1 00:00:18,160 --> 00:00:20,960 Speaker 1: Hello, and welcome to the Credit Edge, a weekly markets podcast. 2 00:00:21,120 --> 00:00:23,760 Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg. 3 00:00:24,360 --> 00:00:27,520 Speaker 1: This week, we're very pleased to welcome Camille McLeod Salmon 4 00:00:27,560 --> 00:00:30,640 Speaker 1: at Fidelity International in London. How are you, Camille? 5 00:00:31,040 --> 00:00:32,040 Speaker 2: Very well, Thank you. 6 00:00:32,760 --> 00:00:34,600 Speaker 1: Thank you so much for joining us today. We're excited 7 00:00:34,640 --> 00:00:37,040 Speaker 1: to dig into your market views and to get your outlook. 8 00:00:37,360 --> 00:00:40,479 Speaker 1: We're also delighted to welcome back Bloomberg's very own Lisa Lee, 9 00:00:40,479 --> 00:00:43,080 Speaker 1: who covers credit markets from London. Great to see you again, Lisa. 10 00:00:43,400 --> 00:00:45,199 Speaker 3: Great to be here again, James. 11 00:00:45,159 --> 00:00:49,919 Speaker 1: And from Bloomberg Intelligence. Excellent to see Aidan Cheslin. Welcome back, Aidans. 12 00:00:50,560 --> 00:00:50,840 Speaker 4: Great. 13 00:00:50,880 --> 00:00:52,800 Speaker 1: So let's start with you, Camille. It's great to see 14 00:00:52,840 --> 00:00:54,960 Speaker 1: you on the Credit Edge. I know you want to 15 00:00:55,000 --> 00:00:58,280 Speaker 1: talk about collateralized loan obligations. We'll get into that, but 16 00:00:58,480 --> 00:01:01,080 Speaker 1: let's start with a big picture. When we talk to 17 00:01:01,200 --> 00:01:04,360 Speaker 1: global portfolio managers at the moment, they do like the 18 00:01:04,360 --> 00:01:07,640 Speaker 1: sound of Europe for the potential diversification and also because 19 00:01:07,680 --> 00:01:11,080 Speaker 1: it looks relatively cheap. Of course, they skew to the 20 00:01:11,120 --> 00:01:13,760 Speaker 1: bigger US market, and as we've discussed recently on this 21 00:01:13,800 --> 00:01:16,840 Speaker 1: show it's getting expensive in the US. There's a lot 22 00:01:16,840 --> 00:01:19,760 Speaker 1: of demand for not a lot of supply, so investors 23 00:01:19,800 --> 00:01:23,720 Speaker 1: are definitely looking for options elsewhere, but maybe Europe's cheap 24 00:01:23,760 --> 00:01:27,399 Speaker 1: for a reason. These economies seem more challenged in the US, 25 00:01:28,160 --> 00:01:30,160 Speaker 1: where we may be headed for a soft landing rather 26 00:01:30,160 --> 00:01:32,160 Speaker 1: than a recession, although a lot of the policy easing 27 00:01:32,160 --> 00:01:35,119 Speaker 1: bets are being unwhelmed as we speak, because the data 28 00:01:35,360 --> 00:01:38,880 Speaker 1: on the economy just keeps coming in strong. So you know, 29 00:01:38,959 --> 00:01:41,080 Speaker 1: Europe in relative terms seem to have a lot of issues, 30 00:01:41,120 --> 00:01:44,040 Speaker 1: including inflation, which is tying policy makers hands when it 31 00:01:44,120 --> 00:01:47,440 Speaker 1: comes to stimulus. But what is the macro outlook from 32 00:01:47,440 --> 00:01:49,720 Speaker 1: where you sit? Camille? Am I being too pessimistic? 33 00:01:50,120 --> 00:01:53,440 Speaker 2: So I think let's start with kind of outlook for 34 00:01:53,840 --> 00:01:56,920 Speaker 2: Europe and kind of what's been happening. So if you 35 00:01:57,000 --> 00:01:59,480 Speaker 2: look at if you look at one of the big 36 00:01:59,760 --> 00:02:03,080 Speaker 2: mowers in the market, it's the fact that we it's 37 00:02:03,200 --> 00:02:07,960 Speaker 2: clear that we have reached kind of terminal rates and 38 00:02:08,040 --> 00:02:10,480 Speaker 2: that we expect a decline this year. And we can 39 00:02:10,520 --> 00:02:14,560 Speaker 2: talk about May versus March. I think there's probably people 40 00:02:14,639 --> 00:02:19,640 Speaker 2: more eloquent and educated about that than I. And we 41 00:02:19,639 --> 00:02:22,080 Speaker 2: can also talk about how many rate cuts four versus five, 42 00:02:22,400 --> 00:02:25,000 Speaker 2: But it's clear that there there will be rate cuts, 43 00:02:25,040 --> 00:02:29,120 Speaker 2: and that impacts our market in a number of ways. 44 00:02:29,520 --> 00:02:35,040 Speaker 2: So firstly impacts the direct funding for our for our issuers. 45 00:02:36,160 --> 00:02:39,799 Speaker 2: And then so as rates rise, that means that the 46 00:02:39,800 --> 00:02:42,959 Speaker 2: cost of borrowing, sorry, as the rates decline, the cost 47 00:02:43,000 --> 00:02:46,639 Speaker 2: of borrowing also declined. So that's a helpful tail wind. 48 00:02:46,680 --> 00:02:49,800 Speaker 2: So what has been aheadwind now tearing into tailwind. We 49 00:02:49,880 --> 00:02:54,480 Speaker 2: don't expect rates to reach zero percent, but clearly we've 50 00:02:54,520 --> 00:02:57,720 Speaker 2: already seen since the end of last year that those 51 00:02:57,760 --> 00:03:01,040 Speaker 2: interest costs have come down. And then leading on to that, 52 00:03:01,240 --> 00:03:05,760 Speaker 2: it's if you look at you we have a maturity 53 00:03:05,840 --> 00:03:10,000 Speaker 2: all that we're approaching. So if you look at maturities 54 00:03:10,040 --> 00:03:13,760 Speaker 2: in twenty five, twenty six, and twenty seven in credit, 55 00:03:13,800 --> 00:03:16,440 Speaker 2: we have two hundred and thirty six billion of maturities 56 00:03:16,480 --> 00:03:21,160 Speaker 2: that we need to amend or deal with, and that 57 00:03:21,840 --> 00:03:24,280 Speaker 2: as a curve is lower and those funding costs are cheaper. 58 00:03:24,320 --> 00:03:26,960 Speaker 2: That actually means those A and e's are easier to 59 00:03:26,960 --> 00:03:29,640 Speaker 2: get down and are more affordable, and that stretch that 60 00:03:29,680 --> 00:03:34,000 Speaker 2: you have to make is less. And then it also 61 00:03:34,080 --> 00:03:37,720 Speaker 2: impacts M and A. So when we look at the 62 00:03:37,880 --> 00:03:41,880 Speaker 2: m and A environment. Actually, the bid off for spread 63 00:03:42,000 --> 00:03:45,840 Speaker 2: that had existed is largely, in my opinion, a function 64 00:03:45,960 --> 00:03:49,120 Speaker 2: of the rate problem. So if you're a seller and 65 00:03:49,160 --> 00:03:51,920 Speaker 2: you expect rates to decline, then you're better off waiting 66 00:03:51,960 --> 00:03:54,560 Speaker 2: and putting off that cell decision. And if you're a buyer, 67 00:03:54,640 --> 00:03:57,280 Speaker 2: you can't really price in rate cuts. And I think 68 00:03:57,440 --> 00:04:02,360 Speaker 2: that certainty that we're getting is allowing that bid ask 69 00:04:03,200 --> 00:04:06,640 Speaker 2: spread hopefully to decline, plus some other factors that are 70 00:04:06,640 --> 00:04:12,520 Speaker 2: happening in the sponsored space as well. And then also, 71 00:04:12,960 --> 00:04:15,880 Speaker 2: like the US, lower rates has also meant that the 72 00:04:15,880 --> 00:04:19,160 Speaker 2: search for meal means that we've seen tightening in the 73 00:04:19,680 --> 00:04:23,880 Speaker 2: European market as well in terms of spread. So we've 74 00:04:23,920 --> 00:04:27,599 Speaker 2: seen the wave of repricings that have come across the US, 75 00:04:27,600 --> 00:04:32,240 Speaker 2: but we still think it looks relatively attractive. So I 76 00:04:32,279 --> 00:04:37,000 Speaker 2: think for a number of reasons, Europe's an interesting diversification play, 77 00:04:37,040 --> 00:04:40,120 Speaker 2: and that rate shift continues to make it an interesting 78 00:04:40,120 --> 00:04:43,919 Speaker 2: diversit patient pay and relative it looks attractive. The US 79 00:04:44,080 --> 00:04:46,800 Speaker 2: is large and liquid, but I think if you compare 80 00:04:47,120 --> 00:04:49,880 Speaker 2: triple c's in each market, you've got nine percent triple 81 00:04:49,920 --> 00:04:55,000 Speaker 2: c's in the US versus three percent in Europe, and 82 00:04:55,040 --> 00:04:58,919 Speaker 2: also default rates are expected to be higher in the 83 00:04:59,040 --> 00:05:02,560 Speaker 2: US than in U Europe. And I would also say 84 00:05:04,920 --> 00:05:10,279 Speaker 2: that recovery rates give the creditor on creditor violence and 85 00:05:10,279 --> 00:05:12,880 Speaker 2: the lost bitigation transactions that you're seeing in the US 86 00:05:13,200 --> 00:05:17,240 Speaker 2: that haven't yet transported to Europe. And I think the 87 00:05:17,240 --> 00:05:20,280 Speaker 2: clubbiness of the European market holds that by a little bit, 88 00:05:20,320 --> 00:05:23,800 Speaker 2: although that's something that we continue to focus on. Makes 89 00:05:23,880 --> 00:05:29,000 Speaker 2: europe An important diversification or important diversify if you're able 90 00:05:29,080 --> 00:05:30,920 Speaker 2: to invest globally. 