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Speaker 1: Hello, and welcome to the Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg.

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Speaker 2: And I'm Julie Hung, senior analyst at Bloomberg Intelligence, covering

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Speaker 2: consumer staples. This week, we're very pleased to welcome Jim Schaeffer,

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Speaker 2: global Head of Leverage Finance at Agon Asset Management.

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Speaker 3: How are you, Jim, I'm good, Thanks, Thank you for

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Speaker 3: having me.

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Speaker 2: Thank you again for joining us. Jim is a global

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Speaker 2: head of leverage finance and serves as a portfolio manager

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Speaker 2: for the various leverage finance strategies at Agon. He's also

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Speaker 2: responsible for stressed and special situations, securities, and all restructuring

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Speaker 2: in bankruptcy situations for the firm. Jim is a member

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Speaker 2: of the Agon Asset Management Steering Committee that's a global

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Speaker 2: macro and asset allocation strategies. Prior to his current role,

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Speaker 2: Jim served as a vice president at PPM America's Distress,

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Speaker 2: Debt and Workout Group. He also worked in corporate banking

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Speaker 2: and investment banking positions at Wacovia, Bank of America and

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Speaker 2: DLJ in Chicago. He's been in the industry since nineteen

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Speaker 2: ninety three and started with the Forum in two thousand

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Speaker 2: and four. Jim received his BS in finance from Miami,

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Speaker 2: Ohio University and his NBA from the Warton School of

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Speaker 2: Business at UPenn.

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Speaker 1: Thanks Julie, great to have you both here. Before we start,

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Speaker 1: I just want to say, you know, as we say

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Speaker 1: every week here, credit markets are very hot, with bond

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Speaker 1: spreads at the titus in three decades, as demand for

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Speaker 1: yield rises and net new supply remains pretty thin. The

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Speaker 1: largest leverage buyout ever for electronic arts has dominated the headlines,

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Speaker 1: signifying very buoyant debt markets, but at the same time

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Speaker 1: we see a lot more distress defaults and bankruptcies. The

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Speaker 1: fallout from the blowoff of First Brands, a Cleveland based

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Speaker 1: auto supplier, is spreading. Investors are brushing off as idiosyncratic

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Speaker 1: specific to the trade war impact on auto's, but there

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Speaker 1: are signs that trouble in credit markets is a bit

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Speaker 1: more widespread than that. So Jim, what is your take.

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Speaker 1: Are you bracing for more trouble ahead and how do

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Speaker 1: you reconcile such tight credit spreads with the stress that

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Speaker 1: we're seeing, particularly among the weaker companies that have a

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Speaker 1: lot of debt.

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Speaker 3: Yeah, I mean I am bracing for a little more troublehead.

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Speaker 3: I think it's just a very bifurcated market. You have,

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Speaker 3: you know, forty percent of the low market trading above par,

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Speaker 3: and you have you've got you know, less than ten

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Speaker 3: percent trading below ninety. But that ten percent that's trading

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Speaker 3: below nineties, a lot of it leaks below eighty, goes

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Speaker 3: through alemy and restructuring, and it's very aggressive actions that occur.

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Speaker 3: It's to me, it's just the weight of hiring borrowing costs,

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Speaker 3: especially in the leverage loan market. If you take the

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Speaker 3: two markets, the high yeeal bond market in the loan market,

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Speaker 3: they're actually pretty different. The overall they both have had

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Speaker 3: decent earnings, you know, almost improving or flat to better

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Speaker 3: earnings going forward. But what you see in both markets

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Speaker 3: is higher de fault activity, higher element activity, primarily in

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Speaker 3: the loan market where you have private you have plan

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Speaker 3: sponsors there, and the issue is it's the way to

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Speaker 3: the hiring borrowing costs for longer and longer longer on

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Speaker 3: these companies. Not to mention the impact of tariffs and

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Speaker 3: higher input costs. The HYOD mark is not had to

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Speaker 3: deal with that because they're fixed rate coupons, right, So

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Speaker 3: we do expect more trouble ahead. We do expect it.

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Speaker 3: We feel like it's picking up in these troubled situations

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Speaker 3: like first Brands or the ones that but and I

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Speaker 3: do think you're gonna see more. And again, we have

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Speaker 3: a slowing economy. We know they're the client is slowing.

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Speaker 3: We know we're going to start to see the top

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Speaker 3: lines wave a little bit, and that's why the Fed's acting.

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Speaker 3: So I do expect more activity. And you know how

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Speaker 3: we navigate it. It's not easy because it's very bifurcated.

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Speaker 3: And you, like I said, if you've got so much

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Speaker 3: trading pretty tight. We spend half our days in the

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Speaker 3: loan market, get up and talking about the wave of

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Speaker 3: resets coming in, you know, repricing's coming in and seeing

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Speaker 3: you know, the spreads going from three hundred to two

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Speaker 3: seventy five and the other bottom ten percent loans dropping

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Speaker 3: like a stone because they missed earnings in a very

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Speaker 3: preemptive activity by plan sponsors, you know, either trying to

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Speaker 3: bring money to the bars, trying to be you know,

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Speaker 3: try to get that give them time and liquidity for

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Speaker 3: priority in fees. So it's a very unique market and

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Speaker 3: you just got to be really focused, have a very

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Speaker 3: sharp pencil, and really at the first sign of trouble.

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Speaker 3: Which way is it going?

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Speaker 2: Jim, do you think that in a lower interest rate

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Speaker 2: market it's going to help because it seems like first brand,

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Speaker 2: try color when you're looking at like the underlying issues

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Speaker 2: like the auto sector. You kind of touched on tariffs.

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Speaker 2: A lot of it goes back to the consumer consumer weakness.

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Speaker 2: So when when you're looking at a lower interest rate environment,

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Speaker 2: that does help consumers with costs, but at the same time,

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Speaker 2: it also helps with liability management, you know, refinancings. If

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Speaker 2: rates go down more as they're expected to, is that

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Speaker 2: going to help you relax a little bit or is

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Speaker 2: there something else that's going on in scale?

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Speaker 3: The answer is yeah. I mean, you know, lower rates

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Speaker 3: are going to be very helpful in the leverage loan market.

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Speaker 3: You know, you know, twenty five base points not overly impactful,

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Speaker 3: but one hundred basis points is meaningful. You know, it

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Speaker 3: does give more flexibility to companies, it does reduce that

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Speaker 3: borrowing cost. But the reality is, like everything, it's like

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Speaker 3: the first time that you get to the beginning stages of

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Speaker 3: any sort of default crisis, recessionary period of time, it's

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Speaker 3: the weaker companies that fall. The ones who recovers are

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Speaker 3: gonna be very low, and then over time the weight

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Speaker 3: of it starts to build and build a building. Is

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Speaker 3: it gonna save all the companies? No, Now you get

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Speaker 3: cut to inner base points tomorrow, you still got the

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Speaker 3: issue of it's tied to a consumer. It's it's a

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Speaker 3: chemical company and you're seeing China dumping EI. There's something

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Speaker 3: else going on, some other issue that's creating a problem

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Speaker 3: for the company that's created to man issue, not just

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Speaker 3: a cost issue. So it's not gonna save it, but

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Speaker 3: it's gonna go dramatically help that other ninety percent or

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Speaker 3: that ninety five percent that sits like at ninety or

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Speaker 3: above that they're wavering and the ones are getting more

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Speaker 3: and more impacted. Yeah, those are gonna help. You're gonna

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Speaker 3: end again. The good thing about hot markets, or you

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Speaker 3: know where we taught about the start, you've got pretty

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Speaker 3: strong markets right now. You had a pretty strong tentacle

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Speaker 3: on both right both the low in the bond market

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Speaker 3: that enables you to refinance a lot of stuff. So

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Speaker 3: if you can't get something refinanced in these markets, it's

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Speaker 3: that bottom ten percent, that bottom five percent that they're

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Speaker 3: gonna have trouble. That's your real sign because everyone else

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Speaker 3: is trying to refinance themselves and trying to extend time

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Speaker 3: and which you don't and kick the can down the

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Speaker 3: road if they need to, and if you can't, that's

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Speaker 3: where you got a problem. So it's gonna save a

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Speaker 3: lot from the future impact. But those that are on

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Speaker 3: the edge, they're gone and they're gonna You're gonna deal

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Speaker 3: with them for sure.

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Speaker 1: In terms of the actual size of the problem, though, James,

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Speaker 1: I mean, you know, we talked to out people and

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Speaker 1: they seem to dismiss it as a very tiny piece

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Speaker 1: of the market. It's just triple c's and we can

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Speaker 1: avoid them, and we've been staying out of them for

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Speaker 1: a long time. So it's not a problem for me

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Speaker 1: because I'm you know, I'm in higher quality stuff, so

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Speaker 1: it's easy to avoid and it's not gonna have any

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Speaker 1: kind of riple efect. We looked at the leverage loan market,

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Speaker 1: for example, and only two percent of loans are trading

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Speaker 1: you know, distress levels, so you know, it's at one

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Speaker 1: point four trillion dollar market, so you know, who cares?

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Speaker 1: Why does it matter?

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Speaker 3: Well, it's a great question, and it somewhat of it

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Speaker 3: matters because so much to the low market's controlled by colos,

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Speaker 3: and that's a different animal, right. Clos have a complete

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Speaker 3: different trading dynamic. They got much they're much more sensitive

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Speaker 3: to downgrade risk. And when you start to see, let's

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Speaker 3: say the economy starts to slow and yeah, it's two

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Speaker 3: percent right now, and those two percenter, you know, like

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Speaker 3: first friends, can't be painful for the COLO market. But

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Speaker 3: when you start to see the agencies come in and say, okay,

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Speaker 3: we're seeing as slower in economy, we're seeing the consumers

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Speaker 3: slow and slower and spending. Who's impact by this? We

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Speaker 3: haven't really gotten away from managing our input costs, you know,

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Speaker 3: and that yeah, our barring costs are coming down, but

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Speaker 3: slow enough. So if you start to see a wave

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Speaker 3: of a wave of downgrades, you know, because we're concerned

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Speaker 3: about it. You start to see earning slow EBITDAH, slow coverage, racials,

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Speaker 3: delant decline, leverage trick up a little bit, you start

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Speaker 3: to see more downgrades. That puts tremendous seal pressure on

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Speaker 3: for colos. You saw I think two three billion dollars

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Speaker 3: get downgraded Triple C LAT in the month of September.

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Speaker 3: That's weight on Triple C's because they're they're out there

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Speaker 3: with already heightened leverage, and it become a bit of foreselling.

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Speaker 3: So that's the self fulfilling prophecy we worry about. It

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Speaker 3: feels like it's contained except for the names or two.

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Speaker 3: It's not and it's hurtful, but it'll expand because the

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Speaker 3: agencies will kind of get concerned. Downgrades will increase, those

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Speaker 3: names will have a harder time refinance themselves become a

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Speaker 3: bit for selling in the COLO market. There isn't really

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Speaker 3: a marginal buyer out there except do you get to

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Speaker 3: the stress animal stressed investors there, and then that that

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Speaker 3: becomes the whole wave of more and more Lemy activity.

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Speaker 3: And I feel like even though we talk with that,

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Speaker 3: I still feel like right now I'm seeing Lemy activity

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Speaker 3: pick up a little bit from our distress team. It

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Speaker 3: feels like there's more and more stuff out there. We're

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Speaker 3: talking about Lemy in that trading below ten percent or

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Speaker 3: trading below season trading, the trainbone ninety dollars price and

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Speaker 3: the last thing I'll say, which is, once alone goes

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Speaker 3: sub eighty, it's like a seventy five eight percent chance

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Speaker 3: it goes into restructuring. So that that's the math of late.

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Speaker 3: So once it hits that slope and it gets down there,

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Speaker 3: it seems to accelerate, and it's they're very proactive. You know,

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Speaker 3: there's a playbook out there that comes from from financial advisors,

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Speaker 3: the attorneys and and plan sponsors are who said, Hey,

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Speaker 3: I want to take advantage of this weakness to try

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Speaker 3: to you know, get I have flexibility in my structure.

