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Speaker 1: Welcome to the Bloomberg PENL podcast on Paul Swinging. Along

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Speaker 1: with my co host Lisa Brahmas. Each day we bring

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Speaker 1: you the most noteworthy and useful interviews for you and

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Speaker 1: your money. Whether at the grocery store or the trading floor.

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Speaker 1: Find a Bloomberg Penl podcast on Apple podcast or wherever

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Speaker 1: you listen to podcasts, as well as at Bloomberg dot com. Paul,

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Speaker 1: one thing that struck me again and again over the

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Speaker 1: past few weeks is that the range of outcomes has

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Speaker 1: never been wider. As everyone tries to be an armchair epidemiologist,

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Speaker 1: and the epidemiologists themselves throughout their arms and say we

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Speaker 1: have no idea and to get a sense though of

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Speaker 1: what may be expected in markets based on different outcomes.

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Speaker 1: That seems to be the increasing focus. Joining us right now,

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Speaker 1: David Kelly, chief Global strategist at JP Morgan Asset Management,

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Speaker 1: which has two trillion dollars of assets under management. David,

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Speaker 1: thank you so much for being with us. I want

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Speaker 1: to start there, the wide range of outcomes. Can you

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Speaker 1: give us your your sort of optimistic case and your

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Speaker 1: pessimistic case based on what we're seeing right now in

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Speaker 1: the data. Yeah. Well, I think the first thing is

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Speaker 1: to recognize that in the baseline UM, this disease is

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Speaker 1: not going away. We have succeeded in stabilizing it. We

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Speaker 1: have flattened the curve, but it's really just a plateau

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Speaker 1: more than a curve. And so running it about you know,

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Speaker 1: twenty five cases a day, running at between two thousand

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Speaker 1: more fatalities a day, and it'll probably keep doing that.

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Speaker 1: Under a base case. Now, a good outcome would be

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Speaker 1: a better treatment UM. We have seen some treatment options

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Speaker 1: one or two UM companies are certainly one approved for emergencies,

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Speaker 1: but there are other treatments out there, and doctors are

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Speaker 1: getting better in terms of protocols. If you can push

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Speaker 1: that mortality rate down, then maybe people feel a little

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Speaker 1: bit more comfortable about getting back to normal, and I

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Speaker 1: think you may see that UM later on this year. UM.

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Speaker 1: On the other hand, you know, a more negative outcome

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Speaker 1: is one in which mortality is just refused to go

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Speaker 1: down significantly and the vaccines to eight So you've gotta

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Speaker 1: you know, we're talking about maybe they'll get a vaccine

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Speaker 1: by the end of the year, maybe it will be

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Speaker 1: distributed by the first quarter, but that's a lot. There's

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Speaker 1: a lot of if a lot of things have to

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Speaker 1: go right there, and if we don't have a vaccine

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Speaker 1: until late one, and we can't and don't push down mortalities,

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Speaker 1: then it's very hard for everybody to get back to normal.

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Speaker 1: And so this could be, you know, this could be

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Speaker 1: a U shape procession rather than a V shape procession. So, David,

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Speaker 1: in your scenarios, I mean, were you factor in the

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Speaker 1: fact that there might be a second wave, a third wave,

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Speaker 1: that we're hearing it from a lot of scientists that

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Speaker 1: that is not only possible but probably likely. Well's the

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Speaker 1: problem is the first wave has to crest. I'm I'm

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Speaker 1: actually a little bit mystified by all this talk about

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Speaker 1: a second wave. I've seen no I've seen evidence in

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Speaker 1: New York City, yes, that that after a horrific two months,

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Speaker 1: the number of fatality has gone down, But it looks

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Speaker 1: to me like the number of new cases has not

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Speaker 1: already gone down by much nationally um And we're relaxing,

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Speaker 1: we're relaxing social distancing, and if that happens, I suspect

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Speaker 1: that the case load really won't come down that much.

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Speaker 1: So it's not so much about a second wave. You

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Speaker 1: just never go rid to the first one. I mean

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Speaker 1: if if the first if you say that, you know,

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Speaker 1: people say that the first wave is done, but we're

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Speaker 1: still running at over a thousand people dying every day,

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Speaker 1: then that's you know, three d sixty thousand people a year. UM,

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Speaker 1: it's you know, and and that's you know, if it's

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Speaker 1: a thousand people a day. So UM, I do think

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Speaker 1: there could be I think we could continue to see,

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Speaker 1: um a heavy case load because we think that only

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Speaker 1: about two percent of the American population right now is infected. UM.