91 00:05:31,360 --> 00:05:32,440 Speaker 1: So there's a lot to unpack there. 92 00:05:32,480 --> 00:05:32,800 Speaker 4: Community. 93 00:05:32,800 --> 00:05:34,840 Speaker 1: You've thrown us a lot of things. I just kind 94 00:05:34,839 --> 00:05:36,400 Speaker 1: of wanted to back up a bit in terms of 95 00:05:36,760 --> 00:05:39,480 Speaker 1: obviously the rates coming down are good for the borrowers 96 00:05:40,560 --> 00:05:42,760 Speaker 1: who have been kind of struggling with with you know, 97 00:05:43,040 --> 00:05:46,080 Speaker 1: the very big jump in rates, so their funding costs 98 00:05:46,080 --> 00:05:48,200 Speaker 1: shot up at the same time the economy has kind 99 00:05:48,200 --> 00:05:53,240 Speaker 1: of slowed down, their earnings suffered, and you know, fundamentally 100 00:05:53,279 --> 00:05:55,760 Speaker 1: that's good. And as you say, for deal makers, it's good, 101 00:05:55,760 --> 00:05:57,880 Speaker 1: But what about for the investors, because you know, they 102 00:05:58,160 --> 00:05:59,840 Speaker 1: got into floating rate because there was a lot of 103 00:06:00,160 --> 00:06:02,359 Speaker 1: side in that. Now that that whole tray is reversing, 104 00:06:02,400 --> 00:06:02,760 Speaker 1: isn't it? 105 00:06:03,080 --> 00:06:06,360 Speaker 2: So we still we still think that rates are not 106 00:06:06,400 --> 00:06:08,240 Speaker 2: going to go back to zero, So in terms of 107 00:06:08,400 --> 00:06:12,400 Speaker 2: current income in in European loans, it's still attractive. In loans. 108 00:06:12,400 --> 00:06:15,560 Speaker 2: You also benefit from an inverted CUB. So if you 109 00:06:15,600 --> 00:06:18,880 Speaker 2: look at the curve, European loans are generally based off 110 00:06:18,880 --> 00:06:21,719 Speaker 2: three months of your arrival, so you're getting like one 111 00:06:21,760 --> 00:06:24,760 Speaker 2: point three point three percent above where you are if 112 00:06:24,839 --> 00:06:26,960 Speaker 2: you look at the five year point on the curve, 113 00:06:27,440 --> 00:06:30,760 Speaker 2: so you're still getting a little bit of juice priced 114 00:06:30,800 --> 00:06:35,120 Speaker 2: into the loan market. We are seeing repricing, so you're 115 00:06:35,120 --> 00:06:38,280 Speaker 2: seeing loans that kind of were four seventy five come 116 00:06:38,360 --> 00:06:41,039 Speaker 2: at kind of four hundred the spicey of those or 117 00:06:41,320 --> 00:06:44,919 Speaker 2: a better quality of those pricing at three seventy five. 118 00:06:45,240 --> 00:06:47,320 Speaker 2: But if you look at new issue in the loan space, 119 00:06:47,360 --> 00:06:50,800 Speaker 2: you're still at kind of plus fourty five four fifty 120 00:06:50,839 --> 00:06:52,960 Speaker 2: for B two, and I think you're shaking out four 121 00:06:53,080 --> 00:06:56,320 Speaker 2: fifty four to seventy five plus your arrival for a 122 00:06:56,320 --> 00:06:58,559 Speaker 2: B three, which I think for for clean new issue 123 00:06:58,680 --> 00:07:03,640 Speaker 2: looks pretty interesting. So I still think from a carry perspective, 124 00:07:03,760 --> 00:07:08,360 Speaker 2: loans continue to be offer interesting value Camille. 125 00:07:08,400 --> 00:07:11,760 Speaker 3: From your seat, you see quite a huge array of borrowers. 126 00:07:12,040 --> 00:07:14,640 Speaker 3: And when you look at them, are there margins still 127 00:07:14,640 --> 00:07:17,800 Speaker 3: holding up or are you seeing a lag effect of 128 00:07:17,960 --> 00:07:21,520 Speaker 3: central rate hikes and some margin compression and starting to 129 00:07:21,560 --> 00:07:25,360 Speaker 3: see borrowers starting to wobble in terms of their earnings. 130 00:07:26,320 --> 00:07:31,320 Speaker 2: It's a great question. So Fidelities just publish their global 131 00:07:31,360 --> 00:07:36,480 Speaker 2: analyst survey and we have around twenty thousand meetings across equities, 132 00:07:36,520 --> 00:07:41,000 Speaker 2: fixed income, and private credit each year with our companies, 133 00:07:41,080 --> 00:07:44,480 Speaker 2: and we take time to aggregate and look at what 134 00:07:44,520 --> 00:07:47,720 Speaker 2: our companies are telling us. So if you look at 135 00:07:47,760 --> 00:07:51,720 Speaker 2: what our companies are telling us, they're saying that actually 136 00:07:52,080 --> 00:07:56,160 Speaker 2: management teams are becoming more relaxed about inflation costs apart 137 00:07:56,160 --> 00:08:00,280 Speaker 2: from labor. Labor continues to be the sticky element. Think 138 00:08:00,280 --> 00:08:04,720 Speaker 2: in some sectors and some geographies that labour stickiness will continue, 139 00:08:05,840 --> 00:08:10,400 Speaker 2: but actually labor costs outside of that actually starting to normalize. 140 00:08:10,560 --> 00:08:14,840 Speaker 2: And for the first time since the pandemic, more of 141 00:08:14,880 --> 00:08:18,880 Speaker 2: our analysts are saying, actually they think the costs for 142 00:08:19,040 --> 00:08:24,680 Speaker 2: their borrowers or costs for issuers are declining more than increasing. 143 00:08:25,320 --> 00:08:27,800 Speaker 3: And so when you look across all your borrowers One 144 00:08:27,800 --> 00:08:31,000 Speaker 3: thing I learned about Europe is that the district and 145 00:08:31,120 --> 00:08:34,800 Speaker 3: the countries really matter. Are you seeing any disparities and 146 00:08:34,880 --> 00:08:40,040 Speaker 3: differences across borrowers from Germany versus Spain or in all 147 00:08:40,040 --> 00:08:42,120 Speaker 3: the areas of Europe? Or is it sort of in 148 00:08:42,520 --> 00:08:46,160 Speaker 3: March step as the economic forecast is changing. 