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Speaker 3: I want to extend maturity. I want to take advantage

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Speaker 3: of that and maybe maybe take some you know, get

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Speaker 3: some discount or you know, take some some loans out

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Speaker 3: of this, out of my thing, reduce my nav or

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Speaker 3: my balance my loans by constructively doing an LME transaction

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Speaker 3: and give me preference to those that have scale. So

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Speaker 3: there's a weird dynamic out there that we have to navigate.

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Speaker 1: So what happens? Can you talk us through it in

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Speaker 1: simpler terms?

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Speaker 3: Yeah, I'm just talking about S and P and Moody's.

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Speaker 3: You know, all the underlying loans have ratings and most colos,

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Speaker 3: all clos have a limitation on how much they can

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Speaker 3: own in triple C and below loans, and they can

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Speaker 3: own more, but there's various things that occur if they

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Speaker 3: over that threshold, and it usually is seven a half

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Speaker 3: percent of the underlying loan portfolio and COO can be

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Speaker 3: triple see or below. So as you get more and

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Speaker 3: more triple c's, you you tend to see managers try

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Speaker 3: to sell off even if they get to you know,

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Speaker 3: close the triple C or below, to try to reduce

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Speaker 3: their holdings of triple C. So if they get triple

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Speaker 3: C and then they get into default, that's a whole

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Speaker 3: nother decision they have to make, and they get too

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Speaker 3: much of it. There's various tests in COLO that you

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Speaker 3: can violate that could change the way in which the

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Speaker 3: CO distributes equity distributes distributions to the equity holders of

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Speaker 3: a COLO. It's structured in simplest terms, it's this colos

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Speaker 3: in general want to limit the amount of triple C

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Speaker 3: and below rated loans they own in their in their portfolios.

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Speaker 3: And as they get that builds, they're become a little

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Speaker 3: bit of fores selling And that's kind of generically, what

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Speaker 3: the what the what I'm talking about when I say

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Speaker 3: the agencies, I'm referring to the S and P, Moody's,

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Speaker 3: Fitch just rating the loans, and as they downgrade them,

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Speaker 3: it creates problems for COLO managers potentially.

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Speaker 1: And the reason it matters for more than just the

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Speaker 1: triple C bucket is because they are also avoiding single

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Speaker 1: bees because of the downgrade risk.

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Speaker 3: Is that they're not necessarily avoiding single bees, I would

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Speaker 3: say most COLO manager, because in a COLO you're trying

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Speaker 3: to get you know, you're trying to get your way

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Speaker 3: to average spread as high as you can relative to

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Speaker 3: the risk you own, because that is what you have.

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Speaker 3: Your spread of your of your assets and your cost

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Speaker 3: of your liability is the debt that's in the structure

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Speaker 3: and the difference that generically goes to the equity in

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Speaker 3: the form of distributions. So you want to have as

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Speaker 3: much of a differential between your way to average spread

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Speaker 3: and your cost of debt. So single bees fit that nicely.

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Speaker 3: There you know you're trum. But as they get down

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Speaker 3: to be three, I think as a manager, we've got

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Speaker 3: to spend a lot of time focused on what is

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Speaker 3: the risk of the downgrade, how comfort we are with that,

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Speaker 3: Where that credit is going and that's the challenge of

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Speaker 3: marketing in right now, you have a lot of B

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Speaker 3: three's that might be trained at ninety five. If they

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Speaker 3: miss the next earnings, they might drop to seventy overnight,

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Speaker 3: and that's the dynamic of challenge. Or you could have

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Speaker 3: or they could You could have the management proactively make

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Speaker 3: a statement at earnings it says worry value in the

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Speaker 3: capital structure. And right then the agencies are going to

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Speaker 3: downgrade it because they know what's coming. There's gonna be

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Speaker 3: some lie ability management exercise that's going to try to

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Speaker 3: create time and liquidity for them in exchange for collateral

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Speaker 3: priority and incremental fees to the to the lenders. That's

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Speaker 3: the issue right now.

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Speaker 2: And then when when you're talking about liability and management,

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Speaker 2: it's it makes sense. You know, you extend your maturities,

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Speaker 2: you buy yourself more time. Kind of going back to

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Speaker 2: what you just said, you know, you help your liquidity profile,

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Speaker 2: your cap structure, but the underlying issue is the business

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Speaker 2: and you know it kind of goes hand in hand,

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Speaker 2: so you have to have liability management, but at the

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Speaker 2: same time you have to have a plan to improve

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Speaker 2: whatever you're you're producing. You're selling to get your sales

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Speaker 2: up to getting done up. Now when you're looking at

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Speaker 2: the current environment, the consumer is weak. You know, you

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Speaker 2: said that earlier that you know, we have this like

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Speaker 2: parification of the consumer. So what would happen if you

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Speaker 2: have you know, extending maturities, but then the underlying consumer

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Speaker 2: continues to stay weak.

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Speaker 3: Yeah, it's it's exactly the whole. That's the whole game, right,

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Speaker 3: It's like you're trying to identify we get all all

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Speaker 3: these not all these, but all the every situation that

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Speaker 3: comes into form. Hey, company, miss earnings, the loans down,

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Speaker 3: it's fallen in price. We as a manager to evaluate,

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Speaker 3: is this good business, bad balance sheet that's through some

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Speaker 3: sort of sickle trough and we can see the path

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Speaker 3: out of it, or is this bad business bad melting

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Speaker 3: ice being highyields littered with melting ice cube businesses and

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Speaker 3: yours Bettonhla, it's gonna take the ice cube to melt, right,

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Speaker 3: that's just what it is. They never leave high yield,

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Speaker 3: that's the game. So you've got to figure out what

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Speaker 3: it is. And we saw there, you know, eight o

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Speaker 3: nine is a great example if you look back of

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Speaker 3: so many, so many people just figured out the math

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Speaker 3: to kick the can down the road. It was such

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Speaker 3: a recessionary trough that you know, we came back. This

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Speaker 3: is a lot different than that, right This doesn't feel

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Speaker 3: the same way as that eight o nine capitulation big Trup.

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Speaker 3: It's a weird dynamic of terrorists and inflation and everything

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Speaker 3: impacting geopolitical risk. And you know China chemic a war

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Speaker 3: going on right more independently going on that's affecting companies.

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Speaker 3: So we've got to be very good at identifying, hey,

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Speaker 3: do I want to stay in a situation, And we

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Speaker 3: got to do in the loans at ninety or ninety five,

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Speaker 3: and now when it's at seventy because the seal doesn't

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Speaker 3: like to sell things at seventy because you impact the

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Speaker 3: part of it. But so you got to do it then.

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Speaker 3: And when you get that lme side, then you have

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Speaker 3: to decide can it does this make sense to go

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Speaker 3: in it or not? And that's the game. It's it's

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Speaker 3: so much more challenging right now because of what you cite.

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Speaker 3: It is a slowing economy. There is in every sector

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Speaker 3: is getting impacted differently by all elements geopolitically, So how

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Speaker 3: do we figure that out. We're trying to figure that

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Speaker 3: out every day on these companies. Is it a good

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Speaker 3: business that we like and we can see a path,

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Speaker 3: this is the path? Are we always be right? Probably not?

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Speaker 3: But and by the way, the activity that occurred two

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Speaker 3: years ago, many of them are coming back for what

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Speaker 3: you cite, which is, you know, we did, inflation didn't

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Speaker 3: really improve enough, Their input costs haven't really got better,

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Speaker 3: their revenues aren't really up. There don't look a whole

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Speaker 3: lot different than we thought with the projections we got

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Speaker 3: or we did. They're not as good as we thought

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Speaker 3: they're going to be. And so now we're it's kind

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Speaker 3: of two point zero when now we're doing we do

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Speaker 3: it again and the collateral has been shifted and you

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Speaker 3: know all this stuff. So yeah, it's a unique envinment

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Speaker 3: and we've got to figure it out. That's that's our

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Speaker 3: job as portfolio. Managed to be good at figuring out

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Speaker 3: why we like that business in that point of stress,

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Speaker 3: and that's tough.

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Speaker 1: Are there any themes across those? I mean, is it autos,

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Speaker 1: is it tariffs, is it consumer or is it just

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Speaker 1: really everything you have to look at, you know, situation

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Speaker 1: by situation.

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Speaker 3: You know, I think people always There are certainly sectors

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Speaker 3: that you know, we mentioned chemicals, especially European chemicals, and

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Speaker 3: what's going on there. You know, autos anywhere you've got

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Speaker 3: tariff impact. I mean, you know cable, cable is always

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Speaker 3: a cable, Satellites, wireless always a unique space. You've got

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Speaker 3: winners and losers. And again that's where you find so

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Speaker 3: many melting ice cubes. You're in. Some workout really well

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Speaker 3: in some don't, and businesses are transitioning from cable and

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Speaker 3: chords to different businesses, and you know, you've got technology

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Speaker 3: and you're trying to figure out in the loan mark.

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Speaker 3: There's so many technology names. You feel like, how is

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Speaker 3: AI going to impact this business? They're probably usually little

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Speaker 3: old levered reletive in the loan mark to others. So

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Speaker 3: there are definitely very topical sectors generically that you have

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Speaker 3: to look at and figure out, and it usually is tariffs,

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Speaker 3: higher leverage, impact is something scalable like AI geopolitical risk,

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Speaker 3: So you got to go through those. But holistically, beyond that,

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Speaker 3: it is kind of idosyncratic in a sense that even

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Speaker 3: within sectors, companies are impacted differently how they control their

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Speaker 3: input cost, how inflation hit them, where they stood from

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Speaker 3: a leverage standpoint, what their flexibility is of structure, because

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Speaker 3: we haven't even talked about stepping back. The reason LM

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Speaker 3: the activity really exist is because the structural flexibility in

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Speaker 3: the underlying loan, syndicated loans affords them the ability to

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Speaker 3: shift collateral, to deal with restricted payments, to give barrowers something,

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Speaker 3: to give them more money, enable them to elevate their

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Speaker 3: collateral position. And that hurts other lenders, right, but it

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Speaker 3: helps those that have the scale to be in the

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Speaker 3: steering community or whatever that flexibility. So if you've got

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Speaker 3: three companies in the auto space and one has got

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Speaker 3: tremendous flexibility, one has none, that might totally shape what

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00:17:12,960 --> 00:17:15,280
Speaker 3: lenards are willing to do to give them the time

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Speaker 3: to even get to that versus just going into bankruptcy

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Speaker 3: or whatever. So very unique dynamic, the most unique market

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Speaker 3: I've ever seen, because it's so everything is so unique

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Speaker 3: to each situation. But yeah, there's overriding themes and I

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Speaker 3: mentioned on sectors that you've got to be very focused on.

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Speaker 3: For sure. Food is another one. We've seen higher input,

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Speaker 3: you know, just the cost structure of food, which used

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Speaker 3: to be kind of a staple of the loan market

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Speaker 3: as a stability, you know, because we like stable, you know,

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Speaker 3: pay your coupon kind of stuff. And that's changed a

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Speaker 3: lot too.

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Speaker 2: As the staples analysts like, we look at food a lot,

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Speaker 2: look at beverages and kind of going back to what

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Speaker 2: you said, even within the food sector, you do have

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Speaker 2: different companies managing risks a little better than others. So

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Speaker 2: for sure, it's not like you could just say, Okay,

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Speaker 2: the food sector, it's a safe bet. When you're looking

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Speaker 2: at food, there are or you know, even like consumer products,

378
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Speaker 2: some of the companies are a better positioned to shift

379
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Speaker 2: manufacturing to you know, within the United States, some can

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Speaker 2: shift it to other countries not impacted by tariffs, and

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Speaker 2: you do hear these tariff mitigation strategies. Within the consumer

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Speaker 2: staples sector, some are managing it a lot better than others.

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Speaker 2: Some have more pricing flexibility, some don't. Some are going

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Speaker 2: into this with a better net leverage position so they

385
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Speaker 2: can handle it a lot easier. Now, within the consumer staples,

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Speaker 2: is there one sub sector that you guys look at

387
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Speaker 2: more than others, Like, do you think one's handling it

388
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Speaker 2: better than others? Or is it more you're looking at okay,

389
00:18:47,920 --> 00:18:51,800
Speaker 2: like tariffs, let's see how it's impacting like BMG Foods

390
00:18:51,880 --> 00:18:54,720
Speaker 2: or Cody or you know some of the high yielding names.

