3: that don't have that capability, like a community health, whereas 312 00:14:25,000 --> 00:14:27,800 Speaker 3: HCA and Tenant have really invested in the out patient 313 00:14:27,840 --> 00:14:30,480 Speaker 3: the cheaper cost of care settings increasingly where you're getting 314 00:14:30,480 --> 00:14:34,760 Speaker 3: those surgeries done, and so there, I'm not sure the 315 00:14:35,080 --> 00:14:37,800 Speaker 3: even a lower rate environment's going to help community health 316 00:14:37,840 --> 00:14:38,240 Speaker 3: as much. 317 00:14:38,600 --> 00:14:39,600 Speaker 1: Who else is in trouble? 318 00:14:40,960 --> 00:14:44,520 Speaker 3: Wow, you know, there's a handful of names out there 319 00:14:44,560 --> 00:14:47,200 Speaker 3: that I think are interesting right now. There's you know, 320 00:14:47,320 --> 00:14:51,600 Speaker 3: BOUCH Health is obviously in trouble. They've have done a 321 00:14:51,680 --> 00:14:55,080 Speaker 3: series of maneuvers over the last several years, including the 322 00:14:55,120 --> 00:14:59,720 Speaker 3: most recent was Icon coming in and catalyzing a spin 323 00:15:00,040 --> 00:15:05,840 Speaker 3: of Bausch and Lom, leaving the remain co with very 324 00:15:05,920 --> 00:15:09,120 Speaker 3: high leverage and very little growth catalysts. And I think 325 00:15:09,160 --> 00:15:12,680 Speaker 3: we'll see how that spin out eventually, if it comes 326 00:15:12,720 --> 00:15:14,800 Speaker 3: to completion. It seems like it's on hold right now. 327 00:15:15,040 --> 00:15:16,600 Speaker 3: I wrote a note on it a couple months ago, 328 00:15:16,640 --> 00:15:20,160 Speaker 3: basically saying that there might not be a full spin 329 00:15:20,200 --> 00:15:22,600 Speaker 3: anytime soon, and so that's one that's in trouble and 330 00:15:22,640 --> 00:15:24,680 Speaker 3: it's one of the biggest issuers in the highyield space. 331 00:15:24,960 --> 00:15:27,960 Speaker 3: There are actually as well names that are stressed that 332 00:15:28,000 --> 00:15:30,360 Speaker 3: look interesting to me, and name like Motive Care, which 333 00:15:30,400 --> 00:15:34,480 Speaker 3: provides non emergency transport for Medicaid members, so instead of 334 00:15:34,560 --> 00:15:37,520 Speaker 3: taking an ambulance to the hospital, you can take a 335 00:15:37,600 --> 00:15:40,720 Speaker 3: lift and the state through Medicaid, pays for it. They've 336 00:15:40,720 --> 00:15:43,040 Speaker 3: got a twenty twenty five bond that's trading around seven 337 00:15:43,080 --> 00:15:45,200 Speaker 3: and a half percent right now, after it was closer 338 00:15:45,200 --> 00:15:47,880 Speaker 3: to ten percent a couple months ago. Management at a 339 00:15:47,880 --> 00:15:49,840 Speaker 3: conference to a couple of weeks ago said that they 340 00:15:49,880 --> 00:15:53,120 Speaker 3: have secured capacity to address those bonds and they probably 341 00:15:53,160 --> 00:15:54,880 Speaker 3: do so a year before they mature because it's a 342 00:15:54,920 --> 00:15:56,760 Speaker 3: high yield name. So if you bought that bond today, 343 00:15:56,920 --> 00:16:00,720 Speaker 3: you get a nine percent yield to eleven November twenty 344 00:16:00,760 --> 00:16:02,800 Speaker 3: twenty four refinancing, which I think is interesting. 