WEBVTT - Structured Credit; Healthcare Distress

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<v Speaker 1>Welcome to the latest episode of Credit Edge, a weekly

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<v Speaker 1>markets podcast. My name is Olivia Raymonde and I'm a

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<v Speaker 1>reporter at Bloomberg News covering corporate finance and credit. My

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<v Speaker 1>guest today will be my fellow colleague, Carmen Rio, who

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<v Speaker 1>is a structured credit reporter at Bloomberg, as well as

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<v Speaker 1>Mike Holland, senior analyst for Bloomberg Intelligence. And so let's

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<v Speaker 1>get to it. Carmen, My first question is going to

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<v Speaker 1>be to you. The market rally this year has been fierce,

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<v Speaker 1>but it seems like there is one corner of the

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<v Speaker 1>credit markets that maybe is feeling it a little bit

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<v Speaker 1>more than others. Can you talk to us about that? Sure,

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<v Speaker 1>thank you very much for having us here. One that's correct.

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<v Speaker 1>All credit has basically rallied, but there's a part of

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<v Speaker 1>the structure market that has seen like an even bigger rally,

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<v Speaker 1>especially compared to last year, and that's mortgage backed securities,

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<v Speaker 1>which are bonds that repackaged homelands backed by the government,

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<v Speaker 1>backed by the agencies. And January saw was basically a

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<v Speaker 1>record in terms of excess returns, which are gains beyond treasuries.

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<v Speaker 1>The bonds saw basically the best start of the year ever,

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<v Speaker 1>and that's a huge contrast to what we saw last

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<v Speaker 1>year when the same bonds basically plunged in value and

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<v Speaker 1>reached record loads in the fall. That was basically because

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<v Speaker 1>the biggest buyers of the dead, which were US banks

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<v Speaker 1>and the FED, stepped back from the market, meaning there

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<v Speaker 1>was not not really like a huge demand for them,

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<v Speaker 1>only like marginal buyers. Got it, got it. And then

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<v Speaker 1>forgive my ignorance, but the real estate sector seems to

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<v Speaker 1>have been hit pretty hard this year as the FED

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<v Speaker 1>has risen rates and tightened up the economy a bit.

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<v Speaker 1>Which area of the of your structured world does that

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<v Speaker 1>impact the most? Sure? So, mortgage rates have you know,

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<v Speaker 1>gone up by a lot in twenty twenty two, and

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<v Speaker 1>they're still pretty high, and that has impacted both residential

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<v Speaker 1>mortgages and commercial mortgages in basically the loans that go

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<v Speaker 1>into this mortgage backed securities we were talking about earlier,

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<v Speaker 1>that has been felt a lot. Homeowners basically have no

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<v Speaker 1>incentive to refinance their houses, so they're not repaying their

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<v Speaker 1>dead That impacts spawn holders a lot because now they

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<v Speaker 1>can kind of calculate when they're going to see their

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<v Speaker 1>bonds prepaid or when they're going to get the prepayments back.

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<v Speaker 1>But that has also impacted real commercial real stata as well.

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<v Speaker 1>In commercial mortgage bonds, which is CMBs, which prepackage commercial

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<v Speaker 1>like commercial mortgages, we've seen a lot of like a

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<v Speaker 1>slow down in issuance. I believe so far this year

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<v Speaker 1>we're around ninety percent down compared to last Oh wow,

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<v Speaker 1>big drop. And it's mainly on one of the reasons

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<v Speaker 1>where it is that there's a little bit less activity

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<v Speaker 1>in the real estate sector, a little bit less emana.

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<v Speaker 1>I mean, I wouldn't want to buy a house where

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<v Speaker 1>market traits are right now. So yeah, it's a little

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<v Speaker 1>there's basically a slowdown, got it, Got it? And then

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<v Speaker 1>you also do a lot of our coverage with clos

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<v Speaker 1>can you speak to what's happening there? Sure, So the

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<v Speaker 1>CLO market has has seen it also a big rally

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<v Speaker 1>this year. So it's it's very interesting because that also

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<v Speaker 1>like kind of triples down into leverage loans and there's

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<v Speaker 1>a lot of demand for for the dead now. Um

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<v Speaker 1>CLO triple A spreads half tightened a lot in January.

