1 00:00:09,680 --> 00:00:12,760 Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast. 2 00:00:13,080 --> 00:00:15,800 Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg. 3 00:00:16,680 --> 00:00:19,799 Speaker 1: Today's guest Sir Erin Hudson, who reports on distressed debt 4 00:00:19,800 --> 00:00:22,439 Speaker 1: for Bloomberg News in New York. We're delighted to have 5 00:00:22,480 --> 00:00:23,120 Speaker 1: you on the show. 6 00:00:23,400 --> 00:00:24,520 Speaker 2: Thanks so much for having me. 7 00:00:24,960 --> 00:00:27,280 Speaker 1: We're also very pleased to welcome Paul Vickers, who covers 8 00:00:27,400 --> 00:00:29,360 Speaker 1: energy for Bloomberg Intelligence in London. 9 00:00:29,640 --> 00:00:30,840 Speaker 3: Yeah, thanks for having me as well. 10 00:00:31,360 --> 00:00:33,080 Speaker 1: We'll be coming back to energy in a bit. There's 11 00:00:33,120 --> 00:00:35,280 Speaker 1: lots of exciting stuff going on there, so do stay 12 00:00:35,280 --> 00:00:39,680 Speaker 1: with us. But first, Erin Hudson, with Bloomberg News, you've 13 00:00:39,720 --> 00:00:42,760 Speaker 1: been digging deep into distressed debt. A lot of companies 14 00:00:42,760 --> 00:00:45,000 Speaker 1: are running into trouble at the moment, with interest rates 15 00:00:45,360 --> 00:00:49,000 Speaker 1: rising and the economy slowing down, potentially tipping into a recession. 16 00:00:49,560 --> 00:00:52,720 Speaker 1: Inflation and volatility in the financial sector don't help. A 17 00:00:52,720 --> 00:00:56,000 Speaker 1: lot of regional banks are really struggling. Plus, the anxiety 18 00:00:56,000 --> 00:00:58,960 Speaker 1: about the debt ceiling is the highest I've seen in years. 19 00:00:59,120 --> 00:01:01,560 Speaker 1: I have to go back to twenty eleven for the 20 00:01:01,640 --> 00:01:04,959 Speaker 1: last time it's been this exciting. So you've been talking 21 00:01:05,000 --> 00:01:08,399 Speaker 1: to some very large distressed debt investors. What are they saying, 22 00:01:08,440 --> 00:01:10,399 Speaker 1: is everything about to blow up? And what do they 23 00:01:10,440 --> 00:01:12,120 Speaker 1: see as the big opportunity here erin? 24 00:01:12,880 --> 00:01:15,320 Speaker 2: Well, it sounds like there's a lot to look at 25 00:01:15,959 --> 00:01:19,000 Speaker 2: all over the place, and especially to do with the banks. 26 00:01:20,440 --> 00:01:22,560 Speaker 2: You know, it sounds like everyone is doing work on 27 00:01:22,920 --> 00:01:26,240 Speaker 2: what are the assets that various banks have, what is 28 00:01:26,280 --> 00:01:31,240 Speaker 2: the structure of their capital their capital stack, So you know, 29 00:01:31,280 --> 00:01:33,479 Speaker 2: they're sort of looking at how they can get involved, 30 00:01:34,160 --> 00:01:36,920 Speaker 2: you know, where they want to make their bets and 31 00:01:37,600 --> 00:01:41,360 Speaker 2: you know what the assets are. Obviously we kind of 32 00:01:41,480 --> 00:01:45,520 Speaker 2: saw the issues with with Silicon Valley Bank and the 33 00:01:45,640 --> 00:01:50,560 Speaker 2: duration of their treasuries. But you know, I think now 34 00:01:50,640 --> 00:01:53,600 Speaker 2: people are sort of looking at the commercial real estate loans. 35 00:01:54,400 --> 00:01:59,360 Speaker 2: I've had investors mentioned commercial and industrial loans in particulars 36 00:01:59,520 --> 00:02:03,000 Speaker 2: as something they're they're taking a look at. So, yeah, 37 00:02:03,040 --> 00:02:05,880 Speaker 2: it seems like this The feeling is that this also 38 00:02:06,400 --> 00:02:12,320 Speaker 2: opens up opportunities outside just the banks themselves for direct ending, 39 00:02:13,040 --> 00:02:17,320 Speaker 2: and you know, and then obviously companies themselves that no 40 00:02:17,400 --> 00:02:20,160 Speaker 2: longer have the same access to credit if they relied 41 00:02:20,240 --> 00:02:21,440 Speaker 2: on the regional banks. 42 00:02:21,639 --> 00:02:23,040 Speaker 1: Let me just start me there on the banks So, 43 00:02:23,120 --> 00:02:25,440 Speaker 1: I mean, we've saw this wave of distress. We saw 44 00:02:25,520 --> 00:02:28,600 Speaker 1: Credit Swiss basically disappear, we saw all of these other 45 00:02:28,720 --> 00:02:30,560 Speaker 1: regional banks. There was a kind of a domino effect. 46 00:02:30,560 --> 00:02:34,280 Speaker 1: I mean, it just seemed very precarious even last you know, 47 00:02:34,680 --> 00:02:37,240 Speaker 1: last few days, last few weeks, and we're talking sort 48 00:02:37,280 --> 00:02:40,400 Speaker 1: of mid May. Now is the crisis over? 49 00:02:42,440 --> 00:02:46,000 Speaker 2: I wish, I wish we knew. I don't know if 50 00:02:46,000 --> 00:02:53,760 Speaker 2: anyone impossible to say, but I think there's a sense 51 00:02:53,800 --> 00:02:57,839 Speaker 2: that there will be more distress for sure, and there's 52 00:02:57,880 --> 00:02:59,040 Speaker 2: a lot more work to do. 53 00:02:59,560 --> 00:03:03,000 Speaker 1: Okay, So people are sort of trading and betting on now. 54 00:03:03,000 --> 00:03:05,680 Speaker 1: They're looking, as you say, the balance sheets of these banks. 55 00:03:05,800 --> 00:03:09,160 Speaker 1: They're looking at exposure to treasuries which have gone down 56 00:03:09,200 --> 00:03:12,400 Speaker 1: because of duration, looking at exposure to commercial real estate. 57 00:03:13,639 --> 00:03:16,360 Speaker 1: And so do we expect now distressed investors to be 58 00:03:16,480 --> 00:03:19,000 Speaker 1: much more actively engaged than looking at these banks much 59 00:03:19,000 --> 00:03:20,639 Speaker 1: more closely? Is that the takeaway? 60 00:03:21,000 --> 00:03:23,720 Speaker 2: It sounds like it. Yeah, And it also sounds like 61 00:03:23,720 --> 00:03:27,200 Speaker 2: there's sort of a sense that depositors themselves are a 62 00:03:27,240 --> 00:03:29,840 Speaker 2: bit more of a flight risk than you know before. 63 00:03:30,000 --> 00:03:35,120 Speaker 2: So yeah, there's definitely a lot of moving pieces. 64 00:03:35,080 --> 00:03:36,720 Speaker 1: Who actually made money on those trades. 65 00:03:38,520 --> 00:03:44,960 Speaker 2: Some people Marathon Asset Management in particular, we reported that 66 00:03:45,040 --> 00:03:49,160 Speaker 2: they made thirty million trading credits sweet sponds before the 67 00:03:49,200 --> 00:03:55,040 Speaker 2: takeover by UBS. The You know, some of these that's 68 00:03:55,040 --> 00:03:59,000 Speaker 2: will take a long time to play out. In Silicon 69 00:03:59,080 --> 00:04:02,200 Speaker 2: Valley Bank, for instance, you know that bankruptcy is ongoing, 70 00:04:02,720 --> 00:04:05,200 Speaker 2: so it'll take a while to know, you know, who 71 00:04:05,240 --> 00:04:08,840 Speaker 2: made who who's the biggest winner or the biggest loser. 72 00:04:09,440 --> 00:04:11,720 Speaker 1: But definitely an opportunity for the distress shops. They're also 73 00:04:11,760 --> 00:04:14,360 Speaker 1: looking at consumer companies, right I mean, one of the 74 00:04:14,400 --> 00:04:16,919 Speaker 1: people you were talking to is actually handling the liquidation 75 00:04:16,960 --> 00:04:20,039 Speaker 1: of bed Bath and Beyond and Brick and more. To 76 00:04:20,120 --> 00:04:22,960 Speaker 1: retail general is getting hit especially hard right now. What's 77 00:04:23,000 --> 00:04:23,680 Speaker 1: the outlook there? 