345 00:16:03,280 --> 00:16:06,040 Speaker 1: So is it as simple as saying community health old 346 00:16:06,080 --> 00:16:09,560 Speaker 1: school hospitals, bricks and mortar type, and then the providers 347 00:16:09,560 --> 00:16:12,760 Speaker 1: there's some value the service providers there's more value in those. 348 00:16:13,600 --> 00:16:16,000 Speaker 3: I think the way I think about hospitals in the 349 00:16:16,080 --> 00:16:22,480 Speaker 3: US is it's very very geography and demographics really determine outcomes. Right. So, 350 00:16:22,520 --> 00:16:25,040 Speaker 3: if you're in an area that's growing, if you're in Asheville, 351 00:16:25,040 --> 00:16:29,280 Speaker 3: North Carolina, or you're in Texas or Florida or Missoula, Montana, 352 00:16:29,320 --> 00:16:31,160 Speaker 3: there are places that are growing and people are going 353 00:16:31,160 --> 00:16:33,760 Speaker 3: to that have good payer mix where people can afford care. 354 00:16:34,400 --> 00:16:36,440 Speaker 3: Those are good facilities to own. But if you're in 355 00:16:36,440 --> 00:16:39,680 Speaker 3: a West Virginia where jobs are declining and people are 356 00:16:39,680 --> 00:16:42,040 Speaker 3: moving away, those are not good hospitals to own. 357 00:16:42,760 --> 00:16:44,720 Speaker 1: Bit of a tangent. But you also look at Weight Watches. 358 00:16:44,960 --> 00:16:46,440 Speaker 1: Oh yes, it's going on there, Mike. 359 00:16:46,480 --> 00:16:51,760 Speaker 3: Oh goodness. For fear of speaking more about ozempic. Weight 360 00:16:51,800 --> 00:16:55,480 Speaker 3: Watchers has been pressured in recent years. During COVID, they 361 00:16:55,560 --> 00:16:58,360 Speaker 3: lost a lot of momentum when they shut down a 362 00:16:58,400 --> 00:17:01,840 Speaker 3: lot of their studios. CEO came in and has tried 363 00:17:01,840 --> 00:17:07,600 Speaker 3: to pivot the company to a digital native offering and 364 00:17:08,680 --> 00:17:12,480 Speaker 3: growth has not come and so they pivoted to buy Sequence, 365 00:17:12,480 --> 00:17:18,600 Speaker 3: which was a basically a let's call it, a provider 366 00:17:18,720 --> 00:17:22,200 Speaker 3: of coverage for folks that are looking to get ozempic 367 00:17:22,240 --> 00:17:25,439 Speaker 3: and various GLP ones. The numbers, the alternative data we 368 00:17:25,520 --> 00:17:28,000 Speaker 3: have on the terminal here suggests that there has not 369 00:17:28,119 --> 00:17:31,360 Speaker 3: been a very big pickup since that acquisition of Sequence, 370 00:17:31,400 --> 00:17:33,920 Speaker 3: and that we're still waiting on it. So weight Watchers, 371 00:17:34,080 --> 00:17:37,479 Speaker 3: you know, those bonds are trading distressed as well, and 372 00:17:37,520 --> 00:17:40,359 Speaker 3: we're still waiting on that uptick that ce Missustani wants 373 00:17:40,400 --> 00:17:42,440 Speaker 3: to see from the Sequence acquisition. 374 00:17:42,920 --> 00:17:43,760 Speaker 1: Are you optimistic? 