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<v Speaker 1>They were very very wide in the fall around I

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<v Speaker 1>think they reached around to sixty basis points, which is

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<v Speaker 1>very very wide, and now they're closer to one eighty,

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<v Speaker 1>which that is really great if you want to issue

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<v Speaker 1>a bond right now. Absolutely, and that drives demand for

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<v Speaker 1>the underlying junk dead which is good. The junk bonds

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<v Speaker 1>have been rallying, so there's definitely there's definitely a positive

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<v Speaker 1>there for all structured assets. Although the last week's unemployment

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<v Speaker 1>UM data like kind of like led mortgage backed securities

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<v Speaker 1>for instance, to like the prices plunged a little bit

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<v Speaker 1>in front like on Friday Monday, they've been they've had

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<v Speaker 1>they have stabilized now, but they want down a little bit.

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<v Speaker 1>And in the demand from the CLO warehouses, how's that going. Yeah,

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<v Speaker 1>so managers are starting to you know, push out deals

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<v Speaker 1>that they had been working on for a while. Many

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<v Speaker 1>of them had warehouses that were underwater last year because

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<v Speaker 1>low prices were very low last year, and now with

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<v Speaker 1>loan prices rallying, it's it's a good window to kind

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<v Speaker 1>of push that stuff out now. Excellent, excellent, that makes sense.

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<v Speaker 1>And then aside from structure, I know you do a

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<v Speaker 1>little bit of coverage in our distressed debt land and

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<v Speaker 1>you had a story out recently talking about the state

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<v Speaker 1>of healthcare within distressed debt on high level. Can you

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<v Speaker 1>just let us know what's going on with that. Sure, So,

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<v Speaker 1>from the sectors we've been looking at, healthcare is one

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<v Speaker 1>is one of the leading sectors in terms of downgrades

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<v Speaker 1>last year. It's it's definitely a little bit more distressed

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<v Speaker 1>than others, and it's facing a lot of like inflationary costs,

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<v Speaker 1>some struggles. Some labor costs are high as well. So

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<v Speaker 1>the owners of the leverage or the leverage loans that

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<v Speaker 1>are tied to this companies are taking a little bit

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<v Speaker 1>of a harder look into the sector. Got it well?

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<v Speaker 1>Good thing. We have a healthcare expert here with us,

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<v Speaker 1>Bloomberg Intelligence, Mike collind Mike, you've been covering a lot

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<v Speaker 1>in the healthcare space. Can you discuss a little bit

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<v Speaker 1>about what's going on broadly across the sector falling some

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<v Speaker 1>of the tough twenty twenty two performance that we saw. Sure,

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<v Speaker 1>thanks Olivia for having me. Karmen, great to be here

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<v Speaker 1>with you and thanks for having me on so twenty

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<v Speaker 1>twenty two performance for the healthcare all subsectors across healthcare,

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<v Speaker 1>we're pretty challenging. High yield. Healthcare in particular suffered from

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<v Speaker 1>a series of downgrades and defaults. We had distressed exchanges,

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<v Speaker 1>all sorts of litigation, whether it be opioid litigation or

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<v Speaker 1>issues around regulatory challenges, as well as ongoing changes to

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<v Speaker 1>the sort of the reimbursement environment how healthcare providers are paid,

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<v Speaker 1>and all those conspired to, you know, give sector analysts

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<v Speaker 1>like myself, one of the more difficult years in recent memory,

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<v Speaker 1>you know, so far in twenty two, like we started

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<v Speaker 1>out saying, market momentum has really proven supportive to the

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<v Speaker 1>healthcare you know, broader healthcare credit sector m but but

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<v Speaker 1>a lot of risks still remain. You know, something that

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<v Speaker 1>Carmen's talking about is, you know, if you think about

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<v Speaker 1>the high yield bond index that we cover here at Bloomberg,

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<v Speaker 1>fifty percent of FARMA bonds are just training to stress,

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<v Speaker 1>which is really right. And the main driver that is

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<v Speaker 1>Bousch Health, which is the former valiant right, yes, Um,

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<v Speaker 1>and they're doing a sort of a transaction where they're

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<v Speaker 1>spinning out the most valuable asset Boush and Loam and

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<v Speaker 1>leaving bondholders on the hook. So UM on the hook

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<v Speaker 1>with a much smaller company with a lower earning space,

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<v Speaker 1>so that's been a challenge. Also, providers, like Carmen said,

