WEBVTT - Judge’s Downfall Shocks Bankruptcy World; Oil M&A 0:00:18.000 --> 0:00:20.760 Hello, and welcome to The Credit Edge, a weekly markets podcast. 0:00:21.079 --> 0:00:23.560 My name is James Crumbie. I'm a senior editor at Bloomberg. 0:00:24.000 --> 0:00:25.960 This week, we're very pleased to have on the show 0:00:26.160 --> 0:00:29.640 Steve Church and Amelia Pollard, who covered bankruptcy at Bloomberg 0:00:29.720 --> 0:00:33.040 News based in Delaware and New York, respectively. How are 0:00:33.040 --> 0:00:33.800 you both doing today? 0:00:34.360 --> 0:00:35.080 Fantastic? 0:00:35.240 --> 0:00:36.720 Thanks for having us, James. 0:00:36.479 --> 0:00:39.280 Thank you for joining us. We're also delighted to welcome 0:00:39.320 --> 0:00:42.279 back on the Credit Edge Spencer Cutter, a credit analyst 0:00:42.320 --> 0:00:46.120 with Bloomberg Intelligence in Seattle. There's a big story brewing 0:00:46.159 --> 0:00:47.800 in the oil sector and we'll be looking at that 0:00:47.920 --> 0:00:49.720 with Spencer just a little bit later in the show, 0:00:49.760 --> 0:00:53.240 So do stay with us. But first, Steve Church, with 0:00:53.280 --> 0:00:56.040 Bloomberg News, you've been covering the bankruptcy courts for years. 0:00:56.200 --> 0:00:58.120 We've had the pleasure of working together for a lot 0:00:58.120 --> 0:01:01.960 of that time. As you've reported, a prominent bankruptcy judge 0:01:02.040 --> 0:01:05.640 is stepping down after revelations that he dated and lived 0:01:05.680 --> 0:01:10.160 with a top Houston bankruptcy lawyer since twenty seventeen. I'm 0:01:10.200 --> 0:01:11.920 not going to get into that scandal or why it 0:01:11.920 --> 0:01:14.240 took six years for anyone to figure that out. I mean, 0:01:14.480 --> 0:01:17.080 Houston's not a big town. People must talk to each other, 0:01:17.200 --> 0:01:19.920 especially in a small world like bankruptcy. But it really 0:01:19.959 --> 0:01:21.640 is amazing to me that no one saw that coming. 0:01:22.200 --> 0:01:25.640 But more interesting to the credit markets, who is Judge 0:01:25.720 --> 0:01:27.320 Jones and why is it such a big deal that 0:01:27.360 --> 0:01:28.559 he's leaving the court? 0:01:28.800 --> 0:01:31.640 I think the big deal is Jones was known as 0:01:31.720 --> 0:01:34.720 a judge who could work fast, was willing to make 0:01:35.440 --> 0:01:42.400 hard decisions quickly without spending months of expensive litigation or 0:01:42.440 --> 0:01:48.080 expensive briefings. He always let companies and creditors know upfront 0:01:48.160 --> 0:01:51.320 what he was thinking. He did that deliberately because he 0:01:51.360 --> 0:01:53.960 thought it would speed up the process and save money 0:01:54.000 --> 0:01:58.800 in the long run. But most importantly, I think corporations 0:01:58.800 --> 0:02:02.960 in distress began to look at Texas as a place 0:02:03.000 --> 0:02:07.600 to return to to bring their bankruptcy cases there because 0:02:07.720 --> 0:02:10.720 Jones and another judge, judge is Gar that he knows 0:02:10.840 --> 0:02:12.720 very well. The two of them have worked together for years, 0:02:13.120 --> 0:02:17.040 because they made such a powerful team, and because they 0:02:17.200 --> 0:02:22.720 were so willing to make a lot of adjustments to 0:02:22.840 --> 0:02:25.960 how the process worked, not only legal rulings so much, 0:02:26.240 --> 0:02:28.600 but definitely to make it easier to get into the 0:02:28.600 --> 0:02:32.079 court easier to file cases, and of course they both 0:02:32.120 --> 0:02:36.200 have expertise in oil cases, big oil cases. Corporations got 0:02:36.240 --> 0:02:39.720 comfortable coming to Houston, and so a lot of the 0:02:39.800 --> 0:02:44.040 biggest law firms brought their cases there because of Judge 0:02:44.120 --> 0:02:45.799 Jones primarily and judgees Ger. 0:02:46.120 --> 0:02:48.240 And one of your sources described it as a nightmare 0:02:48.280 --> 0:02:50.680 for the bankruptcy bench. You've been covering this a long 0:02:50.720 --> 0:02:52.520 time to see though, So how much of a surprise 0:02:52.680 --> 0:02:54.640 was it to you and how well did you know 0:02:54.680 --> 0:02:55.240 the judge. 