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Speaker 1: That means a vast majority of people have not been

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Speaker 1: infected and are vulnerable to infection. So you know, to me,

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Speaker 1: it's not a matter of a second wave, it's a

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Speaker 1: matter of can we get the first wave to actually

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Speaker 1: question and come down. And this is the question that

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Speaker 1: epidemiologists and and and scientists of all types are trying

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Speaker 1: to figure out, and they themselves can't really understand necessarily

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Speaker 1: the path here From an investment strategy perspective, how are

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Speaker 1: you advising clients at a time of such huge differentials

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Speaker 1: wirth respect to the virology here? Well, I think the

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Speaker 1: first thing to recognize that the markets come back a

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Speaker 1: long way. I mean we were down thirty four peter

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Speaker 1: the trough, and given the size of the recession, that's

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Speaker 1: you know, that's not an unreasonable market reaction. But we're

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Speaker 1: not only down about so I think that there is

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Speaker 1: we are vulnerable to some correction here. I think in

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Speaker 1: the long run, we will get a vaccine, we will

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Speaker 1: get out of this. And I do think that in

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Speaker 1: the long run US stalks may do okay. But I

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Speaker 1: think there's people need to be prepared for a second correction,

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Speaker 1: a second wave down in the market, as people's more

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Speaker 1: optimistic views on this virus sort of petering out go away.

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Speaker 1: So I think that's the first thing. And beyond that,

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Speaker 1: I think you've got to figure out what's going to

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Speaker 1: weather this recession well and what's going to thrive in

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Speaker 1: the rebound um. And then the last thing I'd say

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Speaker 1: is international stocks are still getting cheaper and cheaper relsive

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Speaker 1: to US stocks, and the one region of the world

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Speaker 1: that has done well and getting past this is East Asia,

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Speaker 1: and I do think that people ought to take advantage

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Speaker 1: of that and make sure they've got enough allocation to

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Speaker 1: countries like um, you know, Korea, Taiwan, Australia and and

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Speaker 1: so forth in this in this pandemic, David, are you

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Speaker 1: one of those folks that are concerned that this the

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Speaker 1: financial marks, particularly the risk on markets, are being artificially

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Speaker 1: supported by what has been a very very aggressive federal

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Speaker 1: reserve and central banks globally. Uh. Well, I think that

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Speaker 1: has been a problem for a long time. I can't

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Speaker 1: full the central banks right now. There is nothing else

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Speaker 1: to do but to throw money at this problem and

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Speaker 1: to try and maintain liquidity. So I have no problem

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Speaker 1: with the policy right now. I do think there's is

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Speaker 1: requires a level of real discipline when the economy does

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Speaker 1: come back to remove that support, even if it hurts

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Speaker 1: the economy a bit, because there is a danger at

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Speaker 1: the end of all this, at all this liquidity, if

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Speaker 1: we don't mop it up again, Um, you could cause

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Speaker 1: inflation and higher interest rates down the road and we

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Speaker 1: want to avoid that. But for the moment, yes, I

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Speaker 1: do think the market has been supported by that. But

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Speaker 1: I wouldn't say that that that makes a wrong policy.

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Speaker 1: Just real quick here, David, I'm wondering, is there any

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Speaker 1: as a class you really like right now? Well? I

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Speaker 1: do like, um, emerging market equities for for the long

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Speaker 1: one I think that's important, and then the other thing

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Speaker 1: is um Just to look at those companies, things like technology, um, utilities, healthcare,

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Speaker 1: those sectors that can weather a long pandemic recession, I

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Speaker 1: think they're probably underappreciated relative to some of those more

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Speaker 1: cyclical bounce back sectors which may be still doing too well.

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Speaker 1: Given that, I do think this is going to be

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Speaker 1: most likely a U shape rather than a V shaped procession.

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Speaker 1: Dr David Kelly, chief Global Strategist for JP Morgan Asset Management,

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Speaker 1: thank you so much for joining us and giving us

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Speaker 1: your global perspective. Time to check in with Bloomberg Opinion

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Speaker 1: that we're joined by Shinali Bask. She sat down earlier

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Speaker 1: today with Bloomberg Opinion columnist Peter Orzak, who's head of

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Speaker 1: Lozard's financial advisory practice and a former Obama administration budget chief,

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Speaker 1: to talk about the potential for a cascade of bankruptcies

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Speaker 1: resulting from the pandemic. Let's listen in Well, look, if

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Speaker 1: if unemployment remains elevated for an extended period of time,

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Speaker 1: and especially if there is not additional rounds of government stimulus,

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Speaker 1: we're going we're at some significant risk of cascading bankruptcies

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Speaker 1: where the bankruptcy where bankruptcy at at one firm then

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Speaker 1: infects another firm, uh, and then that infects a third firm,

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Speaker 1: and so on and so forth, and that can do

