WEBVTT - SpaceX Bondholders Face Huge Key Person Risk on Their Elon Musk Trip 0:00:17.800 --> 0:00:20.080 Hello, welcome to a special edition of The Credit Edge. 0:00:20.120 --> 0:00:22.480 My name is James Crombie. I'm a senior editor at Bloomberg. 0:00:22.840 --> 0:00:25.439 We're joined today by Rob Schiffman, who covers the tech 0:00:25.440 --> 0:00:27.639 sector for Bloomberg Intelligence. How are you doing, Rob? 0:00:27.920 --> 0:00:28.480 Fantastic? 0:00:28.560 --> 0:00:32.320 James also delighted to have George Ferguson, who covers aerospace, 0:00:32.360 --> 0:00:33.560 defense and airlines with BI. 0:00:33.600 --> 0:00:36.239 How's it going, George, very well, Thanks for having me on. 0:00:36.720 --> 0:00:38.320 Great to have you both here. We are here to 0:00:38.360 --> 0:00:41.960 discuss SpaceX, the big splashy markets story of the summer, 0:00:42.320 --> 0:00:45.440 from a record breaking eighty six billion dollar IPO to 0:00:45.479 --> 0:00:49.760 a poorly performing twenty five billion dollar bond deal. Between 0:00:49.840 --> 0:00:51.519 us three, we probably have about one hundred years of 0:00:51.560 --> 0:00:53.920 market experience, but none of us have seen anything like it. 0:00:54.840 --> 0:00:56.880 They'll need to raise a huge amount of capital to 0:00:56.920 --> 0:00:59.520 fund some very lofty ambitions. Let me read you a 0:00:59.560 --> 0:01:02.160 little bit of the IPO road show notes, in which 0:01:02.200 --> 0:01:06.800 SpaceX says its mission is quote to build the systems 0:01:06.840 --> 0:01:11.560 and technologies necessary to make life multiplanetary, to understand the 0:01:11.600 --> 0:01:14.000 true nature of the universe, and to extend the light 0:01:14.080 --> 0:01:18.320 of consciousness to the stars. The Elon Musk Company also 0:01:18.360 --> 0:01:22.080 goes on to say that quote AI's ability to revolutionize 0:01:22.200 --> 0:01:27.720 human potential is directly dependent on meeting exponentially increasing resource demands. 0:01:28.200 --> 0:01:30.039 So before we get to what this all means for 0:01:30.120 --> 0:01:34.320 credit markets, I want to ask you both, what is SpaceX. 0:01:34.440 --> 0:01:37.399 Is it a rocket company? Is it a telecoms provider? 0:01:37.760 --> 0:01:40.160 Or is it an artificial intelligence play? Can we start 0:01:40.160 --> 0:01:40.880 with you, George? 0:01:41.360 --> 0:01:41.640 Sure? 0:01:41.720 --> 0:01:47.960 I think it is a broadband Internet provider from low 0:01:48.040 --> 0:01:53.000 ear satellites that is migrating into an AI company. And 0:01:53.040 --> 0:01:55.600 you know that's sort of where all the dreams and 0:01:55.800 --> 0:01:59.720 valuations are based on that AI company. Rockets just facilitate 0:01:59.800 --> 0:02:00.400 that vision. 0:02:00.760 --> 0:02:01.920 Yeah, I agree with George. 0:02:02.120 --> 0:02:04.920 This company is one that's in transition. What it looks 0:02:05.000 --> 0:02:07.800 like today is probably nothing like it's going to look 0:02:07.880 --> 0:02:10.040 like in the next five years, and I can only 0:02:10.080 --> 0:02:11.960 imagine what it's going to look like in the next 0:02:12.040 --> 0:02:14.720 ten years. But I do agree with George. You know, 0:02:15.240 --> 0:02:18.560 they're starting off on the back of a recurring satellite 0:02:19.360 --> 0:02:24.400 beta business that has a recurring and somewhat growing revenue 0:02:24.400 --> 0:02:25.960 stream that they're going to be able to use to 0:02:26.000 --> 0:02:29.240 piggyback on to help pay for this AI build out. 0:02:29.720 --> 0:02:33.560 Both I think terrestrial and eventually extra terrestrial. 0:02:33.400 --> 0:02:35.640 And how much do we think it's actually worth. It 0:02:35.720 --> 0:02:38.280 went above two point six trillion dollars at one point, 0:02:38.320 --> 0:02:40.840 giving it the same market cap as Amazon, the fifth 0:02:40.840 --> 0:02:43.280 biggest company in the world. Now it's worth just over 0:02:43.400 --> 0:02:45.520 to trillion, which by the way, is about the size 0:02:45.520 --> 0:02:48.640 of the GDP of Spain. How much do we really 0:02:48.680 --> 0:02:50.600 think it should be valued at or is it just 0:02:50.639 --> 0:02:53.280 a guess at the stage? 