78 00:04:24,880 --> 00:04:30,240 Speaker 2: Yeah, I mean, obviously there have have been several retail 79 00:04:30,279 --> 00:04:37,960 Speaker 2: bankruptcies so far this year and several notable liquidations, but 80 00:04:38,120 --> 00:04:41,640 Speaker 2: you know, I think that the consumer is overall holding 81 00:04:41,680 --> 00:04:45,120 Speaker 2: up better than expected. And in retail too, I think, 82 00:04:45,320 --> 00:04:48,159 Speaker 2: you know, there's a sense that won't last, you know, 83 00:04:48,200 --> 00:04:52,000 Speaker 2: and especially if a retailer is not you know, the 84 00:04:52,040 --> 00:04:56,440 Speaker 2: top one or two in their sector, they are probably 85 00:04:56,920 --> 00:05:00,839 Speaker 2: going to be facing some struggles. But it seems like 86 00:05:00,960 --> 00:05:05,680 Speaker 2: there might be a little bit more runway there, but 87 00:05:05,760 --> 00:05:09,160 Speaker 2: you know, there's there's definitely some big, big fundamental questions 88 00:05:09,200 --> 00:05:13,120 Speaker 2: like like what is what is the value of a brand? 89 00:05:13,320 --> 00:05:16,240 Speaker 2: You know, are people do people really have brand loyalty anymore? 90 00:05:17,360 --> 00:05:21,960 Speaker 2: You know, so consumer behavior I think is changing. Consumer 91 00:05:22,040 --> 00:05:25,640 Speaker 2: behavior is definitely something that like no one can really 92 00:05:25,640 --> 00:05:28,880 Speaker 2: take for granted anymore, and it's it's maybe a bit 93 00:05:28,920 --> 00:05:29,760 Speaker 2: harder to predict. 94 00:05:30,040 --> 00:05:33,040 Speaker 1: They're also being quite affected by the pullback by regional banks, right, 95 00:05:33,080 --> 00:05:35,239 Speaker 1: I mean, the they were funding a lot of these 96 00:05:35,400 --> 00:05:38,279 Speaker 1: companies on the retail side, so that's going to hurt. 97 00:05:38,320 --> 00:05:41,880 Speaker 1: And then as you say, the economy is slowing, there's inflation. 98 00:05:42,040 --> 00:05:45,960 Speaker 1: Consumers have been resilient, but they're not presumably going to 99 00:05:46,040 --> 00:05:47,000 Speaker 1: remain that way forever. 100 00:05:48,000 --> 00:05:50,480 Speaker 2: Yeah, I think there's there's definitely a sense that, you know, 101 00:05:50,600 --> 00:05:54,800 Speaker 2: cracks are starting to emerge. One investor was sort of 102 00:05:54,800 --> 00:05:58,480 Speaker 2: mentioning just the delinquency rates in subpar car loans as 103 00:05:58,720 --> 00:06:04,799 Speaker 2: one indicator that all is not well and that you know, yeah, 104 00:06:05,480 --> 00:06:09,200 Speaker 2: there will be problems. There are problems, but it's taking 105 00:06:09,200 --> 00:06:10,200 Speaker 2: a while to trickle through. 106 00:06:10,600 --> 00:06:13,640 Speaker 1: Another one that we constantly hear about in the context 107 00:06:13,720 --> 00:06:18,440 Speaker 1: of distress is healthcare and distress that investors seem to 108 00:06:18,560 --> 00:06:20,599 Speaker 1: like that one. Why do they get involved there? 109 00:06:21,839 --> 00:06:24,279 Speaker 2: Yeah? I think I think the sense is there's a 110 00:06:24,279 --> 00:06:28,080 Speaker 2: lot of opportunity there to kind of, you know, right 111 00:06:28,200 --> 00:06:32,880 Speaker 2: size a balance sheet, sort of adjust the valuation of 112 00:06:32,960 --> 00:06:38,120 Speaker 2: these companies. And I think, you know, there's there's some 113 00:06:38,120 --> 00:06:43,239 Speaker 2: some triggers there that you know, you can't always see coming, 114 00:06:43,320 --> 00:06:49,320 Speaker 2: but you know, regulatory policy changes. So healthcare services is 115 00:06:49,400 --> 00:06:54,080 Speaker 2: a business that they've sort of flagged as highly highly interesting. 116 00:06:54,760 --> 00:06:57,800 Speaker 2: And then also pharma with the idea that you know, 117 00:06:57,880 --> 00:07:01,120 Speaker 2: if a company loses a patent for rug, you know, 118 00:07:01,480 --> 00:07:05,520 Speaker 2: that creates uh trouble for the company, and it's kind 119 00:07:05,520 --> 00:07:09,760 Speaker 2: of an opportunity for distrussed investors. So yeah, there's been 120 00:07:10,240 --> 00:07:12,680 Speaker 2: you know, there's obviously a lot of changes that have 121 00:07:12,760 --> 00:07:16,600 Speaker 2: happened the strain of the pandemic. So I think there's 122 00:07:16,720 --> 00:07:21,080 Speaker 2: a lot of headwinds there for those businesses, which creates 123 00:07:21,080 --> 00:07:24,880 Speaker 2: opportunities for the distrusted investor community. 124 00:07:25,120 --> 00:07:26,800 Speaker 1: We should those companies be in good shape. I mean, 125 00:07:26,840 --> 00:07:29,119 Speaker 1: we're all getting older and sicker and you know, living 126 00:07:29,120 --> 00:07:31,720 Speaker 1: on forever. So it wasn't isn't Why why aren't those 127 00:07:31,720 --> 00:07:33,640 Speaker 1: firms seeing really really well. 128 00:07:34,120 --> 00:07:36,800 Speaker 2: Well, it's so it's kind of like this mix of 129 00:07:36,880 --> 00:07:44,520 Speaker 2: so if regulatory and policy changes happened that which have 130 00:07:44,600 --> 00:07:47,080 Speaker 2: happened over the past couple of years, which changed the 131 00:07:47,120 --> 00:07:50,200 Speaker 2: amount of you know, reimbursements that these companies can collect 132 00:07:50,320 --> 00:07:55,680 Speaker 2: from health insurance or government agencies, then you have the 133 00:07:55,800 --> 00:08:00,400 Speaker 2: labor pressures, you know, the difficulty hiring skilled staff, needing 134 00:08:00,440 --> 00:08:04,560 Speaker 2: to pay them more and more. You know, those are 135 00:08:04,640 --> 00:08:06,680 Speaker 2: a few of the things. And then with the pandemic, 136 00:08:06,760 --> 00:08:09,760 Speaker 2: you know a lot of people you know, stopped going 137 00:08:09,760 --> 00:08:14,800 Speaker 2: in for these elective, elective and preventive care type of treatment, 138 00:08:15,000 --> 00:08:18,040 Speaker 2: so that those are sort of like the biggest moneymakers 139 00:08:18,120 --> 00:08:22,960 Speaker 2: at times for many of these these healthcare services. And 140 00:08:23,520 --> 00:08:26,560 Speaker 2: you know, it's also not always the most desirable job 141 00:08:26,600 --> 00:08:30,920 Speaker 2: to have anymore. So I think there's just there's a 142 00:08:30,960 --> 00:08:33,720 Speaker 2: whole you know, Bloomberg has done a lot of great 143 00:08:33,760 --> 00:08:37,560 Speaker 2: reporting on on on the pressures that are facing healthcare. 144 00:08:37,600 --> 00:08:42,040 Speaker 2: It does feel a little on it like counterintuitive, but yeah, 145 00:08:42,080 --> 00:08:45,439 Speaker 2: it's definitely a sector that's in the crosshairs. 