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Speaker 1: a lot of damage to the economies. That was Peter

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Speaker 1: or Zak, head of Blizard's financial advisory practice. Shanelli Bosta,

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Speaker 1: Bloomberg Wall Street correspondent joins us. Now, So, Shnally, I mean,

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Speaker 1: there is really a risk here. We're starting to see

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Speaker 1: more and more stories crossing the tape here. So as

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Speaker 1: you talked to your contacts, including Mr or Zach, I mean,

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Speaker 1: I guess they're just kind of preparing for what is

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Speaker 1: probably a lot more to come, that's for sure. And

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Speaker 1: what Peter had said this morning was that he could

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Speaker 1: see a potential cascade of bankruptcies where issues with one

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Speaker 1: company can really lead to an issue with another company

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Speaker 1: to another company. He's also has written earlier this year

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Speaker 1: that supply chains are being very heavily impacted by this coronavirus,

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Speaker 1: which could lead to a big consolidation of the supply chains.

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Speaker 1: And I see a lot of banks right now dealing

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Speaker 1: with supply chain financing and issues that are interconnected with

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Speaker 1: these firms, and so these are not just standalone issues,

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Speaker 1: is what I'm saying. And this idea of cascading bankruptcy

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Speaker 1: is quite scary. Well, and I want to go a

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Speaker 1: little bit further, just in terms of what we've already seen. Hurts,

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Speaker 1: for example, is teetering on the brink of bankruptcy. Got

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Speaker 1: to stay from some of its creditors, but there's a

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Speaker 1: concern that, for example, it will have to liquidate some

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Speaker 1: of its inventories of cars in order to make good

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Speaker 1: on its debt. That's leading to concerns about the valuations

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Speaker 1: of cars which goes to dealers. I mean, has anyone

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Speaker 1: talked about the uh, the sort of interconnected nature in

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Speaker 1: terms of tipping point into some sort of critical moment?

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Speaker 1: Is anyone talking about what that would look like? So

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Speaker 1: the thing that's hard about this critical moment, and at

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Speaker 1: least I'm really glad you brought up the value of

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Speaker 1: cars and the value of homes and the value of

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Speaker 1: all the things that are underlying in the economy that

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Speaker 1: nobody wants to talk about yet. And the thing is

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Speaker 1: a lot of people don't expect that the economy will

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Speaker 1: reopen and full. They think it will take a long time,

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Speaker 1: and somebody like or Zach actually thinks that there will

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Speaker 1: be intermittent closures continuing from now and therefore much more

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Speaker 1: stimulus needed in further rounds. So that idea of value

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Speaker 1: of the things underlying our economy nobody knows. But people

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Speaker 1: are a little too exhausted with the current crisis to

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Speaker 1: deal with what that might look like. So it's interesting,

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Speaker 1: shal Is. We talked to Peter Orzag from lazardes are

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Speaker 1: they talking about ramping up some of their staffing and

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Speaker 1: some of the restructuring departments h advisory departments. Well, it's

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Speaker 1: funny that you mentioned advisory because Lazard is also one

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Speaker 1: of the biggest merger advisors in the world, and mergers

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Speaker 1: are virtually nil. There's not a lot able to happen

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Speaker 1: right now. Uh, the idea of hiring bankers for Lazard

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Speaker 1: and a lot of its peers is a really tough one.

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Speaker 1: But restructuring really is a place that's propped up right

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Speaker 1: now and a place that they are seeing activity, but

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Speaker 1: it's not enough activity to really offset the places that

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Speaker 1: even a place like Lazard is losing revenue, which is

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Speaker 1: those large scale deals. One thing that Peter Orzag was

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Speaker 1: talking about was additional stimulus, and I'm wondering where and

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Speaker 1: how they would like to see this deployed, given the

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Speaker 1: fact that we've already seen a tremendous amount poured in

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Speaker 1: through the p p P through checks given to people

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Speaker 1: around the country. So speaking of checks, there's some really

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Speaker 1: great graphics that we've had come out through Bloomberg News

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Speaker 1: to show exactly where all of the money is going

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Speaker 1: for the next wave of stimulus. Or Zach in particular

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Speaker 1: had mentioned that state and local governments are going to

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Speaker 1: be a really important place to direct a lot of

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Speaker 1: this aid. That has been a point of content Chin

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Speaker 1: as we know, we all remember what Mitch mccollin all said,

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Speaker 1: even if the prospect of the difference local government's going bankrupt,

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Speaker 1: that's something a lot of these restructuring artists really deal

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Speaker 1: with as well. But paychecks into the hands of people

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Speaker 1: faster seems to be the consensus, because if you don't

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Speaker 1: have people spending in the economy, then you don't have

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Speaker 1: an economy. Remember yesterday, Lisa, we had Jim Millstein tell

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Speaker 1: us that he was worried that people will turn around

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Speaker 1: and realize the investor class was saved first by all

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Speaker 1: of the federal reserves actions to save credit markets and

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Speaker 1: that the investor class later may have to pay for it.