0:02:53.480 --> 0:02:55.079 I'm happy to tell you some of the metrics we 0:02:55.200 --> 0:02:58.680 pulled together, right, was that if you believe in the 0:02:58.680 --> 0:03:01.760 full growth story, go from I think it's what twenty 0:03:01.800 --> 0:03:05.160 billion dollars in revenue today to one hundred and sixty 0:03:05.200 --> 0:03:08.959 billion and twenty thirty, we still find a company that 0:03:10.360 --> 0:03:14.240 is valued sort of well above the other big tech 0:03:14.240 --> 0:03:17.960 companies like Microsoft, Google, Made Amazon. So I mean, I 0:03:17.960 --> 0:03:20.000 think you got to get to twenty thirty, and you 0:03:20.080 --> 0:03:21.919 got to beat the plans that we have in front 0:03:21.960 --> 0:03:27.120 of us from SpaceX or to even start to approach 0:03:27.200 --> 0:03:31.320 the valuation of those other big integrators, and so to 0:03:31.400 --> 0:03:36.840 us it looks pretty rich today. Listen from a credit perspective, 0:03:36.880 --> 0:03:38.640 I think it's a bit of a different story. I 0:03:38.640 --> 0:03:41.200 don't really care if it's worth a trillion dollars or 0:03:41.240 --> 0:03:44.920 two trillion or three trillion dollars, the equity cushion is enormous, 0:03:44.960 --> 0:03:48.240 and the capability to tap into that equity at some 0:03:48.320 --> 0:03:51.960 point if they need to finance a buildout is very 0:03:52.080 --> 0:03:55.480 likely going to be there. I do think it hurts 0:03:55.520 --> 0:03:59.440 if the stock goes down. People are concerned about future 0:03:59.480 --> 0:04:03.880 cash flows their ability to execute. But regardless of the 0:04:03.960 --> 0:04:07.160 ultimate multiple, there's such a big cushion here. I think 0:04:07.160 --> 0:04:11.400 it supports their investment grade ratings and their financing plans 0:04:11.440 --> 0:04:12.840 over the next handful of years. 0:04:13.240 --> 0:04:15.200 And know they actually earning money, George, I mean, how 0:04:15.240 --> 0:04:16.880 do they actually make money at this point? 0:04:17.520 --> 0:04:21.400 So in twenty twenty five, No, right now, the only 0:04:21.560 --> 0:04:25.440 money making division in the business is the connectivity business, 0:04:25.440 --> 0:04:28.920 and that's the satellite business. Right it's again lower to 0:04:29.000 --> 0:04:32.720 orbit broadband and then direct to sell kind of products. 0:04:32.760 --> 0:04:35.960 I think it's just the broadband that makes money. We 0:04:36.040 --> 0:04:41.200 still think that come twenty thirty that business, the connectivity business, 0:04:41.279 --> 0:04:44.160 will be the one that's probably bringing in the majority 0:04:44.200 --> 0:04:46.520 of the profits. I think we're up sort of in 0:04:46.560 --> 0:04:50.480 the sort of maybe fifteen billionaires level on profits from 0:04:50.520 --> 0:04:53.080 that at the end of the next five years, we 0:04:53.200 --> 0:04:56.200 think that the AI business, and I should say my 0:04:56.240 --> 0:05:00.200 colleagues man Deep Singh tech analyst, and John Butler or 0:05:00.279 --> 0:05:03.240 the connectivity analysts. They put together the model. So it's 0:05:03.279 --> 0:05:05.720 not just an aerospace guy speaking at the end of 0:05:05.800 --> 0:05:09.440 twenty thirty Man Deep thinks there's a small profit like 0:05:09.760 --> 0:05:12.800 half a billion or less on the AI business and 0:05:13.120 --> 0:05:16.520 the rocket business. We think you could be break even 0:05:16.680 --> 0:05:18.960 maybe a little bit of loss. The rocket business is 0:05:18.960 --> 0:05:21.920 a little bit peculiar here because what they do in 0:05:22.000 --> 0:05:24.480 the rocket business is if they're shooting something for a 0:05:24.520 --> 0:05:30.200 company inside SpaceX, the rocket business doesn't recognize any revenue 0:05:30.760 --> 0:05:33.279 or any profit or any expenses. They just take the 0:05:33.360 --> 0:05:36.599 cost of the rocket shot and they put it on 0:05:36.680 --> 0:05:39.839 the balance sheet of again, either the connectivity business, which 0:05:39.839 --> 0:05:42.480 is where it's going now, or the AI business, and 0:05:42.520 --> 0:05:44.960 they'd appreciate that over the useful left of the asset. 