146 00:08:45,960 --> 00:08:48,560 Speaker 1: Nothing that came up when you were talking to the 147 00:08:48,640 --> 00:08:52,360 Speaker 1: distressed investors was ever grand, which is a massive Chinese 148 00:08:52,400 --> 00:08:55,160 Speaker 1: property developer that we've talked a lot about on this show. 149 00:08:55,200 --> 00:08:57,400 Speaker 1: They have, you know, tens of billions of dollars in debt, 150 00:08:57,440 --> 00:08:59,840 Speaker 1: They've got a lot of creditors all around the world, 151 00:09:01,280 --> 00:09:03,760 Speaker 1: specifically on the US investors side. I'm interested to kind 152 00:09:03,760 --> 00:09:06,239 Speaker 1: of understand what did what did they learn from this process? 153 00:09:06,120 --> 00:09:09,720 Speaker 1: It seemed to have progressed very very quickly, and you know, 154 00:09:09,880 --> 00:09:12,480 Speaker 1: investors were very engaged. So what did they learn? 155 00:09:14,080 --> 00:09:17,680 Speaker 2: Yeah, I mean it's it's it's far from over, it's 156 00:09:17,720 --> 00:09:21,560 Speaker 2: not quite over, but it seems like they're sort of 157 00:09:21,600 --> 00:09:25,560 Speaker 2: a some investors are walking away with a bit of 158 00:09:25,559 --> 00:09:30,360 Speaker 2: a renewed sense of faith in the in the system 159 00:09:30,720 --> 00:09:35,080 Speaker 2: and confidence I guess in the you know, the restructuring 160 00:09:35,120 --> 00:09:39,680 Speaker 2: process that Chinese companies will undergo and how how they 161 00:09:40,640 --> 00:09:44,280 Speaker 2: approach it. So I think, you know, that seems to 162 00:09:44,320 --> 00:09:47,920 Speaker 2: be the takeaway for the moment, but you know, of 163 00:09:47,960 --> 00:09:52,560 Speaker 2: course it's an ongoing situation, so whether it will pay 164 00:09:52,600 --> 00:09:55,920 Speaker 2: off the way that they're hoping and expecting it will 165 00:09:57,040 --> 00:10:01,520 Speaker 2: remains to be seen. So you know, story will continue 166 00:10:01,520 --> 00:10:05,479 Speaker 2: to follow because, yeah, it would have some big impacts. 167 00:10:06,440 --> 00:10:08,960 Speaker 1: I guess also, you know, China being the second biggest economy. 168 00:10:08,960 --> 00:10:12,520 Speaker 1: They need capsule, They need foreign capital particularly to sustain 169 00:10:12,640 --> 00:10:15,160 Speaker 1: and build that economy, and they're going to need a 170 00:10:15,200 --> 00:10:17,520 Speaker 1: lot of it over a long period, So they want 171 00:10:17,559 --> 00:10:19,319 Speaker 1: to keep foreign investors happy. 172 00:10:19,080 --> 00:10:22,040 Speaker 2: Right, Yes, And that definitely came up as you know, 173 00:10:22,160 --> 00:10:25,160 Speaker 2: an sort of the thesis that was kind of under 174 00:10:27,440 --> 00:10:31,880 Speaker 2: underpinning that bet is the idea that you know, offshore 175 00:10:31,920 --> 00:10:37,200 Speaker 2: creditors aren't going to be completely you know, completely shafted 176 00:10:37,559 --> 00:10:41,880 Speaker 2: or put thrown to the side because you know eventually 177 00:10:42,040 --> 00:10:48,160 Speaker 2: they will need to come into provide capital. So yeah, 178 00:10:48,160 --> 00:10:52,160 Speaker 2: it seems like that is definitely the belief that's sort 179 00:10:52,160 --> 00:10:55,040 Speaker 2: of driving a lot of those investors who have gotten involved. 180 00:10:55,440 --> 00:10:57,880 Speaker 1: Okay, great, So before we talked to Paul Vickers at 181 00:10:57,880 --> 00:11:02,360 Speaker 1: Bloomberg Intelligence, Stephan be what our investors surprised about right 182 00:11:02,400 --> 00:11:04,320 Speaker 1: now and what are they preparing for for the next 183 00:11:04,400 --> 00:11:06,400 Speaker 1: let's say, twelve months. 184 00:11:06,800 --> 00:11:10,679 Speaker 2: Yeah, I mean, I think that the ongoing strength of 185 00:11:10,720 --> 00:11:15,000 Speaker 2: the housing market is a point of surprise and sort 186 00:11:15,000 --> 00:11:21,440 Speaker 2: of fascination. It seems like the shift to ev EV 187 00:11:21,600 --> 00:11:27,760 Speaker 2: mandates electric vehicles. Yeah, and just that that whole shift 188 00:11:27,800 --> 00:11:30,720 Speaker 2: in the in the auto sector. I think there's the 189 00:11:31,480 --> 00:11:33,480 Speaker 2: feeling that that's going to cause a lot of disruption, 190 00:11:33,640 --> 00:11:37,080 Speaker 2: which again is going to make distress investors and uh, 191 00:11:38,559 --> 00:11:43,160 Speaker 2: the community of advisors in the distrust in world very busy. 192 00:11:43,640 --> 00:11:47,040 Speaker 2: And then I think there's also sort of you know, 193 00:11:47,440 --> 00:11:50,880 Speaker 2: just looking at the phenomena of the meme stocks, I 194 00:11:50,880 --> 00:11:54,720 Speaker 2: think that's becoming a more a greater factor when people 195 00:11:54,760 --> 00:11:58,760 Speaker 2: are evaluating these situations. There's sort of the sense that 196 00:11:58,760 --> 00:12:01,720 Speaker 2: that has staying power. As much as the meme stock 197 00:12:01,800 --> 00:12:04,840 Speaker 2: era seems to have passed, it seems like, you know, 198 00:12:04,880 --> 00:12:05,800 Speaker 2: it's still lingering. 199 00:12:06,400 --> 00:12:08,280 Speaker 1: And in terms of opportunity, I mean, we've been hearing 200 00:12:08,320 --> 00:12:13,000 Speaker 1: for years I have, particularly distress investors dry powder, you know, 201 00:12:13,040 --> 00:12:15,480 Speaker 1: billions and billions of it just stacking up on the sidelines, 202 00:12:15,480 --> 00:12:20,240 Speaker 1: but never enough distress for them to really deploy all 203 00:12:20,240 --> 00:12:22,920 Speaker 1: of that. Are we finally, I mean rates going up, 204 00:12:23,160 --> 00:12:27,560 Speaker 1: the economy going down, all these other things, you know, geopolitics, 205 00:12:27,600 --> 00:12:30,840 Speaker 1: all this other volatility. Is this now the moment for distressed? 206 00:12:30,960 --> 00:12:32,360 Speaker 1: Are they excited now? Are they happy? 207 00:12:33,600 --> 00:12:37,200 Speaker 2: I don't know. Unfortunately, I think there's I think there's 208 00:12:37,240 --> 00:12:42,120 Speaker 2: some mixed feelings. One investor who probably put it best 209 00:12:42,160 --> 00:12:45,199 Speaker 2: is looking at in the context of looking at commercial 210 00:12:45,200 --> 00:12:47,080 Speaker 2: real estate is sort of like, you know, you see 211 00:12:47,120 --> 00:12:50,120 Speaker 2: there's problems, but is this the moment or should you 212 00:12:50,160 --> 00:12:52,400 Speaker 2: wait six months? Should you wait a year? Are think 213 00:12:52,400 --> 00:12:54,360 Speaker 2: it's going to get even worse, and you know it 214 00:12:54,400 --> 00:12:59,280 Speaker 2: makes an even more attractive investment opportunity. So I think 215 00:12:59,400 --> 00:13:00,840 Speaker 2: time is going to tell. 216 00:13:01,400 --> 00:13:03,800 Speaker 1: Grattef Aeron Hudson from Bloomberg News, thank you so much 217 00:13:03,840 --> 00:13:06,800 Speaker 1: for joining us. Thank you read all of erin'scoops on 218 00:13:06,840 --> 00:13:10,120 Speaker 1: the Bloomberg terminal and of course at Bloomberg dot com. 219 00:13:10,640 --> 00:13:12,880 Speaker 1: Moving on to another big topic. As I mentioned earlier, 220 00:13:12,880 --> 00:13:14,800 Speaker 1: we are very fortunate to have with us Paul Vickers, 221 00:13:14,800 --> 00:13:18,280 Speaker 1: who looks at energy for Bloomberg Intelligence. What's going on 222 00:13:18,320 --> 00:13:20,920 Speaker 1: with the energy sector, Paul, Oil prices are down, We're 223 00:13:20,920 --> 00:13:23,559 Speaker 1: heading into a recession, as we keep talking about, Plus 224 00:13:23,559 --> 00:13:25,839 Speaker 1: theres a war going on just to the east of view. 225 00:13:26,000 --> 00:13:27,280 Speaker 1: Is it all bad news over there? 