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Speaker 1: Thank you so much. We really appreciate you taking the type,

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Speaker 1: she Dolly Blassa as a Bloomberg Wall Street correspondent. This

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Speaker 1: has been one theme of really steady yields. You see

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Speaker 1: this both on the treasury side as well as the

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Speaker 1: corporate debt side. Is a growing number of investors factor

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Speaker 1: in Fed stimulus, uh and and and bond purchases. Weighing

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Speaker 1: in on that as somebody who has an intimate knowledge

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Speaker 1: of the Federal Reserve, and that would be Eric Stein,

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Speaker 1: and I'm really glad that we have him co director

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Speaker 1: of Global Income at Eaton Advance Management, because I want

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Speaker 1: to put into perspective the financing plans that the U. S.

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Speaker 1: Treasury Department has, Eric Stein, we are experiencing a three

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Speaker 1: trillion dollar expected issue ins in the second quarter by

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Speaker 1: the US Treasury Department. How much will this cause yields

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Speaker 1: to go up? Given the dynamic that we're seeing in

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Speaker 1: markets right now? First, a lot of you know, first off,

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Speaker 1: thanks certainly for having me on. You know, three trillion,

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Speaker 1: it is a huge number and only sounds huge. It

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Speaker 1: is huge, But um, you know, the FED has basically

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Speaker 1: to me kind of underwritten market functioning in the US

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Speaker 1: treasury market and also underwritten a lot of supply. And

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Speaker 1: so given that the FEDS you know, has rates now

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Speaker 1: effectively a zero just a touch above zero, a lot

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Speaker 1: of programs you're mentioning some in the credit market, quantitative easing,

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Speaker 1: so buying treasuries, and that helps absorb that supply. In addition,

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Speaker 1: and despite the fact we've seen you know, markets rally

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Speaker 1: really over the past you know, five six weeks or so,

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Speaker 1: there still has a lot of uncertainty out there of

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Speaker 1: the world and fear and whatnot. And that also helps

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Speaker 1: to keep keep treasury yields low. So it's not only

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Speaker 1: the FED, but the FED certainly has a very big

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Speaker 1: part in in you know, the stability as you mentioned before,

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Speaker 1: of US treasury yields. So Eric, you mentioned, you know,

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Speaker 1: we're kind of at that zero bound with interest rates.

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Speaker 1: I'm looking at the ten year here trading at zero

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Speaker 1: points six six. So looking at something like the tenure,

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Speaker 1: do you think the FED has any appetite for that

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Speaker 1: part of the curve to be at or below zero? Uh? No,

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Speaker 1: So it's it's interesting. It's a great question. You know

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Speaker 1: that that would be a negative or really inverted yield curve. So,

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Speaker 1: you know, it's a big debate that I have my

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Speaker 1: colleagues that eat advance management. Does the shape of the

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Speaker 1: yield curve matter? Personally, I'm squarely in the camp that

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Speaker 1: that yield curve shape does matter. It's a market signal. Yes,

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Speaker 1: it can be manipulated by the Fed or others, but

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Speaker 1: it is a market signal. And so I think having

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Speaker 1: an inverted yield curve, which if short end rates were

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Speaker 1: a touch above zero in the tenure was negative, there'll

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Speaker 1: be issues with the banking sector. I think there's issues

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Speaker 1: from a market confidence perspective and whatnot. So I think

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Speaker 1: the FED likes very low treasury yields, but they also

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Speaker 1: like a positively sloped yield curve. How concerned are you

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Speaker 1: about a lack of liquidity and the treasury market. I'm

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Speaker 1: hearing that it's actually starting to worsen a little bit

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Speaker 1: as a federal reserve has net purchases that exceed issue.

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Speaker 1: It's so far, Uh, you know, how big of an

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Speaker 1: issue is that? So, I mean it depends to be

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Speaker 1: what type of of you know, less liquidity are you

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Speaker 1: see you know you've heard about for years, let's say

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Speaker 1: in Japan and the JGB market, where there's certain jgbs

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Speaker 1: that don't trade in a particular day because the b

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Speaker 1: O J owned such a large portion of those. I

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Speaker 1: don't I don't think we're not seeing that in the

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Speaker 1: US with the treasury market and the Fed. Uh and

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Speaker 1: then you know, to me, we're certainly not back to

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Speaker 1: what we were in mid March when uh, you know,

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Speaker 1: the treasury market, the on the run off, the run spreads,

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Speaker 1: and the treasury repall market really you know, on the

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Speaker 1: backbone of the fixed income market. But I think the

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Speaker 1: backbone of global financial markets is the U S Treasury

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Speaker 1: and the treasury repo market that effectively wasn't functioning in

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Speaker 1: mid March. It's a lot better today. So certainly, if

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Speaker 1: you're active in one particular security and you're trying to

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Speaker 1: trade that, you know, um, having the FED purchase more

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Speaker 1: than than the issue and supply can cause some issues.