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<v Speaker 1>are challenged by much higher labor costs. I mean, the

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<v Speaker 1>rates have come down off their peaks. Um. You know,

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<v Speaker 1>at one point, you know, we average employment or average

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<v Speaker 1>hourly wages for hospitals and sort of healthcare providers, we're

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<v Speaker 1>going up, you know, high single digits, low double digits,

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<v Speaker 1>and that's come down to mid single digits. But we're

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<v Speaker 1>resetting at a higher rate, and so costs for providers,

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<v Speaker 1>whether it be hospitals or physician practice management groups, um,

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<v Speaker 1>you know, remain elevated, and that'll be a pain point

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<v Speaker 1>in twenty two twenty twenty three. Really interesting and I

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<v Speaker 1>think you covered some of this in what you just said,

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<v Speaker 1>But my understand ending was that in the past, healthcare

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<v Speaker 1>was a place to go during a recession. That's that

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<v Speaker 1>was almost like a safe haven, and it really does

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<v Speaker 1>not seem to be one anymore. Could you clarify for us,

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<v Speaker 1>like what has changed? Yeah, absolutely, if you if you

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<v Speaker 1>go back to twenty ten through twenty fifteen, we had

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<v Speaker 1>this period of really really aggressive cost increases in healthcare,

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<v Speaker 1>and that was a combination one of drug pricing increases,

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<v Speaker 1>which you know, valiant, this kind of case in point right,

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<v Speaker 1>the the black sheep of the space. But but more importantly,

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<v Speaker 1>you know, hospital costs were also going up as well,

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<v Speaker 1>kind of unabated um and as a result, the cost

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<v Speaker 1>of healthcare was increasing. And if you think about you know,

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<v Speaker 1>your your insurance payments, right, you know, and premiums have

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<v Speaker 1>gone up, but deductibles went up big time, right, oh yeah,

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<v Speaker 1>very high, very high. Yeah, the and and the consumer

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<v Speaker 1>became the first payer even even though you're supposed to

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<v Speaker 1>have this insurance. But if you've got a deductible that's

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<v Speaker 1>five thousand or ten thousand dollars for a family, you're

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<v Speaker 1>going to defer care. So what was previously consumer non

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<v Speaker 1>discretionary in a way has become consumer discretionary. I would

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<v Speaker 1>caveat that by saying, you know, healthcare insurance companies, health

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<v Speaker 1>insurance companies, the payers are pretty resilient, right because you're

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<v Speaker 1>paying them. The battle between the payers and the providers

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<v Speaker 1>has been ongoing for a very long time, and that's

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<v Speaker 1>where the negotiations and contracting becomes an issue, and why

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<v Speaker 1>you see these payers and providers try to become as

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<v Speaker 1>big as possible so that they can you know, throw

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<v Speaker 1>their weight around and help control those contracting processes. If

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<v Speaker 1>you look at CVS today, look at UNH today, United Health,

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<v Speaker 1>they are getting big for a reason. They are getting

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<v Speaker 1>big for a reason, that's for sure. And one thing

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<v Speaker 1>that has been the hallmark of really markets across twenty

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<v Speaker 1>twenty and into twenty three, especially in distressed is the volatility.

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<v Speaker 1>What stands out to you there. You know, there's a

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<v Speaker 1>lot of different components of healthcare in terms of like

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<v Speaker 1>I mentioned earlier, the evolution of reimbursements and the payer

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<v Speaker 1>provider battles. Some of the names that I've looked at

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<v Speaker 1>recently that are you know, we we've talked a lot

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<v Speaker 1>about Boushe Health over the past year. The volatility there.

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<v Speaker 1>Bond prices there are in the forties for the unsecured bonds,

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<v Speaker 1>and basically that that's a result of Carl Icon and

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<v Speaker 1>some of the equity investors that are in the name

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<v Speaker 1>that are effectuating this extraction of Boush and Loan. That's

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<v Speaker 1>one that you know, we've touched upon a lot. I

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<v Speaker 1>think what's what's more interesting to me today, it's sort

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<v Speaker 1>of these one off names that are smaller. Two credit

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<v Speaker 1>stories in particular really jump out to me. The first one,

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<v Speaker 1>which we have a pretty positive view on as rallied

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<v Speaker 1>really strongly since the beginning of the year. We wrote

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<v Speaker 1>on Acumen back in late December. An Acumen is this

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<v Speaker 1>really niche mobile diagnostic imaging company. So think about like

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<v Speaker 1>trucks with MRI machines in them that that drive to

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<v Speaker 1>a rural hospital when there's increased demand for imaging. UM.