375 00:17:44,160 --> 00:17:48,640 Speaker 3: I like many Legacy I'm not a member of weight Watchers, 376 00:17:48,720 --> 00:17:53,479 Speaker 3: but I do appreciate behavioral change instead of using drugs 377 00:17:53,480 --> 00:17:56,400 Speaker 3: to effectuate change. And I think a lot of Legacy 378 00:17:56,440 --> 00:17:59,720 Speaker 3: members have shown on social media that they're suspicious of 379 00:17:59,840 --> 00:18:02,680 Speaker 3: the the pivot that weight Watchers has made. And we'll 380 00:18:02,680 --> 00:18:04,080 Speaker 3: see how that story plays out. 381 00:18:04,440 --> 00:18:06,960 Speaker 2: So just to wrap it up, yeah, just going back 382 00:18:06,960 --> 00:18:10,200 Speaker 2: to ozembic, I mean, this is before that, it was AI, right, 383 00:18:10,240 --> 00:18:11,720 Speaker 2: and before that it was Crypto, and this is like 384 00:18:11,760 --> 00:18:13,640 Speaker 2: the new thing now, and I guess we're going back 385 00:18:13,640 --> 00:18:17,879 Speaker 2: to AI with everything happening, But how like, what are 386 00:18:17,880 --> 00:18:19,679 Speaker 2: their legs on that now? I feel like everybody was 387 00:18:19,680 --> 00:18:23,320 Speaker 2: talking about this for a while and it seemed really overdone. 388 00:18:23,440 --> 00:18:24,120 Speaker 4: There were there. 389 00:18:24,040 --> 00:18:27,320 Speaker 2: Was a dialysis company that had their bonds tank off 390 00:18:27,359 --> 00:18:29,879 Speaker 2: some kind of like speculative. I don't want to say speculative, 391 00:18:29,920 --> 00:18:32,919 Speaker 2: but you know, coming up data, it was speculative, it 392 00:18:32,960 --> 00:18:34,520 Speaker 2: was I believe, so in my view. 393 00:18:34,320 --> 00:18:37,280 Speaker 4: Okay, how kind of like overdone? Is that? 394 00:18:37,359 --> 00:18:39,080 Speaker 2: Like is the market kind of like coming to terms 395 00:18:39,119 --> 00:18:41,000 Speaker 2: that they're still trying to wrap their head around what 396 00:18:41,480 --> 00:18:42,240 Speaker 2: these drugs mean. 397 00:18:42,440 --> 00:18:44,240 Speaker 3: Yeah, So the name you're talking about is Divida, and 398 00:18:44,280 --> 00:18:48,000 Speaker 3: they're one of the larger there's really two dialysis providers 399 00:18:48,000 --> 00:18:50,720 Speaker 3: in the US for Zenius Medical Care and Divida, and 400 00:18:50,800 --> 00:18:53,320 Speaker 3: their bonds or their equity sold off about twenty percent 401 00:18:53,680 --> 00:18:57,280 Speaker 3: on the news of this study that suggests the study 402 00:18:57,280 --> 00:19:00,560 Speaker 3: that ended early because they suggested that it would have 403 00:19:00,600 --> 00:19:05,000 Speaker 3: impacts on end stage reasonal disease. And I think in 404 00:19:05,040 --> 00:19:07,240 Speaker 3: a lot of ways, there's a lot of hope attributed 405 00:19:07,280 --> 00:19:11,520 Speaker 3: to ozempic, but there's very little concern about downside risk. 406 00:19:11,760 --> 00:19:14,840 Speaker 3: And anytime you see this much enthusiasm about a drug 407 00:19:14,880 --> 00:19:17,520 Speaker 3: that's going to basically cure the ills of the US 408 00:19:17,600 --> 00:19:21,040 Speaker 3: healthcare system and half the population, I would be suspicious. 409 00:19:22,160 --> 00:19:25,760 Speaker 3: I think attributing a lot of upside to something that 410 00:19:25,800 --> 00:19:30,159 Speaker 3: we don't have much information about is a foolhardy And 411 00:19:30,760 --> 00:19:32,440 Speaker 3: the way that I talk to clients about this is, 412 00:19:32,640 --> 00:19:35,840 Speaker 3: I like with Davida and some other names, it's almost 413 00:19:35,880 --> 00:19:38,359 Speaker 3: as if folks were using ozempic as an excuse to 414 00:19:38,440 --> 00:19:41,720 Speaker 3: reposition away from that equity story or the credit story 415 00:19:41,760 --> 00:19:44,560 Speaker 3: because there are other issues on the horizon for those names. 