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Speaker 1: But I think we're far away from where we were

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Speaker 1: in the middle of March. So Eric, where are you

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Speaker 1: and the good folks eating vance kind of doing your

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Speaker 1: work right now? Where you seeing some value some opportunities. Yeah.

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Speaker 1: So look, I think you know, eating vance management on

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Speaker 1: the fixing some side, we're very much a you know,

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Speaker 1: a credit credit shop, whether it's municipal credit, corporate credit,

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Speaker 1: sovereign credit, securitized credit. And you know, on one hand, uh,

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Speaker 1: you know, doing credit investing is challenging right now given

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Speaker 1: you know, we don't know, you know, economy is obviously

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Speaker 1: quite weak now likely should be some opening up in

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Speaker 1: some recovery, but the trajectory of that is very uncertain,

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Speaker 1: you know, the length of how long, whether or not

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Speaker 1: we get a second wave of coronavirus and need to

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Speaker 1: shut things down again. Lot of uncertainty and so um.

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Speaker 1: You know, I think that makes it challenging. At the

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Speaker 1: same time, you have FED you know, FED backstop and

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Speaker 1: FED support, which I think is helpful to the credit markets.

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Speaker 1: So I think, you know, certainly parts of the bank

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Speaker 1: loan market and the high yield market that we're you know,

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Speaker 1: selling off a lot of high loan somewhat in February

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Speaker 1: and all those asset classes into the kind of middle

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Speaker 1: or end of March. Uh, they certainly rebound a lot.

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Speaker 1: But I think in the corporate credit markets, you still

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Speaker 1: you see some value um, you know, still certainly there

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Speaker 1: and loans high yield UM. You know, emerging markets that

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Speaker 1: we focus on on the Global Income team, that that

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Speaker 1: I co run um value there. But obviously emerging markets

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Speaker 1: also have their own set of challenges um, you know,

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Speaker 1: given given the health outcomes in some of these countries.

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Speaker 1: But even I think some of the worst fears from

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Speaker 1: a couple of weeks ago, even in emerging markets are

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Speaker 1: a little less concerning than they were. But but they're

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Speaker 1: still going to be challenges for sure. We're speaking with

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Speaker 1: Eric Stein, co director of Global Income and EAT in vance,

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Speaker 1: and previously you worked on the market's desk of the

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Speaker 1: Federal Reserve Bank of New Orc, which was very much

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Speaker 1: in focus. They are expected to start buying e t

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Speaker 1: f s that own credit in the next few days

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Speaker 1: and then follow that up with their program to actually

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Speaker 1: buy initial issuance of corporate debt. Do you think the

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Speaker 1: market has gotten ahead of itself in terms of its

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Speaker 1: expectations for FED purchases given that will just be a

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Speaker 1: fraction of the overall market. Look, look, I think I

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Speaker 1: think the FED is is the signaling effect is quite powerful, um,

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Speaker 1: and so certainly the details of the programs, you know,

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Speaker 1: matter it's something that we're discussing it eat advance and

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Speaker 1: constantly getting questions. You know, one of the detail is

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Speaker 1: going to be out and when the fedge announced this.

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Speaker 1: You have to understand that it takes the FED sometime

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Speaker 1: to announce a lot of their programs just given the

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Speaker 1: nature of that institution, particularly new programs. Programs they're dusting

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Speaker 1: off from O eight are a little bit easier. But

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Speaker 1: but to me, the most important thing is that the

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Speaker 1: FED is shown that the programs will adapt, they will change,

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Speaker 1: typically multiple times, and so you know, the Fed's goal

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Speaker 1: is not to you know, get asset markets back to

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Speaker 1: where they were before the coronavirus, but their goal is

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Speaker 1: to keep credit flowing in the totonomy and so of

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Speaker 1: the extent that you know, if markets were to reverse

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Speaker 1: significantly from here, to me, the FED would would very

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Speaker 1: much adjust the programs and get markets continuing to function. So,

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Speaker 1: you know, while we might not see further gains when

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Speaker 1: the FED actually does some of these purchases, because I

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Speaker 1: would agree a fair about a large amount is already

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Speaker 1: priced in UM. You know, I think sometimes investors need

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Speaker 1: to separate both the signal from the actual purchases and

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Speaker 1: what we've seen really in central banking and the FED.