0:05:45.360 --> 0:05:46.680 So I don't think we have a full value in 0:05:46.720 --> 0:05:50.000 the rocket business, but I still think it's clear the 0:05:50.080 --> 0:05:55.080 value right now is in that connectivity business, and it's 0:05:55.440 --> 0:05:59.039 and the dream is sold on the value that AI business. 0:05:59.520 --> 0:06:02.200 So what's the reason to get involved now as an investor? 0:06:02.240 --> 0:06:04.080 On the equity side. I mean, you know, the huge 0:06:04.080 --> 0:06:06.840 amount could happen in the next four years. And this 0:06:06.880 --> 0:06:08.680 is stuff that we've never seen before. You know, they're 0:06:08.680 --> 0:06:12.240 talking about building colonies on Mars, So why jump in now? 0:06:13.400 --> 0:06:13.599 Yeah? 0:06:13.640 --> 0:06:15.600 So, I mean I think I think you got to 0:06:15.640 --> 0:06:18.360 sort of you got to look past the colony of Mars. 0:06:18.360 --> 0:06:21.400 That's sort of the big, big, long term vision. Like 0:06:21.560 --> 0:06:24.600 I think SpaceX and Elon Musk are going the right direction. 0:06:25.440 --> 0:06:28.239 And the right direction probably is data centers work better 0:06:28.320 --> 0:06:30.520 in space. There's a lot of technology to get around 0:06:31.040 --> 0:06:33.719 to get that to work, you know, and in the 0:06:33.800 --> 0:06:37.880 data center area, you know, generating power in orbit and 0:06:38.480 --> 0:06:40.880 cooling in orbit. I hear it's not as easy as 0:06:40.880 --> 0:06:43.120 we might all think. I could tell you from the 0:06:43.160 --> 0:06:45.960 aerospace side they need bigger rockets, which are building they 0:06:46.000 --> 0:06:49.200 call starship. But if you I mean, I think the 0:06:49.279 --> 0:06:54.159 direction generally is correct for SpaceX, and I think Elon 0:06:54.279 --> 0:06:57.880 Musk has proven his ability to execute in the past, right. 0:06:57.960 --> 0:07:00.680 And so if you look at Test, it's the only 0:07:00.720 --> 0:07:04.159 new car company you'd have in the US, all the 0:07:04.200 --> 0:07:07.160 new car company you've had and probably I don't know, 0:07:07.200 --> 0:07:10.239 a century maybe right, And so he has a way 0:07:10.480 --> 0:07:15.200 of bringing new technology to the four and being successful 0:07:15.200 --> 0:07:18.960 in it. There are heavy, heavy risks, but I take again, 0:07:19.000 --> 0:07:23.120 I the reason you get involved now despite our concerns 0:07:23.160 --> 0:07:27.080 about valuations and technology risks, would be his ability to 0:07:27.120 --> 0:07:29.960 execute in the past. And there's a couple of things 0:07:29.960 --> 0:07:34.520 to pull apart there. One is Elon Musk himself just 0:07:34.680 --> 0:07:37.920 pulls at different emotions for people, and I think as 0:07:38.560 --> 0:07:41.200 a credit analyst, I tried to lock that out and 0:07:41.240 --> 0:07:44.840 just think about the ability to generate cash over time. 0:07:45.680 --> 0:07:48.920 And if you start talking about profitability, well, none of 0:07:48.920 --> 0:07:51.880 the hyperscalers are profitable at this moment. Now, the double 0:07:51.920 --> 0:07:54.480 a's and triple a's that are spending one hundred and 0:07:54.560 --> 0:07:58.520 fifty two hundred billion, you know, we think Alphabet might 0:07:58.560 --> 0:08:01.640 spend three hundred billion of CAPEX next year, are going 0:08:01.720 --> 0:08:04.440 to make any money for the next few years. And 0:08:04.520 --> 0:08:08.920 quite frankly, they're going to have meaningfully greater negative free 0:08:08.920 --> 0:08:11.840 cash will, I think than a name like SpaceX is 0:08:11.840 --> 0:08:14.400 going to have. And that's why they've been borrowing hundreds 0:08:14.440 --> 