149 00:08:46,960 --> 00:08:49,920 Speaker 2: I mentioned labour costs being tighter in some areas, and 150 00:08:49,960 --> 00:08:52,560 Speaker 2: that's one case that you can see if you go 151 00:08:52,640 --> 00:08:54,880 Speaker 2: from geography to geophy. So if you look at healthcare, 152 00:08:54,920 --> 00:08:59,760 Speaker 2: for example, that's one thing that's particularly sticky across across 153 00:08:59,840 --> 00:09:02,160 Speaker 2: your So some of the sectors are still dealing with 154 00:09:02,240 --> 00:09:07,560 Speaker 2: those higher wage costs. It's quite positive in terms of 155 00:09:07,559 --> 00:09:10,360 Speaker 2: what I've been saying, And you mentioned the lagged impact 156 00:09:10,400 --> 00:09:15,000 Speaker 2: on rates. One thing I would caveat is that even 157 00:09:15,000 --> 00:09:17,440 Speaker 2: though the market's feeling quite buoyant at the moment and 158 00:09:17,440 --> 00:09:21,559 Speaker 2: it's pising through two expected cuts, if you look at 159 00:09:21,559 --> 00:09:24,640 Speaker 2: what our analysts are saying right now in terms of 160 00:09:24,679 --> 00:09:26,960 Speaker 2: what we're experienced on the ground, the mood a little 161 00:09:27,000 --> 00:09:31,000 Speaker 2: bit more somber. So forty eight percent of our analysts 162 00:09:31,200 --> 00:09:35,480 Speaker 2: and the Global survey have said actually they feel like 163 00:09:35,520 --> 00:09:37,880 Speaker 2: their industries are in a slowdown and for a very 164 00:09:37,920 --> 00:09:41,080 Speaker 2: slim number actually in recession, and we've seen that for 165 00:09:41,160 --> 00:09:44,520 Speaker 2: the chemicals industry, where we've had well over a year 166 00:09:44,520 --> 00:09:46,640 Speaker 2: and a half of the stocking. You started to see 167 00:09:46,640 --> 00:09:52,520 Speaker 2: it in building materials as well. And so each geography 168 00:09:52,640 --> 00:09:56,960 Speaker 2: deals with different challenges. And I'm sure we're talking about later, 169 00:09:57,080 --> 00:10:02,079 Speaker 2: but in your really idiosyncratic res is a key driver, 170 00:10:02,200 --> 00:10:07,240 Speaker 2: and understanding different patterns and trends is really important too. 171 00:10:07,760 --> 00:10:10,480 Speaker 1: What about the default rate, Camille, I mean, everyone was 172 00:10:10,600 --> 00:10:13,440 Speaker 1: very fearful last year about a big spike in defaults 173 00:10:13,440 --> 00:10:16,240 Speaker 1: in leverage finance, but particularly on the loan side, because 174 00:10:16,280 --> 00:10:19,240 Speaker 1: the floating rate nature and because those brewers seem to 175 00:10:19,280 --> 00:10:21,240 Speaker 1: be under more pressure. But it never happened, and if 176 00:10:21,280 --> 00:10:22,560 Speaker 1: you bet against it you would have made a lot 177 00:10:22,600 --> 00:10:25,040 Speaker 1: of money. Were we just kicking the can? Is it 178 00:10:25,040 --> 00:10:26,439 Speaker 1: all going to show up this year? And you mentioned 179 00:10:26,440 --> 00:10:29,520 Speaker 1: that massive maturity war? Is that the trigger for it? 180 00:10:29,559 --> 00:10:31,400 Speaker 1: I mean, are you worried now about defaults? 181 00:10:31,679 --> 00:10:35,199 Speaker 2: It speaks in part to your first question. So last 182 00:10:35,280 --> 00:10:40,679 Speaker 2: year we were we were having questions about the transmission 183 00:10:40,679 --> 00:10:43,800 Speaker 2: and mechanism in Europe clearly being more effective than in 184 00:10:43,840 --> 00:10:47,120 Speaker 2: the US, and concerns about the European economy and what 185 00:10:47,160 --> 00:10:50,839 Speaker 2: that means for loans, and loans returned thirteen and a 186 00:10:50,880 --> 00:10:54,360 Speaker 2: half percent last year, So clearly I think the important 187 00:10:54,400 --> 00:10:57,160 Speaker 2: economy is quite important. But on the loan side, what 188 00:10:57,200 --> 00:11:00,200 Speaker 2: you really need to focus on is borrower's ability to 189 00:11:00,360 --> 00:11:04,839 Speaker 2: repay or to service debt. And so when we looked 190 00:11:04,840 --> 00:11:11,200 Speaker 2: at across our book, actually interest coverage ratios across our book, 191 00:11:11,240 --> 00:11:13,680 Speaker 2: and I think that's probably quite reflective for the market 192 00:11:13,679 --> 00:11:16,600 Speaker 2: as well. Eighty five percent of our issuers have greater 193 00:11:16,640 --> 00:11:20,280 Speaker 2: than two times interest coverage, and that's because going into 194 00:11:20,480 --> 00:11:25,040 Speaker 2: twenty two, actually cushions interest coverage ratio cushions were quite high. 195 00:11:25,040 --> 00:11:27,560 Speaker 2: So we've seen them declining from twenty two to twenty 196 00:11:27,640 --> 00:11:31,480 Speaker 2: three and our forecasts into twenty four, and actually our 197 00:11:31,520 --> 00:11:33,560 Speaker 2: forecast was done at the back end of last year, 198 00:11:33,679 --> 00:11:36,880 Speaker 2: so the alleviation and rates gives us a bit more 199 00:11:37,400 --> 00:11:41,600 Speaker 2: cushion over our forecasts than we had anticipated. So actually, 200 00:11:42,120 --> 00:11:46,440 Speaker 2: in terms of affordability, our issuers are able to afford 201 00:11:47,040 --> 00:11:49,880 Speaker 2: higher rates, and even if you look at the fifteen percent, 202 00:11:50,600 --> 00:11:53,439 Speaker 2: there are sub two times. Some of those deals were 203 00:11:54,240 --> 00:11:56,960 Speaker 2: the hung LBO deals that were coming into twenty two, 204 00:11:57,040 --> 00:11:59,640 Speaker 2: where we know that they have higher interest costs such 205 00:11:59,679 --> 00:12:02,440 Speaker 2: as six tricks, but we think the company's defensive enough 206 00:12:02,440 --> 00:12:06,160 Speaker 2: that that could service a higher level of interest. So 207 00:12:06,960 --> 00:12:12,400 Speaker 2: in terms of in terms of internal liquidity, that looks good. Also, 208 00:12:12,440 --> 00:12:16,199 Speaker 2: we looked at OURCF draw downs across our book and 209 00:12:16,280 --> 00:12:20,200 Speaker 2: if you look at RCF draw downs, fifty six percent 210 00:12:20,240 --> 00:12:24,000 Speaker 2: of our issues haven't even drawn down on their RCF facilities. 211 00:12:24,520 --> 00:12:27,760 Speaker 2: And ourcfs in this latest vintage tend to be larger, 212 00:12:28,120 --> 00:12:31,240 Speaker 2: and they were larger, so private equity could shoe buy 213 00:12:31,240 --> 00:12:34,040 Speaker 2: and build strategies without having to come back to the syndicate. 214 00:12:34,320 --> 00:12:37,960 Speaker 2: So actually available liquidity to our borrowers is also good, 215 00:12:38,160 --> 00:12:42,120 Speaker 2: So internal cash generation good. Available liquidity is good, which 216 00:12:42,120 --> 00:12:45,880 Speaker 2: means they can tread water. And last year, interestingly enough, 217 00:12:46,679 --> 00:12:49,920 Speaker 2: even though we sort volumes under pressure, our issuers were 218 00:12:49,920 --> 00:12:54,360 Speaker 2: able to push through price increases more than kind of 219 00:12:54,360 --> 00:12:57,040 Speaker 2: the price increases they were saying they were seeing. So 220 00:12:57,800 --> 00:13:00,840 Speaker 2: the EBITDA for most of our companies either stayed the 221 00:13:00,880 --> 00:13:04,079 Speaker 2: same or increased, and that was because they had that 222 00:13:04,559 --> 00:13:08,800 Speaker 2: pricing power. I think to the question Lisa asked earlier, 223 00:13:09,040 --> 00:13:13,080 Speaker 2: are we worried about that pricing power going into next year? Definitely, 224 00:13:13,720 --> 00:13:16,240 Speaker 2: I mentioned earlier that our analysts were saying that they 225 00:13:16,280 --> 00:13:19,720 Speaker 2: think more are saying that they think costs will decrease 226 00:13:19,840 --> 00:13:23,280 Speaker 2: versus cost increasing. But that also means that their ability 227 00:13:23,360 --> 00:13:26,439 Speaker 2: to pass on a cross we would question and it 228 00:13:26,559 --> 00:13:31,400 Speaker 2: totally we We've spoken to issues at the start of 229 00:13:31,440 --> 00:13:33,400 Speaker 2: the year and they say they think they can preserve 230 00:13:33,520 --> 00:13:38,120 Speaker 2: margins through productivity gains, and I think that's yet to 231 00:13:38,160 --> 00:13:38,480 Speaker 2: be seen. 232 00:13:38,520 --> 00:13:40,439 Speaker 1: I think how much of the trouble though, Camille, do 233 00:13:40,440 --> 00:13:43,600 Speaker 1: you think was pushed into private credit or amended and 234 00:13:43,679 --> 00:13:46,160 Speaker 1: extended and pretended a way that you know that will 235 00:13:46,480 --> 00:13:48,720 Speaker 1: eventually crop up again that we you know, we haven't 236 00:13:48,840 --> 00:13:50,319 Speaker 1: quite seen the end of these problems. 