0:02:56.080 --> 0:02:58.360 I've been listening to the judge for many, many years. 0:02:58.840 --> 0:03:01.120 He is one of the rare judges who will actually 0:03:01.160 --> 0:03:05.840 talk to the press on background, and occasionally he would 0:03:06.120 --> 0:03:09.240 communicate on the record when he was talking about certain 0:03:09.280 --> 0:03:12.240 issues that were not directly involved in a case. So 0:03:12.320 --> 0:03:15.760 he was approachable. So I knew him fairly. I wouldn't 0:03:15.800 --> 0:03:18.320 say very well, but well enough to be able to 0:03:18.400 --> 0:03:21.760 call him up and ask him what was going on 0:03:22.000 --> 0:03:26.239 with the process of bankruptcies in general, not about specific cases. 0:03:26.280 --> 0:03:28.960 He simply wouldn't comment on that. And as for the 0:03:28.960 --> 0:03:32.240 surprise I was, I was very surprised. I was shocked, actually, 0:03:32.720 --> 0:03:35.120 And the lawyers that I've talked to who are not 0:03:35.320 --> 0:03:38.200 Houston lawyers, some of the big bankruptcy attorneys that have 0:03:38.280 --> 0:03:42.440 been around for many years. They had no idea, they said, 0:03:42.440 --> 0:03:43.720 they did not know what was happening. 0:03:44.320 --> 0:03:47.840 So Amelia tell us about some of his cases. You know, 0:03:47.880 --> 0:03:50.640 what was he actually involved with? And you know why 0:03:50.720 --> 0:03:52.640 was he so important for bankruptcy. 0:03:53.240 --> 0:03:55.680 Yeah, So what I started covering bankruptcy, which was only 0:03:55.720 --> 0:03:58.720 in January. Some of the biggest cases that were coming 0:03:58.760 --> 0:04:02.720 before him were ones with so called liability management deals, 0:04:03.200 --> 0:04:07.400 which is basically a jargony word for these contentious debt 0:04:07.440 --> 0:04:10.160 deals that get done between creditors and they're often known 0:04:10.200 --> 0:04:14.120 for spurring you know, credit on credit or violence or fights. 0:04:14.840 --> 0:04:17.799 And so he became very important recently with those types 0:04:17.839 --> 0:04:21.640 of deals and companies that had done those transactions because 0:04:21.760 --> 0:04:25.320 he was willing to kind of go above and beyond 0:04:25.520 --> 0:04:31.120 other courts and making quick decisions, sweeping decisions when other courts, 0:04:31.240 --> 0:04:34.640 you know, district courts or the like, would take months 0:04:34.680 --> 0:04:38.000 and months to make make a call or a ruling. 0:04:39.000 --> 0:04:41.680 And so one case we watched with this play out 0:04:41.720 --> 0:04:45.200 with was the mattress maker Serta. Simmons had an infamous 0:04:45.240 --> 0:04:48.400 debt deal that was highly contentious in twenty twenty. It 0:04:48.520 --> 0:04:52.080 filed for bankruptcy in January before Judge Jones, and within 0:04:52.080 --> 0:04:55.240 a matter of months he was willing to make, you know, 0:04:55.279 --> 0:04:59.279 a sweeping opinion that basically blessed the deal and said 0:04:59.320 --> 0:05:00.800 that it was done in good faith and was an 0:05:00.800 --> 0:05:05.880 open market purchase. Two, you know, components that were highly 0:05:05.920 --> 0:05:11.240 litigated prior in other venues. So you know, we heard 0:05:11.240 --> 0:05:16.039 from sources far before Judge Jones resigned that companies had 0:05:16.080 --> 0:05:18.560 similarly contested deals in their belts were going to make 0:05:18.600 --> 0:05:20.960 sure that they had, you know, some kind of jurisdiction 0:05:21.160 --> 0:05:23.440 in Texas if they did have to file for bankruptcy. 0:05:23.880 --> 0:05:25.719 You know, with the idea that they wanted to be 0:05:25.720 --> 0:05:26.520 in front of Jones. 0:05:27.360 --> 0:05:29.240 Why and maybe you could win bits on this as 0:05:29.240 --> 0:05:30.520 well as Steve. But why do you think he was 0:05:30.520 --> 0:05:32.320 so good at handling these really tough cases. 