0:08:17.560 of billions of dollars of debt. Relative to SpaceX is 0:08:17.640 --> 0:08:21.400 puny twenty five billion dollar debt deal. So that's one thing, 0:08:21.440 --> 0:08:24.240 and then two is you know, extrapolating on some of 0:08:24.240 --> 0:08:28.320 the verbiage in the S one. I sort of get it, 0:08:28.800 --> 0:08:31.120 and it seems like, you know, this stuff is a 0:08:31.160 --> 0:08:35.079 little bit craziness. But the reality is the rating agencies 0:08:35.160 --> 0:08:39.600 are not looking at any of that sort of language 0:08:39.800 --> 0:08:42.120 that you brought up in terms of building out Mars 0:08:42.160 --> 0:08:45.840 or the Moon in terms of credit ratings. They recognize 0:08:45.880 --> 0:08:48.920 that's what some of the company's long term goals and 0:08:48.960 --> 0:08:53.000 what must vision may be. But when it comes down 0:08:53.040 --> 0:08:56.280 to financial models and how they're thinking about what money 0:08:56.320 --> 0:08:57.840 is going to be spent and what it's going to 0:08:57.840 --> 0:09:00.360 be spent on, it's going to be much more on 0:09:00.600 --> 0:09:06.480 traditional connectivity and AI businesses, even from the terrestrial side 0:09:06.520 --> 0:09:09.600 versus the extraterrestrial side. So I think we have to 0:09:09.760 --> 0:09:13.920 stop talking a little bit about you know, this out 0:09:13.960 --> 0:09:16.240 of this world style language and just think about what 0:09:16.360 --> 0:09:22.120 is more reality versus what this longer term vision of 0:09:23.720 --> 0:09:27.959 extra planetary views are, because it just doesn't come into 0:09:27.960 --> 0:09:29.679 playing the models these days. And I do think that 0:09:30.000 --> 0:09:32.160 if this company is successful, which I think it's going 0:09:32.200 --> 0:09:35.480 to be, that you know, maybe come twenty thirty or 0:09:35.480 --> 0:09:37.320 twenty thirty five, they're going to have so much cash 0:09:37.520 --> 0:09:40.080 they're going to be able to send somebody to whatever 0:09:40.160 --> 0:09:42.240 planet or solar system or galaxy they want. 0:09:42.480 --> 0:09:44.120 I do want to come back to the investment grade rating. 0:09:44.160 --> 0:09:46.079 But George, you mentioned Elon Musk a few times, and 0:09:46.120 --> 0:09:48.000 so did you Rob. So is there a key person 0:09:48.160 --> 0:09:52.040 risk in this investment thesis? I mean, what happens if 0:09:52.280 --> 0:09:55.280 Elon walks or something else happens to Elon and we're 0:09:55.320 --> 0:09:57.520 left with different management, different leadership. 0:09:58.800 --> 0:10:00.559 Yeah, I mean I think I think it looks materially 0:10:00.640 --> 0:10:03.680 different that way, right. I think absolutely there's a big 0:10:03.760 --> 0:10:07.719 vision by Elon that I think I think that helps him, 0:10:07.800 --> 0:10:10.520 that helps him raise money, ups drive the company forward, 0:10:11.400 --> 0:10:14.680 vote focus in the technology. I would also point out 0:10:14.720 --> 0:10:18.920 that he owns a majority of the B shares. There's 0:10:18.960 --> 0:10:22.240 two there's two share classes in this Actually there's multiple 0:10:22.240 --> 0:10:24.000 share classes, but right now issued there are. 0:10:23.960 --> 0:10:25.679 Two a's and b's. 0:10:26.400 --> 0:10:30.199 Bees have ten votes apiece, Ace have one vote a piece. 0:10:30.240 --> 0:10:33.160 He has the majority bes, he controls the company. So 0:10:33.720 --> 0:10:37.920 you're absolutely on an Elon Musk trip. But again, I think, 0:10:38.000 --> 0:10:40.640 do you think his vision and his ability to raise 0:10:40.640 --> 0:10:43.640 money is a large portion of this company right now? 0:10:44.080 --> 0:10:44.960 Yeah, I listen. 0:10:45.320 --> 0:10:49.280 Everyone agrees on this right Elon Musk is SpaceX, So 0:10:49.760 --> 0:10:52.800 there's a huge risk there, and the rating agencies have 0:10:52.840 --> 0:10:56.080 actually pointed this out in terms of governance. When you've 0:10:56.080 --> 0:11:00.200 got one person effectively not just in control from an 0:11:00.200 --> 0:11:05.000 ideal perspective, but in control from a voting perspective, it 0:11:05.120 --> 0:11:08.200 raises issues. I think the credit ratings would be even 0:11:08.280 --> 0:11:12.600 higher if this was a just a standard CEO and board. 