237 00:13:50,760 --> 00:13:52,800 Speaker 2: Yeah, I think it's really interesting. So if you look 238 00:13:52,840 --> 00:13:57,240 Speaker 2: at the amend and extends that were done post two 239 00:13:57,240 --> 00:14:00,640 Speaker 2: thousand an eight to pass to find out for crisis, 240 00:14:00,720 --> 00:14:05,200 Speaker 2: you will then helped buy a zero rate environment. So 241 00:14:06,600 --> 00:14:09,600 Speaker 2: the question is what will that look like now? And certainly, 242 00:14:09,679 --> 00:14:13,680 Speaker 2: as we discussed that the start lower funding costs are 243 00:14:13,720 --> 00:14:17,400 Speaker 2: helping that situation, and so will a resumption of M 244 00:14:17,480 --> 00:14:19,480 Speaker 2: and A. That will also help that situation because you 245 00:14:19,520 --> 00:14:21,800 Speaker 2: can sell the company and put a new a new 246 00:14:21,840 --> 00:14:26,040 Speaker 2: cap structure on it. I look at private credit really 247 00:14:26,480 --> 00:14:29,720 Speaker 2: and high yield and leverage loans, and often people try 248 00:14:29,720 --> 00:14:32,000 Speaker 2: to segregate them, but I think we should look at 249 00:14:32,000 --> 00:14:35,800 Speaker 2: credit as solution providers. And actually, as we go into 250 00:14:36,000 --> 00:14:39,400 Speaker 2: A and E's where maybe it's a good company, but 251 00:14:39,520 --> 00:14:43,160 Speaker 2: the capital stack was put in a place where rates 252 00:14:43,160 --> 00:14:47,120 Speaker 2: with zero, well, actually you might need those private credits 253 00:14:47,160 --> 00:14:51,600 Speaker 2: to provide part cash, part pick or even all part 254 00:14:51,680 --> 00:14:55,800 Speaker 2: pick financing. And I think that gives a chance for again, 255 00:14:55,880 --> 00:14:58,280 Speaker 2: the sponsors take a long time if they think actually, 256 00:14:58,520 --> 00:15:02,800 Speaker 2: technically there should be an increased in valuation. I think 257 00:15:02,840 --> 00:15:06,640 Speaker 2: what's clear though, is private credit will not finance companies 258 00:15:07,040 --> 00:15:11,360 Speaker 2: outside sectors or companies that are not good, and so 259 00:15:11,400 --> 00:15:16,720 Speaker 2: it's important to understand enterprise valuations. And also it's quite 260 00:15:16,720 --> 00:15:19,520 Speaker 2: healthy that there are some companies that you know, have 261 00:15:19,640 --> 00:15:22,920 Speaker 2: been able to survive in a zero rate environment, and 262 00:15:22,960 --> 00:15:27,200 Speaker 2: it will become difficult for them to continue on without 263 00:15:27,280 --> 00:15:30,120 Speaker 2: a restructuring of the balance sheet. If you look, we're 264 00:15:30,200 --> 00:15:33,840 Speaker 2: largely through twenty five refinance in terms of A and E's, 265 00:15:33,960 --> 00:15:36,880 Speaker 2: and the twenty fives that are left are either deals 266 00:15:36,880 --> 00:15:38,880 Speaker 2: that are up for sales, or they're on the block, 267 00:15:39,000 --> 00:15:42,840 Speaker 2: or they're about to IPO or they are companies that 268 00:15:42,920 --> 00:15:47,240 Speaker 2: actually you need to think about a wholesale restructuring. 269 00:15:48,000 --> 00:15:52,160 Speaker 3: So moving on to Clos Camille definitely feels like twenty 270 00:15:52,200 --> 00:15:55,800 Speaker 3: twenty four a different mood in the market. Yes, people 271 00:15:55,840 --> 00:15:58,600 Speaker 3: are getting deals done last year, but this year has 272 00:15:58,680 --> 00:16:03,080 Speaker 3: been a big shift in like triplea tightening and you 273 00:16:03,120 --> 00:16:05,560 Speaker 3: guys got a deal that sort of reset helped reset 274 00:16:05,600 --> 00:16:10,200 Speaker 3: the market for where it will price. And already some 275 00:16:10,280 --> 00:16:14,320 Speaker 3: analysts are predicting up increasing the prediction for COLO issues. 276 00:16:14,440 --> 00:16:16,800 Speaker 3: So can you speak a little bit to what's made 277 00:16:17,080 --> 00:16:20,000 Speaker 3: the market feel so much better in twenty twenty four 278 00:16:20,040 --> 00:16:23,080 Speaker 3: and how much can how much? How long can this last? 279 00:16:23,360 --> 00:16:29,240 Speaker 2: I think that in that search field, COLO liabilities, as 280 00:16:29,280 --> 00:16:32,080 Speaker 2: other asset classes, have rallied in So at the end 281 00:16:32,120 --> 00:16:34,200 Speaker 2: of last year we were kind of at one seventy 282 00:16:34,680 --> 00:16:38,200 Speaker 2: and now we're testing in Europe inside one point fifty 283 00:16:38,760 --> 00:16:42,560 Speaker 2: and I think that is just part of the market tightening. 284 00:16:42,920 --> 00:16:44,880 Speaker 2: So even though it has tightened again, I would look 285 00:16:44,920 --> 00:16:47,240 Speaker 2: at it on a relative basis. On a relative basis, 286 00:16:47,240 --> 00:16:53,800 Speaker 2: we still think that CLO's liabilities look attractive. Also, if 287 00:16:53,840 --> 00:16:56,760 Speaker 2: you are taking the view that actually we tighten in 288 00:16:56,800 --> 00:17:00,640 Speaker 2: from here actually, what you're doing is buying assets at 289 00:17:00,720 --> 00:17:03,360 Speaker 2: kind of one fifty and you're locking that in for 290 00:17:03,560 --> 00:17:06,080 Speaker 2: one and a half two years for that spread level. 291 00:17:06,880 --> 00:17:10,240 Speaker 3: So how low can triple as go? Come? We all right, now, 292 00:17:10,240 --> 00:17:12,240 Speaker 3: can you one forty even lower? 293 00:17:12,680 --> 00:17:17,840 Speaker 2: What's the expectation you mentioned the potential supply. I think 294 00:17:17,880 --> 00:17:21,679 Speaker 2: one thing that's kind of putting a stopper on that 295 00:17:21,880 --> 00:17:25,480 Speaker 2: is that asset the ability to source assets. But we 296 00:17:25,520 --> 00:17:29,240 Speaker 2: know that there are a number of clos waiting to 297 00:17:29,760 --> 00:17:33,040 Speaker 2: come to market, so that that puts an upper pressure 298 00:17:33,119 --> 00:17:37,800 Speaker 2: on on triple A spreads and liability spreads. And then 299 00:17:38,080 --> 00:17:44,560 Speaker 2: also I would say that we've got the reset wave 300 00:17:44,640 --> 00:17:50,320 Speaker 2: coming which will also again put new issuanto market, so 301 00:17:50,359 --> 00:17:52,800 Speaker 2: that will help keep it a tightening on triple A 302 00:17:52,960 --> 00:17:55,800 Speaker 2: spreads and liability spreads in general. 303 00:17:56,680 --> 00:17:59,240 Speaker 5: I maybe I can jump in there, what kind of 304 00:17:59,240 --> 00:18:02,240 Speaker 5: I'm interested, what kind of sectors you've got your eye 305 00:18:02,240 --> 00:18:04,440 Speaker 5: on at the moment, What are your kind of likes 306 00:18:04,440 --> 00:18:05,159 Speaker 5: and dislikes. 