0:05:32.960 --> 0:05:35.000 He was a litigator for many years. He did a 0:05:35.000 --> 0:05:38.880 lot of oil litigation in the bankruptcy courts, and his 0:05:38.920 --> 0:05:44.839 personality is lent itself to being willing to press forward 0:05:45.600 --> 0:05:50.560 with not with minimal information, but without requiring a huge 0:05:50.560 --> 0:05:55.960 amount of back and forth between say, creditors and the 0:05:56.000 --> 0:06:00.200 companies that require months of briefing. He would often give 0:06:00.240 --> 0:06:02.960 you an he was willing to take the risk that 0:06:03.000 --> 0:06:05.440 he might be wrong. He was very confident on the bench. 0:06:05.720 --> 0:06:08.120 He had a lot of experience with the kinds of 0:06:08.200 --> 0:06:11.240 cases that were coming in front of him, and he 0:06:11.240 --> 0:06:13.840 would often say, well, when I was in practice, we 0:06:13.920 --> 0:06:16.600 had these kinds of issues. He was also an expert 0:06:16.880 --> 0:06:21.800 in litigation, in the daily grind of two parties fighting 0:06:21.839 --> 0:06:25.560 with each other to collect information about each other and 0:06:25.800 --> 0:06:29.400 to decide what was presentable to the court what was 0:06:29.520 --> 0:06:33.599 off limits. And he cut through those those kinds of 0:06:33.640 --> 0:06:36.839 fights which can bog down a lawsuit for years. He 0:06:36.920 --> 0:06:40.320 cut through that very quickly, and that's what made him 0:06:40.400 --> 0:06:43.440 sort of a favorite among a lot of companies that 0:06:43.480 --> 0:06:44.200 are in distress. 0:06:44.960 --> 0:06:47.640 Obviously, speed of execution is great when you're dealing with 0:06:47.800 --> 0:06:50.200 lawyers that cost thousands of dollars an hour. But did 0:06:50.200 --> 0:06:51.039 he always get it right? 0:06:51.920 --> 0:06:52.800 That's a good question. 0:06:53.040 --> 0:06:55.480 Well, it depends on who you know, which side of 0:06:55.520 --> 0:06:58.200 the eyele you're talking to. I would say there are 0:06:58.200 --> 0:07:01.159 a number of cases on appeal now that he rolled on, 0:07:01.400 --> 0:07:05.480 so yeah, But I do will say that, like one 0:07:05.520 --> 0:07:08.719 source I spoke to, who's a professor, you know, did 0:07:08.760 --> 0:07:10.920 go on for a while when I spoke to him 0:07:10.920 --> 0:07:14.000 earlier this week about how well respected Judge Jones was, 0:07:14.160 --> 0:07:16.239 and you know, he was known for someone who worked 0:07:16.240 --> 0:07:19.680 incredibly hard. He was willing to you know, schedule, you know, 0:07:19.720 --> 0:07:22.640 the first stay hearing of a case near hours after 0:07:23.640 --> 0:07:26.040 a case was filed. And so I think that big 0:07:26.120 --> 0:07:29.120 law firms also, you know, demanded a certain level of 0:07:29.800 --> 0:07:32.320 you know, kind of intensity and readiness to take on 0:07:32.360 --> 0:07:35.000 big cases and clear your schedule, you know, if a 0:07:35.080 --> 0:07:37.840 multi billion dollar case comes onto your docket. So I 0:07:37.840 --> 0:07:40.160 think there was a lot of respect among you know, 0:07:40.240 --> 0:07:41.320 all sides for that. 0:07:42.000 --> 0:07:44.840 I can't think of a specific case, a big case 0:07:44.880 --> 0:07:47.760 where he was overruled by either the district Court or 0:07:47.920 --> 0:07:51.880 the Court of Appeals in Houston. He had a good 0:07:52.000 --> 0:07:55.440 enough reputation, and the court itself, including Judge is Ger 0:07:55.600 --> 0:07:59.400 and now Judge Lopez, they have strong reputations and that 0:07:59.480 --> 0:08:03.440 means something thing to the judges above them, the judges 0:08:03.440 --> 0:08:05.800 who have to review their decisions. So they were not 0:08:06.040 --> 0:08:07.200 overruled very often. 0:08:07.600 --> 0:08:09.800 And companies that had any reason to file, maybe they 0:08:09.800 --> 0:08:12.320 had a unit in Texas, they would deliberately go to 0:08:12.400 --> 0:08:14.080 Texas just so they could deal with Judge Jones. 