0:11:13.400 --> 0:11:15.080 S and P is rated one notch lower than the 0:11:15.080 --> 0:11:18.640 other rating agencies, and they specifically brought up governance as 0:11:18.720 --> 0:11:23.160 the reason why they were notch lower. I'm less worried 0:11:23.160 --> 0:11:26.320 about governance, to be honest, because I think it's about 0:11:26.360 --> 0:11:29.840 his vision. But when you have one man controlling really everything, 0:11:30.160 --> 0:11:33.120 if something goes wrong with that one man, there's issues. 0:11:33.160 --> 0:11:35.040 That being said, I think it would become a much 0:11:35.080 --> 0:11:39.240 more conservative business without him, credit would probably still be fine. 0:11:39.320 --> 0:11:39.719 I think the. 0:11:39.679 --> 0:11:42.480 Equity would be the area where people would be more 0:11:42.520 --> 0:11:44.679 concerned than the credit side. 0:11:44.880 --> 0:11:48.280 On the IG racing, though, I'm wondering how anyone Moody's, 0:11:48.320 --> 0:11:50.680 S and P, fish anyone comes up with an investment 0:11:50.720 --> 0:11:54.040 grade racing how they even can make that determination given 0:11:54.559 --> 0:11:58.240 the history, given the dream that is out there. But 0:11:59.120 --> 0:12:02.040 the market also seems to disagree in that. You know, 0:12:02.080 --> 0:12:04.480 when when they price they widen out a lot, they're 0:12:04.559 --> 0:12:07.400 they're they're widening according to the analysis that I've seen, 0:12:08.440 --> 0:12:10.840 to the extent that they don't even look like triple 0:12:10.880 --> 0:12:13.280 B minus. I know this is a very hard company 0:12:13.320 --> 0:12:17.040 to comp but but how do you see that Robinson's 0:12:17.040 --> 0:12:19.520 of the trading after they actually sold the bones. 0:12:19.760 --> 0:12:22.080 Yeah, I, sir, would beg to differ with most of that. 0:12:22.200 --> 0:12:27.320 So listen, what makes an investment grade company investment grade ratings? 0:12:27.520 --> 0:12:30.880 So three major rating agencies EA A one, triple B, 0:12:31.880 --> 0:12:34.400 triple B plus. So if this is not on the 0:12:34.440 --> 0:12:37.760 borderline of non investment grade, you know it's not a 0:12:37.840 --> 0:12:40.160 junk company. Doesn't look like a junk company to me. 0:12:40.440 --> 0:12:43.839 I don't think it's gonna be anywhere near junk anytime soon. Also, 0:12:43.880 --> 0:12:47.680 all through rating agencies have stable outlooks. You know, they've 0:12:47.679 --> 0:12:50.120 also put their necks out on the line to see. 0:12:50.160 --> 0:12:54.160 To see ratings change in any short time period would 0:12:54.200 --> 0:12:57.680 be an absolute shock. You know, this is as high 0:12:57.679 --> 0:13:02.400 profile as you get, and I think they these ratings 0:13:02.440 --> 0:13:05.920 in place with very low probability they're going to change 0:13:06.040 --> 0:13:09.720 anytime soon. So you know what makes up these ratings 0:13:09.920 --> 0:13:13.880 and how do you get comfortable with an investment grade rating? Well, listen, 0:13:13.920 --> 0:13:16.600 liquidity goes a long way, right. They, as you said, 0:13:16.640 --> 0:13:19.480 they raised a chunk of money via their IPO and 0:13:20.400 --> 0:13:22.400 this bondie originally was supposed to be twenty billion, but 0:13:22.440 --> 0:13:26.920 it was upsized to twenty five because demand was nearly 0:13:27.080 --> 0:13:30.400 ninety billion. So they're sitting on over one hundred billion 0:13:30.480 --> 0:13:33.800 dollars of cash right now, and they've committed to keeping 0:13:33.800 --> 0:13:35.840 at least twenty five billion of cash on the books, 0:13:36.400 --> 0:13:42.839 and their revolver undrawn at five billion dollars. So massive liquidity. 