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Speaker 3: Yeah, it's interesting you say that because I hadn't thought

392
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Speaker 3: about it the other way, like I haven't ought about, hey,

393
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Speaker 3: what are the ones handling it? Well? Because I spend

394
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Speaker 3: so much time I'm always like, Okay, what's going wrong

395
00:19:07,080 --> 00:19:08,679
Speaker 3: in these I never really thought about that. That's what

396
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Speaker 3: we do.

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Speaker 2: It's credit analyst, right, I.

398
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Speaker 3: Know, I am always like, So I do think that

399
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Speaker 3: everything you said there is exactly the way I think

400
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Speaker 3: about the world. To James's question, which was like, it

401
00:19:20,240 --> 00:19:23,479
Speaker 3: is syncratic, even within a sector that's got challenge, and

402
00:19:23,560 --> 00:19:26,679
Speaker 3: so some names have just figured out the flexibility whatever

403
00:19:26,720 --> 00:19:30,000
Speaker 3: they can manage within their input cost structure to do it. So,

404
00:19:30,080 --> 00:19:32,720
Speaker 3: whether it's and and the ones that can't, you know,

405
00:19:32,800 --> 00:19:34,720
Speaker 3: like a del Monte or whatever, I mean, they you know,

406
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Speaker 3: it just it's just so interesting and it is it

407
00:19:37,359 --> 00:19:41,359
Speaker 3: is syncratic, and so I can't give you a theme necessarily,

408
00:19:41,400 --> 00:19:46,160
Speaker 3: but generally speaking, I would suggest controlling input costs, controlling

409
00:19:46,240 --> 00:19:49,520
Speaker 3: passed through and and and and and getting a bit

410
00:19:49,680 --> 00:19:53,160
Speaker 3: sometimes lucky on how the tariff thing impacts you. Is

411
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Speaker 3: is the playbook maybe, but I I it's it's it

412
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Speaker 3: is syncratic at its best, and I don't I never

413
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Speaker 3: the ones the ones that are I mean anyone that

414
00:20:03,280 --> 00:20:05,639
Speaker 3: is holding up well. And honestly, for a while, I

415
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Speaker 3: thought that the tariff stuff was kind of a little

416
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Speaker 3: bit less impactful than I regionally thought it was going

417
00:20:11,040 --> 00:20:13,800
Speaker 3: to be. And again what happened and Liberation Day was

418
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Speaker 3: kind of extreme in the way that we thought about it,

419
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Speaker 3: and it gets pulled back and navigating all that, and

420
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Speaker 3: it's hard exactly to determine what the outcome is going

421
00:20:21,960 --> 00:20:23,119
Speaker 3: to be. And maybe it was always a little bit

422
00:20:23,160 --> 00:20:25,120
Speaker 3: better than we thought it was, but it was gonna

423
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Speaker 3: be worse than where we started from a lot of

424
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Speaker 3: these companies. So then once they figured out and can

425
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Speaker 3: figure hot to manage, and that's why we couldn't get

426
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Speaker 3: any guidance, you know, after one in one Q earning,

427
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Speaker 3: So it was just a guessing game. Yeah.

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Speaker 2: I still feel that way though, that it's hard to

429
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Speaker 2: figure out exactly what the tariff impact is because again,

430
00:20:42,080 --> 00:20:44,760
Speaker 2: like you know what we were talking about, every company

431
00:20:44,800 --> 00:20:48,280
Speaker 2: is managing it differently. Everyone has different resources, different levers

432
00:20:48,320 --> 00:20:51,000
Speaker 2: to pull. Some are better off, some are more ahead

433
00:20:51,000 --> 00:20:53,840
Speaker 2: of the game. It feels like there's a bit of whiplash,

434
00:20:53,960 --> 00:20:57,000
Speaker 2: like what's going on with tariffs. They're implementing, they're baiting,

435
00:20:57,000 --> 00:21:01,080
Speaker 2: pulled back. Oh they are exceptions. So it's from our perspective,

436
00:21:01,119 --> 00:21:05,480
Speaker 2: it's been difficult to really pinpoint and make an overarching

437
00:21:05,520 --> 00:21:08,639
Speaker 2: statement that, Okay, this is what's happening with tariffs. We

438
00:21:08,720 --> 00:21:11,160
Speaker 2: know that it's a headwind, but we're also hearing that

439
00:21:11,280 --> 00:21:16,360
Speaker 2: some companies who have expected a worse impact after two

440
00:21:16,440 --> 00:21:18,639
Speaker 2: Q earnings, they came out and said, Okay, it was

441
00:21:18,640 --> 00:21:22,040
Speaker 2: a little better than we had expected. So that that's

442
00:21:22,080 --> 00:21:24,120
Speaker 2: a little you know, light at the end of the tunnel.

443
00:21:24,200 --> 00:21:26,040
Speaker 2: But I think it's still going to be a headwind.

444
00:21:26,680 --> 00:21:29,440
Speaker 2: You know, you're hearing like aluminium costs their heights, impacting

445
00:21:29,440 --> 00:21:32,320
Speaker 2: companies that have canned goods. A lot of the beer

446
00:21:32,320 --> 00:21:36,000
Speaker 2: companies are impacted by this as well. But I kind

447
00:21:36,000 --> 00:21:38,479
Speaker 2: of wanted to circle back to you know, you were

448
00:21:38,480 --> 00:21:40,879
Speaker 2: talking a little bit about the radia agencies before, and

449
00:21:41,200 --> 00:21:44,959
Speaker 2: you know, investors rely on like rady agency comments and

450
00:21:45,119 --> 00:21:48,520
Speaker 2: when you're looking at information given out by the company.

451
00:21:48,600 --> 00:21:50,840
Speaker 2: So when you're looking at like a first brand and

452
00:21:52,119 --> 00:21:56,000
Speaker 2: they provide the financial information to the RAIDI agencies, So

453
00:21:56,040 --> 00:22:00,240
Speaker 2: it's kind of like going back to the financial crisis,

454
00:22:00,480 --> 00:22:03,520
Speaker 2: the radiing agencies will rate based on the information they're given,

455
00:22:04,000 --> 00:22:07,320
Speaker 2: So how do you rely on that? Like, you know,

456
00:22:07,800 --> 00:22:11,920
Speaker 2: there has to be like some sort of like you

457
00:22:11,920 --> 00:22:14,159
Speaker 2: you have to trust them at some point, but they're

458
00:22:14,200 --> 00:22:18,400
Speaker 2: getting or they getting bad information. You know, we're looking

459
00:22:18,400 --> 00:22:23,480
Speaker 2: at like the even the Tricolor Holdings bankruptcy, the subprime

460
00:22:23,600 --> 00:22:27,440
Speaker 2: we all know subprime is very, very risky, but we're

461
00:22:27,480 --> 00:22:29,560
Speaker 2: relying on the radiing agencies to tell us, Okay, this

462
00:22:29,680 --> 00:22:31,840
Speaker 2: is very risky, this is like X, Y and Z.

463
00:22:33,040 --> 00:22:35,439
Speaker 2: But then when all of a sudden they're you know,

464
00:22:35,480 --> 00:22:38,719
Speaker 2: filing for bankruptcy, then you're kind of like, Okay, who

465
00:22:38,800 --> 00:22:39,440
Speaker 2: got it wrong?

466
00:22:39,800 --> 00:22:40,000
Speaker 3: Is it?

467
00:22:40,040 --> 00:22:42,640
Speaker 2: From the company perspective? With the radiancy perspective? Like how

468
00:22:42,680 --> 00:22:46,600
Speaker 2: do you manage that when you're looking at like ratings

469
00:22:46,640 --> 00:22:51,960
Speaker 2: and trying to like pick which investment is you know

470
00:22:52,000 --> 00:22:54,840
Speaker 2: you have your your yield, but also like it's a

471
00:22:54,880 --> 00:22:57,720
Speaker 2: little safer I guess.

472
00:22:57,640 --> 00:23:00,639
Speaker 3: I mean it's it's it's sense eight or nine even before.

473
00:23:00,680 --> 00:23:05,480
Speaker 3: It's probably the biggest challenge of as fixed fixing some investors, right,

474
00:23:05,480 --> 00:23:07,959
Speaker 3: because how much do you rely on the agencies? You know,

475
00:23:08,000 --> 00:23:10,960
Speaker 3: we as AT again, we have a pretty pretty strong

476
00:23:11,000 --> 00:23:13,399
Speaker 3: research group, we feel, and we have our own independent

477
00:23:13,480 --> 00:23:16,679
Speaker 3: ratings on credits, so you know, we're gonna take what

478
00:23:16,760 --> 00:23:19,000
Speaker 3: the agencies give us always with the grain of salt.

479
00:23:19,040 --> 00:23:20,480
Speaker 3: Not necessarily grain of salt, but just like hey, we

480
00:23:20,520 --> 00:23:22,399
Speaker 3: have through our own work on our own set, but

481
00:23:22,440 --> 00:23:25,840
Speaker 3: we're all getting the same information. So there's there's different opponents.

482
00:23:25,840 --> 00:23:28,840
Speaker 3: The first thing you said is if you're getting inaccurate

483
00:23:29,000 --> 00:23:32,400
Speaker 3: or information, like the company is not giving you all

484
00:23:32,440 --> 00:23:35,520
Speaker 3: the information that's necessary to give a fair evaluation, that's

485
00:23:35,560 --> 00:23:37,719
Speaker 3: not necessarily on the rating sies, you know, it's it's

486
00:23:37,800 --> 00:23:40,439
Speaker 3: kind of like they're like any analysts that gets data

487
00:23:40,800 --> 00:23:43,040
Speaker 3: and makes it it makes there's you know, and gets

488
00:23:43,119 --> 00:23:45,160
Speaker 3: has a set of assumptions within that data and then

489
00:23:45,440 --> 00:23:47,040
Speaker 3: projects that word that what they think the company is

490
00:23:47,080 --> 00:23:50,439
Speaker 3: going to do. If that's inaccurate, well then that's different

491
00:23:50,480 --> 00:23:53,400
Speaker 3: than hey, we just don't understand it, like we don't

492
00:23:53,400 --> 00:23:55,760
Speaker 3: see the macro trends or the or the or the

493
00:23:55,760 --> 00:23:58,199
Speaker 3: direction the business because we're not good to determine what

494
00:23:58,200 --> 00:24:00,520
Speaker 3: are the united I always look at research and every

495
00:24:00,560 --> 00:24:03,040
Speaker 3: business is there's probably three or four or five key

496
00:24:03,119 --> 00:24:05,720
Speaker 3: things that really drive a path for a company. You know,

497
00:24:05,760 --> 00:24:07,840
Speaker 3: I used to always ask a question when I interview people,

498
00:24:07,880 --> 00:24:09,800
Speaker 3: is how does this company make money? Which is a

499
00:24:09,800 --> 00:24:12,720
Speaker 3: really simple question, but it isn't actually in its core

500
00:24:12,920 --> 00:24:15,840
Speaker 3: because like, if you really understand how a company makes money,

501
00:24:16,040 --> 00:24:18,240
Speaker 3: then the key assumptions that are coming from the company

502
00:24:18,240 --> 00:24:19,879
Speaker 3: will help you determine the path that where it's going

503
00:24:19,960 --> 00:24:21,960
Speaker 3: to go. And again, you know, I don't do research

504
00:24:22,000 --> 00:24:24,280
Speaker 3: every day. We have a team that does that, and

505
00:24:24,320 --> 00:24:26,080
Speaker 3: they do it, we think, hopefully a pretty good job

506
00:24:26,119 --> 00:24:29,199
Speaker 3: of regardless of the agencies tell them of saying I

507
00:24:29,280 --> 00:24:32,600
Speaker 3: like or don't like this company. That's our job. Our

508
00:24:32,640 --> 00:24:35,840
Speaker 3: investors don't pay us to tell them what to tell them,

509
00:24:36,040 --> 00:24:39,240
Speaker 3: or the agencies missed it, that we missed it. So

510
00:24:39,280 --> 00:24:40,639
Speaker 3: we have we've got to come up. We have our

511
00:24:40,640 --> 00:24:41,960
Speaker 3: own ratings. We have to ove a path. We have

512
00:24:42,040 --> 00:24:45,280
Speaker 3: determined it. That being said, the agencies do play a

513
00:24:45,320 --> 00:24:48,080
Speaker 3: really important part on especially in the COLO world, because

514
00:24:48,119 --> 00:24:50,040
Speaker 3: like I said, so much is driven by how they

515
00:24:50,119 --> 00:24:53,119
Speaker 3: rate credits and if they single B, triple C or what.