416 00:19:45,560 --> 00:19:48,080 Speaker 3: I don't agree with a lot of the one hundred 417 00:19:48,119 --> 00:19:52,680 Speaker 3: billion dollar total addressable market for ozempic and the other 418 00:19:53,119 --> 00:19:55,359 Speaker 3: GLP ones, but we'll see. 419 00:19:55,960 --> 00:19:57,600 Speaker 1: So to wrap it up, Mike, give us your outlook 420 00:19:57,600 --> 00:19:59,560 Speaker 1: for the next say twelve months or so. What do 421 00:19:59,600 --> 00:20:01,560 Speaker 1: you worried about for your industries and where do you 422 00:20:01,560 --> 00:20:02,760 Speaker 1: think the biggest opportunity is. 423 00:20:03,560 --> 00:20:06,879 Speaker 3: I think the risk of a recession really starting to 424 00:20:06,960 --> 00:20:09,320 Speaker 3: flow through. I mean, we're starting to see job cuts 425 00:20:10,320 --> 00:20:14,920 Speaker 3: publicized in the media, you know, increasing at an increasing rate. 426 00:20:15,040 --> 00:20:19,160 Speaker 3: And for healthcare, you know, what used to be consumer 427 00:20:19,240 --> 00:20:24,480 Speaker 3: non discretionary is increasingly discretionary as patients or plan members 428 00:20:24,560 --> 00:20:27,080 Speaker 3: or people are on hook on the hook for a 429 00:20:27,160 --> 00:20:32,359 Speaker 3: higher copace with their insurance. As folks get challenged and 430 00:20:32,440 --> 00:20:35,760 Speaker 3: rates rise and excess savings kind of dry up, I 431 00:20:35,760 --> 00:20:37,560 Speaker 3: think you'll start to see that bleed through to Healthcare. 432 00:20:38,520 --> 00:20:41,040 Speaker 1: Mike Colin with Boombug Intelligence in New York, thank you 433 00:20:41,080 --> 00:20:41,840 Speaker 1: so much for joining us. 434 00:20:41,840 --> 00:20:42,280 Speaker 3: Thanks Jreames. 435 00:20:42,359 --> 00:20:43,640 Speaker 1: We look forward to having you back on the show 436 00:20:43,720 --> 00:20:47,200 Speaker 1: very soon and we'll see you at the event on seven. 437 00:20:47,320 --> 00:20:49,040 Speaker 3: Of course, look forward to seeing you there in New York. 438 00:20:49,080 --> 00:20:52,520 Speaker 1: And check out Mike Collins's LinkedIn profile for the links 439 00:20:52,560 --> 00:20:56,639 Speaker 1: to get into that show. And again thanks to Michael 440 00:20:56,760 --> 00:20:59,840 Speaker 1: Tobin with Bloomberg News. Read all of his great scoops 441 00:20:59,840 --> 00:21:02,359 Speaker 1: on the Terminal and at Bloomberg dot com. 442 00:21:02,359 --> 00:21:02,679 Speaker 4: Thank you. 443 00:21:03,400 --> 00:21:05,840 Speaker 1: Please do subscribe where yourever you get your podcasts. We're 444 00:21:05,840 --> 00:21:08,439 Speaker 1: on Apple, Google and Spotify. Give us a review, tell 445 00:21:08,480 --> 00:21:11,639 Speaker 1: your friends, or email me directly at jcrombeight at Bloomberg 446 00:21:11,680 --> 00:21:14,640 Speaker 1: dot net. I'm James Crombie. It's been a pleasure having 447 00:21:14,680 --> 00:21:17,320 Speaker 1: you join us again next week on the Credit Edge.