0:13:42.920 --> 0:13:44.760 And you know, George can walk you through what he 0:13:44.800 --> 0:13:48.040 thinks is going to be their negative free cash over 0:13:48.080 --> 0:13:50.120 the next few years. But at least over the next 0:13:50.160 --> 0:13:51.719 couple of years, I think they don't even have to 0:13:51.800 --> 0:13:57.160 raise another penny and can afford their buildout plans. So 0:13:57.240 --> 0:13:59.839 on top of having massive liquidity, the company is also 0:14:00.200 --> 0:14:03.959 you know, relatively low amounts of debt. You know, if 0:14:03.960 --> 0:14:06.200 you add in some sell lease back debt, which is 0:14:06.240 --> 0:14:08.680 probably just under ten billion dollars, you know, they have 0:14:08.720 --> 0:14:12.840 thirty five odd billion dollars of non adjusted debt, and 0:14:12.920 --> 0:14:15.720 they're committing to a two to three times leverage target. 0:14:16.400 --> 0:14:20.400 Much much of their capital expenditures are discretionary, so if 0:14:20.400 --> 0:14:23.200 things are working, they can pour more fuel onto the fire. 0:14:23.520 --> 0:14:26.000 If they're not, they could pull back. If capital markets 0:14:26.040 --> 0:14:30.320 get weaker, they can slow down. But this leverage target 0:14:30.360 --> 0:14:32.560 is going to be dependent upon how they execute. So 0:14:32.720 --> 0:14:35.680 as EBITDAD grows, they can borrow more money. And if 0:14:35.720 --> 0:14:38.440 EBADOD does grow, there's going to be more bond older 0:14:38.480 --> 0:14:40.400 demand because they're going to say that this is working. 0:14:41.280 --> 0:14:44.320 So you know, just real quickly on the bond deal. 0:14:44.400 --> 0:14:46.560 You know, I let me tell you something from what 0:14:46.640 --> 0:14:48.680 I see around here. You know, we work at a 0:14:49.880 --> 0:14:52.960 news you know, a technology firm that does a lot 0:14:53.000 --> 0:14:55.720 of news and research, but bad news cells. And it's 0:14:55.960 --> 0:14:59.560 very easy to write really bad news articles on companies 0:14:59.600 --> 0:15:02.160 like this when you've got you know, three days of 0:15:02.200 --> 0:15:03.000 trading history. 0:15:03.080 --> 0:15:03.880 So we did. 0:15:03.880 --> 0:15:06.320 Why now the first few days, you know, we're tighter 0:15:06.320 --> 0:15:09.840 today by about a nickel across the board, So it 0:15:09.880 --> 0:15:11.800 was it was a little bit weak on the break. 0:15:11.840 --> 0:15:13.640 You know, hedge funds, we're trying to make quick money. 0:15:13.680 --> 0:15:15.800 It's not so different that what happened with the IPO. 0:15:15.960 --> 0:15:18.120 The stock shot up to what, George, over two hundred 0:15:18.160 --> 0:15:20.480 bucks right and we're sitting at one point fifty right now. 0:15:20.560 --> 0:15:23.280 So you know, you can't make money every single day 0:15:23.360 --> 0:15:25.920 in these credit markets. Last week, this last month was 0:15:25.960 --> 0:15:29.240 one of the worst months for AI and think Microsoft 0:15:29.280 --> 0:15:32.120 lost over five hundred billion dollars and we're not really 0:15:32.160 --> 0:15:34.480 talking about it. It's because the safe SpaceX was in 0:15:34.520 --> 0:15:37.480 the news this week. So I actually think that, you know, 0:15:37.520 --> 0:15:39.480 there's a fair amount of confidence there's a lot of 0:15:39.480 --> 0:15:42.400 money on the sidelines that would be be willing to 0:15:42.520 --> 0:15:45.920 lend to SpaceX over time. And again, I think as 0:15:45.960 --> 0:15:49.920 they grow into their business, people get more comfortable with 0:15:50.000 --> 0:15:51.680 the credit profile and get over the sort of this 0:15:51.760 --> 0:15:55.080 shock that you have a company that's negative free cash 0:15:55.080 --> 0:15:58.040 flow but investment grade and sort of just move on 0:15:58.120 --> 0:16:00.480 to Wow, I can't believe how much they're revenues in 0:16:00.520 --> 0:16:01.680 EBITDAU grew last quarter. 