226 00:13:27,679 --> 00:13:29,160 Speaker 4: Well, not so much bad news, I think for the 227 00:13:29,240 --> 00:13:32,319 Speaker 4: energy sectors. I work for Bloomberg Intelligence. I cover energy 228 00:13:32,360 --> 00:13:35,240 Speaker 4: and utilities across Europe, a couple of global oils and 229 00:13:35,320 --> 00:13:37,960 Speaker 4: of course the high old prices have been there been 230 00:13:38,000 --> 00:13:40,680 Speaker 4: a windfall for them. They've done particularly well over the 231 00:13:40,720 --> 00:13:44,760 Speaker 4: last eighteen months or so, less could be said for 232 00:13:44,800 --> 00:13:47,640 Speaker 4: the utilities. You think again, being a sort of power producer, 233 00:13:47,679 --> 00:13:50,240 Speaker 4: you think higher power prices would be good for these guys. 234 00:13:50,360 --> 00:13:52,679 Speaker 4: That's not always the case there. They're often hedged very 235 00:13:52,679 --> 00:13:55,400 Speaker 4: heavily up to one to three years ahead, and the 236 00:13:55,480 --> 00:13:58,880 Speaker 4: high prices and volatility have created liquidity problems that the 237 00:13:58,960 --> 00:14:00,160 Speaker 4: Russian supply comes. 238 00:14:01,800 --> 00:14:03,719 Speaker 3: Impacted those that were dependent on them. 239 00:14:03,720 --> 00:14:07,000 Speaker 4: It's caught companies like Uniper to its needs and nationalized 240 00:14:07,480 --> 00:14:09,040 Speaker 4: nationalization by the German government. 241 00:14:09,120 --> 00:14:11,480 Speaker 3: It's had for other reasons as well. 242 00:14:11,640 --> 00:14:14,439 Speaker 4: Df was nationalized because it had to buy a lot 243 00:14:14,440 --> 00:14:16,880 Speaker 4: of power in the market at very high prices. So 244 00:14:16,880 --> 00:14:20,320 Speaker 4: for utilities, these higher power prices haven't haven't been a 245 00:14:20,320 --> 00:14:23,920 Speaker 4: godsend at all. In fact, they've really threatened the very 246 00:14:23,920 --> 00:14:26,720 Speaker 4: sort of structure of the entire industry. But what we 247 00:14:26,800 --> 00:14:29,680 Speaker 4: have seen is the EU has responded to these Russian 248 00:14:29,720 --> 00:14:30,840 Speaker 4: gas supplycasts. 249 00:14:30,960 --> 00:14:33,240 Speaker 3: They're now running around ten percent of what they worked 250 00:14:33,280 --> 00:14:34,280 Speaker 3: prior to the invasion. 251 00:14:34,920 --> 00:14:37,440 Speaker 4: But they've posentially been replaced. It could have been happening 252 00:14:37,440 --> 00:14:41,320 Speaker 4: with power prices or they stop gas prices. They're around 253 00:14:41,320 --> 00:14:43,560 Speaker 4: thirty five years A mega walked out now are. They 254 00:14:43,760 --> 00:14:47,240 Speaker 4: peaked at over three hundred during the during the last summer, 255 00:14:47,880 --> 00:14:50,480 Speaker 4: and of course, with with gas prices setting turing, the 256 00:14:50,480 --> 00:14:52,520 Speaker 4: price were paying the power market much of the time. 257 00:14:52,720 --> 00:14:54,840 Speaker 4: The same thing's happened in power are they're around ninety 258 00:14:54,880 --> 00:14:56,800 Speaker 4: years and make it allowed for a peak of over 259 00:14:56,840 --> 00:14:59,840 Speaker 4: six hundred. So the prices have really fallen mainly because 260 00:15:00,120 --> 00:15:02,280 Speaker 4: the use taking an awful lot of initiatives. 261 00:15:02,400 --> 00:15:03,920 Speaker 3: It's boosted LNG. 262 00:15:03,840 --> 00:15:08,560 Speaker 4: Supplies, it is pushed renewables, it's increased in imported gas 263 00:15:08,640 --> 00:15:12,400 Speaker 4: by pipeline from countries like Norway. In Oligeer area, it's 264 00:15:12,440 --> 00:15:17,280 Speaker 4: also made a big push to improve the energy efficiency 265 00:15:17,360 --> 00:15:18,760 Speaker 4: and demand side management. 266 00:15:19,160 --> 00:15:20,880 Speaker 3: And at the same time they also. 267 00:15:20,680 --> 00:15:23,840 Speaker 4: Achieved their goal of having European gas storage stocks ninety 268 00:15:23,880 --> 00:15:25,920 Speaker 4: five percent full at the start of the heating season. 269 00:15:26,480 --> 00:15:29,040 Speaker 4: They achieved that and it never went below fifty and 270 00:15:29,040 --> 00:15:31,760 Speaker 4: now they're restopping again. So really, when you've got fifty 271 00:15:31,760 --> 00:15:34,720 Speaker 4: percent of your gas supply still full at the very 272 00:15:34,760 --> 00:15:39,120 Speaker 4: sort of trough of the cycle moving into the summer 273 00:15:39,160 --> 00:15:43,120 Speaker 4: sort of the period, a warmer period, and the gas 274 00:15:43,600 --> 00:15:47,680 Speaker 4: demand it's in pretty good shape and power prices reflect that. 275 00:15:47,800 --> 00:15:50,960 Speaker 4: So what's happened nows these companies have, you know, the 276 00:15:51,080 --> 00:15:55,040 Speaker 4: risks have gone, those risks polatility of liquidity or of 277 00:15:55,080 --> 00:15:58,160 Speaker 4: having to buy the sort of short power in the market, 278 00:15:58,400 --> 00:16:01,840 Speaker 4: they've disappeared. These companies much better place right now. In fact, 279 00:16:01,840 --> 00:16:04,480 Speaker 4: they're very well placed for this year as they've managed 280 00:16:04,480 --> 00:16:07,440 Speaker 4: to put on hedges at higher levels. So it's quite 281 00:16:07,480 --> 00:16:09,520 Speaker 4: a bit of earning sort of growth is baked in. 282 00:16:10,040 --> 00:16:12,400 Speaker 4: So yeah, we're pretty relaxed about the utility set and 283 00:16:12,400 --> 00:16:15,680 Speaker 4: I think from my perspective, it's probably you know, it 284 00:16:15,680 --> 00:16:17,160 Speaker 4: looks like it's time to cool the end of the 285 00:16:17,240 --> 00:16:20,280 Speaker 4: energy crisis. I think that's quite a sort of strong statement. 286 00:16:20,320 --> 00:16:22,400 Speaker 4: I think the regulator would be less willing. 287 00:16:22,160 --> 00:16:24,680 Speaker 3: To do so, but if he takes guidance from. 288 00:16:24,880 --> 00:16:29,320 Speaker 4: The World Health Organization last week called it enter the 289 00:16:29,320 --> 00:16:32,760 Speaker 4: COVID nineteen emergency status and they said it's time to 290 00:16:33,080 --> 00:16:34,960 Speaker 4: transition into long term management. 291 00:16:35,640 --> 00:16:36,240 Speaker 3: I think that's the. 292 00:16:36,200 --> 00:16:39,480 Speaker 4: Same for the energy crisis. I think we're through it. 293 00:16:39,480 --> 00:16:41,200 Speaker 4: It's never going to be the same again. I mean 294 00:16:41,200 --> 00:16:45,160 Speaker 4: that Europe is now reliant, It has no ten percent 295 00:16:45,200 --> 00:16:48,640 Speaker 4: of the sort of Russian gas applies that formerly supplied 296 00:16:48,640 --> 00:16:49,880 Speaker 4: around forty percent of the market. 