307 00:18:05,800 --> 00:18:09,160 Speaker 2: So in terms of sectors called to our portfolios will 308 00:18:09,200 --> 00:18:16,920 Speaker 2: typically always have those defensive businesses, so for example, tech, healthcare, 309 00:18:18,200 --> 00:18:23,200 Speaker 2: business services, those businesses where you've got good visibility over revenues, 310 00:18:23,720 --> 00:18:29,960 Speaker 2: strongly bit dar margins, good cash flow generation, and I 311 00:18:30,000 --> 00:18:32,800 Speaker 2: think that that leaning is probably increased. So if you 312 00:18:32,840 --> 00:18:37,760 Speaker 2: look at those sectors relative to their ten year historic 313 00:18:37,840 --> 00:18:41,120 Speaker 2: average and you're just for kind of triple season those 314 00:18:41,320 --> 00:18:43,880 Speaker 2: sectors and distress names in that sectors, actually you're still 315 00:18:43,920 --> 00:18:48,520 Speaker 2: getting some of the highest spreads that you've got relative 316 00:18:48,560 --> 00:18:52,280 Speaker 2: tenure averages. And we think that as you enter into 317 00:18:52,359 --> 00:18:56,680 Speaker 2: period where rates are declining, that will be obviously not 318 00:18:56,720 --> 00:18:59,840 Speaker 2: going to zero, but that pressure that they faced into 319 00:18:59,880 --> 00:19:03,720 Speaker 2: a three will be diminishing. So we continue to like 320 00:19:03,760 --> 00:19:07,800 Speaker 2: those sectors. And if we're wrong and actually in the 321 00:19:07,880 --> 00:19:11,520 Speaker 2: next twelve months are not the uptick that our analysts 322 00:19:11,560 --> 00:19:15,760 Speaker 2: are expecting or not the improvement in earnings that are expecting. 323 00:19:15,800 --> 00:19:18,800 Speaker 2: If we're wrong about that, then you're in these defensive sectors. 324 00:19:19,880 --> 00:19:23,760 Speaker 2: I would say that our sector leaning changes. It's amount. 325 00:19:24,280 --> 00:19:28,000 Speaker 2: There's a sector influence to portfolio constructions changes over time. 326 00:19:28,119 --> 00:19:30,960 Speaker 2: So if you look at the end of twenty twenty two, 327 00:19:31,440 --> 00:19:34,080 Speaker 2: we were looking at kind of the gas situation, and 328 00:19:34,119 --> 00:19:37,280 Speaker 2: that had an impact on kind of what sectors we 329 00:19:37,320 --> 00:19:41,840 Speaker 2: didn't did and didn't like. We'll also move sectors according 330 00:19:41,880 --> 00:19:46,320 Speaker 2: to who can pass through inflation and who can take interest, 331 00:19:46,840 --> 00:19:54,080 Speaker 2: who can take a higher level of interest costs. But 332 00:19:54,160 --> 00:19:55,960 Speaker 2: if you look at it now, I think we're more 333 00:19:56,000 --> 00:19:59,760 Speaker 2: positioning towards less it's less of a sector focus in 334 00:19:59,800 --> 00:20:03,600 Speaker 2: our for a little more about idiosyncratic risks. The operating 335 00:20:04,000 --> 00:20:08,359 Speaker 2: environment for our borrows is becoming more complex. If you 336 00:20:08,440 --> 00:20:10,920 Speaker 2: look at it, They've over the last five years, they've 337 00:20:10,920 --> 00:20:15,000 Speaker 2: had to deal with COVID, they've had to deal with war, 338 00:20:16,119 --> 00:20:19,080 Speaker 2: they had to deal with supply chain issues, rising rates. 339 00:20:20,560 --> 00:20:24,679 Speaker 2: So and if we look forward, there's AI, there's a 340 00:20:24,760 --> 00:20:27,760 Speaker 2: number of elections going on this year and the implications 341 00:20:27,800 --> 00:20:33,600 Speaker 2: of that, working it through changing supply chains again, ESG regulations. 342 00:20:34,160 --> 00:20:35,800 Speaker 2: There are a lot that our borrows need to deal with. 343 00:20:35,840 --> 00:20:39,960 Speaker 2: And making sure that each company understanding what that impact 344 00:20:40,080 --> 00:20:43,520 Speaker 2: is on each of our companies as we look forward 345 00:20:44,119 --> 00:20:45,560 Speaker 2: is quite important. 346 00:20:46,160 --> 00:20:48,320 Speaker 3: To go back to something we talked about earlier, which 347 00:20:48,400 --> 00:20:51,120 Speaker 3: is default rates. They have remained so much lower than 348 00:20:51,160 --> 00:20:56,880 Speaker 3: many were afraid of, but recoveries have not been very great. 349 00:20:56,920 --> 00:20:59,840 Speaker 3: I think Europe's recovery has been better than the US 350 00:21:00,240 --> 00:21:03,000 Speaker 3: because the US has what's called London and lender violence, 351 00:21:03,040 --> 00:21:07,560 Speaker 3: where existing lenders do not treat each other very well 352 00:21:07,600 --> 00:21:09,800 Speaker 3: and prime each other, and Europe doesn't quite have that. 353 00:21:10,119 --> 00:21:12,960 Speaker 3: But can you speak to how you look at recoveries 354 00:21:13,000 --> 00:21:15,879 Speaker 3: and whether maybe whether you think that might come to 355 00:21:16,080 --> 00:21:18,720 Speaker 3: wash upon these shores and what impact that might have. 356 00:21:19,840 --> 00:21:22,600 Speaker 2: Yeah, I think you'll definitely see a dispersion in recovery 357 00:21:23,200 --> 00:21:25,760 Speaker 2: recovery rates, and you've already seen that. You've seen that 358 00:21:25,840 --> 00:21:29,199 Speaker 2: in some of the cross border transactions. A couple that 359 00:21:29,200 --> 00:21:37,120 Speaker 2: have happened in Europe, the creditor and creditor. That kind 360 00:21:37,160 --> 00:21:40,680 Speaker 2: of flavor was tested in Europe and got a lot 361 00:21:40,720 --> 00:21:42,720 Speaker 2: of pushback. I think no one wants to be the 362 00:21:42,840 --> 00:21:46,240 Speaker 2: first one to put that across. As I mentioned, it's 363 00:21:46,240 --> 00:21:50,160 Speaker 2: a more clubby market. So probably think about the US 364 00:21:50,320 --> 00:21:53,800 Speaker 2: as it was call it ten years ago. And so 365 00:21:55,040 --> 00:21:57,679 Speaker 2: there's an impact to treating inland as badly as you 366 00:21:57,720 --> 00:22:02,000 Speaker 2: continue to raise capital. But at the same time, we 367 00:22:02,280 --> 00:22:05,200 Speaker 2: don't all it out. I think one of the things 368 00:22:05,200 --> 00:22:08,880 Speaker 2: that is most distinct about the US is just these 369 00:22:08,920 --> 00:22:12,320 Speaker 2: funds that are actively looking. So in a default situation, 370 00:22:12,400 --> 00:22:16,439 Speaker 2: you'll be thinking about, okay, recoveries, how how we make 371 00:22:16,480 --> 00:22:18,159 Speaker 2: the best of it, But there are actually funds that 372 00:22:18,520 --> 00:22:22,160 Speaker 2: are seeking out default situations and trying to prime lenders, 373 00:22:22,480 --> 00:22:26,440 Speaker 2: and that asset priming and that need to create those 374 00:22:26,480 --> 00:22:30,479 Speaker 2: transactions I think is quite disturbing, but it'd be naive 375 00:22:30,560 --> 00:22:32,879 Speaker 2: to say that it would never come to Europe. 376 00:22:33,119 --> 00:22:37,000 Speaker 1: What about the innovation in clos, Camilla, I want to 377 00:22:37,000 --> 00:22:40,280 Speaker 1: ask you about that. We're seeing more interests in private 378 00:22:40,280 --> 00:22:43,359 Speaker 1: debt clos for example, not just middle market, but you know, 379 00:22:43,400 --> 00:22:46,440 Speaker 1: the larger private debt deals. How do you feel about 380 00:22:46,440 --> 00:22:48,560 Speaker 1: that and what other innovations do you expect this year? 381 00:22:49,000 --> 00:22:52,080 Speaker 2: Yeah, so the COLO market has been fairly innovative, I 382 00:22:52,119 --> 00:22:56,320 Speaker 2: would say since twenty twenty two. So the fact is 383 00:22:56,400 --> 00:22:59,760 Speaker 2: that we've had limited issuance over twenty two and twenty 384 00:22:59,800 --> 00:23:05,240 Speaker 2: two three, and so the way you extract value from 385 00:23:06,320 --> 00:23:10,640 Speaker 2: or the way leverage loans deliver total returns is different. 386 00:23:11,040 --> 00:23:19,040 Speaker 2: So if you look at in twenty twenty two and 387 00:23:19,080 --> 00:23:23,320 Speaker 2: the arbitrage and colos or the value for the equity 388 00:23:23,320 --> 00:23:26,840 Speaker 2: and clos really comes from the fact that prices in 389 00:23:26,880 --> 00:23:31,119 Speaker 2: the leverage loan market were so low versus in a 390 00:23:31,160 --> 00:23:34,960 Speaker 2: more normalized market where if you look at your liabilities, 391 00:23:35,080 --> 00:23:40,040 Speaker 2: so you're financing a portfolio of assets with bonds, then 392 00:23:40,119 --> 00:23:42,840 Speaker 2: your assets spreads also have to rise, but because we 393 00:23:42,880 --> 00:23:47,159 Speaker 2: didn't have any nuissians in terms of assets to reset higher. 