516
00:24:53,240 --> 00:24:56,080
Speaker 3: And that's a big dynamic and it can shift the

517
00:24:56,200 --> 00:25:00,399
Speaker 3: landscape of the bank loan market given those those down grades.

518
00:25:00,760 --> 00:25:03,000
Speaker 3: So you have to, whether you like it or not,

519
00:25:03,600 --> 00:25:08,400
Speaker 3: have some reliance or expectation of competency, which again I'm

520
00:25:08,440 --> 00:25:10,080
Speaker 3: not saying they aren't competent. I'm just saying you have

521
00:25:10,119 --> 00:25:12,919
Speaker 3: to you have that expectation to go through that. So

522
00:25:13,000 --> 00:25:15,240
Speaker 3: it is unique dynamic. There's not a lot we could

523
00:25:15,240 --> 00:25:17,560
Speaker 3: do in this situation, like first Brands, I'm not We'll see,

524
00:25:17,720 --> 00:25:19,879
Speaker 3: you know, it's the jury still out as to was

525
00:25:19,920 --> 00:25:23,920
Speaker 3: there something that was maybe misunderstood or not fully given

526
00:25:23,960 --> 00:25:28,000
Speaker 3: clarification that would have been helpful not only from from

527
00:25:28,000 --> 00:25:30,160
Speaker 3: not only from the agencies, but the auditors too, right,

528
00:25:30,200 --> 00:25:32,760
Speaker 3: I mean, there's more to the story there. We'll see

529
00:25:33,200 --> 00:25:35,120
Speaker 3: that one maybe is not too much at their thing.

530
00:25:35,160 --> 00:25:37,200
Speaker 3: But again sometimes they're just they just missed make the

531
00:25:37,200 --> 00:25:39,560
Speaker 3: same mistakes that we are human beings, I think. But

532
00:25:39,600 --> 00:25:42,640
Speaker 3: we have to the point of all that is it's

533
00:25:42,680 --> 00:25:46,040
Speaker 3: our job. It's our job at Agon to make have

534
00:25:46,240 --> 00:25:48,760
Speaker 3: understand the companies make the decisions in terms of whether we

535
00:25:48,760 --> 00:25:50,320
Speaker 3: want to be an investor or not and if we

536
00:25:50,359 --> 00:25:53,440
Speaker 3: think and we spend a lot of time answering the

537
00:25:53,520 --> 00:25:55,520
Speaker 3: question do we think this coming is gonna get downgraded

538
00:25:55,720 --> 00:25:58,760
Speaker 3: and why or not a lot of time before it

539
00:25:58,800 --> 00:25:59,480
Speaker 3: gets downgraded.

540
00:26:01,440 --> 00:26:04,920
Speaker 2: There's also the to the two bankruptcies that have been

541
00:26:05,320 --> 00:26:08,480
Speaker 2: in the market recently. You know, we we've talked about

542
00:26:08,520 --> 00:26:13,680
Speaker 2: our first brands and Tricolor. It's the auto market, and

543
00:26:13,920 --> 00:26:19,520
Speaker 2: I think that there's tariff impact, and especially with Tricolor,

544
00:26:19,600 --> 00:26:24,480
Speaker 2: there's a big like who they were lending to that

545
00:26:24,480 --> 00:26:26,560
Speaker 2: that was that was a big issue. And what we

546
00:26:26,640 --> 00:26:30,239
Speaker 2: heard from you know, Constellation Brands this morning or last night,

547
00:26:30,280 --> 00:26:34,800
Speaker 2: actually the Hispanic consumer. It's it's a big market and

548
00:26:34,920 --> 00:26:38,080
Speaker 2: they're not out there. They're not they're not doing social gatherings.

549
00:26:38,119 --> 00:26:43,320
Speaker 2: It's affecting beer sales. When you're looking at the underlying

550
00:26:43,359 --> 00:26:47,879
Speaker 2: business is and you know, it's fascinating how much of

551
00:26:47,920 --> 00:26:53,880
Speaker 2: an impact this cohort has on consumer purchasing when you're

552
00:26:53,920 --> 00:26:58,520
Speaker 2: looking at investments. Is that a consideration for you guys

553
00:26:58,560 --> 00:27:02,480
Speaker 2: as well, just going that deep into like who is

554
00:27:02,520 --> 00:27:03,640
Speaker 2: the underlying consumer?

555
00:27:04,359 --> 00:27:07,680
Speaker 3: Yeah, oh for sure, you have to. I mean, we're

556
00:27:08,520 --> 00:27:12,040
Speaker 3: we're such a consumption driven economy, right, so so much

557
00:27:12,119 --> 00:27:14,560
Speaker 3: what we do in it at the you know, at

558
00:27:14,560 --> 00:27:17,399
Speaker 3: the first, second, third driven it is is consumption driven.

559
00:27:17,720 --> 00:27:19,280
Speaker 3: It's a bit I mean, you know, it's a basis

560
00:27:19,280 --> 00:27:21,480
Speaker 3: what we do. So if you don't understand who the

561
00:27:21,600 --> 00:27:24,200
Speaker 3: end user is and you mentioned concession brands and gathering

562
00:27:24,240 --> 00:27:27,720
Speaker 3: a certain cohort of people, and we're losing sales, whatever

563
00:27:27,800 --> 00:27:30,560
Speaker 3: it is, pick your company, you know. And I always

564
00:27:30,640 --> 00:27:32,240
Speaker 3: joke about in that joke, I always say, like, you know,

565
00:27:32,280 --> 00:27:35,000
Speaker 3: we're nothing more than a self fulfilling prophecy. The US

566
00:27:35,080 --> 00:27:37,600
Speaker 3: economy is that another we use the FED and other

567
00:27:37,680 --> 00:27:40,280
Speaker 3: means to try to sort of provide a put option

568
00:27:40,400 --> 00:27:43,280
Speaker 3: on it to keep it propped up. But again I've

569
00:27:43,280 --> 00:27:47,200
Speaker 3: said for years, like our our economy is driven by

570
00:27:47,200 --> 00:27:49,000
Speaker 3: the fact that if you have a job and you

571
00:27:49,000 --> 00:27:51,040
Speaker 3: think you're gonna keep it, you're gonna spend your money.

572
00:27:51,440 --> 00:27:53,000
Speaker 3: And if there's something in your mind that gets you

573
00:27:53,040 --> 00:27:55,960
Speaker 3: concerned about spending your money, you're gonna pull back somewhere

574
00:27:56,000 --> 00:27:57,880
Speaker 3: or the other. And so much of our economy lives

575
00:27:58,080 --> 00:28:00,239
Speaker 3: paycheck to paycheck. We watch the markets every day day,

576
00:28:00,520 --> 00:28:03,200
Speaker 3: but so much does and so the types of consumption

577
00:28:03,320 --> 00:28:06,280
Speaker 3: patterns and the that are going to occur in those

578
00:28:06,320 --> 00:28:08,680
Speaker 3: companies that are gonna impact it are gonna slow because

579
00:28:08,800 --> 00:28:11,879
Speaker 3: look at yeah, gas prices are higher. You have my

580
00:28:11,920 --> 00:28:14,000
Speaker 3: clothing price or higher, my food prices are higher, and

581
00:28:14,040 --> 00:28:16,439
Speaker 3: I'm not. My wages probably aren't as high. So my

582
00:28:16,680 --> 00:28:20,280
Speaker 3: higher cost structure at a consumption level is gone up.

583
00:28:20,640 --> 00:28:22,920
Speaker 3: What do we expects gonna happen. We're gonna have to

584
00:28:22,960 --> 00:28:26,440
Speaker 3: spend less. We have to buy less units. That's just simple, right,

585
00:28:26,480 --> 00:28:29,280
Speaker 3: So yeah, absolutely you could expect to slow to some

586
00:28:29,400 --> 00:28:32,960
Speaker 3: slow down at that core consumer. So you know, maybe

587
00:28:33,000 --> 00:28:35,480
Speaker 3: those buying hounds in Naples, Florida are a lot different

588
00:28:35,480 --> 00:28:37,720
Speaker 3: than those buying homes in the middle of Ohio. You know,

589
00:28:37,760 --> 00:28:40,240
Speaker 3: the whole dynamic of life is different. And so yeah,

590
00:28:40,400 --> 00:28:42,080
Speaker 3: you have to look at who the end user is.

591
00:28:42,120 --> 00:28:44,360
Speaker 3: You have to make an assessment of it and determine

592
00:28:44,560 --> 00:28:47,760
Speaker 3: is this you know, inflationary weight, is the slightly higher

593
00:28:47,760 --> 00:28:49,360
Speaker 3: costs to whatever it is, how is it going to

594
00:28:49,400 --> 00:28:52,480
Speaker 3: impact our end user? Because again, at the core, we

595
00:28:52,520 --> 00:28:54,800
Speaker 3: are a consumption drive economy in the US at at

596
00:28:54,840 --> 00:28:57,000
Speaker 3: score and we have to recoon. I mean, it just

597
00:28:57,120 --> 00:28:58,560
Speaker 3: is what it is. So you have to make the

598
00:28:58,600 --> 00:29:01,800
Speaker 3: determination I'm not and it's not it's not easy because

599
00:29:01,840 --> 00:29:05,080
Speaker 3: it's you have. The hardest thing about the market as

600
00:29:05,080 --> 00:29:08,680
Speaker 3: an investor, as I said, is that you've got spreads.

601
00:29:08,680 --> 00:29:10,720
Speaker 3: I think it was looted at the top, spreads you know,

602
00:29:11,240 --> 00:29:13,240
Speaker 3: pretty really tight. You've got equity marks at all time

603
00:29:13,320 --> 00:29:16,800
Speaker 3: highs and spreads, and we are absolutely numb to any

604
00:29:16,840 --> 00:29:18,800
Speaker 3: I mean, the government shutdown doesn't even exist in the

605
00:29:19,240 --> 00:29:23,040
Speaker 3: world of the markets, right, It's it's irrelevant, not it

606
00:29:23,040 --> 00:29:25,200
Speaker 3: doesn't even all these things that we're just numb to

607
00:29:25,760 --> 00:29:28,920
Speaker 3: as investors. Yet at some point you got to step

608
00:29:28,920 --> 00:29:31,320
Speaker 3: down and like, Okay, what's gonna hell? You know, where

609
00:29:31,320 --> 00:29:33,720
Speaker 3: are we really going here in this? And that's a channel.

610
00:29:33,760 --> 00:29:35,520
Speaker 3: That's what we have to do as research analysts and

611
00:29:35,520 --> 00:29:36,800
Speaker 3: investors figure that out.

612
00:29:37,400 --> 00:29:40,240
Speaker 1: Is there anything on the horizon that might flip it, Jim.

613
00:29:40,120 --> 00:29:42,400
Speaker 3: You think, I mean flip it in the sense.

614
00:29:42,240 --> 00:29:46,320
Speaker 1: The massive move wider and spreads back to what people

615
00:29:46,400 --> 00:29:47,240
Speaker 1: might considers.

616
00:29:47,680 --> 00:29:49,840
Speaker 3: I think, you know, let's take us high yo. We

617
00:29:49,840 --> 00:29:52,040
Speaker 3: always to say US high Yo doesn't live below three

618
00:29:52,120 --> 00:29:54,760
Speaker 3: hundred and spread for a super long period of time. Ever, Yeah,

619
00:29:54,760 --> 00:29:57,840
Speaker 3: and we're sitting you know, into sixty land, right, So

620
00:29:58,160 --> 00:30:00,280
Speaker 3: it depends what index you're looking at so just ends

621
00:30:00,280 --> 00:30:02,880
Speaker 3: what you're referencing, so that let's call in that generic land.

622
00:30:04,080 --> 00:30:06,640
Speaker 3: So it's like a spring getting wound tighter and tighter

623
00:30:06,640 --> 00:30:09,640
Speaker 3: and tighter. It won't take a lot to move it wider.