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Speaker 1: But think about the e C B um, you know,

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Speaker 1: back to the last crisis. A lot of times, if

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Speaker 1: anything's words can be more powerful and the actual actions,

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Speaker 1: assuming that the market thinks that the central banks in

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Speaker 1: this case the FED are credible with those words. Eric,

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Speaker 1: earlier this morning that Lisa and I were talking about

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Speaker 1: bankruptcies and the number that's starting to grow in or

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Speaker 1: were going to see a you know kind of a wave,

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Speaker 1: a cast heading wave of bankruptcies out there. What what's

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Speaker 1: your sense of credit quality out there as you kind

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Speaker 1: of look across your portfolio where some of the areas

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Speaker 1: that concerned. Yeah, look, look, I certainly think, you know,

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Speaker 1: bankruptcies are going to go up from from you know,

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Speaker 1: there were very low levels, you know, for the most

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Speaker 1: part in most corporate sectors, you know, since the financial

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Speaker 1: crisis of of you know, oh seven or eight oh nine,

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Speaker 1: and you know, other than some of the challenges and

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Speaker 1: need let's say the energy sector in fifteen and sixteen, um,

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Speaker 1: you know, and obviously idiosyncratic bankruptcies here and there. So

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Speaker 1: so I think that you know, they're for sure going

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Speaker 1: to go up. You know, to me, the question is

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Speaker 1: how long does that last? And also does it become

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Speaker 1: more socially acceptable for more and more entities to default.

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Speaker 1: I think if that were the case, that would be um,

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Speaker 1: you know, problematic, um, you know, for credit markets and

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Speaker 1: for the economy at large. If it's just the sectors

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Speaker 1: that are you know, either had their issues kind of

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Speaker 1: coming in to the coronavirus shocks, such as the energy

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Speaker 1: sector for sure, it's been exacerbated by the UH no

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Speaker 1: one traveling UM or sectors like you know, airlines or

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Speaker 1: rental cars or whatnot where it's uh you know, those

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Speaker 1: are massively affected due to social distancing and quarantine that

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Speaker 1: we're seeing. For sure, you know, the there's gonna be bankruptcies,

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Speaker 1: there's gonna be credit events in those in those sectors.

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Speaker 1: So I think we're gonna see it. And you know,

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Speaker 1: if you go back in history, actually there are years

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Speaker 1: sometimes you have better returns and credit markets in years

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Speaker 1: when there are some bankruptcies, assuming it's priced into the

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Speaker 1: market even than you know, years where where there are bankruptcies.

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Speaker 1: But for sure, um, you know, it's gonna be something

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Speaker 1: to focus on. Hey, Eric, thanks so much for joining us.

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Speaker 1: We appreciate your time. Eric Stein, co director of Global

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Speaker 1: Fixed Income and eat Vance. They've billion dollars under management.

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Speaker 1: Rental car company Hurts entering into some agreements with some

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Speaker 1: of the lenders to try to buy some more time

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Speaker 1: to stave off bankruptcy. To get the latest, we welcome

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Speaker 1: Eliza Ronald's Hannon. She's a high yield and distress credit

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Speaker 1: reporter for Bloomberg News. Liza, thanks so much for joining us.

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Speaker 1: Give us the latest here on hers. How close is

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Speaker 1: this company to filing for bankruptcy? Well, it has negotiated

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Speaker 1: just a two and a half week forbearance, so I

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Speaker 1: mean it's very close. There's always sort of that hail Mary,

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Speaker 1: that they'll be able to that any given company will

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Speaker 1: be able to strike a deal with creditors at the

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Speaker 1: last minute to avoid Chapter eleven. But you know, Hurts

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Speaker 1: is very much already drawing up the documents, was prepared

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Speaker 1: to file last night if it did not get um

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Speaker 1: the forbearance from creditors. But now it has two and

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Speaker 1: a half more weeks during which lenders have agreed not

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Speaker 1: to for close on its assets, not to demand a

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Speaker 1: liquidation of an enormous lead of cars, for instance. But

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Speaker 1: I think that it's still likely that this time will

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Speaker 1: be used to hash out an agreement that will take

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00:21:36,640 --> 00:21:40,159
Speaker 1: place in bankruptcy, because at this point it's just really

430
00:21:40,200 --> 00:21:43,119
Speaker 1: tough to imagine a company with this complex of a

431
00:21:43,160 --> 00:21:47,399
Speaker 1: capital structure unwinding everything outside of court lessa. Can we

432
00:21:47,440 --> 00:21:49,720
Speaker 1: take a step back and talk about the business model

433
00:21:49,840 --> 00:21:52,680
Speaker 1: of the rental car companies right now? It's not just Hurts.