297 00:16:49,880 --> 00:16:50,320 Speaker 3: They've gone. 298 00:16:50,320 --> 00:16:54,600 Speaker 4: They're not coming back, but the authorities have taken measures 299 00:16:54,600 --> 00:16:57,080 Speaker 4: to replace it and to compensate for it. 300 00:16:57,120 --> 00:17:00,160 Speaker 3: And I think we're in the much calmer waters ahead, So. 301 00:17:00,080 --> 00:17:02,640 Speaker 1: It's all looking pretty rosy then, Paul. I mean, would 302 00:17:02,640 --> 00:17:05,879 Speaker 1: you call this sector specifically the energy sector? Would you 303 00:17:05,920 --> 00:17:09,240 Speaker 1: call it defensive relative to other parts of the economy. 304 00:17:09,600 --> 00:17:12,520 Speaker 4: What's certainly the only gas sector I'd say is in 305 00:17:12,640 --> 00:17:14,920 Speaker 4: all the prices you see have fallen from their peaks, 306 00:17:15,359 --> 00:17:19,120 Speaker 4: you know, OPEK classes doing what it can to sort 307 00:17:19,119 --> 00:17:21,359 Speaker 4: of maybe support that, so that there's, you know, the 308 00:17:21,480 --> 00:17:24,480 Speaker 4: feeling that they're sort of their ideal sort of support level. 309 00:17:24,960 --> 00:17:26,760 Speaker 3: More might be around eighty dollars a barrel. 310 00:17:26,800 --> 00:17:28,680 Speaker 4: So if you open that sort of level, then look 311 00:17:28,720 --> 00:17:30,920 Speaker 4: at the let's thing at the oil natures and they 312 00:17:30,960 --> 00:17:34,360 Speaker 4: have break even level. This is after dividends and capex 313 00:17:35,040 --> 00:17:38,480 Speaker 4: have been paid around forty to fifty dollars, so they're 314 00:17:38,520 --> 00:17:41,560 Speaker 4: still thrown off an awful lot of free cash flow 315 00:17:41,680 --> 00:17:44,080 Speaker 4: that level. They may well be returning it mostly to 316 00:17:44,160 --> 00:17:47,200 Speaker 4: shelders now, but it doesn't really matter because they managed 317 00:17:47,240 --> 00:17:50,320 Speaker 4: to bring leverage down to in some cases there's negative 318 00:17:50,400 --> 00:17:52,560 Speaker 4: levels and other cases sort of single digits sort of 319 00:17:52,560 --> 00:17:52,840 Speaker 4: debt to. 320 00:17:52,880 --> 00:17:55,600 Speaker 3: Equity, So there's an allthwort of capacity for. 321 00:17:55,560 --> 00:17:58,359 Speaker 4: These guys to releverage the balance you so even if 322 00:17:58,359 --> 00:18:01,360 Speaker 4: all does drop a little bit more, they'll can't share 323 00:18:01,400 --> 00:18:05,679 Speaker 4: buybacks back down. But there's still plenty of capacity to 324 00:18:05,680 --> 00:18:08,159 Speaker 4: re leverage without threatening credit quality, and that's sort of 325 00:18:08,240 --> 00:18:09,960 Speaker 4: key for the sector. So yes, I would say that 326 00:18:10,000 --> 00:18:12,280 Speaker 4: the oiler gas is a safe haven. I think the 327 00:18:12,320 --> 00:18:16,200 Speaker 4: other side of the coin of utilities is whereas the 328 00:18:16,280 --> 00:18:19,080 Speaker 4: risk we are on the downside previously, I don't see much 329 00:18:19,080 --> 00:18:21,600 Speaker 4: outside because I think these companies will use any sort 330 00:18:21,600 --> 00:18:24,800 Speaker 4: of windfalls they get from higher edge levels just to 331 00:18:24,840 --> 00:18:28,199 Speaker 4: reinvest more and more into the renewables sector. This is 332 00:18:28,320 --> 00:18:32,080 Speaker 4: really any constraints to their growth the sort of balance sheets, 333 00:18:32,080 --> 00:18:33,919 Speaker 4: and they're really fairly stretched, so they don't have the 334 00:18:33,920 --> 00:18:38,240 Speaker 4: same flexibility gas companies due to re leverage. So the 335 00:18:38,320 --> 00:18:41,440 Speaker 4: higher earnings they're seeing from these power prices now from 336 00:18:41,920 --> 00:18:45,840 Speaker 4: say inflation linked to earnings in the regulated name by businesses, 337 00:18:46,480 --> 00:18:48,360 Speaker 4: these are all allowing them to actually sort of take 338 00:18:48,400 --> 00:18:51,080 Speaker 4: on more debt and drive renewables growth. I mean they're 339 00:18:51,119 --> 00:18:54,240 Speaker 4: looking some companies, you know, fifteen to twenty percent sort 340 00:18:54,240 --> 00:18:56,320 Speaker 4: of growth over the sort of mid term as they 341 00:18:56,400 --> 00:19:01,480 Speaker 4: rolled out wind and solar and hydrogen network up great projects. 342 00:19:01,480 --> 00:19:05,560 Speaker 4: So yeah, this is there's a great growth phase going 343 00:19:05,560 --> 00:19:07,760 Speaker 4: on the utility centrum and you're not really seeing that 344 00:19:07,960 --> 00:19:10,160 Speaker 4: in the on a gas sector. These guys haven't really 345 00:19:10,160 --> 00:19:13,479 Speaker 4: boosted cafes that much. You know that there's an element 346 00:19:13,800 --> 00:19:16,080 Speaker 4: of rising spending, but it's not really about growth. 347 00:19:16,080 --> 00:19:17,160 Speaker 3: That's really about cash flow. 348 00:19:17,200 --> 00:19:21,120 Speaker 4: Whereas I think in futilities, whereas the risks were very 349 00:19:21,160 --> 00:19:23,000 Speaker 4: heavily on the downside at the middle of last year, 350 00:19:23,040 --> 00:19:27,000 Speaker 4: so Unicer went went went, Das got nationalized, the VMG 351 00:19:27,119 --> 00:19:29,720 Speaker 4: and other German gas supplier or almost got a national 352 00:19:29,720 --> 00:19:31,960 Speaker 4: when I say, managed to do a last minute deal 353 00:19:32,000 --> 00:19:34,200 Speaker 4: to avoid it. All the energy suppliers in the UK 354 00:19:34,280 --> 00:19:37,040 Speaker 4: were going fast and almost on a daily basis. Those 355 00:19:37,119 --> 00:19:39,400 Speaker 4: risks have gone now and I think they can look 356 00:19:39,440 --> 00:19:40,880 Speaker 4: forward to you know, so it's future with a lot 357 00:19:40,880 --> 00:19:44,879 Speaker 4: more confidence, with sort of solid high meter single figures 358 00:19:45,040 --> 00:19:48,359 Speaker 4: of earnings growth, stable leverage and a couple of companies 359 00:19:49,160 --> 00:19:51,080 Speaker 4: maybe looking at sort of you know a little bit 360 00:19:51,080 --> 00:19:53,480 Speaker 4: of credit. Upside of looking at s SE recently in 361 00:19:53,520 --> 00:19:56,560 Speaker 4: the UK is with energy supplier that's doing very well. 362 00:19:56,560 --> 00:20:00,600 Speaker 4: It's managing to fund its growth by selling states in 363 00:20:00,640 --> 00:20:03,720 Speaker 4: its network and it's in its renewables businesses. So it 364 00:20:03,760 --> 00:20:05,720 Speaker 4: really is a massive growth question and the key is 365 00:20:05,720 --> 00:20:07,120 Speaker 4: how to fund it. And now they've got a much 366 00:20:07,119 --> 00:20:11,440 Speaker 4: more stable environment with prices sort of really flat lining 367 00:20:11,800 --> 00:20:13,920 Speaker 4: around those sort of thirty five level and here's make 368 00:20:13,960 --> 00:20:16,080 Speaker 4: one our level of the gas that really gives them 369 00:20:16,160 --> 00:20:19,000 Speaker 4: conference I think to spend and drive that sort of 370 00:20:19,640 --> 00:20:20,800 Speaker 4: renewables to push forward. 371 00:20:21,720 --> 00:20:23,880 Speaker 1: So the outperformer, sorry boy you mentioned is. 372 00:20:23,800 --> 00:20:28,520 Speaker 4: It s s SC Yes is the UK listed renewables 373 00:20:28,520 --> 00:20:32,879 Speaker 4: and networks company, has transmission and distribution assets and is 374 00:20:33,000 --> 00:20:35,760 Speaker 4: really the sort of the UK's green energy champion if 375 00:20:35,760 --> 00:20:38,159 Speaker 4: you like. There are other ones across Europe, particularly a 376 00:20:38,200 --> 00:20:41,520 Speaker 4: droller for example, some of the Spanish champion, or you 377 00:20:41,560 --> 00:20:46,520 Speaker 4: know RWE in Germany or EVP in Portugal. These are 378 00:20:46,560 --> 00:20:50,359 Speaker 4: all companies that have got very high ambitions in renewables, 379 00:20:50,920 --> 00:20:53,639 Speaker 4: rolling out wind and solar projects and already have a 380 00:20:53,640 --> 00:20:56,280 Speaker 4: sort of pipeline that for the next sort of three 381 00:20:56,280 --> 00:20:58,600 Speaker 4: to five years that there's very well covered by projects 382 00:20:58,640 --> 00:20:59,320 Speaker 4: under construction. 383 00:20:59,680 --> 00:21:00,240 Speaker 3: Been a read. 384 00:21:00,320 --> 00:21:02,800 Speaker 4: So again these prices are fairly well or sort of 385 00:21:02,840 --> 00:21:04,080 Speaker 4: growth is very well baked in. 386 00:21:05,240 --> 00:21:07,680 Speaker 3: And you know, they renewables often set. 387 00:21:07,480 --> 00:21:09,800 Speaker 4: A price or they may have some sort of price support, 388 00:21:09,920 --> 00:21:13,200 Speaker 4: so they don't probably taking market risk on the price, 389 00:21:13,280 --> 00:21:15,560 Speaker 4: so they can actually do these prices up front their 390 00:21:15,560 --> 00:21:17,960 Speaker 4: contract for difference or something like that with the supplier. 391 00:21:18,240 --> 00:21:20,240 Speaker 4: So it really it's about the construction risk and giving 392 00:21:20,240 --> 00:21:22,320 Speaker 4: it done and actually there in life is probably the 393 00:21:22,320 --> 00:21:25,840 Speaker 4: biggest risk they face, the those inflationary risks. The cost 394 00:21:25,880 --> 00:21:28,880 Speaker 4: of a wind turbine has gone up significantly, a cost 395 00:21:28,880 --> 00:21:31,639 Speaker 4: of steel, for example, all the component parts or the 396 00:21:31,920 --> 00:21:33,600 Speaker 4: electronics and go into it. 397 00:21:34,200 --> 00:21:36,520 Speaker 3: That's rising and that is causing some problems. And what 398 00:21:36,520 --> 00:21:37,280 Speaker 3: we're seeing is. 399 00:21:37,720 --> 00:21:41,359 Speaker 4: Some companies aren't just pairing back their renewables targets, has 400 00:21:41,359 --> 00:21:45,160 Speaker 4: to compensate for that. Others are maintaining their renewables targets 401 00:21:45,160 --> 00:21:48,480 Speaker 4: but maybe increasing and increasing their sort of capex budgets 402 00:21:48,520 --> 00:21:50,880 Speaker 4: and you know, pushing leverage a bit more or looking 403 00:21:50,880 --> 00:21:54,160 Speaker 4: at other ways like ssee and selling off stakes five 404 00:21:54,160 --> 00:21:57,680 Speaker 4: percent stakes in their distribution businesses. They're looking at other 405 00:21:57,680 --> 00:22:00,480 Speaker 4: ways or bringing in partners to raise that capital, to 406 00:22:00,520 --> 00:22:04,120 Speaker 4: recycle the capital in order to maintain their growth. As 407 00:22:04,119 --> 00:22:06,639 Speaker 4: someone like Austa for example, as a policy of every 408 00:22:06,640 --> 00:22:09,000 Speaker 4: farm they bring into operation their self. If center it 409 00:22:09,080 --> 00:22:11,600 Speaker 4: off to the third party investor, they don't reinvest that 410 00:22:11,680 --> 00:22:14,040 Speaker 4: in the next one, and the next one and so on. 411 00:22:14,640 --> 00:22:16,919 Speaker 4: They simply don't have the capital to provide their growth. 412 00:22:16,920 --> 00:22:20,040 Speaker 4: But I think the utility search is all about growth 413 00:22:20,080 --> 00:22:22,400 Speaker 4: now and much lower risk growth with a much more 414 00:22:22,440 --> 00:22:23,240 Speaker 4: stable environment. 415 00:22:24,280 --> 00:22:25,760 Speaker 1: If a lot of that cash, though, Paul is being 416 00:22:25,760 --> 00:22:29,199 Speaker 1: pushed back to equity investors, What is the opportunity for 417 00:22:29,359 --> 00:22:32,960 Speaker 1: a credit investor of any particular pockets of relative value 418 00:22:33,040 --> 00:22:33,360 Speaker 1: right now? 419 00:22:34,040 --> 00:22:34,080 Speaker 4: What? 420 00:22:34,240 --> 00:22:37,080 Speaker 3: Certainly on the gas sectors that spreads are very tight. 421 00:22:39,000 --> 00:22:42,920 Speaker 4: A Chevrons, Shells, Total energies companies like that, there. 422 00:22:42,840 --> 00:22:45,920 Speaker 3: Are more opportunities. I think in the utility sector. 423 00:22:45,920 --> 00:22:49,000 Speaker 4: There are still some companies there who are fairly low rated, 424 00:22:49,040 --> 00:22:51,200 Speaker 4: sort of triple B type level. 425 00:22:51,640 --> 00:22:53,080 Speaker 3: And one of the more interesting areas. 426 00:22:52,800 --> 00:22:55,040 Speaker 4: Of the market is is the hybrids, which is like 427 00:22:55,080 --> 00:22:58,679 Speaker 4: subordinated bonds if you like. They're often rated couple not 428 00:22:58,840 --> 00:23:01,120 Speaker 4: as lower, so they might be like a non investment 429 00:23:01,160 --> 00:23:05,920 Speaker 4: grade a subordinated bond with equity type characteristics, unlike a 430 00:23:06,000 --> 00:23:08,760 Speaker 4: senior bond which might investment grade rating obviously you get 431 00:23:08,760 --> 00:23:12,120 Speaker 4: a lot higher high yields on those on those hybrids. 432 00:23:12,720 --> 00:23:15,440 Speaker 4: But yeah, the market has been been playing ball. They've 433 00:23:15,760 --> 00:23:18,200 Speaker 4: been changed with the hybrids. You have maybe a five 434 00:23:18,240 --> 00:23:20,520 Speaker 4: year called corn and replace them, a corn and replace 435 00:23:20,600 --> 00:23:23,080 Speaker 4: again kind of kicking the count down the road and 436 00:23:23,119 --> 00:23:25,080 Speaker 4: company has been doing that. And if you like a 437 00:23:25,119 --> 00:23:27,879 Speaker 4: company like a Patroller, you could buy a very expensive 438 00:23:28,760 --> 00:23:32,320 Speaker 4: senior bond that may be I don't know, thirty basis 439 00:23:32,320 --> 00:23:36,120 Speaker 4: points over a smart curd, or you could go subordinated 440 00:23:36,119 --> 00:23:39,439 Speaker 4: in the same company and probably by a hybrid for 441 00:23:39,800 --> 00:23:43,080 Speaker 4: two hundred basis points, taking a couple of notches down. 442 00:23:43,240 --> 00:23:45,080 Speaker 3: The capital structure. 