624
00:30:10,200 --> 00:30:12,160
Speaker 3: The quest and it will happen, will be there are

625
00:30:12,160 --> 00:30:13,760
Speaker 3: points a time where it's going to move wider, whether

626
00:30:13,800 --> 00:30:17,920
Speaker 3: it's geopolitical, whether it's next earnings that we show more

627
00:30:18,240 --> 00:30:19,960
Speaker 3: you know, weakness that you know, not this sort of

628
00:30:20,000 --> 00:30:22,320
Speaker 3: like meander and the long earnings, but some weakness in

629
00:30:22,360 --> 00:30:25,640
Speaker 3: that a few more bankruptcies, there'll be something there always

630
00:30:25,720 --> 00:30:27,840
Speaker 3: is that. The question is really not that it's going

631
00:30:27,880 --> 00:30:30,080
Speaker 3: to go wider at some point, it's what happens when

632
00:30:30,080 --> 00:30:33,240
Speaker 3: it goes wider? Does you know? Is the FED cutting

633
00:30:33,320 --> 00:30:35,560
Speaker 3: and the and you we as very say, you know what,

634
00:30:35,640 --> 00:30:37,800
Speaker 3: I'm gonna buy it, I'm gonna support it at because

635
00:30:37,800 --> 00:30:40,520
Speaker 3: spreads are now three fifty and then default and I

636
00:30:40,520 --> 00:30:43,040
Speaker 3: think the I mean, you know, we still you know

637
00:30:43,040 --> 00:30:44,240
Speaker 3: if you look at default and at the end of

638
00:30:44,240 --> 00:30:47,320
Speaker 3: the day, it's about the faults right long term you know,

639
00:30:47,440 --> 00:30:51,280
Speaker 3: high the high market is operated at well below long

640
00:30:51,360 --> 00:30:53,800
Speaker 3: term default averages. You know, we're in the in the

641
00:30:53,800 --> 00:30:56,200
Speaker 3: two percent range. The low market's a little bit higher

642
00:30:56,200 --> 00:30:58,560
Speaker 3: if you count the l on the activity, it's slightly

643
00:30:58,600 --> 00:31:01,520
Speaker 3: higher than long term average. It's a different average because

644
00:31:01,520 --> 00:31:03,920
Speaker 3: now there's so many loan only structures. That's very different

645
00:31:03,920 --> 00:31:06,600
Speaker 3: than it was loan and bond. But whatever. So that's

646
00:31:06,600 --> 00:31:09,360
Speaker 3: what you have to look at, is is this whatever

647
00:31:09,440 --> 00:31:12,280
Speaker 3: that dynamic gonna be, and when the spreads widen it

648
00:31:12,520 --> 00:31:15,680
Speaker 3: is is the probably defaults aligned with where the spreads are.

649
00:31:16,200 --> 00:31:19,280
Speaker 3: And if they are, then you'll probably see some buying

650
00:31:19,280 --> 00:31:22,200
Speaker 3: committed from investors. If not, it'll continue to widen up,

651
00:31:22,240 --> 00:31:25,120
Speaker 3: and then you'll see and as it widens out what happens.

652
00:31:25,240 --> 00:31:27,880
Speaker 3: This is the self fulfilling prophecy. It gets hard to

653
00:31:27,920 --> 00:31:30,880
Speaker 3: refinance yourself. But let you know, companies have a hard

654
00:31:30,880 --> 00:31:33,480
Speaker 3: time going to the markets because they're they're now concerned, oh,

655
00:31:33,520 --> 00:31:35,680
Speaker 3: instead of financing you at six percent, it's gonna it's

656
00:31:35,680 --> 00:31:38,120
Speaker 3: gonna cost you nine. You know. That's and then all

657
00:31:38,120 --> 00:31:39,640
Speaker 3: of a sudden you're like, oh my god. You see

658
00:31:39,640 --> 00:31:42,120
Speaker 3: the companies being forced in these really tough situations. Credits

659
00:31:42,120 --> 00:31:43,280
Speaker 3: come in and say I'm gonna, I'm gonna, you know,

660
00:31:43,480 --> 00:31:45,560
Speaker 3: shortening your payables because I'm worried you can't deal with

661
00:31:45,600 --> 00:31:48,280
Speaker 3: your near term maturities. The greatest thing in the in

662
00:31:48,320 --> 00:31:50,240
Speaker 3: many of these markets are we you know, we are

663
00:31:50,280 --> 00:31:52,520
Speaker 3: able in so many points of time to deal with

664
00:31:52,520 --> 00:31:55,080
Speaker 3: that wall of maturity is very effortlessly and to kick

665
00:31:55,120 --> 00:31:57,920
Speaker 3: it out out out to twenty eight, twenty nine, thirty.

666
00:31:58,280 --> 00:32:00,120
Speaker 3: Once you get inside of a year, year and a

667
00:32:00,320 --> 00:32:02,960
Speaker 3: that's when people get concerned. If more and more move

668
00:32:03,000 --> 00:32:05,720
Speaker 3: in and there's not that winner to refinance, that's the problem.

669
00:32:05,800 --> 00:32:08,520
Speaker 3: So it's not that spreads will widen, something will occur,

670
00:32:08,960 --> 00:32:11,480
Speaker 3: it's what's the where is there a buy in that

671
00:32:11,640 --> 00:32:14,080
Speaker 3: because we think that it makes sense relative to the

672
00:32:14,120 --> 00:32:17,120
Speaker 3: fall probably and that's gonna driven by earnings expectations. And

673
00:32:17,160 --> 00:32:18,960
Speaker 3: again it can spiral either way.

674
00:32:19,360 --> 00:32:21,640
Speaker 1: Right, Although this market has taken a huge amount of

675
00:32:21,720 --> 00:32:25,960
Speaker 1: news without any any move at all, and without every

676
00:32:25,960 --> 00:32:28,320
Speaker 1: time it's widened, you know, going back to COVID, it's

677
00:32:28,360 --> 00:32:31,200
Speaker 1: been brought back pretty fast. I mean the first snapback

678
00:32:31,280 --> 00:32:33,800
Speaker 1: was because the Fed came in and offered to buy everything.

679
00:32:33,800 --> 00:32:36,320
Speaker 1: But after that there's been this kind of you know,

680
00:32:36,400 --> 00:32:38,480
Speaker 1: there is a bit of widening. Even on the Tariff's

681
00:32:38,520 --> 00:32:40,880
Speaker 1: day there was there was significant widening but it snapped

682
00:32:40,960 --> 00:32:43,720
Speaker 1: right back, and you know, it just seems to be

683
00:32:44,000 --> 00:32:46,200
Speaker 1: this belief that you know, either the Fed's got your back,

684
00:32:46,280 --> 00:32:49,000
Speaker 1: or the Trump government's got your back, or something's gonna

685
00:32:49,120 --> 00:32:52,440
Speaker 1: support it no matter what. Maybe there's an element of

686
00:32:52,480 --> 00:32:55,920
Speaker 1: too much demand for not much net news supply. But

687
00:32:56,520 --> 00:33:00,000
Speaker 1: you know, I'm just wondering, what makes you think if

688
00:33:00,000 --> 00:33:01,840
Speaker 1: if you do that, that you know there you know,

689
00:33:01,840 --> 00:33:03,600
Speaker 1: we know that there are these problems at the triple

690
00:33:03,600 --> 00:33:05,200
Speaker 1: C level. We know that there are these blow ups

691
00:33:05,200 --> 00:33:08,160
Speaker 1: going on, But what makes you think it might be

692
00:33:08,200 --> 00:33:10,440
Speaker 1: a big issue for credit markets?

693
00:33:10,640 --> 00:33:10,960
Speaker 3: Or why?

694
00:33:11,040 --> 00:33:14,160
Speaker 1: Why why should investors pay more attention to those those

695
00:33:14,280 --> 00:33:17,320
Speaker 1: things that everyone kind of tells us just isolated.

696
00:33:18,880 --> 00:33:21,040
Speaker 3: Well, I think I do think that when you look

697
00:33:21,080 --> 00:33:24,160
Speaker 3: at every individual company, I think, as I said earlier,

698
00:33:24,160 --> 00:33:26,160
Speaker 3: we're starting to see more and it feels like more

699
00:33:26,160 --> 00:33:28,440
Speaker 3: and more companies just hitting a wall, probably more of

700
00:33:28,440 --> 00:33:31,040
Speaker 3: the loan marked in the highal bond market, just feeling

701
00:33:31,040 --> 00:33:32,800
Speaker 3: like they're, you know, they've got to deal with maturities

702
00:33:32,800 --> 00:33:34,600
Speaker 3: they've they've kicked, they've already done all in the exercise

703
00:33:34,720 --> 00:33:37,720
Speaker 3: is once you know, our economy is slow and their

704
00:33:37,720 --> 00:33:39,560
Speaker 3: revenue number aren't quite grown as much as we think

705
00:33:39,600 --> 00:33:42,280
Speaker 3: their earnings aren't bad. So for me, what I really

706
00:33:42,320 --> 00:33:44,600
Speaker 3: focus on is quarter to quarter earnings. Like I'm going

707
00:33:44,680 --> 00:33:46,360
Speaker 3: to look at right now, I know the Feds there

708
00:33:46,400 --> 00:33:48,440
Speaker 3: and we're going to see rate great cuts and it's

709
00:33:48,480 --> 00:33:51,040
Speaker 3: going to be supportive, and so we could certainly grit

710
00:33:51,120 --> 00:33:53,240
Speaker 3: we're I was talking this sarm about and we could

711
00:33:53,280 --> 00:33:55,240
Speaker 3: grind along in here for a while, you know. But

712
00:33:55,320 --> 00:33:58,479
Speaker 3: I think you've but again, the number of instances of

713
00:33:58,520 --> 00:34:03,160
Speaker 3: these companies missing earnings, loan dropping twenty in an lme

714
00:34:03,720 --> 00:34:06,400
Speaker 3: you got a problem. They might pick up a little

715
00:34:06,440 --> 00:34:09,280
Speaker 3: bit in the loan market and then see where that goes.

716
00:34:09,400 --> 00:34:12,640
Speaker 3: But I'm really focused on three qure earnings again, just

717
00:34:12,680 --> 00:34:14,759
Speaker 3: like every quarter, are we starting to see more and

718
00:34:14,800 --> 00:34:17,839
Speaker 3: more sol space again, the economy is slowing. We know

719
00:34:17,920 --> 00:34:20,759
Speaker 3: that the Fed's cutting, the economy is slowing. Inflation isn't

720
00:34:20,800 --> 00:34:22,319
Speaker 3: all way were they want to be, so you're still

721
00:34:22,400 --> 00:34:24,600
Speaker 3: dealing with higher costs. We don't know the full effective

722
00:34:24,640 --> 00:34:27,440
Speaker 3: terrorists yet. There are a lot of geopolitical uncertainties, and

723
00:34:27,520 --> 00:34:29,680
Speaker 3: like I said, there's a lot of noise out there

724
00:34:29,680 --> 00:34:31,719
Speaker 3: that we just don't seem to care about too much.

725
00:34:32,040 --> 00:34:34,759
Speaker 3: Whether it's garbage shutdowns, whether it's national debts, whether it's

726
00:34:35,120 --> 00:34:38,520
Speaker 3: you know, global geopolitical risk or whatever it is. We

727
00:34:38,600 --> 00:34:41,560
Speaker 3: seem to not be too concerned about it because we

728
00:34:41,640 --> 00:34:45,120
Speaker 3: haven't had to be. So I can't predict what's going

729
00:34:45,160 --> 00:34:47,440
Speaker 3: to be the event that's going to move markets wider,

730
00:34:47,840 --> 00:34:50,719
Speaker 3: but it will at some point. It's a quick to me.

731
00:34:51,000 --> 00:34:53,560
Speaker 3: It is syncratically looking at our portfolios. It is looking

732
00:34:53,600 --> 00:34:55,480
Speaker 3: at the next round of earnings and talking about, Okay,

733
00:34:55,520 --> 00:34:58,200
Speaker 3: what are we seeing, what are the trends, what's the guidance,

734
00:34:58,320 --> 00:35:00,200
Speaker 3: do you have a handle on their input cause us

735
00:35:00,560 --> 00:35:03,799
Speaker 3: and where we from them from a refinancing standpoint. If

736
00:35:03,800 --> 00:35:06,359
Speaker 3: those situations start to pick up more, then I might

737
00:35:06,400 --> 00:35:09,120
Speaker 3: be back on the show and in three months saying yeah,

738
00:35:09,239 --> 00:35:12,560
Speaker 3: three months ago I was concerned. Now I'm more concerned.