0:16:02.720 --> 0:16:05.920 George, any thought from your side, Yeah, I mean I 0:16:05.920 --> 0:16:09.080 think that, you know, as Rob said, there's a lot 0:16:09.080 --> 0:16:11.200 of a lot of this cash already sitting in the 0:16:11.200 --> 0:16:13.280 balance that they'll start to invest. 0:16:13.880 --> 0:16:17.400 I think there's already been some nice successes. They've built 0:16:17.440 --> 0:16:20.760 two data centers, Colossus one and Colossus two. They built 0:16:20.760 --> 0:16:23.800 them pretty quickly. They use brown fields instead of green fields, 0:16:24.360 --> 0:16:26.520 save them a lot of time. Maybe it saves some 0:16:26.640 --> 0:16:29.480 money they're leasing out capacity in those I think it 0:16:29.560 --> 0:16:33.880 shows SpaceX's willingness to look at things in a different light, 0:16:34.440 --> 0:16:36.120 you know, not say that you need a brand new 0:16:36.200 --> 0:16:38.800 data center which takes a longer period of time to 0:16:38.840 --> 0:16:43.560 put together, then again sort of existing facility. And I think, 0:16:44.560 --> 0:16:46.960 as Rob points out, there's a lot of companies that 0:16:47.000 --> 0:16:50.920 are investing in the same space, the other hyperscalers Microsoft 0:16:51.040 --> 0:16:56.960 and and Amazon and Google and Meta and so they're 0:16:56.960 --> 0:16:59.760 bringing cash from other businesses that are, you know, a 0:17:00.000 --> 0:17:02.720 pretty successful in order to use it here. I mean 0:17:03.200 --> 0:17:04.879 Elan Musk is a little bit of a you know 0:17:04.920 --> 0:17:06.840 that he's more of the startup. He doesn't have that 0:17:07.440 --> 0:17:10.920 sort of big money maker, uh to to dig into 0:17:10.960 --> 0:17:14.560 the pot to build out. Perhaps that means they'll be 0:17:14.560 --> 0:17:16.480 a little more judicious and how they how. 0:17:16.400 --> 0:17:17.080 They build out. 0:17:17.200 --> 0:17:18.680 And at the end of the day, again, I think 0:17:18.720 --> 0:17:24.040 we're it's about AI. If AI is successful, if AI works, 0:17:25.119 --> 0:17:27.840 I guess is this company we'll have a nice place 0:17:27.880 --> 0:17:30.080 in that in that industry, in that business, and will 0:17:30.119 --> 0:17:30.560 do well. 0:17:31.000 --> 0:17:33.239 So I think there's a bit of bigger risk there. 0:17:33.240 --> 0:17:36.439 So yes, George before about raw Lal but and you 0:17:36.560 --> 0:17:39.760 just brought up like how poorly it seems like these 0:17:39.800 --> 0:17:43.760 bonds are performing well. This name is rated higher than Oracle, 0:17:43.840 --> 0:17:46.240 which I know is also sort of then how to 0:17:46.320 --> 0:17:49.680 favor it's still a big software company, but you know, 0:17:50.040 --> 0:17:54.320 now it's a new hyperscaler, but it's still trades inside 0:17:54.320 --> 0:17:57.480 of where Oracle trades, and and part of the reason 0:17:57.520 --> 0:18:02.719 why people might be attracted SpaceX is that this is 0:18:03.160 --> 0:18:06.680 the tightest that investment grade and high yield bonds have 0:18:06.800 --> 0:18:11.280 traded in something like the last twenty years. So clients 0:18:11.359 --> 0:18:17.880 investors need incremental yield. SpaceX is trading, you know, one 0:18:18.040 --> 0:18:22.600 hundred beeps wider than many of its investment grade peers. 0:18:22.920 --> 0:18:25.000 It's still trading tighter than Oracle, which is which is 0:18:25.560 --> 0:18:29.800 a notch lower. But a lot of the risks are 0:18:29.840 --> 0:18:32.320 built into this name. Now again it's trading like an 0:18:32.359 --> 0:18:36.960 investment grade name. It's trading like a mid to maybe 0:18:37.040 --> 0:18:40.720 lowers triple B versus high a solid high triple B. 0:18:40.880 --> 0:18:45.760 Like it's rated. But if you believe there there is 0:18:46.200 --> 0:18:49.719 the potential growth that exists from this AI business, and 0:18:49.720 --> 0:18:53.840 that they can fund it over time, that there's a 0:18:53.880 --> 0:18:59.480 lot of potential for excess bond returns relative to triple B, 0:19:00.800 --> 0:19:04.840 relative to much higher quality double A and triple A 0:19:05.480 --> 0:19:09.639 tech hyperscaling names. If you also think about supply, you know, 0:19:09.640 --> 0:19:12.760 remember some of these other names, you know, Alphabet and Amazon. 