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<v Speaker 1>They also have trailers that sort of are a little

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<v Speaker 1>more stationary. But Acumen bought Alliance Healthcare a couple of

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<v Speaker 1>years ago, which was product had a little bit more

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<v Speaker 1>of the mobile imaging capability, and the company hasn't really

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<v Speaker 1>grown and so for last year the bond price is

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<v Speaker 1>really plummeted. UH. We had a couple of different issues.

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<v Speaker 1>There's an investor in the name that has the option

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<v Speaker 1>to UH pick to toggle their payment, which right now

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<v Speaker 1>so it's stone Peak is the investor in Acumen that

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<v Speaker 1>has a sizeable investment, and they have the option the

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<v Speaker 1>end of the year to toggle their UH their their

0:11:45.360 --> 0:11:47.800
<v Speaker 1>bonds to cash pay, and the company doesn't really have

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<v Speaker 1>that much capability of doing that at this point, given

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<v Speaker 1>constrained liquidity, So the bonds sold off big time. Uh

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<v Speaker 1>what's you know what's interesting now is, you know, since

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<v Speaker 1>the beginning of the year, I think most of a

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<v Speaker 1>lot of investors have seen the possibility of Stone Peak

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<v Speaker 1>basically forcing this company into bankruptcy as you know, you know,

0:12:12.360 --> 0:12:14.200
<v Speaker 1>shooting off their own foot. There's no reason for them

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<v Speaker 1>to do that. It wouldn't serve their their purposes. So

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<v Speaker 1>you know, the bonds had traded to the low sixty

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<v Speaker 1>cents on the dollar range. There's two different bonds and

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<v Speaker 1>they both rallied about ten to twelve points since the

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<v Speaker 1>beginning of the year, which is a big, you know,

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<v Speaker 1>twenty percent gainer. Yeah. Sure. And the equity even more interesting,

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<v Speaker 1>you know, through yesterday was up eighty percent. You know,

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<v Speaker 1>this is a stub equity piece that's trading about it,

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<v Speaker 1>you know, dollar thirty dollar twenty right right now. But

0:12:39.080 --> 0:12:42.000
<v Speaker 1>it was a big gain. So you know, the market

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<v Speaker 1>was really concerned about accounting delays and some management concerns,

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<v Speaker 1>but sentiments starting to improve. So that's been one that's

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<v Speaker 1>been been pretty interesting. It definitely seems like a pretty

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<v Speaker 1>good bye opportunity there, you know, based on what you're saying,

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<v Speaker 1>I know, you you flagged one of the bonds to

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<v Speaker 1>me doing twenty twenty eight that we're trading as low

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<v Speaker 1>as six decents on the dollar and yielding eighteen percent.

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<v Speaker 1>So there's like some pretty hefty yields, right collects right

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<v Speaker 1>if you believe the company is going to survive. That's

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<v Speaker 1>a really interesting opportunity. Also what's interesting too is these

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<v Speaker 1>are smaller businesses that could be targeted for an acquisition.

0:13:14.720 --> 0:13:17.200
<v Speaker 1>I mean, I think down the road management here wouldn't

0:13:17.200 --> 0:13:21.280
<v Speaker 1>mind getting some interest from a large hospital system, you know,

0:13:21.320 --> 0:13:23.520
<v Speaker 1>to maybe make make an investment down the road. But

0:13:24.200 --> 0:13:25.640
<v Speaker 1>we have to see them sort of write the ship

0:13:25.640 --> 0:13:28.080
<v Speaker 1>a little bit management to sort of clear up some

0:13:28.080 --> 0:13:32.440
<v Speaker 1>of the concerns are our management and you know, sort

0:13:32.480 --> 0:13:35.120
<v Speaker 1>of show some growth because it's been a challenging growth story.