739
00:35:12,840 --> 00:35:14,920
Speaker 3: But I did. I did. I wrote something this week

740
00:35:15,880 --> 00:35:18,320
Speaker 3: to our our senior management, and I said, I wrote,

741
00:35:18,400 --> 00:35:24,880
Speaker 3: I am more concerned about sort of restructuring activity, recessionary

742
00:35:24,960 --> 00:35:27,239
Speaker 3: like mark conditions than I was twelve months ago. And

743
00:35:27,360 --> 00:35:30,000
Speaker 3: yet some would say all the markets are better, but

744
00:35:30,239 --> 00:35:32,359
Speaker 3: actually just the weight of what we've had to go

745
00:35:32,440 --> 00:35:35,200
Speaker 3: through in the last year. On the companies is not

746
00:35:35,280 --> 00:35:38,000
Speaker 3: necessarily better. And now we're starting to see the economy slow,

747
00:35:38,239 --> 00:35:41,040
Speaker 3: the consumer is slowing, and that's always fear I'm gonna

748
00:35:41,080 --> 00:35:45,600
Speaker 3: lose my job, fear my borrowing powers shrinking, whatever it is.

749
00:35:45,719 --> 00:35:47,279
Speaker 3: So that's where I'm at right now, and I'll be

750
00:35:47,719 --> 00:35:50,600
Speaker 3: you know, we'll continue to tread very cautiously, and most

751
00:35:50,640 --> 00:35:53,120
Speaker 3: of our portfolios tend to be a little defensive honestly

752
00:35:53,280 --> 00:35:53,799
Speaker 3: because of it.

753
00:35:55,239 --> 00:35:58,720
Speaker 1: You know, you're Euro based insurance company. The insurance companies.

754
00:35:58,760 --> 00:36:01,840
Speaker 1: According to the private credit people love private credit at

755
00:36:01,880 --> 00:36:04,160
Speaker 1: this point, and we've had a lot of discussion on

756
00:36:04,200 --> 00:36:06,320
Speaker 1: this show about the relative value between the two public

757
00:36:06,360 --> 00:36:08,160
Speaker 1: and private. There are a lot of concerns about the

758
00:36:08,280 --> 00:36:11,840
Speaker 1: lack of transparency, the extra risk, the increase in payment

759
00:36:11,880 --> 00:36:14,200
Speaker 1: in kind and non accruals and all that stuff in

760
00:36:14,239 --> 00:36:16,480
Speaker 1: the private market. But I'm just kind of wondering what

761
00:36:16,520 --> 00:36:19,520
Speaker 1: your view is of the two. You know, do you

762
00:36:19,560 --> 00:36:21,359
Speaker 1: do you look at private as an opportunity?

763
00:36:22,840 --> 00:36:24,560
Speaker 3: Well, I don't interact. I don't do a lot in

764
00:36:24,600 --> 00:36:26,719
Speaker 3: private credit, so I'll start with that. I mean, I'm

765
00:36:27,040 --> 00:36:29,719
Speaker 3: I'm on the leverage finance side, doing basically you know,

766
00:36:29,960 --> 00:36:31,840
Speaker 3: more on the public side. So I'm not going to

767
00:36:32,000 --> 00:36:35,080
Speaker 3: perfectly speed to it. For a while, we saw private

768
00:36:35,120 --> 00:36:39,040
Speaker 3: credit being pretty aggressive and coming in at certain spread

769
00:36:39,120 --> 00:36:42,280
Speaker 3: levels and being all caught almost helpful to the probably

770
00:36:42,320 --> 00:36:45,319
Speaker 3: syndicated low market and taking out more challenge credits. And

771
00:36:45,360 --> 00:36:47,960
Speaker 3: I think the probably syndicated loan market and even the

772
00:36:48,000 --> 00:36:50,600
Speaker 3: high art probably was somewhat appealing, but you're losing supply

773
00:36:50,680 --> 00:36:53,600
Speaker 3: and we couldn't compete because where spread levels were, it

774
00:36:53,640 --> 00:36:56,279
Speaker 3: was appealing to the private credit investor they could get

775
00:36:56,280 --> 00:36:59,120
Speaker 3: the types of returns they needed. As you've seen spread

776
00:36:59,200 --> 00:37:02,160
Speaker 3: levels come in as we have. I don't know, but

777
00:37:02,320 --> 00:37:05,200
Speaker 3: in your you're seeing more. At least in my mind,

778
00:37:05,320 --> 00:37:07,759
Speaker 3: I feels like we're seeing more things come back to

779
00:37:07,840 --> 00:37:10,560
Speaker 3: the public markets of some of those names in lev

780
00:37:10,640 --> 00:37:12,480
Speaker 3: fin world. And I think because they can get you know,

781
00:37:12,480 --> 00:37:14,840
Speaker 3: they now have they the sort of gave up liquidity

782
00:37:15,400 --> 00:37:19,560
Speaker 3: and diversification of the lender for better spread and and

783
00:37:19,680 --> 00:37:22,680
Speaker 3: maybe you know, they needed it in that time of

784
00:37:23,000 --> 00:37:25,359
Speaker 3: more challenge. Now they maybe feel better, like I want

785
00:37:25,400 --> 00:37:26,960
Speaker 3: to go probably sing because them to get better execution,

786
00:37:27,040 --> 00:37:31,120
Speaker 3: more liquidity, uh, better terms and maybe tighter spread in

787
00:37:31,160 --> 00:37:33,200
Speaker 3: the broadbly syndicator low market. So it' seem to come

788
00:37:33,239 --> 00:37:36,040
Speaker 3: back a little bit in that regard. I worry about

789
00:37:36,080 --> 00:37:38,600
Speaker 3: private credit, like you said, because we don't exactly know

790
00:37:39,160 --> 00:37:41,319
Speaker 3: all the underlying default risk in there, and as a

791
00:37:41,320 --> 00:37:44,640
Speaker 3: distress guy by background, I always worry about that anytime

792
00:37:45,320 --> 00:37:48,879
Speaker 3: you don't have full transparency, it is what it is, right.

793
00:37:48,920 --> 00:37:51,719
Speaker 3: You know that they're in you have the ability in

794
00:37:51,760 --> 00:37:54,319
Speaker 3: that world to take credits and kick the can down

795
00:37:54,320 --> 00:37:56,960
Speaker 3: the road kind of as long as they've got liquid

796
00:37:57,000 --> 00:37:59,319
Speaker 3: they're willing to put into companies that we you know.

797
00:37:59,400 --> 00:38:02,080
Speaker 3: But that worries me a little bit about the market, honestly,

798
00:38:02,120 --> 00:38:04,279
Speaker 3: And I think as you get into more and more

799
00:38:04,320 --> 00:38:07,839
Speaker 3: of a slowing economy, you know, in rates coming in

800
00:38:07,880 --> 00:38:09,640
Speaker 3: and hard of them to get returns and they you know,

801
00:38:09,680 --> 00:38:12,759
Speaker 3: their expectations for their investors are higher. There's certain some

802
00:38:12,800 --> 00:38:15,000
Speaker 3: certain spread levels they can't really go below. So I

803
00:38:15,040 --> 00:38:17,279
Speaker 3: don't know what that means. And it again, it's a

804
00:38:17,360 --> 00:38:20,359
Speaker 3: it's a huge business. It's a very good business. Uh,

805
00:38:20,719 --> 00:38:22,280
Speaker 3: we just haven't been I have just not been involve

806
00:38:22,280 --> 00:38:23,839
Speaker 3: with it. So I look at it from the perspective

807
00:38:24,320 --> 00:38:28,279
Speaker 3: of my world seeing how it's impacted us as a competitor,

808
00:38:28,760 --> 00:38:30,959
Speaker 3: you know, as taking credits out and now coming back

809
00:38:30,960 --> 00:38:31,960
Speaker 3: and maybe why.

810
00:38:32,080 --> 00:38:35,239
Speaker 2: So somebody had asked me, like I was out of

811
00:38:35,239 --> 00:38:36,880
Speaker 2: golf outing and he kind of leaned over and he

812
00:38:36,960 --> 00:38:39,520
Speaker 2: was just talking about private credit, and you know, he

813
00:38:39,600 --> 00:38:42,279
Speaker 2: was kind of just suggesting, like when is this hype

814
00:38:42,280 --> 00:38:46,600
Speaker 2: gonna slow down? Do you think that eventually, you know,

815
00:38:46,600 --> 00:38:49,000
Speaker 2: the market's going to move back to public markets more

816
00:38:49,280 --> 00:38:51,600
Speaker 2: or there's we're going to strike a balance somewhere.

817
00:38:53,239 --> 00:38:54,759
Speaker 3: I mean, I think there's always gonna be pretty semi

818
00:38:54,760 --> 00:38:56,759
Speaker 3: in place for private credit because, like you said, I mean,

819
00:38:56,800 --> 00:38:59,040
Speaker 3: I think the lack of volatility of market price is

820
00:38:59,040 --> 00:39:01,600
Speaker 3: pretty appealing, you know. So I think that that is

821
00:39:01,680 --> 00:39:04,280
Speaker 3: what you know, you know, if you're an insurance company

822
00:39:04,360 --> 00:39:06,440
Speaker 3: or a lot of companies that have to deal with that,

823
00:39:06,480 --> 00:39:09,120
Speaker 3: I think there's an appeal. Is is like at anything

824
00:39:09,160 --> 00:39:11,840
Speaker 3: else there euphoria takes to a point and when it

825
00:39:11,840 --> 00:39:14,800
Speaker 3: blows up, then you'll reassess and you'll want liquidity and

826
00:39:14,840 --> 00:39:18,359
Speaker 3: transparency probably. So, I mean, I think that's always the case. Right,

827
00:39:18,400 --> 00:39:21,080
Speaker 3: We've we've done this stuff before. It's you know, we

828
00:39:21,080 --> 00:39:23,319
Speaker 3: we we just rhyme. It just how we rhyme and

829
00:39:23,320 --> 00:39:25,600
Speaker 3: what we do and what the you know, anytime. I

830
00:39:25,640 --> 00:39:28,319
Speaker 3: always say this, and I you know, through my life

831
00:39:28,320 --> 00:39:32,160
Speaker 3: of a distress guy, anytime you see money move in

832
00:39:32,239 --> 00:39:35,520
Speaker 3: scale and access in any area, it usually is going

833
00:39:35,560 --> 00:39:38,680
Speaker 3: to create some problem. You know, take any recessionary period

834
00:39:38,719 --> 00:39:41,320
Speaker 3: of time in your life and look where money moved

835
00:39:41,400 --> 00:39:46,880
Speaker 3: in scale, in euphoric levels into anything. It's almost always

836
00:39:46,920 --> 00:39:48,680
Speaker 3: the reason why the markets. I mean, I can go

837
00:39:48,719 --> 00:39:50,840
Speaker 3: back to one o two and look at the influx

838
00:39:50,840 --> 00:39:52,920
Speaker 3: of money in the long haul cares, you know, or

839
00:39:53,239 --> 00:39:55,239
Speaker 3: or the global cross and the world the long call

840
00:39:55,320 --> 00:39:58,160
Speaker 3: heres and the deal regulation of the power markets and

841
00:39:58,280 --> 00:40:00,160
Speaker 3: all the build of the power plant you know, the

842
00:40:00,160 --> 00:40:03,080
Speaker 3: the gas fire power plants, and led to huge problems

843
00:40:03,080 --> 00:40:05,840
Speaker 3: in those sectors that led to that kind of recession.

844
00:40:05,880 --> 00:40:07,640
Speaker 3: We had no one oh two. We all know what happened,

845
00:40:07,640 --> 00:40:10,120
Speaker 3: oh eight oh nine, right, we know what the the

846
00:40:10,200 --> 00:40:12,799
Speaker 3: incredib amount of capital flowing in to the real estate

847
00:40:12,880 --> 00:40:15,480
Speaker 3: worlds and mortgage works and all the derivative transactions around it.