443 00:23:45,080 --> 00:23:47,119 Speaker 4: It's about equity, but it's a low the bonds, so 444 00:23:47,400 --> 00:23:49,560 Speaker 4: there are opportunities there. And also I think with the 445 00:23:50,680 --> 00:23:53,280 Speaker 4: sort of the energy transition, these companies are all instring 446 00:23:54,000 --> 00:23:56,600 Speaker 4: or of green bonds and even green hybrids in some cases, 447 00:23:57,119 --> 00:23:59,960 Speaker 4: and these are also attracted to you know, a whole 448 00:24:00,080 --> 00:24:01,960 Speaker 4: wave investors who are looking at sort of the SG 449 00:24:02,200 --> 00:24:05,480 Speaker 4: right now, the utilities are the biggest esg issuing sector 450 00:24:05,480 --> 00:24:09,679 Speaker 4: in Europe in terms of sustainability, link bonds, green bonds, 451 00:24:09,800 --> 00:24:13,040 Speaker 4: the entire sort of product range, and I think that 452 00:24:13,160 --> 00:24:16,439 Speaker 4: set to keep maintaining their position, probably grow going forward. 453 00:24:16,560 --> 00:24:17,920 Speaker 3: In some companies, the. 454 00:24:17,920 --> 00:24:21,200 Speaker 4: Nineteen ninety five percent of what they're spending is aligned 455 00:24:21,200 --> 00:24:24,399 Speaker 4: with the EU taxonomy, which means it will sort of 456 00:24:24,480 --> 00:24:27,679 Speaker 4: qualify if you like, for green investments, So they're very 457 00:24:27,720 --> 00:24:29,680 Speaker 4: well placed. I think certainly green bonds are an area 458 00:24:29,680 --> 00:24:33,840 Speaker 4: of interest. Subordinated or hybrid bonds or hybrids if you 459 00:24:33,920 --> 00:24:37,119 Speaker 4: hYP dore not really bonds parts, but there are another 460 00:24:37,200 --> 00:24:39,680 Speaker 4: area as well. Those companies. I think s S has 461 00:24:39,680 --> 00:24:43,359 Speaker 4: some positive preventing. EEDF is another company we quite like. 462 00:24:43,480 --> 00:24:46,240 Speaker 4: It's one of our focus ideas. It has autoric year 463 00:24:46,320 --> 00:24:50,040 Speaker 4: last year after the government forced it to sell a 464 00:24:50,040 --> 00:24:52,760 Speaker 4: lot of it's nuclear power to third parties at a 465 00:24:52,800 --> 00:24:56,720 Speaker 4: fixed price that costed billions and billions of euros because 466 00:24:56,760 --> 00:24:58,280 Speaker 4: they have to buy that power in the market at 467 00:24:58,280 --> 00:25:03,320 Speaker 4: has elevated prices. It also had some safety issues in 468 00:25:03,320 --> 00:25:05,320 Speaker 4: a nuclear plant, which means its production was a lot 469 00:25:05,320 --> 00:25:08,000 Speaker 4: that we're again had to replace. That put its edges 470 00:25:08,000 --> 00:25:11,080 Speaker 4: of very high market prices. Those two factors have gone 471 00:25:11,080 --> 00:25:14,760 Speaker 4: this year. They're not going to be effecting their EBIT dark. 472 00:25:14,800 --> 00:25:16,960 Speaker 4: They went from an eighteen billion profits of five billion 473 00:25:17,000 --> 00:25:19,240 Speaker 4: even lost last year but I think they can need 474 00:25:19,240 --> 00:25:20,800 Speaker 4: to get back up to that level this year and 475 00:25:20,800 --> 00:25:23,080 Speaker 4: probably hit there, you know, for loads of the four 476 00:25:23,119 --> 00:25:26,040 Speaker 4: times of leverage target as well. So it's been nationalized 477 00:25:26,040 --> 00:25:28,560 Speaker 4: now again, which was like some sort of backstops. I 478 00:25:28,560 --> 00:25:30,879 Speaker 4: think EDIF is certainly named to watch this year. They 479 00:25:30,880 --> 00:25:32,920 Speaker 4: have plenty of hybrids as well, so you can really 480 00:25:32,920 --> 00:25:36,400 Speaker 4: get some quiet uite juice yields on some coordinated df 481 00:25:36,520 --> 00:25:37,640 Speaker 4: for hybrids. 482 00:25:38,000 --> 00:25:39,920 Speaker 1: On the ESG, Paul, you mentioned a lot of renewables, 483 00:25:39,960 --> 00:25:42,760 Speaker 1: you mentioned transition, mentioned green barns, all of this great stuff. 484 00:25:42,800 --> 00:25:45,639 Speaker 1: Investors love it. But in the context of energy, I 485 00:25:45,640 --> 00:25:48,239 Speaker 1: mean this is fossil fuels essentially for a lot of them, 486 00:25:48,520 --> 00:25:50,080 Speaker 1: is you know, the bulk of their business. That's not 487 00:25:50,119 --> 00:25:54,200 Speaker 1: a very clean or environmental business for ESG investors to 488 00:25:54,240 --> 00:25:56,680 Speaker 1: be getting into. Is it not a bit of contradiction there? 489 00:25:56,720 --> 00:25:59,480 Speaker 1: Is it not just like marketing, What's what's really going on? 490 00:25:59,520 --> 00:26:00,640 Speaker 1: And that's that side. 491 00:26:01,080 --> 00:26:03,480 Speaker 4: Yeah, it's utilities that are the ones who are already 492 00:26:03,560 --> 00:26:06,679 Speaker 4: the favorites of the green or in versus if you like. 493 00:26:06,680 --> 00:26:09,000 Speaker 4: I mean, they're they're phasing out their col fire generation. 494 00:26:09,200 --> 00:26:11,800 Speaker 4: You know, they're using gases and LERG and and those 495 00:26:11,800 --> 00:26:14,200 Speaker 4: sort of areas. That's a sort of transition fuel abviosuly 496 00:26:14,280 --> 00:26:16,680 Speaker 4: nuclear co two three. Apart from that, they're pushing very 497 00:26:16,680 --> 00:26:19,160 Speaker 4: hard on the renewables, the wind and solar, even moving 498 00:26:19,160 --> 00:26:22,119 Speaker 4: into areas like hydrogen. You know, the networks that are 499 00:26:22,200 --> 00:26:25,840 Speaker 4: upgrading and expanding to income to all these renewables projects. 500 00:26:25,920 --> 00:26:28,280 Speaker 3: They're all qualifying for these green projects. 501 00:26:28,320 --> 00:26:30,680 Speaker 4: The utility sector, that's what I say, is one of 502 00:26:30,720 --> 00:26:33,840 Speaker 4: the biggest green issues, or the fact the biggest green issue. 503 00:26:33,640 --> 00:26:34,959 Speaker 3: In the European market. 504 00:26:35,240 --> 00:26:37,280 Speaker 4: But for the on a gas companies for example, as 505 00:26:37,280 --> 00:26:40,040 Speaker 4: you say that they're not they're not really in that 506 00:26:40,080 --> 00:26:43,120 Speaker 4: market at all. They're still a few companies a year 507 00:26:43,200 --> 00:26:45,200 Speaker 4: or so ago, two years ago, BP was talking about 508 00:26:45,200 --> 00:26:48,000 Speaker 4: coming back or production, you know, with the historic kind 509 00:26:48,040 --> 00:26:50,520 Speaker 4: of changes moved. They've got very high renewables and ambitions, 510 00:26:50,560 --> 00:26:53,000 Speaker 4: but really they realize there's so much funny to be 511 00:26:53,040 --> 00:26:55,640 Speaker 4: made for more than gas production with even eighty dollars 512 00:26:55,680 --> 00:26:58,879 Speaker 4: a barrel, that the return of capital is like phenomenal, 513 00:26:58,960 --> 00:27:02,920 Speaker 4: prepared to what it would be on maybe some renewables 514 00:27:02,960 --> 00:27:05,720 Speaker 4: projects they could build. You know, they've got existing old 515 00:27:05,720 --> 00:27:07,960 Speaker 4: fields that just keep this, keep drilling and let's keep hunting. 516 00:27:07,960 --> 00:27:10,560 Speaker 3: We can make them tons of cash. We can give 517 00:27:10,600 --> 00:27:11,600 Speaker 3: back your shelterers doing that. 518 00:27:11,600 --> 00:27:14,639 Speaker 4: It's a lot longer game to play to build that 519 00:27:14,720 --> 00:27:18,440 Speaker 4: renewables capacity. So you know, some like Total Energies that 520 00:27:18,600 --> 00:27:21,280 Speaker 4: they have been issuing hybrids, not not green ones, but 521 00:27:21,400 --> 00:27:25,080 Speaker 4: just hybrids to fund their renewables and ambitions. And you know, 522 00:27:25,240 --> 00:27:26,639 Speaker 4: by twenty thirty they want to be one of the 523 00:27:26,680 --> 00:27:30,479 Speaker 4: biggest renewables players in the world. As the VP, they 524 00:27:30,480 --> 00:27:31,960 Speaker 4: have a long way to go, and right now, I 525 00:27:32,000 --> 00:27:35,360 Speaker 4: think for them to capital allocation decision, do we get 526 00:27:35,400 --> 00:27:38,600 Speaker 4: us a huge reternal capital from the best known a 527 00:27:38,640 --> 00:27:40,800 Speaker 4: gas or do we take a much higher risk, low 528 00:27:40,880 --> 00:27:44,240 Speaker 4: return option on pushing renewables. Right now on the gas 529 00:27:44,280 --> 00:27:47,160 Speaker 4: is winning, which again sort is precludely done for really 530 00:27:47,200 --> 00:27:49,960 Speaker 4: issue in the green bombs. They can issue hybrids, but 531 00:27:50,000 --> 00:27:53,160 Speaker 4: again just sort of regular hybrids rather than green ones. 532 00:27:53,200 --> 00:27:55,160 Speaker 4: So yeah, they are the gas companies really a long 533 00:27:55,200 --> 00:27:59,159 Speaker 4: way off from being any major green bond issuers because 534 00:27:59,320 --> 00:28:01,560 Speaker 4: their core business it is going to stay for a 535 00:28:01,640 --> 00:28:02,359 Speaker 4: very long time. 536 00:28:02,600 --> 00:28:05,200 Speaker 1: Interesting, okay, thank you. So overall it's a pretty rosy 537 00:28:05,200 --> 00:28:10,440 Speaker 1: picture for European energy and utilities. But you know, I'm 538 00:28:10,440 --> 00:28:12,440 Speaker 1: a credit guy, Paul, and I worry all the time, 539 00:28:12,520 --> 00:28:15,479 Speaker 1: but everything. So what keeps you up at night worrying? 540 00:28:15,520 --> 00:28:18,800 Speaker 1: What are you scared of in the context of what 541 00:28:18,880 --> 00:28:22,399 Speaker 1: you cover, anything gnawing away inside you? 542 00:28:24,840 --> 00:28:26,480 Speaker 3: Well, I mean there's still risk to the market. 543 00:28:26,520 --> 00:28:28,520 Speaker 4: I say, the Andrew is calling the energy crisis, your 544 00:28:28,800 --> 00:28:32,080 Speaker 4: energy crisis is over. There's risk to that, clearly, just 545 00:28:32,080 --> 00:28:34,960 Speaker 4: like calling the COVID nineteen pandemic over. 546 00:28:35,040 --> 00:28:35,760 Speaker 3: There's a risk to that. 547 00:28:35,840 --> 00:28:38,080 Speaker 4: It could be a research and I mean, these are 548 00:28:38,400 --> 00:28:40,520 Speaker 4: just things you have to live with now. I guess 549 00:28:41,120 --> 00:28:43,640 Speaker 4: that's the same. For example, Russia is still pumping around 550 00:28:44,520 --> 00:28:47,640 Speaker 4: the ten percent of what it used to into Europe 551 00:28:48,280 --> 00:28:51,440 Speaker 4: of southern corridors. That could be cut again, that half 552 00:28:51,440 --> 00:28:54,000 Speaker 4: of your replaced again. That could be a shot. We 553 00:28:54,040 --> 00:28:57,440 Speaker 4: could see a resurgent demand from Asia and has happened 554 00:28:57,480 --> 00:29:01,760 Speaker 4: about two years ago after sort of COVID sort of 555 00:29:01,760 --> 00:29:03,960 Speaker 4: restrictions were first sort of lifted. 556 00:29:04,600 --> 00:29:07,600 Speaker 3: That I call the LERG cargots. I mean, there's only 557 00:29:07,640 --> 00:29:09,040 Speaker 3: finite energy capacity. 558 00:29:09,360 --> 00:29:11,520 Speaker 4: It takes a long time to build a new capacity, 559 00:29:11,640 --> 00:29:15,840 Speaker 4: both the gasification and or regasification liquor faction as well, 560 00:29:15,960 --> 00:29:17,760 Speaker 4: So you know it takes a long time. 561 00:29:17,840 --> 00:29:20,000 Speaker 3: So if all those cargoes go tow Asia, then Europe 562 00:29:20,000 --> 00:29:21,520 Speaker 3: again could be looking at well, where we're going to 563 00:29:21,560 --> 00:29:22,360 Speaker 3: get our gas from. 564 00:29:23,120 --> 00:29:26,959 Speaker 4: They also got got off lightly I think somewhat in 565 00:29:27,000 --> 00:29:29,200 Speaker 4: Europe with a fairly mild wind, and so. 566 00:29:29,280 --> 00:29:32,320 Speaker 3: The demand that gas is always that's peak demand. 567 00:29:33,000 --> 00:29:35,880 Speaker 4: It was never that extreme, that's quite so if you've 568 00:29:35,880 --> 00:29:38,520 Speaker 4: got a combination of Russia cancer last ten percent. If 569 00:29:39,000 --> 00:29:42,040 Speaker 4: Asia recovers strongly, rebound strongly and it takes all the 570 00:29:42,120 --> 00:29:45,480 Speaker 4: energy away from Europe, is they can ship the energy 571 00:29:45,560 --> 00:29:49,520 Speaker 4: anywhere from Australia to two year or to America to China. 572 00:29:49,640 --> 00:29:51,200 Speaker 4: I mean it doesn't manage just to ship on a 573 00:29:51,240 --> 00:29:54,040 Speaker 4: sea like an oil tank. So if that take gets 574 00:29:54,080 --> 00:29:58,120 Speaker 4: dragged to and to Asia, you can't replace him, So 575 00:29:58,400 --> 00:30:01,720 Speaker 4: you could leave Europe a bit shorter. In context with 576 00:30:01,760 --> 00:30:03,800 Speaker 4: a cold of winter, we could be looking at. 577 00:30:03,680 --> 00:30:04,360 Speaker 3: A higher prices. 578 00:30:04,400 --> 00:30:07,560 Speaker 4: In fact, the future's gas curve does share high prices 579 00:30:07,560 --> 00:30:09,440 Speaker 4: for this winter. There's still nowhere in where we were 580 00:30:09,600 --> 00:30:13,360 Speaker 4: maybe a sixty euros thirty five at a minute, and 581 00:30:13,400 --> 00:30:15,480 Speaker 4: still that that's a reasonable level. But it is still 582 00:30:15,520 --> 00:30:18,080 Speaker 4: a type market. There is still the structural risks we're 583 00:30:18,080 --> 00:30:19,800 Speaker 4: going to have to learn to do. But at the 584 00:30:19,840 --> 00:30:23,240 Speaker 4: same time taking measures like building out with rble's capacity 585 00:30:23,440 --> 00:30:26,440 Speaker 4: and increasing energy and for capacity and all these factors 586 00:30:26,480 --> 00:30:28,560 Speaker 4: that should smooth it over time. But there are some 587 00:30:28,680 --> 00:30:32,320 Speaker 4: risks still that we could see. We can see prices rise, 588 00:30:32,360 --> 00:30:35,440 Speaker 4: we could see some companies, yeah, maybe struggling again. But 589 00:30:35,480 --> 00:30:37,840 Speaker 4: I think that, you know, the worst is by far over, 590 00:30:37,920 --> 00:30:39,800 Speaker 4: so I'm not being kept up at night. 591 00:30:40,800 --> 00:30:43,640 Speaker 1: Got it. Thanks very much Paul Vickers of Bloomberg Intelligence. 592 00:30:44,000 --> 00:30:46,280 Speaker 1: You can read all his great analysis on the Bloomberg 593 00:30:46,360 --> 00:30:48,880 Speaker 1: Terminal to check it out. And thanks again to Aaron 594 00:30:48,960 --> 00:30:51,560 Speaker 1: Hudson from Bloomberg News. Read all of her scoops on 595 00:30:51,560 --> 00:30:55,120 Speaker 1: the terminal and at Bloomberg dot Com. I'm James Crumbie. 596 00:30:55,200 --> 00:30:57,160 Speaker 1: It's been a pleasure having you. See you next week 597 00:30:57,160 --> 00:31:13,440 Speaker 1: on the Credit Edge.