0:13:35.360 --> 0:13:39.720
<v Speaker 1>The predecessor company that they bought, Alliance Healthcare, was you know,

0:13:39.760 --> 0:13:41.600
<v Speaker 1>it was a stable company, but wasn't It was never

0:13:41.679 --> 0:13:43.600
<v Speaker 1>really a grower. So we're going to wait and seed

0:13:43.640 --> 0:13:46.319
<v Speaker 1>position right now, Wait and seed position. Yeah, I just

0:13:46.400 --> 0:13:48.000
<v Speaker 1>want to circle you back to M and A really

0:13:48.080 --> 0:13:49.959
<v Speaker 1>quickly because I know that that's going to be a

0:13:50.040 --> 0:13:54.400
<v Speaker 1>top theme in the healthcare space today. But the M

0:13:54.480 --> 0:13:57.800
<v Speaker 1>and A pipeline globally has has slowed quite a bit.

0:13:58.200 --> 0:14:00.720
<v Speaker 1>Can you talk to me about how that slow down

0:14:01.480 --> 0:14:05.360
<v Speaker 1>is going to impact potential acquisitions and how successful they

0:14:05.440 --> 0:14:07.840
<v Speaker 1>might be within the healthcare space. Absolutely, it's it's really

0:14:07.880 --> 0:14:10.600
<v Speaker 1>one of the most topical issues in the healthcare space.

0:14:10.720 --> 0:14:13.920
<v Speaker 1>Right You have consolidation and deconsolidation going on all the time.

0:14:14.320 --> 0:14:17.120
<v Speaker 1>Big hospital systems do a big round or consolidation about

0:14:17.400 --> 0:14:19.600
<v Speaker 1>ten years ago around the time of the Affordable Care Act,

0:14:21.280 --> 0:14:23.320
<v Speaker 1>and you also have so you've a big strategic interest.

0:14:23.480 --> 0:14:27.600
<v Speaker 1>You also have a lot of private equity involvement in

0:14:27.680 --> 0:14:31.360
<v Speaker 1>the sector in the sense of you know, buying practices

0:14:31.400 --> 0:14:34.480
<v Speaker 1>and rolling them up. Usually it's a you know, usually

0:14:34.480 --> 0:14:36.760
<v Speaker 1>pretty good growth opportunity because people, you know, as we

0:14:36.840 --> 0:14:39.680
<v Speaker 1>were talking about earlier, healthcare demand is you know, is

0:14:39.800 --> 0:14:41.960
<v Speaker 1>usually growing, and you know, we have the graying of

0:14:42.000 --> 0:14:44.160
<v Speaker 1>America and the demographics are always saying, you know, there's

0:14:44.200 --> 0:14:46.240
<v Speaker 1>going to be more and more folks requiring healthcare. So

0:14:46.640 --> 0:14:50.800
<v Speaker 1>it's a very investable space from the pe perspective. As

0:14:50.880 --> 0:14:54.640
<v Speaker 1>I mentioned earlier, UNH and CBS along with Danaher last week,

0:14:54.760 --> 0:14:57.320
<v Speaker 1>was talking about buying a life sciences company called Catalant.

0:14:57.720 --> 0:14:59.920
<v Speaker 1>You know, M and A is really how these come

0:15:00.000 --> 0:15:03.400
<v Speaker 1>panies grow once they get to a certain size. So

0:15:03.560 --> 0:15:06.720
<v Speaker 1>on the strategic side, you know, we're seeing the big,

0:15:06.960 --> 0:15:09.400
<v Speaker 1>the big companies growing larger, and we're seeing we're also

0:15:09.440 --> 0:15:12.040
<v Speaker 1>seeing companies like ge Healthcare, which was just spun out

0:15:13.480 --> 0:15:16.560
<v Speaker 1>Thermo Fisher has done some deals. Deals are really you know,

0:15:17.280 --> 0:15:19.960
<v Speaker 1>the biggest driver in my view of the space of

0:15:20.120 --> 0:15:22.600
<v Speaker 1>growth in this space. But what we're seeing on the

0:15:22.640 --> 0:15:26.240
<v Speaker 1>private equity side, you know, is potentially a slowdown as

0:15:26.360 --> 0:15:30.000
<v Speaker 1>rates rise, as costs grow. You know, we're seeing a

0:15:30.000 --> 0:15:32.200
<v Speaker 1>slowdown maybe a little bit in the investment on the

0:15:32.240 --> 0:15:34.840
<v Speaker 1>provider side. So there's a lot of activity in the

0:15:34.960 --> 0:15:40.960
<v Speaker 1>VET space right now, outpatient surgical centers, musculo skeletal you know,

0:15:42.640 --> 0:15:44.760
<v Speaker 1>those those deals are going on. But I think the

0:15:45.680 --> 0:15:48.120
<v Speaker 1>pace of M and A will slow and a lot

0:15:48.120 --> 0:15:50.000
<v Speaker 1>of these private equitowners will have to focus on their

0:15:50.040 --> 0:15:52.160
<v Speaker 1>existing investments and maybe hold them for a little longer,

0:15:52.520 --> 0:15:55.600
<v Speaker 1>hold them for a little longer. Really interesting, And then

0:15:55.920 --> 0:15:58.840
<v Speaker 1>I want to throw another name out there, Um, what's

0:15:58.880 --> 0:16:02.600
<v Speaker 1>going on with weightwatch we Watchers is a fun story, uh,

0:16:03.160 --> 0:16:05.320
<v Speaker 1>not your typical healthcare name. It's kind of sort of

0:16:05.320 --> 0:16:08.560
<v Speaker 1>a in between er, a tweener between consumer and healthcare.

0:16:09.200 --> 0:16:12.400
<v Speaker 1>It is discretionary rights, it is discretionary and one of

0:16:12.440 --> 0:16:14.400
<v Speaker 1>the you know, if you look at the history of

0:16:14.480 --> 0:16:17.400
<v Speaker 1>the company, which was it was started sixty years ago, UM,

0:16:18.400 --> 0:16:20.680
<v Speaker 1>and you know, it's had its up and ups and

0:16:20.800 --> 0:16:25.280
<v Speaker 1>downs over the years. Back in the mid teens, you know,

0:16:25.360 --> 0:16:29.240
<v Speaker 1>around twenty fifteen twenty sixteen, the company was struggling a

0:16:29.320 --> 0:16:31.960
<v Speaker 1>little bit in terms of growth and Oprah came back in,

0:16:32.400 --> 0:16:35.360
<v Speaker 1>came in and really rejuvenated the brand, invigorated it and

0:16:35.440 --> 0:16:38.960
<v Speaker 1>saw growth, uh really peak in twenty I think it

0:16:39.040 --> 0:16:43.600
<v Speaker 1>was twenty eighteen, Thank goodness for Oprah. Right well, uh

0:16:44.120 --> 0:16:47.920
<v Speaker 1>lately though, you know, since Covid hit UM, the company

0:16:48.040 --> 0:16:50.480
<v Speaker 1>had to, you know, deal with the fact that people

0:16:50.520 --> 0:16:54.040
<v Speaker 1>couldn't go out, so the studio business became a real drag.

0:16:54.240 --> 0:16:58.720
<v Speaker 1>So they really reduced their exposure to in person meetings

0:16:58.800 --> 0:17:01.080
<v Speaker 1>and studios, which you know, frankly was one of the

0:17:01.160 --> 0:17:03.960
<v Speaker 1>big I think drivers of this company's success over the

0:17:04.080 --> 0:17:08.440
<v Speaker 1>last say sixty years. And so they've pivoted to a

0:17:08.520 --> 0:17:15.440
<v Speaker 1>more digital offering with a new CEO, and Sima Sistani

0:17:15.560 --> 0:17:17.280
<v Speaker 1>is the new CEO. She's she's brought a lot of

0:17:17.400 --> 0:17:20.119
<v Speaker 1>energy and social media chops to the to the to

0:17:20.200 --> 0:17:22.920
<v Speaker 1>the brand, but uh, you know it, we're still in

0:17:23.040 --> 0:17:24.639
<v Speaker 1>sort of a weight and C mode and as a

0:17:24.760 --> 0:17:30.040
<v Speaker 1>result of the declines in studio membership and frankly folks,

0:17:30.760 --> 0:17:35.000
<v Speaker 1>maybe not being as focused on weight loss as dieting

0:17:35.119 --> 0:17:39.160
<v Speaker 1>sometimes in some circles has become taboo. Um. The business

0:17:39.280 --> 0:17:41.719
<v Speaker 1>is struggling a little bit. I mean, if you right now,

0:17:41.760 --> 0:17:45.520
<v Speaker 1>we're basically with the company looking at a top line,

0:17:45.960 --> 0:17:49.160
<v Speaker 1>you know, revenue around of a billion and earnings EBATA

0:17:49.200 --> 0:17:51.560
<v Speaker 1>around two hundred and sixty million on a trailing basis

0:17:51.600 --> 0:17:54.040
<v Speaker 1>as a last quarter. This company had trot when they

0:17:54.040 --> 0:17:56.119
<v Speaker 1>brought open. We're trying to get to two billion of

0:17:56.280 --> 0:17:58.639
<v Speaker 1>top line and they were around five hundred million at

0:17:58.640 --> 0:18:02.240
<v Speaker 1>their peak of IBATA, So we're really declining um and

0:18:02.440 --> 0:18:05.159
<v Speaker 1>leverage is getting close to eight times wow, which is

0:18:05.480 --> 0:18:07.320
<v Speaker 1>which is a little scary for a business that doesn't

0:18:07.359 --> 0:18:10.640
<v Speaker 1>have a very big competitive moat given all the alternatives

0:18:10.680 --> 0:18:12.360
<v Speaker 1>out there. You could go on YouTube and just watch

0:18:12.400 --> 0:18:14.520
<v Speaker 1>a video on how to do some so not the

0:18:14.640 --> 0:18:17.000
<v Speaker 1>same as weight watchers, but I guess the concern is

0:18:17.119 --> 0:18:20.920
<v Speaker 1>right now, the bonds are trading you know, around fifty

0:18:20.960 --> 0:18:25.080
<v Speaker 1>cents on the dollar, which is pretty low for um,

0:18:26.200 --> 0:18:29.200
<v Speaker 1>pretty pretty low for this business that has been pretty

0:18:29.600 --> 0:18:33.760
<v Speaker 1>pretty strong over the years. UM. So I don't know.

0:18:33.960 --> 0:18:36.240
<v Speaker 1>What's interesting I think too is during COVID they were

0:18:36.280 --> 0:18:39.080
<v Speaker 1>able to refinance their you know, close to nine percent

0:18:39.160 --> 0:18:42.399
<v Speaker 1>coupon bonds with four percent or four and a fantastic

0:18:42.760 --> 0:18:45.480
<v Speaker 1>for the great for the company, right, but when rates

0:18:45.520 --> 0:18:48.159
<v Speaker 1>are rising, uh, that four and a half percent can

0:18:48.320 --> 0:18:50.880
<v Speaker 1>lead you know, as rates rise, that will be punitive

0:18:50.920 --> 0:18:52.840
<v Speaker 1>on the on the price for those bonds. So that's

0:18:53.119 --> 0:18:55.760
<v Speaker 1>part of the reason why we are where we are today. UM.

0:18:56.240 --> 0:18:59.720
<v Speaker 1>I would also say two that, uh, you know, this company,

0:18:59.800 --> 0:19:02.000
<v Speaker 1>like I said earlier, has been really volatile in terms

0:19:02.040 --> 0:19:05.439
<v Speaker 1>of membership growth over the years, and so the company

0:19:05.520 --> 0:19:08.679
<v Speaker 1>really needs to be invigorated. And you know, we're going

0:19:08.720 --> 0:19:11.600
<v Speaker 1>to wait and see if the new CEO can can

0:19:11.720 --> 0:19:16.400
<v Speaker 1>really generate new buzz around the business. Got it? Got

0:19:16.480 --> 0:19:20.000
<v Speaker 1>it for sure? Yeah. It seems like the pandemic and

0:19:20.080 --> 0:19:23.640
<v Speaker 1>the aftermath of the pandemic, which is still ongoing, continues

0:19:23.680 --> 0:19:28.040
<v Speaker 1>to impact so many businesses. Could you expand a little

0:19:28.080 --> 0:19:30.840
<v Speaker 1>bit more on sort of how the pandemic is still

0:19:30.880 --> 0:19:35.159
<v Speaker 1>having lingering effects on these companies. Yeah, you know, I

0:19:35.280 --> 0:19:40.600
<v Speaker 1>think in particular with with Weight Watchers, part of the

0:19:41.520 --> 0:19:44.480
<v Speaker 1>part of the concern is, you know, one, people were

0:19:44.520 --> 0:19:46.680
<v Speaker 1>flushed with cash back during the pandemic. You had the

0:19:46.720 --> 0:19:48.960
<v Speaker 1>support payments, you had, the market was flushed with cash.

0:19:49.160 --> 0:19:52.920
<v Speaker 1>Individuals were when that's pulled away. You know, the Weight

0:19:53.000 --> 0:19:55.440
<v Speaker 1>Watchers plans are something pretty cheap, right, twelve to twenty

0:19:55.480 --> 0:19:57.960
<v Speaker 1>five bucks a month. But when in our environment today,

0:19:57.960 --> 0:19:59.720
<v Speaker 1>when you're paying ten or twenty five bucks a month

0:19:59.760 --> 0:20:03.800
<v Speaker 1>for six different subscriptions to Netflix or you know, Disney

0:20:03.840 --> 0:20:06.000
<v Speaker 1>Plus or whatever it is, UM, you start to be

0:20:06.040 --> 0:20:08.280
<v Speaker 1>a little more selective and how you spend your money. Also,

0:20:08.359 --> 0:20:10.560
<v Speaker 1>when you can have free options that are out there,

0:20:10.680 --> 0:20:14.040
<v Speaker 1>you know, maybe you'll you'll defer to those UM. You know.

0:20:14.400 --> 0:20:17.000
<v Speaker 1>And as I said earlier, the market environment with rates

0:20:17.119 --> 0:20:19.000
<v Speaker 1>where they were back in twenty twenty one when the

0:20:19.080 --> 0:20:22.159
<v Speaker 1>company refinanced their their bonds, you know, that was a

0:20:22.240 --> 0:20:26.200
<v Speaker 1>big issue for you know that we're suffering as bond

0:20:26.240 --> 0:20:31.280
<v Speaker 1>holders in Weight Watchers from the rising in rates. UM. Also,

0:20:31.359 --> 0:20:34.159
<v Speaker 1>I think consumer preferences have evolved since the pandemic, right,

0:20:34.240 --> 0:20:38.520
<v Speaker 1>people have changed, uh and have you know different world.

0:20:39.200 --> 0:20:42.119
<v Speaker 1>It feels like it. Uh. And so you know, I

0:20:42.240 --> 0:20:44.560
<v Speaker 1>think one thing is people don't talk about very much

0:20:44.600 --> 0:20:46.720
<v Speaker 1>with weight watchers, but the rise of sort of body

0:20:46.800 --> 0:20:50.440
<v Speaker 1>positivity has has maybe taken away a little bit of

0:20:50.520 --> 0:20:53.920
<v Speaker 1>the impetus behind a lot of their membership. Um, you know,

0:20:54.119 --> 0:20:58.680
<v Speaker 1>staying uh, staying on plan and so uh, you know,

0:20:58.760 --> 0:21:01.040
<v Speaker 1>it remains to be seen. We find out, you know,

0:21:01.640 --> 0:21:04.600
<v Speaker 1>really this company has membership that signs up at the

0:21:04.680 --> 0:21:06.600
<v Speaker 1>end of the year and you know, go to four

0:21:06.640 --> 0:21:08.840
<v Speaker 1>and a half maybe five million of subscribers and it

0:21:09.000 --> 0:21:11.600
<v Speaker 1>usually trends down by eight hundred thousand to a million

0:21:12.000 --> 0:21:14.720
<v Speaker 1>subscribers by the year end. We'll see how this year

0:21:14.800 --> 0:21:16.840
<v Speaker 1>plays out, whether or not they'll be able to sustain

0:21:17.800 --> 0:21:21.920
<v Speaker 1>membership at current levels. Sustaining membership at current levels, that

0:21:22.040 --> 0:21:25.679
<v Speaker 1>will be the trick. Thank you very much, Mike from

0:21:25.720 --> 0:21:29.320
<v Speaker 1>Bloomberg Intelligence. You can read all of his analysis on

0:21:29.400 --> 0:21:31.879
<v Speaker 1>the Bloomberg Terminal. And thank you so much to Carmen

0:21:32.040 --> 0:21:34.639
<v Speaker 1>Rio from Bloomberg News. You can catch all of her

0:21:34.720 --> 0:21:37.600
<v Speaker 1>coverage and scoops on the terminal or Bloomberg dot Com.

0:21:38.160 --> 0:21:41.200
<v Speaker 1>I'm Olivia Romande. It's been a pleasure having you see

0:21:41.240 --> 0:21:42.760
<v Speaker 1>you next week on Credit Edge