848
00:40:16,200 --> 00:40:19,120
Speaker 3: You could always find the thing that goes in. So yeah,

849
00:40:19,320 --> 00:40:22,719
Speaker 3: anytime you see investors going in scale, you know, if

850
00:40:22,760 --> 00:40:26,560
Speaker 3: there's a shock event, it probably resets the mind of

851
00:40:26,600 --> 00:40:29,080
Speaker 3: how much should be allocated there, and that doesn't mean

852
00:40:29,080 --> 00:40:30,759
Speaker 3: it's bad. It means you know so well, but we'll

853
00:40:30,760 --> 00:40:31,719
Speaker 3: see who knows.

854
00:40:31,960 --> 00:40:34,200
Speaker 1: You know, I'm interested in your view, just sort of

855
00:40:34,200 --> 00:40:37,080
Speaker 1: relative value right now. And also in the context of

856
00:40:37,080 --> 00:40:41,480
Speaker 1: a global portfolio. You know, you're a European based ensure.

857
00:40:41,719 --> 00:40:45,080
Speaker 1: There was a ton of excitement about Europe when Liberation

858
00:40:45,200 --> 00:40:48,440
Speaker 1: Day was announced here, and you know, suddenly everyone realized

859
00:40:48,440 --> 00:40:52,120
Speaker 1: that they needed to be more diversified geographically, but that

860
00:40:52,400 --> 00:40:55,000
Speaker 1: didn't seem to have legs given you know, the relative

861
00:40:55,000 --> 00:40:59,240
Speaker 1: scale of US versus all other markets. Just wondering how

862
00:40:59,320 --> 00:41:02,600
Speaker 1: you kind of globally position yourself to get the best value.

863
00:41:02,640 --> 00:41:05,800
Speaker 1: Also in the context of very tight spreads on quality

864
00:41:05,840 --> 00:41:09,879
Speaker 1: debt and very chaotic and risky stuff on the other.

865
00:41:09,880 --> 00:41:13,200
Speaker 3: End, you know, I think both of them, I worry

866
00:41:13,239 --> 00:41:18,200
Speaker 3: more about leverage loans in the sense of having you know,

867
00:41:19,920 --> 00:41:23,959
Speaker 3: more risk of default, more risk of continued problems. More

868
00:41:23,960 --> 00:41:27,479
Speaker 3: so in the high YEELD market. From evaluation perspective, both

869
00:41:27,520 --> 00:41:29,560
Speaker 3: trade pretty rich. I mean, just if you look at

870
00:41:29,560 --> 00:41:32,480
Speaker 3: it on paper, both high you'll probably trades richer given

871
00:41:32,600 --> 00:41:36,000
Speaker 3: history then the low market. But low marks got more

872
00:41:36,080 --> 00:41:39,160
Speaker 3: risk in it, I feel like, and you're getting higher

873
00:41:39,200 --> 00:41:42,160
Speaker 3: you're getting higher spreads in the low market. If you

874
00:41:42,280 --> 00:41:44,880
Speaker 3: ask you right now what I feel better about, it's

875
00:41:44,920 --> 00:41:47,240
Speaker 3: probably the high yeal market. It depends me the timeframe

876
00:41:47,480 --> 00:41:49,560
Speaker 3: because I don't think they're going to have the impact

877
00:41:49,640 --> 00:41:52,240
Speaker 3: of the weight of LME stuff on them. And again

878
00:41:52,600 --> 00:41:55,040
Speaker 3: the low market. As we're going to cut rates, you're

879
00:41:55,040 --> 00:41:57,799
Speaker 3: going to see outflow activity in the low market, because

880
00:41:57,840 --> 00:42:00,880
Speaker 3: that's just the nature how it operates. You get outflows

881
00:42:00,880 --> 00:42:03,440
Speaker 3: when rates cut. You know when when the fed's cutting

882
00:42:03,719 --> 00:42:06,720
Speaker 3: because your your base rates low sofas going lower, whereas

883
00:42:06,800 --> 00:42:08,839
Speaker 3: high yields not. You're sitting there kind of meandered along

884
00:42:08,840 --> 00:42:11,799
Speaker 3: at your spread levels and so and that spread differentiation

885
00:42:12,000 --> 00:42:14,120
Speaker 3: is have been flowed in for a while. Loans were

886
00:42:14,239 --> 00:42:16,400
Speaker 3: very compelling, and we kind of moved it back. But

887
00:42:16,440 --> 00:42:18,160
Speaker 3: I'm looking at it right now a little bit more

888
00:42:18,160 --> 00:42:23,240
Speaker 3: of like I know the I know my spread gain

889
00:42:23,680 --> 00:42:26,280
Speaker 3: or my sorry, my yield gain on the low market

890
00:42:26,400 --> 00:42:28,719
Speaker 3: is going to be declining. At the same time, I

891
00:42:28,760 --> 00:42:30,480
Speaker 3: feel like there's probably a little more risk at a

892
00:42:30,520 --> 00:42:33,279
Speaker 3: FAULD activity and problems in there, so probably from a

893
00:42:33,320 --> 00:42:35,360
Speaker 3: stability champ like high a little bit more than loans.

894
00:42:35,520 --> 00:42:37,840
Speaker 3: That being said, both of them, I think trade at

895
00:42:37,920 --> 00:42:40,800
Speaker 3: kind of richer levels, so relative history, and so you

896
00:42:40,880 --> 00:42:42,920
Speaker 3: got to I would try, I always say tread cautiously.

897
00:42:43,200 --> 00:42:45,480
Speaker 3: They've been a good carry trade, and I when I'm

898
00:42:45,520 --> 00:42:48,640
Speaker 3: involved in as allocation in our firm, we set this.

899
00:42:49,120 --> 00:42:51,560
Speaker 3: I've just set both in a neutral stance for a

900
00:42:51,680 --> 00:42:53,920
Speaker 3: very long time, just because they've grind along. It's been

901
00:42:53,920 --> 00:42:56,080
Speaker 3: a great carry trade. And it just has been a

902
00:42:56,080 --> 00:42:58,400
Speaker 3: good carry trade in both cases without really taking a

903
00:42:58,400 --> 00:43:00,759
Speaker 3: lot of risks to it. But I would between the two,

904
00:43:01,080 --> 00:43:03,040
Speaker 3: I've liked Hyota a little bit more. The loans right now,

905
00:43:03,239 --> 00:43:05,480
Speaker 3: just because they worry about that default thing of why

906
00:43:05,480 --> 00:43:08,040
Speaker 3: we're having rates come off and hitting that that spread

907
00:43:08,160 --> 00:43:10,319
Speaker 3: benefit kind of you're losing that a little bit.

908
00:43:11,000 --> 00:43:14,600
Speaker 1: And on the Europe versus US, or US versus other

909
00:43:14,640 --> 00:43:16,759
Speaker 1: parts of the world in terms of credit, where do

910
00:43:16,760 --> 00:43:17,600
Speaker 1: you see opportunity?

911
00:43:18,360 --> 00:43:20,320
Speaker 3: Well are we are we talking like high ye credit

912
00:43:20,400 --> 00:43:21,560
Speaker 3: or like broad credit?

913
00:43:22,000 --> 00:43:23,680
Speaker 1: You know, the whole world finance.

914
00:43:24,080 --> 00:43:26,960
Speaker 3: I mean, okay, so Europe is Europe spent up? You know,

915
00:43:27,040 --> 00:43:29,040
Speaker 3: for a while it was better trade than the US, right,

916
00:43:29,080 --> 00:43:31,040
Speaker 3: I mean, you know, if you look at the two markets,

917
00:43:31,520 --> 00:43:35,479
Speaker 3: they're different markets. They're very different. That the European higo

918
00:43:35,560 --> 00:43:38,920
Speaker 3: market is much smaller, the European sealed lever's low market

919
00:43:38,960 --> 00:43:42,000
Speaker 3: is much smaller. They're more higher, they're a little higher quality.

920
00:43:42,000 --> 00:43:46,319
Speaker 3: In general, they trade a little differently they were. So

921
00:43:46,440 --> 00:43:48,920
Speaker 3: we did, like, you know, we we've got some global

922
00:43:49,000 --> 00:43:51,520
Speaker 3: hyo products and we're out overweight Europe and it worked

923
00:43:51,520 --> 00:43:54,000
Speaker 3: out pretty well. But while we're overweight Europe, we were

924
00:43:54,040 --> 00:43:56,960
Speaker 3: generally sitting kind of out carrying index. So really stay

925
00:43:57,000 --> 00:44:00,239
Speaker 3: in front and trying to out carry the index. I

926
00:44:00,239 --> 00:44:02,480
Speaker 3: think that differential is changing a little bit. I mean,

927
00:44:02,520 --> 00:44:06,160
Speaker 3: they're both child politically in such weird places a relative

928
00:44:06,160 --> 00:44:07,640
Speaker 3: to each other right now what they're doing from a

929
00:44:07,719 --> 00:44:10,799
Speaker 3: rate standpoint, and we sit kind of neutral in them

930
00:44:11,000 --> 00:44:15,160
Speaker 3: right now relative to the broader ass allocation standpoint. So

931
00:44:15,400 --> 00:44:18,920
Speaker 3: I don't have a big feeling. I think, if you

932
00:44:19,040 --> 00:44:24,360
Speaker 3: ask me, I worry more about Europe from a recessionary standpoint,

933
00:44:24,360 --> 00:44:26,759
Speaker 3: just because the input costs stuff and everything how it

934
00:44:26,760 --> 00:44:29,360
Speaker 3: affects it that I do the US, So I a

935
00:44:29,440 --> 00:44:31,879
Speaker 3: little more there, but that's been the better trade as

936
00:44:31,880 --> 00:44:34,080
Speaker 3: it compresses. I think the US is the better. But

937
00:44:34,120 --> 00:44:35,600
Speaker 3: I don't think any of them, they're all in the

938
00:44:35,600 --> 00:44:39,080
Speaker 3: same it's all the same story, which is spread levels

939
00:44:39,080 --> 00:44:43,400
Speaker 3: are pretty rich relative to where we could go economically

940
00:44:43,440 --> 00:44:45,279
Speaker 3: in the future, and as we've got a slowing economies.

941
00:44:45,600 --> 00:44:47,840
Speaker 3: So I'm not sure I would get a table and

942
00:44:47,920 --> 00:44:49,279
Speaker 3: pound for any of them to say this is the

943
00:44:49,320 --> 00:44:51,080
Speaker 3: most compelling trade out there. I think there are probably

944
00:44:51,080 --> 00:44:54,120
Speaker 3: better things to do than jump on the high this

945
00:44:54,280 --> 00:44:57,960
Speaker 3: leverage finance bandwagon. But that's kind of where my head's at.

946
00:44:58,000 --> 00:45:00,600
Speaker 3: I got. You know, I probably may maybe I had

947
00:45:00,680 --> 00:45:02,399
Speaker 3: lean more towards Europe for a while then I thought

948
00:45:02,400 --> 00:45:04,320
Speaker 3: it was a good trade. It's probably shrinking up a

949
00:45:04,360 --> 00:45:05,040
Speaker 3: little bit so.

950
00:45:05,440 --> 00:45:08,000
Speaker 1: And yeah, you have so many cheerleaders for credit, particularly

951
00:45:08,040 --> 00:45:09,920
Speaker 1: the risky credit. You know, people using the words like

952
00:45:10,200 --> 00:45:14,279
Speaker 1: Goldilocks and you know, all sorts of It's almost like

953
00:45:14,280 --> 00:45:17,840
Speaker 1: a Chuck Prince still dancing moment, given all of the

954
00:45:17,960 --> 00:45:21,719
Speaker 1: bad stuff that is going on around us, and there

955
00:45:21,800 --> 00:45:23,319
Speaker 1: is I think when it comes down to it, for

956
00:45:23,320 --> 00:45:26,960
Speaker 1: a lot of people, it's this sense that if things

957
00:45:27,000 --> 00:45:30,160
Speaker 1: get really wild, then the government or the FED will

958
00:45:30,160 --> 00:45:33,279
Speaker 1: step in and save you. What do you think of that?