434
00:21:52,720 --> 00:21:54,680
Speaker 1: Avis has also come under pressure, but it Hurts is

435
00:21:54,760 --> 00:21:58,359
Speaker 1: under more given their finances heading into this about two

436
00:21:58,440 --> 00:22:02,359
Speaker 1: thirds of the business stems from air travel. You fly somewhere,

437
00:22:02,359 --> 00:22:04,600
Speaker 1: you rent a car to get around. And I'm wondering

438
00:22:04,920 --> 00:22:08,560
Speaker 1: how much was this really an issue of the pandemic

439
00:22:08,640 --> 00:22:11,720
Speaker 1: and how much is this a Hurt specific issue of

440
00:22:11,760 --> 00:22:15,360
Speaker 1: them adding too much debt at a time of uncertainty

441
00:22:15,600 --> 00:22:19,840
Speaker 1: given uber and lift and just a changing backdrop there. Right,

442
00:22:20,000 --> 00:22:21,720
Speaker 1: it's a little bit of both. But I think this

443
00:22:22,000 --> 00:22:24,320
Speaker 1: is really one of the first companies that we've seen

444
00:22:24,760 --> 00:22:28,960
Speaker 1: that might file bankruptcy almost entirely because of the COVID

445
00:22:29,000 --> 00:22:32,800
Speaker 1: pandemic fallout. I mean, Hurts has been levered up and

446
00:22:33,359 --> 00:22:36,480
Speaker 1: somewhat struggling for a couple of years. I mean, it's

447
00:22:36,480 --> 00:22:38,920
Speaker 1: been sort of on people's watch list, but it's debt

448
00:22:38,960 --> 00:22:41,760
Speaker 1: has traded at par it has not been a distressed

449
00:22:41,760 --> 00:22:45,000
Speaker 1: company in that sense um and it's brought in a

450
00:22:45,000 --> 00:22:47,560
Speaker 1: lot of revenue despite all of its dead It's been

451
00:22:47,600 --> 00:22:50,760
Speaker 1: able to stay afloat. So unlike some of the companies

452
00:22:50,800 --> 00:22:53,879
Speaker 1: we've been go bankrupt in the past months or so,

453
00:22:54,000 --> 00:22:57,440
Speaker 1: which really were fully distressed before COVID, and this really

454
00:22:57,480 --> 00:23:00,040
Speaker 1: puts them over the edge. Hurts would represent one of

455
00:23:00,000 --> 00:23:04,520
Speaker 1: the first um or really the first company too end

456
00:23:04,560 --> 00:23:09,000
Speaker 1: up in bankruptcy pretty pretty explicitly because of the kind

457
00:23:09,040 --> 00:23:13,160
Speaker 1: of just global shutdown that the that the COVID pandemic

458
00:23:13,160 --> 00:23:15,520
Speaker 1: has caused. Like you said, you know, it relies a

459
00:23:15,520 --> 00:23:17,560
Speaker 1: whole lot on travel, and so it's one of a

460
00:23:17,560 --> 00:23:20,640
Speaker 1: whole number of companies in the travel sector or adjacent

461
00:23:20,720 --> 00:23:23,920
Speaker 1: to the travel sector that we're now seeing come under

462
00:23:24,000 --> 00:23:27,600
Speaker 1: real hardship. So Eliza has hurt since some of the

463
00:23:27,640 --> 00:23:31,919
Speaker 1: other rental companies, have they received fiscal stimulus from the

464
00:23:31,920 --> 00:23:34,960
Speaker 1: federal government or they are they expecting it um or

465
00:23:34,960 --> 00:23:37,080
Speaker 1: they want those industries that did benefit a little bit,

466
00:23:37,600 --> 00:23:40,440
Speaker 1: that's a good question. They have not received any any

467
00:23:40,480 --> 00:23:44,359
Speaker 1: sort of stimulus or bailout yet. Um, there are, They've

468
00:23:44,400 --> 00:23:48,280
Speaker 1: been in communication with the Treasury Department. We really don't

469
00:23:48,280 --> 00:23:50,480
Speaker 1: know too many details on that, but I think like

470
00:23:50,560 --> 00:23:53,800
Speaker 1: any other company, they're very hopeful that any day now

471
00:23:53,840 --> 00:23:58,399
Speaker 1: there could be some additional bailout or rescue signance thing

472
00:23:58,480 --> 00:24:02,280
Speaker 1: that they would that they would qualify for. But no,

473
00:24:02,520 --> 00:24:05,720
Speaker 1: they have not gotten any any sort of that assistance yet,

474
00:24:05,760 --> 00:24:09,560
Speaker 1: and so that's kind of been make or break Eliza.