394 00:23:47,240 --> 00:23:51,040 Speaker 2: Actually it was the porter part and that led to 395 00:23:51,320 --> 00:23:58,280 Speaker 2: colo structure changing, so not selling single B static issuance, 396 00:23:58,440 --> 00:24:05,560 Speaker 2: changing of non calls. In terms of private deals, I 397 00:24:05,600 --> 00:24:08,639 Speaker 2: think there's a real push to get private credit deals done. 398 00:24:09,720 --> 00:24:12,720 Speaker 2: One of the big challenges apart from the rating agencies 399 00:24:12,800 --> 00:24:16,000 Speaker 2: is getting the diversity of assets in Europe for that 400 00:24:16,040 --> 00:24:18,720 Speaker 2: to happen. So I think the first ones to do 401 00:24:18,760 --> 00:24:21,440 Speaker 2: it will be one of the established direct lenders with 402 00:24:22,119 --> 00:24:23,440 Speaker 2: a large portfolio. 403 00:24:23,840 --> 00:24:25,200 Speaker 1: Can you expect that to happen this year? 404 00:24:25,600 --> 00:24:27,240 Speaker 2: I hear people who are pushing for it. 405 00:24:27,560 --> 00:24:30,880 Speaker 1: Okay, we'll watch out. In terms of what you see 406 00:24:30,920 --> 00:24:34,399 Speaker 1: as opportunities can be in terms of relative value, what 407 00:24:34,520 --> 00:24:37,359 Speaker 1: do you think is the best relative value right now 408 00:24:37,400 --> 00:24:39,120 Speaker 1: across all the things you look at. 409 00:24:39,480 --> 00:24:43,840 Speaker 2: It's a pretty painful question given the repricings there were seeing. 410 00:24:43,840 --> 00:24:47,680 Speaker 2: So if you've seen our analysts, it's hard. It's hard 411 00:24:47,720 --> 00:24:53,280 Speaker 2: to reset sometimes. I think where there's value is as 412 00:24:53,280 --> 00:24:55,560 Speaker 2: I say, current income in loans is really good. I 413 00:24:55,560 --> 00:25:00,080 Speaker 2: think we're thinking high single digits total return if you 414 00:25:00,080 --> 00:25:05,439 Speaker 2: you even take account for the lower default rates that 415 00:25:05,480 --> 00:25:08,280 Speaker 2: you see in the market, and I think if you 416 00:25:10,000 --> 00:25:12,640 Speaker 2: then look at the fact that active managers can one 417 00:25:12,760 --> 00:25:18,680 Speaker 2: avoid those defaults and should outperform the market, and then 418 00:25:18,720 --> 00:25:23,479 Speaker 2: also trading should generate relative value. So our approach is 419 00:25:23,640 --> 00:25:29,399 Speaker 2: really when we manage is rather than picking assets that 420 00:25:29,440 --> 00:25:32,800 Speaker 2: we think are maybe more distressed and making call about 421 00:25:33,000 --> 00:25:36,040 Speaker 2: whether there's a port pa, we think that you can 422 00:25:36,080 --> 00:25:40,480 Speaker 2: make small gains over time that actually build and are 423 00:25:40,480 --> 00:25:43,600 Speaker 2: accretive to the portfolio. So that's how our investment style 424 00:25:43,680 --> 00:25:46,160 Speaker 2: is set up. So we're always looking at where we 425 00:25:46,240 --> 00:25:50,000 Speaker 2: think leverage is going over the next four quarters. So 426 00:25:50,040 --> 00:25:52,200 Speaker 2: there's always small trades to be done in terms of 427 00:25:52,320 --> 00:25:54,840 Speaker 2: names that we think maybe the market hasn't priced in 428 00:25:54,880 --> 00:25:57,000 Speaker 2: that the next set of earnings might be a little 429 00:25:57,000 --> 00:26:00,560 Speaker 2: bit weaker, or there's a rating trigger. It's a little 430 00:26:00,600 --> 00:26:02,320 Speaker 2: bit hard in the market now because you can see 431 00:26:02,400 --> 00:26:07,520 Speaker 2: names that probably will get a downgrade but are supported 432 00:26:07,560 --> 00:26:10,240 Speaker 2: by a strong technical But I think as we move 433 00:26:10,280 --> 00:26:13,360 Speaker 2: through the year there will be windows and you can 434 00:26:13,359 --> 00:26:15,080 Speaker 2: be nimble nimble about it. 435 00:26:15,520 --> 00:26:17,760 Speaker 1: Are there any particular sectors or countries that are ripe 436 00:26:17,800 --> 00:26:19,160 Speaker 1: for those opportunities right now? 437 00:26:19,560 --> 00:26:23,399 Speaker 2: So when we when we look at the tech sector. 438 00:26:25,359 --> 00:26:29,000 Speaker 2: That is, if you look at the ten year historic average, 439 00:26:29,040 --> 00:26:32,040 Speaker 2: they are trading at the upper end of the range. 440 00:26:32,960 --> 00:26:36,119 Speaker 2: And has discussed before, once you get those card in 441 00:26:36,119 --> 00:26:39,320 Speaker 2: interest rates, we think there's some tightness there. We also 442 00:26:39,359 --> 00:26:42,520 Speaker 2: think in the chemical sector we are starting to see 443 00:26:42,520 --> 00:26:45,880 Speaker 2: some green shoots. I don't think we're at a point 444 00:26:45,920 --> 00:26:48,239 Speaker 2: where we would going to the most challenged yet, but 445 00:26:48,320 --> 00:26:51,439 Speaker 2: I do think definitely in the double B space as 446 00:26:51,520 --> 00:26:55,480 Speaker 2: part of the tech stack that we've already been investing 447 00:26:55,520 --> 00:26:58,000 Speaker 2: in because they can take a longer period of destocking. 448 00:26:58,000 --> 00:27:00,240 Speaker 2: But I think there are more names now that could 449 00:27:00,240 --> 00:27:03,880 Speaker 2: benefit from those early green shoots within the chemical sector. 450 00:27:04,480 --> 00:27:08,760 Speaker 1: When you mentioned double digit returns, you're talking about European 451 00:27:09,040 --> 00:27:10,520 Speaker 1: loans specifically for this year. 452 00:27:11,240 --> 00:27:16,159 Speaker 2: European loans had thirteen and a half percent total return 453 00:27:16,280 --> 00:27:18,840 Speaker 2: last year. We think it'd be more like high single 454 00:27:18,880 --> 00:27:23,400 Speaker 2: digit this year, even when you take into account the 455 00:27:23,400 --> 00:27:26,920 Speaker 2: defaults that we expect, so we expect defaults to remain contained. 456 00:27:27,640 --> 00:27:29,960 Speaker 1: Okay, what sort of rate on the defaults? 457 00:27:30,400 --> 00:27:33,240 Speaker 2: I think the raining agencies have said kind of three 458 00:27:33,359 --> 00:27:37,439 Speaker 2: to four percent, and that includes director of stressed exchanges. 459 00:27:37,760 --> 00:27:42,240 Speaker 2: It feels like that's probably a fair a fair assumption. 460 00:27:42,840 --> 00:27:47,159 Speaker 2: But again I think the movement in rates, maybe at 461 00:27:47,160 --> 00:27:49,480 Speaker 2: the margin we do a little bit better. 462 00:27:49,920 --> 00:27:52,440 Speaker 1: So over all, you sound quite upbeat, Camille, And you know, 463 00:27:52,440 --> 00:27:55,240 Speaker 1: obviously we're a credit show. We tend to look we 464 00:27:55,359 --> 00:27:57,879 Speaker 1: tend to be fairly pessimistic, and we're journalists too, so 465 00:27:57,880 --> 00:28:00,280 Speaker 1: we're even more pessimistic. But what do you think are 466 00:28:00,280 --> 00:28:02,359 Speaker 1: the biggest risks out there? What are the things that 467 00:28:02,440 --> 00:28:05,000 Speaker 1: keep you up at night worrying? Is it defaults and 468 00:28:05,040 --> 00:28:08,359 Speaker 1: bankruptcies or rates or is it something you know, geopolitical 469 00:28:08,480 --> 00:28:10,920 Speaker 1: or something else that we haven't discussed. It's more troubling. 470 00:28:11,480 --> 00:28:14,080 Speaker 2: I think it's hard to h it's hard to know 471 00:28:14,119 --> 00:28:17,600 Speaker 2: exactly what's going to happen in a year. If you 472 00:28:17,680 --> 00:28:23,040 Speaker 2: look at typically in market dislocations, we think they are 473 00:28:23,080 --> 00:28:26,600 Speaker 2: for interesting opportunities. So if you look at COVID, for example, 474 00:28:28,720 --> 00:28:32,640 Speaker 2: there was no respect of ratings. Names would just shut down, 475 00:28:32,680 --> 00:28:35,080 Speaker 2: so you could be in a travel company that was very, 476 00:28:35,119 --> 00:28:38,600 Speaker 2: very low levered and suddenly their earnings got shut down 477 00:28:39,000 --> 00:28:42,800 Speaker 2: and they were and those spreads blew up. So in 478 00:28:43,200 --> 00:28:47,160 Speaker 2: market dislocation, we always think that there's opportunity to trade, 479 00:28:47,160 --> 00:28:50,160 Speaker 2: and we've actually been able to build value in periods 480 00:28:50,160 --> 00:28:54,080 Speaker 2: of market dislocations. So what I would be worried about, 481 00:28:54,280 --> 00:28:57,120 Speaker 2: or what we are focused on is and we've touched 482 00:28:57,160 --> 00:29:01,320 Speaker 2: on it, this move that's it's in the US towards 483 00:29:01,320 --> 00:29:03,920 Speaker 2: creditor on creditor of violence and the shift that you've 484 00:29:04,000 --> 00:29:08,360 Speaker 2: had there that translating into Europe. And also we're worried 485 00:29:08,360 --> 00:29:11,680 Speaker 2: about jump to default risk. So most of the names 486 00:29:11,760 --> 00:29:15,160 Speaker 2: in the leverage known market trade around part. So if 487 00:29:15,200 --> 00:29:19,320 Speaker 2: you do get a company that's misses on earnings or 488 00:29:19,360 --> 00:29:22,040 Speaker 2: get things wrong, once you lose a colo Bidge, you're 489 00:29:22,040 --> 00:29:24,400 Speaker 2: pretty punished for that. So we're really focused on our 490 00:29:24,440 --> 00:29:30,480 Speaker 2: analysts are really focused on understanding where our companies are going, 491 00:29:30,600 --> 00:29:34,080 Speaker 2: being close to our sponsors and our borrowers to understand, 492 00:29:34,480 --> 00:29:37,040 Speaker 2: you know, things that are not going to plan. Is 493 00:29:37,080 --> 00:29:39,640 Speaker 2: that a quick blip or is that something more more 494 00:29:39,680 --> 00:29:42,320 Speaker 2: serious where we need to trade out great stuff. 495 00:29:42,400 --> 00:29:45,280 Speaker 1: Camille McLeod Salmon at Fidelity International, thank you so much 496 00:29:45,280 --> 00:29:46,400 Speaker 1: for being on the credit edge. 497 00:29:46,760 --> 00:29:48,560 Speaker 2: Thank you so much, Thank you for having me. 498 00:29:49,160 --> 00:29:50,640 Speaker 1: Also want to say a big thanks to Lisa Lee 499 00:29:50,680 --> 00:29:52,600 Speaker 1: with Bloomberg News in London. Brilliant to see you again. 500 00:29:52,680 --> 00:29:56,880 Speaker 1: Cheers and before we talk to Aidan Cheslin at Bloomberg 501 00:29:56,880 --> 00:29:59,440 Speaker 1: Intalience is a bit more detailed about the telecoms. I'd 502 00:29:59,480 --> 00:30:01,800 Speaker 1: just like to say read all of Lisa's great scoops 503 00:30:01,840 --> 00:30:04,760 Speaker 1: on the Bloomberg terminal and of course at Bloomberg dot Com. 504 00:30:05,280 --> 00:30:09,080 Speaker 1: So Aidan Chanslin at Bloomberg Intelligence, you cover telecoms based 505 00:30:09,080 --> 00:30:11,680 Speaker 1: in London. I wanted to get an update on Altice, 506 00:30:11,840 --> 00:30:14,360 Speaker 1: which is a huge global telecom's name with a lot 507 00:30:14,360 --> 00:30:16,480 Speaker 1: of debt. They've been through a lot of drama over 508 00:30:16,480 --> 00:30:19,120 Speaker 1: the last few years. Some people said that they wouldn't 509 00:30:19,160 --> 00:30:21,600 Speaker 1: make it, but we have seen some a movement in 510 00:30:21,640 --> 00:30:24,680 Speaker 1: the bonds recently and are they mounting a big comeback here? 511 00:30:24,680 --> 00:30:25,360 Speaker 1: What's the outlook. 512 00:30:26,040 --> 00:30:29,400 Speaker 5: I think what's happened is you've seen some movement at 513 00:30:29,480 --> 00:30:32,760 Speaker 5: the shorter end of the curve where they've started to 514 00:30:32,840 --> 00:30:35,360 Speaker 5: try and push them of their twenty twenty. 515 00:30:35,080 --> 00:30:36,200 Speaker 4: Five maturities out. 516 00:30:36,920 --> 00:30:40,480 Speaker 5: They've had more success on that at Altis International, where 517 00:30:40,480 --> 00:30:43,040 Speaker 5: there's money sitting in escrow ready to repay the twenty 518 00:30:43,120 --> 00:30:48,200 Speaker 5: twenty five bonds. Artists France, they've partially partially done that. 519 00:30:48,240 --> 00:30:52,600 Speaker 5: They had a small loan that got done, but there's 520 00:30:52,600 --> 00:30:55,160 Speaker 5: still a bit more work to do. I think the 521 00:30:55,200 --> 00:30:58,360 Speaker 5: market is also speculating that they might get some disposals 522 00:30:58,400 --> 00:31:02,920 Speaker 5: done which will again help the twenty twenty five maturities. 523 00:31:03,880 --> 00:31:07,360 Speaker 5: You still have a huge dislocation obviously into the subordinated ponds, 524 00:31:08,040 --> 00:31:11,440 Speaker 5: particularly about East France, and I think that's that's very 525 00:31:11,520 --> 00:31:14,320 Speaker 5: much justified. They're very much a recovery pain. 526 00:31:14,920 --> 00:31:16,800 Speaker 1: So as we just talked about with Fidelity, I mean, 527 00:31:16,800 --> 00:31:18,760 Speaker 1: there seems to be the sense of relief that you know, 528 00:31:18,840 --> 00:31:21,440 Speaker 1: rates will come down and some of these struggling borrowers 529 00:31:21,440 --> 00:31:24,680 Speaker 1: will end up, you know, getting access to cheaper finance 530 00:31:24,720 --> 00:31:26,880 Speaker 1: that could even get them out of the hole. Is 531 00:31:26,920 --> 00:31:28,880 Speaker 1: that the situation with our teas are they kind of 532 00:31:28,920 --> 00:31:32,000 Speaker 1: seeing a pathway out here, and it is it helped 533 00:31:32,000 --> 00:31:33,680 Speaker 1: by the macro and the rates outlook. 534 00:31:33,640 --> 00:31:37,760 Speaker 5: Well, the loan stuff they did last year before, some 535 00:31:37,800 --> 00:31:39,560 Speaker 5: of it before the big rally we had in the 536 00:31:39,640 --> 00:31:43,600 Speaker 5: end of the year was well into double digits yield wise, 537 00:31:44,680 --> 00:31:47,080 Speaker 5: so they're certainly paying through the teeth to be able 538 00:31:47,120 --> 00:31:51,360 Speaker 5: to extend. And you know, there's some medioscreted issues around 539 00:31:52,040 --> 00:31:55,120 Speaker 5: the ongoing police and restigations that are still going on 540 00:31:55,200 --> 00:31:59,040 Speaker 5: into alleged corruption there which I think are made probably 541 00:31:59,080 --> 00:32:00,600 Speaker 5: with them specifically. 542 00:32:00,040 --> 00:32:02,280 Speaker 4: In the market's just a little bit more jittery. 543 00:32:01,960 --> 00:32:05,200 Speaker 5: So I think for them it's it's more about self 544 00:32:05,200 --> 00:32:07,560 Speaker 5: help rather than the market bailing them out, if I'm 545 00:32:07,560 --> 00:32:12,480 Speaker 5: completely honest. But you know, if the market does generally 546 00:32:12,520 --> 00:32:15,840 Speaker 5: become a little bit easier to access, it can't do 547 00:32:15,960 --> 00:32:18,320 Speaker 5: them any harm, and it can't do at their disposal 548 00:32:18,360 --> 00:32:24,480 Speaker 5: prospects any harm. I think disposals potentially at how Tis 549 00:32:24,600 --> 00:32:30,200 Speaker 5: International are probably one source of cash for them in 550 00:32:30,240 --> 00:32:33,640 Speaker 5: the mid term. There's limits to how much cash outis 551 00:32:33,640 --> 00:32:39,320 Speaker 5: Internationals can out stream to help silos like out East France, 552 00:32:40,440 --> 00:32:42,480 Speaker 5: but I think that's probably where you could more likely 553 00:32:42,520 --> 00:32:44,400 Speaker 5: to see disposals, and there seems to be a bit 554 00:32:44,440 --> 00:32:47,360 Speaker 5: more interest from potential buyers. 555 00:32:47,400 --> 00:32:49,960 Speaker 1: So they can actually reduce leverage and there's a path 556 00:32:50,000 --> 00:32:51,200 Speaker 1: to that slightly. 557 00:32:51,240 --> 00:32:55,120 Speaker 5: Yeah, I say Artists International is a less levered part 558 00:32:55,200 --> 00:32:57,480 Speaker 5: of present four and a half times around that we 559 00:32:57,520 --> 00:33:00,520 Speaker 5: think it's going to be when they report you for results. 560 00:33:02,800 --> 00:33:05,760 Speaker 5: You know, there's a talk of them selling most parts 561 00:33:05,840 --> 00:33:08,800 Speaker 5: of that business, with the exception of Israel. I think 562 00:33:08,880 --> 00:33:12,440 Speaker 5: probably the Portuguese part of the business that's been showing 563 00:33:12,480 --> 00:33:17,920 Speaker 5: some nicely. Big dark growth seems one possible avenue to 564 00:33:18,440 --> 00:33:19,960 Speaker 5: raise some disposal proceeds. 565 00:33:20,400 --> 00:33:22,440 Speaker 4: They probably need to repay quite a lot of debt 566 00:33:23,200 --> 00:33:24,200 Speaker 4: within the. 567 00:33:24,200 --> 00:33:29,160 Speaker 5: International box before they could upstream material proceeds to help 568 00:33:29,240 --> 00:33:33,600 Speaker 5: other parts of the structure. But everything is for sale 569 00:33:33,640 --> 00:33:37,240 Speaker 5: in that business. And the more confidence that potential buyers 570 00:33:37,320 --> 00:33:42,960 Speaker 5: have around the credit markets, improving macro conditions not being 571 00:33:42,960 --> 00:33:46,480 Speaker 5: as bad as feared, I think brings that disposal that 572 00:33:46,480 --> 00:33:47,480 Speaker 5: a little bit closer. 573 00:33:47,960 --> 00:33:50,280 Speaker 1: Is there selling off the Crown jewels because they need 574 00:33:50,280 --> 00:33:51,200 Speaker 1: to get cash? 575 00:33:51,400 --> 00:33:54,560 Speaker 5: Yeah, that is a risk, but you know, Portugal is 576 00:33:54,600 --> 00:33:58,560 Speaker 5: an asset that's been handed around quite a lot. It's 577 00:33:58,600 --> 00:34:00,120 Speaker 5: a larger part of the business, is part of the 578 00:34:00,160 --> 00:34:04,920 Speaker 5: business that's done well relatively speaking recently. I'm not sure 579 00:34:04,960 --> 00:34:07,640 Speaker 5: whether mister Dragees sees it necessarily as a Crown joint 580 00:34:07,720 --> 00:34:08,680 Speaker 5: compared to France. 581 00:34:09,560 --> 00:34:13,080 Speaker 4: I think saving France is probably top of the list. 582 00:34:13,840 --> 00:34:15,840 Speaker 1: And just to be clearfulur listeners that he is the 583 00:34:16,400 --> 00:34:20,680 Speaker 1: billionaire owner of the company, right, yeah, okay? And are 584 00:34:20,680 --> 00:34:22,920 Speaker 1: there any kind of read throughs for the sector. Is 585 00:34:22,920 --> 00:34:24,800 Speaker 1: it very specific to this one company? 586 00:34:25,920 --> 00:34:27,600 Speaker 4: I think very. 587 00:34:27,400 --> 00:34:31,840 Speaker 5: Specific to this this particular company. As I say, I 588 00:34:31,880 --> 00:34:35,000 Speaker 5: think amongst the tm T names I cover, I think 589 00:34:35,040 --> 00:34:39,600 Speaker 5: probably they have the most acute short term refinancing requirements. 590 00:34:39,640 --> 00:34:43,879 Speaker 4: The support nature bonds are definitely going. The widest bonds. 591 00:34:43,560 --> 00:34:47,080 Speaker 5: Are high look at in my coverage genius, and I 592 00:34:47,080 --> 00:34:49,719 Speaker 5: think you know the nature of telecoms is that you 593 00:34:49,840 --> 00:34:54,399 Speaker 5: have an area like Portugal for example, dominated by by 594 00:34:54,480 --> 00:34:58,040 Speaker 5: one big, big player, and you know, if you get 595 00:34:58,200 --> 00:35:00,239 Speaker 5: a change in ownership of that one player and of 596 00:35:00,239 --> 00:35:04,719 Speaker 5: redefines that market. One issue they do have though that 597 00:35:04,800 --> 00:35:07,640 Speaker 5: I think is common to a lot of companies that 598 00:35:07,719 --> 00:35:10,200 Speaker 5: have allowed leverage to go up to this kind of 599 00:35:10,239 --> 00:35:13,160 Speaker 5: five to six times area that you see. How to 600 00:35:13,280 --> 00:35:18,720 Speaker 5: use France though, is the depressed equity valuations, particularly telecom space, 601 00:35:19,120 --> 00:35:22,600 Speaker 5: have made it much more difficult for businesses to delever 602 00:35:22,800 --> 00:35:23,719 Speaker 5: through disposals. 603 00:35:24,960 --> 00:35:27,279 Speaker 4: You know, most of the deals. 604 00:35:26,960 --> 00:35:31,000 Speaker 5: We've seen telecoms companies being sold, whether it's radophone selling 605 00:35:31,239 --> 00:35:34,319 Speaker 5: in Spain or have you the kind of multiples we've 606 00:35:34,360 --> 00:35:37,120 Speaker 5: seen around five five and a quarter times eve eve 607 00:35:37,200 --> 00:35:40,279 Speaker 5: itde selling a business at five times ev ef it 608 00:35:40,320 --> 00:35:42,520 Speaker 5: does doesn't really help you if your leverage or six times. 609 00:35:43,760 --> 00:35:46,719 Speaker 5: So that's something you you know, when people start talking 610 00:35:46,719 --> 00:35:51,239 Speaker 5: about disposals as a potential savior to highly indbted how 611 00:35:51,360 --> 00:35:52,080 Speaker 5: your companies. 612 00:35:52,800 --> 00:35:54,719 Speaker 4: I think that's something you actually have to look out for, 613 00:35:54,840 --> 00:35:56,000 Speaker 4: whether that's. 614 00:35:56,120 --> 00:35:59,440 Speaker 5: Realistic or whether it's just something that helps with liquidity 615 00:35:59,480 --> 00:36:01,880 Speaker 5: and kicks the can further down just to end up 616 00:36:01,960 --> 00:36:03,040 Speaker 5: having your business. 617 00:36:04,840 --> 00:36:07,080 Speaker 1: Aidan Chanslin at Bloomberg Intelligence, thank you so much for 618 00:36:07,120 --> 00:36:07,600 Speaker 1: joining us. 619 00:36:08,000 --> 00:36:08,920 Speaker 4: My pleasure, James. 620 00:36:09,320 --> 00:36:11,480 Speaker 1: Check out all of Aiden's great research on the Bloomberg 621 00:36:11,600 --> 00:36:14,360 Speaker 1: Terminal or contact him directly if you need more information. 622 00:36:15,000 --> 00:36:19,000 Speaker 1: Thanks again to Camille mcleoud Salmon at Fidelity International and 623 00:36:19,040 --> 00:36:21,640 Speaker 1: Lisa Lee from Bloomberg News. Read all of Lisa's great 624 00:36:21,640 --> 00:36:24,719 Speaker 1: scoops on the Terminal and at Bloomberg dot com. And 625 00:36:24,760 --> 00:36:27,600 Speaker 1: please do subscribe wherever you get your podcasts. We're on Apple, 626 00:36:28,000 --> 00:36:32,400 Speaker 1: Spotify and all other podcast providers. Give us a review, 627 00:36:32,640 --> 00:36:35,640 Speaker 1: tell your friends, or email me directly at jcromb eight 628 00:36:35,880 --> 00:36:39,000 Speaker 1: at Bloomberg dot net. I'm James Crombie. It's been a 629 00:36:39,000 --> 00:36:42,560 Speaker 1: pleasure having you. See you next week on the Credit Edge.