959
00:45:33,320 --> 00:45:35,120
Speaker 1: Because you can't fight the FED, you can't fight the

960
00:45:35,200 --> 00:45:38,840
Speaker 1: US government, and you as an investor you're going to

961
00:45:38,880 --> 00:45:41,920
Speaker 1: underperform against your peer group if you don't, you know,

962
00:45:42,160 --> 00:45:44,960
Speaker 1: somewhat join the bandwagon. So so how do you kind

963
00:45:45,000 --> 00:45:46,480
Speaker 1: of like make sense of that?

964
00:45:47,680 --> 00:45:50,799
Speaker 3: It happens in every business cycle wherever in right, every

965
00:45:50,840 --> 00:45:53,440
Speaker 3: time you get late into a cycle, people always run

966
00:45:53,480 --> 00:45:55,360
Speaker 3: a triple cee credit because it's the last place to

967
00:45:55,400 --> 00:45:59,239
Speaker 3: get yield. It's almost and it's common. It happens, and

968
00:45:59,320 --> 00:46:01,600
Speaker 3: you the question how long does it last? You know,

969
00:46:01,719 --> 00:46:03,600
Speaker 3: I can, oh, you know, going look at O five,

970
00:46:03,640 --> 00:46:06,960
Speaker 3: O six into oh seven, how long that lasted? Where

971
00:46:06,960 --> 00:46:10,240
Speaker 3: we just grind along? The triple CED's got so incredibly tight?

972
00:46:11,120 --> 00:46:12,960
Speaker 3: What's weird? You know? The higher market triple seeds are

973
00:46:13,000 --> 00:46:14,560
Speaker 3: not a big in either market. They're not a big

974
00:46:14,560 --> 00:46:17,720
Speaker 3: piece of the indices, but they're important from return dynamic,

975
00:46:17,719 --> 00:46:19,680
Speaker 3: and they've kind of stalled out from return standpoint a

976
00:46:19,719 --> 00:46:22,040
Speaker 3: little bit because they've run so far, and that's where

977
00:46:22,040 --> 00:46:23,839
Speaker 3: your problems are. And so if you get a first

978
00:46:23,840 --> 00:46:25,959
Speaker 3: brand with some of that, it really, you know, takes

979
00:46:25,960 --> 00:46:29,000
Speaker 3: down your returns a little bit. But uh, I would

980
00:46:29,040 --> 00:46:32,520
Speaker 3: tread cautiously because I think in all situations, as it compresses,

981
00:46:32,880 --> 00:46:34,640
Speaker 3: what you're giving up is less and less and less

982
00:46:34,640 --> 00:46:38,240
Speaker 3: and less reletive the broader market, but it's hard to avoid.

983
00:46:38,520 --> 00:46:40,200
Speaker 3: So it's not as if I will tell you we

984
00:46:40,320 --> 00:46:42,960
Speaker 3: generally are underweight lower quality portions of markets right now

985
00:46:43,040 --> 00:46:45,120
Speaker 3: because we don't think we're getting paid for the risk

986
00:46:45,160 --> 00:46:47,919
Speaker 3: we're taking. In those names, they're veriosyncratic, and the ones

987
00:46:47,960 --> 00:46:50,319
Speaker 3: that don't work really don't work. And the ones there's

988
00:46:50,360 --> 00:46:52,800
Speaker 3: there's a and also with even within Triple ce Land,

989
00:46:53,040 --> 00:46:56,360
Speaker 3: it's incredibly bifurcated. There's ones that trade very tight and

990
00:46:56,360 --> 00:46:58,600
Speaker 3: should be upgraded probably or just trade tight, and ones

991
00:46:58,640 --> 00:47:00,960
Speaker 3: that are very very wide. So you got to look

992
00:47:00,960 --> 00:47:03,080
Speaker 3: within that confined to decide what you want to do.

993
00:47:03,480 --> 00:47:05,919
Speaker 3: My view of it is, I think you're not getting

994
00:47:06,000 --> 00:47:08,120
Speaker 3: paid to take that risk in the current market, and

995
00:47:08,160 --> 00:47:10,960
Speaker 3: I'm happy to go to investors explain why, because I've

996
00:47:11,000 --> 00:47:13,880
Speaker 3: seen these markets unwine in many situations. And that's the

997
00:47:13,920 --> 00:47:16,759
Speaker 3: one that winds out five six hundred basis points more.

998
00:47:17,280 --> 00:47:20,600
Speaker 3: When you see something to turn, it's in those credits,

999
00:47:20,640 --> 00:47:22,959
Speaker 3: and then there are great you know, there's great buying

1000
00:47:22,960 --> 00:47:26,279
Speaker 3: opportunities to lower quality credit and great selling opportunities in

1001
00:47:26,320 --> 00:47:29,080
Speaker 3: you're and usually you're told to sell when everyone's buying

1002
00:47:29,160 --> 00:47:31,480
Speaker 3: and it's grinding really tight. So that's how I look

1003
00:47:31,480 --> 00:47:33,960
Speaker 3: at it. I mean, I've seen too many markets where

1004
00:47:34,080 --> 00:47:36,239
Speaker 3: you get caught hole in the bag on that, you know,

1005
00:47:36,440 --> 00:47:39,520
Speaker 3: eight h nine. You know, it's a great example fourteen fifteen.

1006
00:47:39,560 --> 00:47:42,440
Speaker 3: In energy, there's just different periods. I wouldn't call COVID

1007
00:47:42,440 --> 00:47:44,799
Speaker 3: like that because it was sort of uniform and you know,

1008
00:47:44,840 --> 00:47:47,560
Speaker 3: hard to explain, and you know, dealt differently. But generally

1009
00:47:47,560 --> 00:47:50,239
Speaker 3: there's areas in the market, so it probably will keep

1010
00:47:50,280 --> 00:47:52,920
Speaker 3: grinding a little bit tighter. But what you're getting paid

1011
00:47:53,120 --> 00:47:55,799
Speaker 3: to ride that probably not as beneficial it was six

1012
00:47:55,840 --> 00:47:57,919
Speaker 3: months ago. So at some point you need a lightening

1013
00:47:57,960 --> 00:48:01,520
Speaker 3: into the trade. And we have we been underweight it.

1014
00:48:01,640 --> 00:48:05,799
Speaker 1: So you know, if you do, though, think that we're

1015
00:48:05,840 --> 00:48:08,480
Speaker 1: near an inflection point, you know, potentially triggered by third

1016
00:48:08,560 --> 00:48:13,720
Speaker 1: quarter earnings, that might send spreads wider. What's the hedge?

1017
00:48:13,760 --> 00:48:18,120
Speaker 1: I mean, the CDX is very cheap right now. Obviously

1018
00:48:18,120 --> 00:48:20,600
Speaker 1: you can go into quality, but everyone's buying quality debt.

1019
00:48:20,719 --> 00:48:23,239
Speaker 1: I mean, is there some kind of hedge for this

1020
00:48:23,440 --> 00:48:25,279
Speaker 1: other than just you know, hiding all the cash under

1021
00:48:25,280 --> 00:48:25,560
Speaker 1: the bed.

1022
00:48:26,680 --> 00:48:28,799
Speaker 3: Probably cash is the best hedge if you really better,

1023
00:48:28,840 --> 00:48:31,680
Speaker 3: I mean, I don't we we don't really run long

1024
00:48:31,719 --> 00:48:33,879
Speaker 3: short like that in our strategies, and we can't. There's

1025
00:48:33,920 --> 00:48:36,200
Speaker 3: really not much you can do in colo land, you know,

1026
00:48:36,280 --> 00:48:39,840
Speaker 3: other than other than just be defensive in your portfolio positioning,

1027
00:48:40,200 --> 00:48:42,160
Speaker 3: you know, on the high od side, we just try

1028
00:48:42,160 --> 00:48:44,000
Speaker 3: to build a little bit cash or be more defensive

1029
00:48:44,040 --> 00:48:46,000
Speaker 3: in our names. And we're we're asked by clients to

1030
00:48:46,000 --> 00:48:48,360
Speaker 3: be invested in high yield, and so that's the reality

1031
00:48:48,360 --> 00:48:51,000
Speaker 3: at the at the ass allocation level we do. We

1032
00:48:51,080 --> 00:48:54,560
Speaker 3: are defensive on our position in there, trying to trying

1033
00:48:54,600 --> 00:48:58,040
Speaker 3: to take it, you know, trying to recognize that. And

1034
00:48:58,040 --> 00:48:59,719
Speaker 3: again I don't know when the inflection point is going

1035
00:48:59,760 --> 00:49:02,839
Speaker 3: to be. Just always think in markets, you know, you're

1036
00:49:02,880 --> 00:49:04,759
Speaker 3: trading at these types of spread levels. You could grind

1037
00:49:04,800 --> 00:49:06,160
Speaker 3: along and we probably will a little bit here, but

1038
00:49:06,200 --> 00:49:08,200
Speaker 3: there'll be something that I'll move as wider. And then

1039
00:49:08,200 --> 00:49:10,040
Speaker 3: it's the decision of what you want to do. I'm

1040
00:49:10,040 --> 00:49:11,319
Speaker 3: not sure what it's going to be. You know, it's

1041
00:49:11,320 --> 00:49:14,040
Speaker 3: obviously not the government shutdown. It could be some other reason.

1042
00:49:14,080 --> 00:49:17,560
Speaker 3: Gieoflick at risk. I decided they're three cure earnings because

1043
00:49:17,560 --> 00:49:19,640
Speaker 3: I think it from an investors standpoint to an asset

1044
00:49:19,640 --> 00:49:22,000
Speaker 3: class that will get them looking and say, okay, I'm

1045
00:49:22,000 --> 00:49:25,000
Speaker 3: more and more concerned about in default risks and slowing

1046
00:49:25,360 --> 00:49:28,320
Speaker 3: fundamental picture in these companies than the kind of meandering

1047
00:49:28,440 --> 00:49:32,319
Speaker 3: It's fine, earnings are okay, we're good reality, and am

1048
00:49:32,320 --> 00:49:34,240
Speaker 3: I going to start to get more even more visibility

1049
00:49:34,239 --> 00:49:36,520
Speaker 3: and the input of things like Trent tariffs and stuff

1050
00:49:36,520 --> 00:49:40,480
Speaker 3: on companies more in scale that could psychologically change you know,

1051
00:49:40,520 --> 00:49:43,399
Speaker 3: where we are from a spread level standpoint, But again

1052
00:49:43,440 --> 00:49:45,399
Speaker 3: I think from our perspective, it's probably holding a little

1053
00:49:45,440 --> 00:49:47,399
Speaker 3: more cash, try to have a little more dry powder

1054
00:49:47,440 --> 00:49:49,520
Speaker 3: where we need to, and just being a little more

1055
00:49:49,520 --> 00:49:52,640
Speaker 3: defensive and expecting because where spreads are, I mean, if

1056
00:49:52,640 --> 00:49:54,399
Speaker 3: you just look at history, you know, it would tell

1057
00:49:54,400 --> 00:49:57,000
Speaker 3: you that it's you know, we're we're pretty we're pretty

1058
00:49:57,040 --> 00:49:59,160
Speaker 3: tight and relative to history and spreads.

1059
00:49:58,880 --> 00:50:00,640
Speaker 1: Well, great stuff. Jim Shape for the global head of

1060
00:50:00,680 --> 00:50:02,640
Speaker 1: Leverage Finance at Eggon, many thanks for joining us on

1061
00:50:02,680 --> 00:50:03,360
Speaker 1: the credit edge.

1062
00:50:03,800 --> 00:50:05,080
Speaker 3: Yeah, thanks love for having me.

1063
00:50:05,160 --> 00:50:07,880
Speaker 1: And of course I'm very grateful to Juliehung from Bloomberg Intelligence.

1064
00:50:07,920 --> 00:50:11,040
Speaker 1: Thank you again for joining us. Thanks James for even

1065
00:50:11,120 --> 00:50:14,080
Speaker 1: more credit market analysis and insight. Read all of Julie's

1066
00:50:14,080 --> 00:50:17,200
Speaker 1: great work on the Bloomberg Terminal. Bloomberg Intelligence is part

1067
00:50:17,239 --> 00:50:20,080
Speaker 1: of our research department, with five hundred analysts and strategists

1068
00:50:20,080 --> 00:50:23,719
Speaker 1: working across all markets. Coverage includes over two thousand equities

1069
00:50:23,760 --> 00:50:27,239
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