0:08:14.080 --> 0:08:15.480 Is that right, Jones? 0:08:15.560 --> 0:08:18.920 Or I isger Yes, Okay, We're creditors as happy as 0:08:19.000 --> 0:08:20.520 the companies to be down there. 0:08:21.000 --> 0:08:25.280 In most cases, some creditors some It depended on the case. 0:08:25.320 --> 0:08:27.720 I think some creditors may have viewed him as with 0:08:27.840 --> 0:08:32.240 a little suspicion because he was willing to go fast, 0:08:32.480 --> 0:08:35.360 and creditors often want to go slow in order to 0:08:35.559 --> 0:08:38.840 negotiate and bargain and see if they can get more money. 0:08:39.360 --> 0:08:42.880 So, given the conflict of interest that has now come 0:08:42.920 --> 0:08:45.120 to like Judge Jones and the lawyer he was personally 0:08:45.120 --> 0:08:47.959 involved with, isn't there a risk that some creditors may 0:08:48.000 --> 0:08:50.359 go back and even some companies go back and challenge 0:08:50.600 --> 0:08:52.080 some of the cases that he oversaw. 0:08:52.720 --> 0:08:55.760 Yeah, there is, you know, sources did say this week 0:08:55.800 --> 0:08:58.080 that there is that risk, and there's not a lot 0:08:58.120 --> 0:09:00.200 of precedence for this. I mean, this is a a 0:09:00.240 --> 0:09:03.360 really specific case and just the sheer volume of cases 0:09:03.400 --> 0:09:06.840 that were before Judge Jones makes this a logistical nightmare. 0:09:07.640 --> 0:09:09.400 But today we did see you know, there was a 0:09:09.440 --> 0:09:13.640 brief filed in the appeal of Surda and the lenders 0:09:13.800 --> 0:09:15.800 who are appealing the case are the ones that were 0:09:15.840 --> 0:09:18.400 left out of the deal? Did mention just you know, 0:09:18.480 --> 0:09:21.880 basically as a line item that because Judge Jones resigned, 0:09:22.160 --> 0:09:24.199 there's some reason to believe that the case should be 0:09:24.480 --> 0:09:27.280 you know, punted either to the district court in Texas 0:09:27.360 --> 0:09:29.959 or back to the court in New York. It didn't 0:09:30.000 --> 0:09:33.640 mention the scandal or you know, make any claim that 0:09:33.840 --> 0:09:36.800 because of the scandal and the resignation the whole thing 0:09:36.800 --> 0:09:39.000 should be overruled. But I think that it'll be used 0:09:39.040 --> 0:09:42.040 as a as a bargaining chip for sure, especially in 0:09:42.120 --> 0:09:45.440 highly contentious cases where you know, lenders are grasping at 0:09:45.440 --> 0:09:47.360 anything to build out their argument. 0:09:47.920 --> 0:09:49.360 Steve, do you expect to see some of those old 0:09:49.400 --> 0:09:51.200 cases were the ugly heads again? 0:09:51.880 --> 0:09:55.360 Oh, lawyers will try. I think it's an easy argument 0:09:55.480 --> 0:09:58.800 to make. It's a hard one to win. Unless you 0:09:58.880 --> 0:10:03.280 can specifically link a decision he made to the conflict 0:10:03.320 --> 0:10:07.280 that he that caused him to leave. That might be possible, 0:10:07.800 --> 0:10:11.880 but I suspect it will be on a very It'll 0:10:11.880 --> 0:10:14.120 be a limited number of cases that can actually make 0:10:14.160 --> 0:10:14.600 that leap. 0:10:14.920 --> 0:10:17.319 But the law firm that he you know, he was 0:10:17.360 --> 0:10:19.760 involved with a lawyer as a prominent law firm. That 0:10:19.880 --> 0:10:21.760 law firm was involved in some big cases. 0:10:22.440 --> 0:10:25.959 That law firm mostly worked as what they call local council, 0:10:26.440 --> 0:10:29.600 which meant they did they did not take the lead 0:10:29.640 --> 0:10:32.920 on a lot of the most contentious issues. So you'd 0:10:32.960 --> 0:10:36.400 have a national law firm, say Kirkland and Ellis, Wyle Gotshaw, 0:10:36.920 --> 0:10:39.960 Aiken and Gump, one of these very big, you know, 0:10:40.520 --> 0:10:44.480 world straddling law firms that actually did the most important 0:10:44.520 --> 0:10:48.520 and contentious work. And the argument will be made by 0:10:48.760 --> 0:10:53.400 the winners of John Jones's cases that Jackson Walker did 0:10:53.920 --> 0:10:56.200 small amounts of work and therefore they don't have to 0:10:56.360 --> 0:11:00.120 that you shouldn't overturn it. They weren't involved, but there 0:11:00.120 --> 0:11:05.320 were some cases that Jackson Walker did did handle themselves. 0:11:05.480 --> 0:11:09.359 Those cases could be You could make the argument, especially 0:11:10.040 --> 0:11:14.320 if something new comes out about the fees that were 0:11:14.360 --> 0:11:19.960 paid or about any other conflicts of interest related to 0:11:20.960 --> 0:11:21.640 his girlfriend. 0:11:22.120 --> 0:11:24.000 What are the other big takeaways from this case? Anything 0:11:24.040 --> 0:11:25.560 else come delight from your reporting. 0:11:26.200 --> 0:11:30.360 There's one irony. Judge Jones made some enemies, He made 0:11:30.400 --> 0:11:34.480 some very He made people angry. There was one well 0:11:34.559 --> 0:11:41.000 known Wall Street distress debt trader who was convicted of 0:11:43.600 --> 0:11:48.040 essentially manipulating the bankruptcy process because he was playing he 0:11:48.160 --> 0:11:54.000 was using his position in the Nieman Marcus case. Neman Marcus, 0:11:54.040 --> 0:11:58.640 the retailer, the luxury retailer that went bankrupt. This Wall 0:11:58.679 --> 0:12:02.640 Street insider was using his position, his knowledge to do 0:12:02.960 --> 0:12:07.080 to threaten other participants in the case. Jones went ballistic 0:12:07.120 --> 0:12:10.120 when he found out about this and personally pushed for 0:12:10.600 --> 0:12:13.280 prosecutors to look at this Wall Street trader, and the 0:12:13.320 --> 0:12:16.840 person was eventually pled guilty. That's one example of a 0:12:17.040 --> 0:12:21.320 very angry a person, very angry judgment. One other, and 0:12:21.360 --> 0:12:28.080 that is the consulting company. McKenzie was accused by some 0:12:28.160 --> 0:12:34.160 creditors and by the US trustee of not disclosing their 0:12:34.200 --> 0:12:38.640 own conflicts of interest. At one point, when handling these allegations, 0:12:38.720 --> 0:12:42.920 Judge Jones told them that some careers might be ended 0:12:43.000 --> 0:12:45.920 because of this, and that he was perfectly willing to 0:12:46.840 --> 0:12:51.600 submit a recommendation to prosecutors if he found that there 0:12:51.600 --> 0:12:56.960 were problems. He didn't make any final rulings that specifically 0:12:57.040 --> 0:13:00.959 sanctioned McKenzie, but he made enough of a problem for 0:13:01.000 --> 0:13:03.320 them that they spent a lot of money defending themselves, 0:13:03.720 --> 0:13:07.400 and eventually that case did go on. In other courts 0:13:08.800 --> 0:13:12.280 that that continue to use some of Judge Jones's findings 0:13:12.280 --> 0:13:13.360 and rulings. 0:13:13.400 --> 0:13:16.080 Interesting, Amelia, did you have other observations. 0:13:16.480 --> 0:13:18.040 I was just going to say that, you know, there 0:13:18.080 --> 0:13:22.000 have been pushes historically for a venue reform, and you know, 0:13:22.080 --> 0:13:26.160 it's a very hard piece of legislation to draft from 0:13:26.160 --> 0:13:29.440 what I hear, and I think that some people do 0:13:29.559 --> 0:13:31.880 expect there'd be renewed calls for venue reform, like the 0:13:31.920 --> 0:13:36.160 fact that Houston alone as a venue had I think 0:13:36.920 --> 0:13:39.719 more than a third of national cases and there are 0:13:39.920 --> 0:13:43.120 surely not that many companies based in Houston or you know, 0:13:43.160 --> 0:13:45.600 Texas with a prominent footprint there, and so I think 0:13:45.640 --> 0:13:47.920 that that will be something to watch out for in 0:13:48.200 --> 0:13:51.000 the coming months, to see whether there's kind of greater 0:13:51.080 --> 0:13:54.520 scrutiny on the bankruptcy process and you know what sort 0:13:54.559 --> 0:13:56.920 of sorts of reform or calls for it come out 0:13:56.920 --> 0:13:58.280 of this great stuff. 0:13:58.320 --> 0:14:00.520 Steve Church and Emelia Palla from bloom News, thank you 0:14:00.600 --> 0:14:01.559 so much for joining us. 0:14:01.960 --> 0:14:02.680 Thank you, James. 0:14:02.760 --> 0:14:03.600 Thanks James. 0:14:03.920 --> 0:14:06.360 Read all of their great scoops on the Bloomberg terminal, 0:14:06.400 --> 0:14:09.199 and of course at Bloomberg dot com, bankruptcy is a 0:14:09.240 --> 0:14:11.720 huge story. We have a fantastic global team treking it 0:14:11.800 --> 0:14:14.720 so do check it out. Thanks so much. As I 0:14:14.760 --> 0:14:17.640 mentioned earlier, we're joined by Spencer Cutter from Bloomberg Intelligence 0:14:17.679 --> 0:14:19.600 in Seattle. It's great to have you back on the show. 0:14:19.600 --> 0:14:22.000 How's it going, James, Thanks for having me back again. 0:14:22.120 --> 0:14:23.680 It's going well great. 0:14:23.720 --> 0:14:25.600 So we hit so well M and A. That is 0:14:25.760 --> 0:14:29.600 consolidation in the energy sector, oil and gas companies buying other, 0:14:29.760 --> 0:14:33.360 mostly smaller producers, so oil prices are up. Producers are 0:14:33.440 --> 0:14:35.440 enjoying a windfall. Have they run out of things to 0:14:35.480 --> 0:14:37.520 do with the cash they now have to buy each other? 0:14:37.720 --> 0:14:39.040 Is that the end game here? 0:14:39.440 --> 0:14:42.480 Well, there's a couple of things going on. The part 0:14:42.520 --> 0:14:45.440 of the cash that they've been generating over the past 0:14:45.560 --> 0:14:47.680 year has been going out the door to shareholders in 0:14:47.680 --> 0:14:50.760 the form of stock buybacks and these variable dividends, and 0:14:50.800 --> 0:14:53.880 a lot of companies have basically committed to saying we 0:14:53.960 --> 0:14:56.760 will return something in the neighborhood of fifty to even 0:14:56.800 --> 0:14:59.680 seventy five percent of free cash flow every quarter every 0:14:59.720 --> 0:15:03.600 year or two shareholders. But there's also a lot of 0:15:03.800 --> 0:15:07.320 fragmentation within the industry, and there's a lot of small 0:15:07.360 --> 0:15:12.000 to medium sized players and there's not You know, if 0:15:12.320 --> 0:15:14.200 you roll the tape back ten years ago, it's kind 0:15:14.200 --> 0:15:17.200 of the wild West with the shale revolution and a 0:15:17.240 --> 0:15:20.320 lot of basins that we're not producing all of a 0:15:20.360 --> 0:15:23.320 sudden that we were able to produce, and that's kind 0:15:23.320 --> 0:15:25.280 of run its course to a large part. So now 0:15:25.320 --> 0:15:28.200 there's expectations that there should be some consolidation within the 0:15:28.600 --> 0:15:32.720 industry to bring some of the scale on scope that 0:15:32.760 --> 0:15:35.560 you would get in that case. So we've seen some 0:15:35.760 --> 0:15:38.520 M and A activity certainly over the last couple of years. 0:15:39.120 --> 0:15:44.960 But with the announcement of Exon buying Pioneer, there's some 0:15:45.080 --> 0:15:48.720 expectation that that could really push everything into high gear. 0:15:49.200 --> 0:15:50.880 That was a big deal, right, how much was it worth? 0:15:51.560 --> 0:15:55.600 Sixty billion? Yeah, it's a very big deal. And it 0:15:55.680 --> 0:16:00.640 is basically focused on Exon expanding its footpair footprint in 0:16:00.720 --> 0:16:04.400 the premium basin, which is the premier basin in the 0:16:04.480 --> 0:16:05.960 United States and North America. 0:16:06.320 --> 0:16:08.200 And is it really is it really simple as just 0:16:08.240 --> 0:16:10.360 big companies like Xon buying the smaller ones. 0:16:11.080 --> 0:16:13.320 I think you're gonna you could see you could see 0:16:13.320 --> 0:16:15.880 a couple of different things. You could certainly see big 0:16:15.920 --> 0:16:19.560 companies like X like Exon trying to expand their footprint 0:16:19.600 --> 0:16:23.520 in certain areas. So you know, Chevron could be a 0:16:23.520 --> 0:16:25.920 buyer of another large company if they want to do 0:16:25.960 --> 0:16:28.600 the same thing. But I also think you could see 0:16:29.440 --> 0:16:32.320 a lot of consolidation within the mid tier and two 0:16:32.800 --> 0:16:35.320 smaller to medium sized companies kind of teaming up to 0:16:35.400 --> 0:16:38.200 be to make a larger you know, certainly nothing on 0:16:38.240 --> 0:16:41.600 the rival exon, but a much larger producer within a 0:16:41.640 --> 0:16:43.480 certain area. So I think you're going to see both 0:16:43.520 --> 0:16:46.800 of those. And you know we're talking about you know, 0:16:46.840 --> 0:16:51.120 credit focused podcasts here. Fortunately, today, I think whether it's 0:16:51.160 --> 0:16:53.520 a big company buying a smaller company or two mid 0:16:53.560 --> 0:16:57.080 sized companies merging, I think it's going to largely be 0:16:57.120 --> 0:17:01.880 a credit positive event for bondholders of in in most cases, is. 0:17:01.840 --> 0:17:05.400 It simply the case as in other commodities that bigger 0:17:05.520 --> 0:17:08.359 is better, just more efficient, bigger reach, all that stuff. 0:17:08.680 --> 0:17:12.199 Yeah, to a certain extent, Yeah, bigger is better. And 0:17:12.240 --> 0:17:14.720 there's a couple of things driving my view that I 0:17:14.720 --> 0:17:17.879 think this is a positive for creditors. You know, usually 0:17:17.880 --> 0:17:21.000 when you start talking about M and A, bond holders 0:17:21.000 --> 0:17:23.680 get a little bit nervous because, on the one hand, 0:17:23.720 --> 0:17:26.440 you could have the city scenario of a big A 0:17:26.640 --> 0:17:30.720 double A rated credit buying a smaller B or double 0:17:30.720 --> 0:17:33.359 B rated credit, and then the small bondholders of the 0:17:33.359 --> 0:17:37.080 smaller companies certainly make out with a bit of a windfall. 0:17:37.119 --> 0:17:39.680 But you could also have the opposite extreme with extreme 0:17:39.720 --> 0:17:44.480 which is an LBO. But we haven't been seeing LBOs 0:17:44.720 --> 0:17:47.040 or highly levered deals in the oil and gas space 0:17:47.040 --> 0:17:49.239 for quite a while, and it's largely because of the 0:17:49.280 --> 0:17:52.960 downturns we saw in twenty sixteen in twenty twenty where 0:17:52.960 --> 0:17:56.120 you had waves of bankruptcies, and ever since then, companies 0:17:56.160 --> 0:18:01.480 have been very focused on rebuilding and reinforcing their balance sheets, 0:18:01.480 --> 0:18:04.680 paying down debt, and one of the ways they've done 0:18:04.720 --> 0:18:07.560 that is not just paying down debt, but also acquiring 0:18:07.640 --> 0:18:10.200 other companies in all stock deals. So if you look 0:18:10.240 --> 0:18:12.480 at the deals that have been done since twenty twenty, 0:18:12.720 --> 0:18:14.879 all the large deals, almost all the large deals were 0:18:14.880 --> 0:18:18.320 one hundred percent equity focused, and the handful of large 0:18:18.320 --> 0:18:21.200 deals that weren't so Like when Pioneer bought Double Point, 0:18:21.240 --> 0:18:24.080 there was a large cash portion of that that involved 0:18:24.080 --> 0:18:27.720 a private equity firm, and so private equity companies obviously 0:18:27.720 --> 0:18:30.080 would rather have cash than stock. They'll take some stock, 0:18:30.119 --> 0:18:34.240 but they need something to return to their LPs. So 0:18:34.280 --> 0:18:35.880 I do think you're going to see most of these 0:18:35.920 --> 0:18:39.840 deals be structured as largely, if not all stock, mostly stock. 0:18:39.880 --> 0:18:43.040 And then the Exxon Pioneer case, you saw that, so 0:18:43.080 --> 0:18:46.359 it's a continuation of that, and then the other you know, 0:18:46.440 --> 0:18:48.320 let's talk about a merger of equals. And you mentioned 0:18:48.400 --> 0:18:52.240 is bigger better, not oil focused, but natural gas focused. 0:18:52.440 --> 0:18:55.720 This week there were rumors that Chesapeake is looking to 0:18:55.760 --> 0:18:58.960 buy Southwestern. These are two natural gas companies. They're both 0:19:00.240 --> 0:19:03.520 fairly large North America, but small when you compare them 0:19:03.560 --> 0:19:08.040 to a Chevron or Exxon, both double B rated credits. 0:19:08.520 --> 0:19:11.600 And my view is if those two combine in an 0:19:11.600 --> 0:19:16.080 all stock merger, that would give it much bigger footprint, 0:19:16.200 --> 0:19:19.200 more size and scope and business diversity, and that could 0:19:19.280 --> 0:19:22.520 then lead to an upgrade in their credit ratings because 0:19:22.680 --> 0:19:26.080 the agencies do do look at that as a primary factor. 0:19:26.359 --> 0:19:29.160 You know, bigger does give you certain advantages. 0:19:29.920 --> 0:19:31.879 Is there any associated issuance with this? I mean, you 0:19:31.880 --> 0:19:34.960 know it's all stock deals and the obviously on the 0:19:35.040 --> 0:19:37.439 LBO side, debt is hugely more expensive than it was. 0:19:37.880 --> 0:19:40.119 But is there going to be liability management? Is there 0:19:40.160 --> 0:19:42.400 going to be cleaning up the balance sheet. I mean 0:19:42.600 --> 0:19:45.280 there have been also some some issuance of energy companies 0:19:45.320 --> 0:19:48.600 over the last few weeks. Actually, so I was wondering, 0:19:48.760 --> 0:19:51.000 do we see more new money coming out? 0:19:52.160 --> 0:19:55.720 You could see some liability management to the extent that 0:19:56.400 --> 0:19:58.840 the acquiring company may want a tender for some of 0:19:58.840 --> 0:20:02.920 the target companies bomb ones. Maybe they want to change 0:20:02.960 --> 0:20:06.520 the covenants or somehow to match you know, the indenture 0:20:06.560 --> 0:20:09.159 for their existing bonds, so the new you know, the 0:20:09.200 --> 0:20:13.080 whole every bond that is now underneath that corporate umbrella 0:20:13.160 --> 0:20:17.000 is relatively identical from a covenant standpoint, or maybe they 0:20:17.080 --> 0:20:19.520 just sort of want to clean up the balance sheet. 0:20:20.280 --> 0:20:23.240 You mentioned some of the activity new issue activity. 0:20:23.280 --> 0:20:23.800 A lot of that. 0:20:24.080 --> 0:20:27.040 You know, I've been going here talking about how a 0:20:27.080 --> 0:20:29.160 lot of these M and A deals are equity focused, 0:20:29.200 --> 0:20:31.399 but when you do look at some of the smaller ones, 0:20:31.920 --> 0:20:34.679 there has been some debt, and again a lot of 0:20:34.680 --> 0:20:39.960 that is PE related. So Civitas Resources is a was 0:20:40.040 --> 0:20:43.200 a relatively small oil and gas producer focused in the 0:20:43.280 --> 0:20:46.240 DJ basin, and they have gone from having only four 0:20:46.320 --> 0:20:48.760 hundred million of bonds outstanding at the end of last 0:20:48.840 --> 0:20:52.760 year two uh now they are the largest issuer in 0:20:52.800 --> 0:20:57.240 the High Yield Independent Energy index because they have announced 0:20:57.280 --> 0:20:59.360 that they have They have announced and closed on two 0:20:59.400 --> 0:21:03.280 deals and just announced their third, and each one of 0:21:03.280 --> 0:21:07.120 those did involve quite a bit of debt. But they 0:21:07.160 --> 0:21:10.439 were buying assets from private equity companies, which, like I 0:21:10.520 --> 0:21:13.960 mentioned earlier, pe company will take some stock, but they 0:21:13.960 --> 0:21:15.679 also need some cash so that they can give that 0:21:15.720 --> 0:21:17.280 back to their investors pretty quick. 0:21:17.960 --> 0:21:20.600 Are there any relative value place here? Is there an 0:21:20.640 --> 0:21:23.080 opportunity for an investor to I mean, I'm just going 0:21:23.160 --> 0:21:24.840 to be cruely breaking it down. I'm not an investor 0:21:24.880 --> 0:21:28.120 in any means, but find a target company that's junk 0:21:28.200 --> 0:21:30.320 rated that might be brought by an investment grade company, 0:21:30.359 --> 0:21:32.160 buy the bonds and hope for an upgrade and get 0:21:32.200 --> 0:21:32.840