0:19:12.760 --> 0:19:17.160 They're coming with fifty billion at a time in multiple currencies. 0:19:17.800 --> 0:19:20.480 It seems never ending. This was a twenty five billion 0:19:20.520 --> 0:19:22.080 dollar deal. I don't think they're going to be back 0:19:22.119 --> 0:19:24.640 this year. They're probably going to be back next year. 0:19:25.880 --> 0:19:27.639 But if you think about these guys having an issue 0:19:27.640 --> 0:19:30.760 twenty five billion dollars a year for the next you know, two, three, 0:19:30.840 --> 0:19:34.040 four years, and then I agree with George that you know, 0:19:34.080 --> 0:19:36.240 these guys could raise one hundred billion dollars a debt 0:19:36.280 --> 0:19:38.160 by twenty thirty. I think they can do it because 0:19:38.200 --> 0:19:40.760 Ebadat can grow up and can grow as well. I 0:19:40.760 --> 0:19:43.200 think demand will be there because it's not in a 0:19:43.359 --> 0:19:45.400 relative scale of things. You know, we think about twenty 0:19:45.400 --> 0:19:49.640 five billion dollar deals today, they're not that big. They're 0:19:49.680 --> 0:19:52.000 just not They're big, but they're not that big. Relative 0:19:52.080 --> 0:19:54.600 to the world we grew up in, you know, one 0:19:54.680 --> 0:19:57.160 hundred years ago, where if you did a two billion 0:19:57.200 --> 0:19:59.159 dollar deal it was big. 0:19:59.520 --> 0:20:02.200 Definitely, and uses want liquidity, they want variety, They want 0:20:02.240 --> 0:20:05.080 to see relative value opportunities across the curve. But how 0:20:05.119 --> 0:20:08.720 has it affected the tech sector rub or ig overall? 0:20:08.720 --> 0:20:11.320 Because spreads are widening out. Is that a result of 0:20:11.840 --> 0:20:13.280 all of this tech issuance? Do you think? 0:20:14.280 --> 0:20:19.720 Well, yeah, in general tech is wider from a year ago, 0:20:19.960 --> 0:20:22.719 and it's just because there's been so much supply. There 0:20:22.760 --> 0:20:26.840 really hasn't been any ratings risk you know, there haven't 0:20:26.840 --> 0:20:31.480 been any downgrades. Outlooks across the border generally stable, particularly 0:20:31.520 --> 0:20:36.560 for the Mount rushmoor'es of of the hyperscalers. So we 0:20:36.960 --> 0:20:38.560 have seen a little bit of weakness. 0:20:38.600 --> 0:20:38.760 You know. 0:20:39.040 --> 0:20:43.639 Historically investment Grede Technology traded you know, ten fifteen basis 0:20:43.640 --> 0:20:47.600 points through where the corporate the Bloomberg Corporate Index traded, 0:20:48.040 --> 0:20:51.040 you know, and now we're about a nickel wider. And 0:20:51.080 --> 0:20:54.280 that's understandable. It's it's it's again, it's not because credit 0:20:54.640 --> 0:20:57.199 is any weaker. There are there are concerns that this 0:20:57.240 --> 0:21:00.720 is good money after bad but it's not a credit 0:21:00.800 --> 0:21:03.600 quality issue, it's just a technical issue. What's starting to 0:21:03.640 --> 0:21:05.520 help is that there's been a lot of private deals 0:21:06.119 --> 0:21:08.680 which have offloaded a lot of the dollars that would 0:21:08.680 --> 0:21:12.480 have come to the public US dollar markets, and there's 0:21:12.520 --> 0:21:16.600 been this enormous demand across currencies, whether it's you know, 0:21:16.640 --> 0:21:20.040 the largest Canadian deals, or euro deals, or Yen deals 0:21:20.320 --> 0:21:22.359 or Swiss francs. I think you're going to see a 0:21:22.400 --> 0:21:25.679 lot of all of those going forward. It's going to 0:21:25.760 --> 0:21:30.840 create mild technical pressure on the space. But again, within 0:21:30.880 --> 0:21:34.560 the context of historical spreads, we're still really tight. So 0:21:34.760 --> 0:21:37.760 if you were ever thinking about, hey, I'm going to 0:21:37.800 --> 0:21:40.480 spend five trillion dollars building a brand new business and 0:21:40.520 --> 0:21:41.879