475
00:24:09,640 --> 00:24:12,200
Speaker 1: There's a question as a growing number of companies file

476
00:24:12,320 --> 00:24:16,360
Speaker 1: for bankruptcy, how much has already been priced into debt markets.

477
00:24:16,359 --> 00:24:20,000
Speaker 1: In other words, are we seeing creditors getting crammed down

478
00:24:20,160 --> 00:24:23,000
Speaker 1: and forced to swallow bigger losses than they were expected

479
00:24:23,480 --> 00:24:28,280
Speaker 1: or are they already budgeting for this. That's a great question. Uh,

480
00:24:28,400 --> 00:24:30,639
Speaker 1: it really depends on the company. So any of the

481
00:24:30,640 --> 00:24:34,399
Speaker 1: companies that have already been distressed before the crisis, uh

482
00:24:34,840 --> 00:24:37,679
Speaker 1: that it has been priced in. And you've see some

483
00:24:37,720 --> 00:24:42,640
Speaker 1: really sophisticated hedge fund um owners of the debt and lenders,

484
00:24:42,960 --> 00:24:45,800
Speaker 1: so they're they've bought in low and they actually are

485
00:24:46,040 --> 00:24:48,160
Speaker 1: poised to make a lot of money in a restructuring,

486
00:24:48,240 --> 00:24:51,400
Speaker 1: especially if they end up with some equity control um.

487
00:24:51,640 --> 00:24:54,120
Speaker 1: But in a situation like HURT, So this is where

488
00:24:54,119 --> 00:24:56,720
Speaker 1: you're gonna see a lot of people getting hurt because

489
00:24:56,760 --> 00:25:01,040
Speaker 1: by the time that they would have wanted to sell

490
00:25:01,119 --> 00:25:04,359
Speaker 1: out things, things went bad so fast in terms of

491
00:25:04,400 --> 00:25:09,439
Speaker 1: the like enhanced pressure that that travel related companies have

492
00:25:09,480 --> 00:25:11,960
Speaker 1: come under. So it happened way too fast for anyone

493
00:25:12,000 --> 00:25:13,920
Speaker 1: to get out at a reasonable level, and they will

494
00:25:14,880 --> 00:25:17,680
Speaker 1: take a really big hit and it and hurts. Like

495
00:25:17,680 --> 00:25:22,000
Speaker 1: like some of the retailers that we've seen for bankruptcy recently,

496
00:25:22,119 --> 00:25:26,800
Speaker 1: the biggest problem is that this fleet of collateral they have,

497
00:25:26,920 --> 00:25:29,480
Speaker 1: their their assets are collateral on their debt, and for

498
00:25:29,560 --> 00:25:34,360
Speaker 1: retailers that is inventory, apparel, uh, you know, things like that,

499
00:25:34,480 --> 00:25:37,240
Speaker 1: and for Hurts, it's it's it's huge fleet of cars.

500
00:25:37,359 --> 00:25:41,080
Speaker 1: And the scariest part is that they can't liquidate those

501
00:25:41,160 --> 00:25:46,440
Speaker 1: assets to repay creditors during this pandemic shutdown. So one

502
00:25:46,440 --> 00:25:49,000
Speaker 1: of the reasons, you know, one of the priorities for

503
00:25:49,119 --> 00:25:53,920
Speaker 1: Hurts right now is trying to hold off on having

504
00:25:54,000 --> 00:25:57,479
Speaker 1: to sell all its used car fleet during a period

505
00:25:57,520 --> 00:26:01,280
Speaker 1: where you know, the cars would fretch really low fire

506
00:26:01,320 --> 00:26:05,840
Speaker 1: sale princes um and not even repay let it back.

507
00:26:06,480 --> 00:26:08,639
Speaker 1: That's a big concern for a lot of people. Eliza

508
00:26:08,720 --> 00:26:10,679
Speaker 1: roynalds Hannon, thank you so much for being with us.

509
00:26:10,920 --> 00:26:14,760
Speaker 1: Eliza ronalds Hannon, hy yield and distressed credit reporter for

510
00:26:14,880 --> 00:26:19,200
Speaker 1: Bloomberg News. Thanks for listening to the Bloomberg pen L podcast.

511
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Speaker 1: You can subscribe and listen to interviews at Apple Podcasts

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00:26:22,040 --> 00:26:25,040
Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney. I'm

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00:26:25,040 --> 00:26:27,760
Speaker 1: on Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm

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00:26:27,760 --> 00:26:30,600
Speaker 1: on Twitter at Lisa A. Bram Woits one. Before the podcast,

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00:26:30,680 --> 00:26:33,280
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio