WEBVTT - Sona’s CEO Sees ‘Exciting’ Growth in Asset-Based Finance, SRTs 0:00:18.079 --> 0:00:20.639 Hello, Welcome to the Credit Edge, a weekly markets podcast. 0:00:20.800 --> 0:00:22.840 My name is James Crombie. I'm a senior editor at 0:00:22.840 --> 0:00:23.880 Bloomberg and. 0:00:23.840 --> 0:00:26.520 I'm Made and Chasin, head of the Amere credit research 0:00:26.520 --> 0:00:30.120 team at Bloomberg Intelligence. This week, we're very pleased to 0:00:30.160 --> 0:00:33.880 welcome Henrick Johns, CEO and partner of Sona Asset Management. 0:00:33.960 --> 0:00:36.280 How are you, Henrik, I'm doing great. Thank you for 0:00:36.320 --> 0:00:36.680 having me. 0:00:36.880 --> 0:00:40.040 Henrik was previously the global co head of Capital markets 0:00:40.040 --> 0:00:42.200 and co heed of European Investment banking at Deutsche Bank, 0:00:42.240 --> 0:00:47.160 and he is Sona's first CEO. Sona managers twenty billion dollars, 0:00:47.200 --> 0:00:49.240 up from about six billion in twenty twenty four. It 0:00:49.320 --> 0:00:52.879 runs a long short European focused fund, provides capital solutions 0:00:52.880 --> 0:00:55.960 to firms in need of financing, invest in SRTs, and 0:00:56.000 --> 0:00:59.800 also has a COLO business. It's flagship hedge fund again 0:00:59.840 --> 0:01:02.720 top in eight percent last year. So James, I'll hand 0:01:02.800 --> 0:01:04.240 over to you to kick us off. 0:01:04.760 --> 0:01:07.160 Thank you, Aiden, Thanks for joiningus, Henricks. Clearly a lot 0:01:07.200 --> 0:01:09.560 to discuss today. I do want to start, though, with 0:01:09.600 --> 0:01:12.880 the stress that you're seeing in credit markets. Regular listeners 0:01:12.880 --> 0:01:15.240 to this show will be aware of the prevailing optimism 0:01:15.520 --> 0:01:18.280 or complacency depending on your point of view. When we 0:01:18.280 --> 0:01:21.800 talk to investors and analysts, almost everyone is bullish right 0:01:21.840 --> 0:01:25.280 now on credit, but SONA is positioning for a tougher 0:01:25.360 --> 0:01:26.080 cycle ahead. 0:01:26.800 --> 0:01:26.959 Now. 0:01:27.040 --> 0:01:28.679 To be clear, your firm is in a position to 0:01:28.720 --> 0:01:32.000 take advantage of market dislocations, so it is in your 0:01:32.040 --> 0:01:34.080 interest to see the world in that way. But how 0:01:34.120 --> 0:01:37.000 tough could things get, Henrik, and where are the pressure points? 0:01:37.000 --> 0:01:38.600 Why is that not and also why is that not 0:01:38.640 --> 0:01:41.000 reflected in the data or the market pricing right now? 0:01:41.160 --> 0:01:44.280 Well, it's a it's a funny definition of stress that 0:01:44.360 --> 0:01:48.840 you started a stress where everyone is positive. Yeah, I'm 0:01:48.840 --> 0:01:53.040 not sure that actually is stress. I think the opportunity 0:01:53.360 --> 0:01:58.160 set that's therefore a fund like us is enormous. And 0:01:58.520 --> 0:02:01.720 you know that opportunity set is there because we're seeing 0:02:02.240 --> 0:02:05.760 so many different trends that are driving the credit markets, 0:02:06.280 --> 0:02:09.880 some of which are genuinely transformational, you know, to all 0:02:09.919 --> 0:02:13.400 of our lives, like the large amount of AI financing 0:02:13.480 --> 0:02:17.840 that needs to happen across all markets, all products together 0:02:17.880 --> 0:02:22.640 with you know, also some trends around how we consume things, 0:02:23.160 --> 0:02:26.760 European d industrialization. There's just a lot of things to 0:02:26.800 --> 0:02:29.440 get your teeth into if you're a long short credit 0:02:29.480 --> 0:02:30.560 manager like ourselves. 0:02:30.720 --> 0:02:33.839 But how tough do you think things could get? 0:02:33.840 --> 0:02:33.880 Me? 0:02:33.919 --> 0:02:35.880 Because you do talk about a tougher cycle a head, 0:02:36.200 --> 0:02:39.559 and you do talk about more defaults and low recoveries. 0:02:39.880 --> 0:02:41.720 I mean that would suggest stress to me. 0:02:42.840 --> 0:02:46.480 It depends a lot on which market segments. So if 0:02:46.480 --> 0:02:50.760 we start maybe with the the BSL market, you know, 0:02:50.840 --> 0:02:54.519 something that maybe isn't widely appreciated is at the sort 0:02:54.520 --> 0:02:57.560 of aggregate level of defaults in the BSL market is 0:02:57.560 --> 0:03:00.880 at a pretty high level, and it represents it's a 0:03:01.919 --> 0:03:06.080 you know, dispersion and and in some cases disruption you 0:03:06.120 --> 0:03:09.840 know where you know, some of the ways that people 0:03:09.880 --> 0:03:13.560 have financed themselves, you know, during the private credit boom 0:03:13.600 --> 0:03:16.480 and the private equity boom. You know, some of those 0:03:16.520 --> 0:03:19.320 things in terms of lack of credit discipline, you know, 0:03:19.400 --> 0:03:22.880 really starting to come home to roost. And so that 0:03:23.040 --> 0:03:28.880 again creates opportunity, you know, to to provide solutions, you know, 0:03:28.919 --> 0:03:31.919 to some of the stressed capital structures. And you know, 0:03:32.000 --> 0:03:35.080 that's a place again where where we do do really 0:03:35.080 --> 0:03:38.640 well because we have a lot of fundamental you know, 0:03:38.680 --> 0:03:41.720 analysis skills and also the scale you know, to make 0:03:41.880 --> 0:03:45.280 a difference. So, you know, in terms of trying to 0:03:45.280 --> 0:03:47.200 answer your question, which is which is very broad one, 0:03:47.240 --> 0:03:50.040 you know, how how bad can things get? Yeah? Things 0:03:50.280 --> 0:03:52.680 right now? You know that there's opportunities. I wouldn't say 0:03:52.680 --> 0:03:55.720 that they're bad per se. And you know, one of 0:03:55.760 --> 0:03:58.240 the things that I'm sure we'll cover, which we spend 0:03:58.280 --> 0:04:00.760 a lot of time thinking about, is, you know, the 0:04:00.840 --> 0:04:03.920 amount of AI capex that's coming and the financing needs. 0:04:04.400 --> 0:04:09.280 Is that an appropriate level of exuberance around the opportunities 0:04:09.360 --> 0:04:12.560 And you know, not to get historical round it, but 0:04:12.880 --> 0:04:15.080 if you look at prior cycles, you a lot of 0:04:15.120 --> 0:04:17.800 people talking about the railway boom for example of eighteen 0:04:17.880 --> 0:04:19.720 seventy three. You know, you have to go back a 0:04:19.760 --> 0:04:24.039 long way, but you know that there's genuine productivity improvements 0:04:24.560 --> 0:04:27.640 that are potentially coming from this, you know, which could 0:04:27.960 --> 0:04:31.000 justify you know, the valuations of the financing needs. But 0:04:31.440 --> 0:04:33.920 the sort of the flip side of that is, of course, 0:04:34.320 --> 0:04:39.880 that software which previously has been seen as an incredibly safe, 0:04:40.360 --> 0:04:43.400 you know, highly lucrative investment, both on the equity and 0:04:43.760 --> 0:04:46.960 the dead side. You know is is you know, under 0:04:47.000 --> 0:04:50.640 pressure because you know, maybe the AI spending and the 0:04:50.680 --> 0:04:53.479 tools that we can all develop, you know, is going 0:04:53.560 --> 0:04:56.279 to you know, make the markets you know that they're in, 0:04:56.360 --> 0:04:59.039 you know, much more difficult. So again that creates an 0:04:59.080 --> 0:05:02.800 opportunity which is a sort of a factor or a 0:05:02.920 --> 0:05:04.719 tangent to the AI boom. 0:05:05.560 --> 0:05:09.280 So it's about opportunity from from the shorting side. Do 0:05:09.360 --> 0:05:12.520 you think there is any kind of long opportunities available 0:05:12.520 --> 0:05:14.560 in this market as well? Or is it is the 0:05:14.560 --> 0:05:17.680 focus of the firm mainly really kind of areas of 0:05:17.680 --> 0:05:19.560 distress and emerging problems. 0:05:20.160 --> 0:05:23.160 So I mean I should probably take a step back 0:05:23.400 --> 0:05:27.120 and talk about what SONA does, you know, because we 0:05:27.320 --> 0:05:31.000 are at the moment a very broad firm in terms 0:05:31.040 --> 0:05:33.279 of what we look at. So we're active and everything 0:05:33.440 --> 0:05:38.159 from investment grade bonds you know, to obviously you know, 0:05:38.320 --> 0:05:41.760 regular way high yield and b A sels. You know, 0:05:41.800 --> 0:05:44.880 we do a bit of private credit where it makes 0:05:44.880 --> 0:05:47.320 sense for some of our strategies, you know, all the 0:05:47.360 --> 0:05:50.599 way to converts and so on. So you know, we're 0:05:50.600 --> 0:05:53.240 we're kind of in a lot of different things, and 0:05:53.440 --> 0:05:56.720 you know they all have different dynamics, so you know, 0:05:56.880 --> 0:06:00.520 on on some things we're positioned you know for growth, 0:06:01.320 --> 0:06:04.080 and you know there's obviously long positions in other sectors. 0:06:04.440 --> 0:06:07.400 You know, we we think that the trend is going 0:06:07.480 --> 0:06:10.200 to be down in terms of price, you know, either 0:06:10.360 --> 0:06:13.960 because for you know, sector reasons or idiosyncratic critic reasons. 0:06:14.279 --> 0:06:16.440 And in those cases obviously you want to try to 0:06:16.440 --> 0:06:19.359 express that either by just staying away from it or 0:06:19.400 --> 0:06:20.480 by going short if you can. 0:06:20.839 --> 0:06:22.680 Where are other problems though in terms of sex, what 0:06:22.720 --> 0:06:25.320 do you stay away from? 0:06:25.640 --> 0:06:30.120 I mean again, we don't really think of sectors as 0:06:30.160 --> 0:06:33.320 something which are you know, stay away at any price. 0:06:33.600 --> 0:06:36.839 We look at everything in terms of, you know, what 0:06:37.240 --> 0:06:40.480 would be the appropriate entry point, either on the short 0:06:40.600 --> 0:06:44.120 or the long side, you know, for what that particular 0:06:44.200 --> 0:06:46.480 name or the sector is going through. So a great 0:06:46.520 --> 0:06:51.320 example is last year the European chemical sector was one 0:06:51.360 --> 0:06:55.040 of the worst performing sectors, you know, obviously high energy 0:06:55.080 --> 0:06:58.280 prices and so on. And then when the war in 0:06:58.360 --> 0:07:01.880 Iran started and a lot of those industry dynamics you know, 0:07:01.960 --> 0:07:05.280 suddenly reversed, and you know, a sector that people had 0:07:05.320 --> 0:07:09.040 seen as as completely toxic and you can see that 0:07:09.080 --> 0:07:11.360 in the capital structures trading levels of some of the 0:07:11.360 --> 0:07:15.360 major European names you know, suddenly quickly recovered because the 0:07:15.440 --> 0:07:18.160 dynamics shifted. So I think the benefit of you know, 0:07:18.200 --> 0:07:21.480 looking at things based on kind of the enterprise what 0:07:21.520 --> 0:07:24.680 we think is going to happen. You know, that gives 0:07:24.720 --> 0:07:27.400 us opportunities to what we did in that case, which 0:07:27.800 --> 0:07:30.880 quickly reverse our thinking, you know, invest in it. You know, 0:07:30.960 --> 0:07:34.320 now with the you know, the war in Iran, hopefully 0:07:34.440 --> 0:07:37.360 you know, getting towards the end, you know, the industry 0:07:37.440 --> 0:07:41.080 dynamics start to reassert themselves in terms of the cost structure, 0:07:41.440 --> 0:07:43.400 you know, for Europe, and and maybe it's time to 0:07:43.880 --> 0:07:46.200 you know, to think about that bit more on the short. 0:07:45.960 --> 0:07:51.240 Side, if you are going to go short in this market, 0:07:51.920 --> 0:07:54.840 you know, it doesn't seem that easy when you're talking 0:07:54.840 --> 0:07:57.600 about some of the more leveraged capital structures and more 0:07:57.640 --> 0:08:01.720 the more liquid companies that you're you're dealing with. How 0:08:01.920 --> 0:08:04.240 what what the what's the mechanism by which you could 0:08:04.240 --> 0:08:07.080 take a short position right now in a credit market? 0:08:08.880 --> 0:08:12.960 Again, I mean, we have a very wide set of 0:08:14.000 --> 0:08:17.800 investment tools, so you know, some things are easier to short, 0:08:17.880 --> 0:08:20.160 some things are harder. So it's sort of just a 0:08:20.320 --> 0:08:23.440 it's very situational. In some cases, you know, you can 0:08:23.560 --> 0:08:26.440 use CDs. In some cases you can you know, borrow 0:08:26.480 --> 0:08:29.400 the bonds go short that way. It really just depends 0:08:29.960 --> 0:08:32.320 and you know, as part of every analysis, of course, 0:08:32.679 --> 0:08:35.080 you know, it's what's the cost of of that short 0:08:35.240 --> 0:08:38.520 you know, factors into the investment decision. So yeah, we 0:08:38.520 --> 0:08:40.440 we look at things on a very individual way. 0:08:40.840 --> 0:08:44.160 Who's providing that liquidity in in sort of more private 0:08:44.280 --> 0:08:45.960 or or distressed end of the market. 0:08:48.080 --> 0:08:50.760 I mean, again, I probably wouldn't want to comment on 0:08:50.760 --> 0:08:53.440 on sort of individual relationships that we have. You know, 0:08:53.480 --> 0:08:55.640 I think some markets are more liquid than others. You know, 0:08:55.640 --> 0:08:59.120 those are easier to express views in otherwise less. So again, 0:08:59.160 --> 0:09:01.000 it just really I'm glad. 0:09:00.840 --> 0:09:04.079 You mentioned AI and software. That is something we spend 0:09:04.080 --> 0:09:08.400 a lot of time talking about. But the software story, 0:09:08.480 --> 0:09:10.120 I mean, it started off as a bit of a 0:09:10.240 --> 0:09:12.560 shock to everyone, and everyone wanted to get out, and 0:09:12.600 --> 0:09:15.800 then there was a kind of counter movement where everyone 0:09:15.880 --> 0:09:18.480 kind of got back in realized that that software generally 0:09:18.520 --> 0:09:20.760 wasn't worthless. You know, these companies, a lot of them 0:09:20.800 --> 0:09:25.480 were utilities, and that they would actually survive. But it 0:09:25.520 --> 0:09:27.520 sounds like you have a more sort of bearish view 0:09:27.559 --> 0:09:29.240 on the sector, and I'm wondering, you know, in terms 0:09:29.280 --> 0:09:32.120 of you do expect more defaults, you expect less recovery. 0:09:32.120 --> 0:09:33.800 Do you expect to kind of wipe out in that 0:09:33.840 --> 0:09:36.839 sector at this at this point, hate hate to repeat. 0:09:36.840 --> 0:09:39.840 It depends on the name. I mean, I think we 0:09:39.960 --> 0:09:43.960 are definitely bearish on the sector. But that's also because 0:09:44.000 --> 0:09:48.400 of how quickly we internally are starting to utilize you know, 0:09:48.440 --> 0:09:52.600 the technological tools that you know AI is giving us, 0:09:53.240 --> 0:09:55.320 and you know, I'm sure that you know many of 0:09:55.360 --> 0:09:58.480 the listeners and and you know yourselves at Bloomberger are 0:09:58.520 --> 0:10:02.000 doing the same. And so in some cases you will 0:10:02.040 --> 0:10:06.680 have the ability for you know, software providers to to 0:10:06.760 --> 0:10:11.000 really reduce their costs because you know, their development costs 0:10:11.040 --> 0:10:13.959 you know, are going down as as they can code 0:10:14.000 --> 0:10:17.320 you know, more efficiently, and that will enhance their margins 0:10:17.360 --> 0:10:20.120 and and they will do well. Yeah, in other cases, 0:10:20.960 --> 0:10:26.280 you know, they're very vulnerable to disruption, and you know, 0:10:26.360 --> 0:10:28.640 so I think we are on the more barish end, 0:10:29.160 --> 0:10:31.800 you know, when it comes to to this sector overall. 0:10:32.040 --> 0:10:34.679 And you know, just to address your question about you know, 0:10:34.760 --> 0:10:37.680 the quick sell off and then the recovery, I think 0:10:38.080 --> 0:10:41.120 it's it's definitely worth sort of mentioning that, you know, 0:10:41.480 --> 0:10:45.959 the software business, especially if it's based on subscription. It's 0:10:46.000 --> 0:10:48.760 not like it goes away in the space of one quarter. 0:10:49.600 --> 0:10:52.200 I mean, that's that's the nature of the business. And 0:10:52.440 --> 0:10:54.280 you know, we're very early in the software or is 0:10:54.320 --> 0:10:57.240 there in the AI sort of utilization boom, and people 0:10:57.280 --> 0:10:59.600 need to think about how many tokens you know, they're 0:10:59.640 --> 0:11:04.960 they're buying and spending money on. But you know, over time, 0:11:05.480 --> 0:11:08.640 you know, particularly if you take software, you know, in 0:11:08.720 --> 0:11:12.199 the sort of leverage finance space, you know, these are 0:11:12.240 --> 0:11:15.960 often a bit smaller. You know, they're higher leveraged companies, 0:11:16.559 --> 0:11:20.160 slightly more vulnerable in terms of disruption. And if you 0:11:20.240 --> 0:11:22.760 have a big maturity that's coming up in a couple 0:11:22.800 --> 0:11:25.840 of years time, I'm sure you've you've seen, you know, 0:11:25.880 --> 0:11:29.840 there's about a twenty percent maturity cliff in twenty twenty eight, 0:11:30.200 --> 0:11:33.199 and that's a very self selecting group of companies that 0:11:33.280 --> 0:11:37.040 are are subject to that. You know that refinancing is 0:11:37.080 --> 0:11:41.000 going to be harder, and you know, if you just 0:11:41.120 --> 0:11:44.679 look at these names on the basis of are they 0:11:44.760 --> 0:11:48.040 paying their current income, what is you know, this quarter's earnings, 0:11:48.480 --> 0:11:52.280 you know then obviously you know big price falls is unjustified. 0:11:52.679 --> 0:11:55.400 But if you're thinking ahead and thinking about the terminal value. 0:11:55.800 --> 0:11:58.520 Then it's different. And you know, I think a great 0:11:58.559 --> 0:12:02.520 way to illustrate that is you think about, you know, 0:12:02.600 --> 0:12:08.600 where secondary buyout funds are pricing, or even just what's 0:12:08.600 --> 0:12:10.960 happening in the equity markets. It sort of tells you 0:12:11.000 --> 0:12:13.160 that all is not well, you know, in that sector 0:12:13.280 --> 0:12:15.120 in general, and a. 0:12:15.160 --> 0:12:17.760 Nasset like sector of course, which is something that you 0:12:17.800 --> 0:12:21.400 guys have brought up about one of the kind of 0:12:21.400 --> 0:12:24.960 structural problems with the portfolios in private credit right now. 0:12:25.920 --> 0:12:29.120 Yeah, and look, I think you know, private credit, you know, 0:12:29.240 --> 0:12:32.920 as sort of a tangent, you know, was a phenomenally 0:12:33.400 --> 0:12:38.040 successful business for a long time, I mean last ten 0:12:38.120 --> 0:12:41.440 years really, but you know, in a way it was 0:12:41.480 --> 0:12:43.800 a victim of its own success. You know, they've seen 0:12:44.280 --> 0:12:47.760 a lot of inflows and so it became very deployment focused, 0:12:47.920 --> 0:12:53.160 and the easiest way to deploy was in large software deals, 0:12:53.200 --> 0:12:54.959 you know, particularly in the sort of twenty one twenty 0:12:55.000 --> 0:12:58.199 two boom. So if you've ended up with a lot 0:12:58.240 --> 0:13:01.240 of that in your portfolio, then you know you're going 0:13:01.280 --> 0:13:02.760 to be scratching your head a little bit now and 0:13:02.800 --> 0:13:04.960 thinking like how do I get out of this? And 0:13:05.040 --> 0:13:06.839 of course, you know, it's very much in your interest 0:13:07.000 --> 0:13:10.520 to believe that these credits are all performing and there's 0:13:10.559 --> 0:13:12.840 nothing wrong. You know, time will tell. 0:13:14.360 --> 0:13:17.880 And do you expect much lower recovery rates than what 0:13:18.080 --> 0:13:19.200 people are currently assuming. 0:13:20.559 --> 0:13:24.800 Well, I think one thing that hopefully market pisipits are 0:13:24.960 --> 0:13:28.240 very aware of is that the there's been a big 0:13:28.280 --> 0:13:31.839 divergence over the last you know, five years in terms 0:13:31.840 --> 0:13:36.400 of the credit quality on loans and bonds and you 0:13:36.440 --> 0:13:40.600 know loans, both BSL loans and private credit loans, although 0:13:40.640 --> 0:13:45.840 obviously there's less information available in private credit, you know, 0:13:45.880 --> 0:13:48.680 where the bond market, you know, because of the discipline 0:13:48.880 --> 0:13:52.320 of ratings and you know mark to markets and and 0:13:52.920 --> 0:13:58.079 daily liquidity has trended to becoming higher quality in terms 0:13:58.080 --> 0:14:03.280 of ratings, and the BSL market has tended to become 0:14:03.440 --> 0:14:06.640 lower quality, you know, because you've just been able to 0:14:06.679 --> 0:14:09.320 do you know, more sort of qute unquote creative things 0:14:09.360 --> 0:14:12.960 there and so, uh, you know, we do think that 0:14:13.000 --> 0:14:16.440 there's going to be you know, more stress in the 0:14:16.520 --> 0:14:20.800 loan market, but again, you know that that creates opportunity 0:14:20.880 --> 0:14:25.480 because you know, there's a right price to enter a 0:14:26.240 --> 0:14:29.320 credit that's under stress, you know where you know it 0:14:29.360 --> 0:14:31.800 may not have asset value, but maybe it persists longer 0:14:31.840 --> 0:14:34.400 than you think, or you have a great match mean 0:14:34.480 --> 0:14:36.760 team that's able to turn around, or you know, and 0:14:36.800 --> 0:14:39.760 there's some very super I mean very smart you know 0:14:40.000 --> 0:14:44.800 equity sponsors who are good at building businesses and restructuring. 0:14:44.840 --> 0:14:48.400 So yeah, again it's very situational in terms of you 0:14:48.440 --> 0:14:49.320 know how to invest in them. 0:14:49.360 --> 0:14:51.320 Yeah, and that brings me on to the question we 0:14:51.800 --> 0:14:54.440 have about the kind of refinancing. Well, you touched on 0:14:54.480 --> 0:14:59.760 it earlier. John Eyrewood, obviously founder of Sona said last 0:14:59.840 --> 0:15:02.360 year at about one hundred billion dollars of European leverage 0:15:02.360 --> 0:15:05.840 credit issued by Pe firms or struggle to refinance before 0:15:05.840 --> 0:15:09.360 it matures in twenty twenty eight, do you have a 0:15:09.440 --> 0:15:12.040 kind of update on that view, and then maybe just 0:15:12.080 --> 0:15:17.480 talk us through what's Sona's approach to kind of evaluating 0:15:17.520 --> 0:15:20.240 that risk or all of those issues coming to market, 0:15:20.560 --> 0:15:23.640 and what's your edge compared to maybe your peers in 0:15:24.600 --> 0:15:25.560 how you would look at that. 0:15:27.800 --> 0:15:31.480 So I think Sona's edge and I speak as a 0:15:31.600 --> 0:15:35.480 relatively recent arrival who's not making investments, So you know, 0:15:35.480 --> 0:15:37.560 please take this, you know, with a with a grain 0:15:37.600 --> 0:15:41.400 of salt, but I think the reason for the firm's 0:15:41.400 --> 0:15:46.160 success is that it essentially thinks of itself and is 0:15:46.200 --> 0:15:53.000 perceived by a lot of its sort of counterparties as 0:15:53.120 --> 0:15:56.840 as a solution provider. And you know, that solution can 0:15:56.880 --> 0:16:01.720 be anything from anchoring a new issue, you know, to 0:16:01.880 --> 0:16:06.440 d risk a bank underwrite, you know, to supporting a 0:16:06.480 --> 0:16:10.000 sponsor in a amend and extent they want to do 0:16:11.000 --> 0:16:14.640 for for a b SL and and sort of anything 0:16:14.800 --> 0:16:18.320 in between, or de risking a bank by investing in 0:16:19.040 --> 0:16:21.920 an SRT, you know, to help them recycle capital for 0:16:22.000 --> 0:16:24.280 something that they want to do. So you know, we 0:16:24.280 --> 0:16:27.600 we sort of do all of those things. And you know, 0:16:27.800 --> 0:16:32.440 to maintain that, you know that view by our counterparties, 0:16:32.840 --> 0:16:35.440 you need to have scale, so you know, they need 0:16:35.480 --> 0:16:38.240 to be able to come to us and feel like, 0:16:38.840 --> 0:16:41.200 you know, even if we're not doing the whole solution, 0:16:41.640 --> 0:16:43.440 we're a significant part of it. So it's not a 0:16:43.480 --> 0:16:45.960 waste of time to to sort of get us on board. 0:16:47.560 --> 0:16:52.280 It requires obviously, you know, fundamental analysis, you know, to 0:16:52.600 --> 0:16:57.800 understand what you're getting yourself into. And it also requires, 0:16:58.080 --> 0:17:01.200 and this is really the thing that we think is 0:17:01.240 --> 0:17:04.920 most critical, you know, a broad view across public and 0:17:05.000 --> 0:17:08.600 private markets, so we can think about how to price 0:17:08.680 --> 0:17:12.360 risk appropriately, you know, kind of everywhere that that touches 0:17:12.400 --> 0:17:14.679 this credit, you know, whether that's you know, in the 0:17:14.720 --> 0:17:18.240 BSL market, you know what's going on in private credit, 0:17:18.280 --> 0:17:21.399 and also in the public markets, and so you know, 0:17:21.640 --> 0:17:26.679 the combination of those three things means that often we 0:17:26.720 --> 0:17:31.080 are in a position where, certainly in Europe and increasingly 0:17:31.119 --> 0:17:33.320 in the US, you know, we are coming up with 0:17:33.359 --> 0:17:39.320 solutions in partnership, you know, with our relationships as opposed 0:17:39.320 --> 0:17:42.480 to you know, being the fund that someone calls up, 0:17:42.600 --> 0:17:46.720 you know and says, this is what's happening, and you know, 0:17:47.280 --> 0:17:51.639 again that requires being very you know, fast in responses. 0:17:51.920 --> 0:17:54.080 I remember when I was on the cell side. You know, 0:17:54.080 --> 0:17:56.680 the thing I probably hated the most was getting strung 0:17:56.720 --> 0:17:59.439 along for a few weeks by fund and then getting 0:17:59.480 --> 0:18:02.359 told no. You know, I'd much rather have a fast 0:18:02.520 --> 0:18:04.560 no and then move on or know that I'm wrong. 0:18:05.520 --> 0:18:08.320 You know, fast know, in many cases is as good 0:18:08.440 --> 0:18:11.960 or almost as good as a yes. And then you know, 0:18:12.040 --> 0:18:15.919 again like being there not based on whether the market 0:18:16.040 --> 0:18:18.600 has moved five basis points that day, but having done 0:18:18.680 --> 0:18:21.200 a fundamental credit analysis that you stick with your view 0:18:21.200 --> 0:18:22.600 because it's a high conviction view. 0:18:22.800 --> 0:18:25.600 But is the edge more that you kind of get 0:18:25.640 --> 0:18:27.879 involved in the smaller situations as well, because you know, 0:18:27.960 --> 0:18:30.040 what you're describing is pretty much what you know, all 0:18:30.040 --> 0:18:32.320 the banks would say, including JP Morgan, that they offer 0:18:32.320 --> 0:18:35.000 across the board service, but you must be doing a 0:18:35.000 --> 0:18:37.480 different scale of business right in the middle market. 0:18:37.800 --> 0:18:39.520 Well, I think what I mean by that is that 0:18:41.160 --> 0:18:45.199 while many banks have obviously a very broad business model, 0:18:45.560 --> 0:18:47.920 even though not all of them are particularly well joined 0:18:48.000 --> 0:18:50.120 up between the different types of things that they do, 0:18:50.800 --> 0:18:53.560 there's not that many people on the by side, and yes, 0:18:53.640 --> 0:18:56.840 certainly in Europe that have the broad, unconstrained mandate that 0:18:56.880 --> 0:18:59.640 we do. And you know, again we touched on AI. 0:19:00.160 --> 0:19:03.520 You know, we're we're very active in you know, all 0:19:03.560 --> 0:19:07.240 sorts of types of AI investments, you know, many in 0:19:07.240 --> 0:19:11.000 the US, increasingly in Europe. We're also you know, very 0:19:11.000 --> 0:19:13.680 active in the new issue market. You know, we're a 0:19:13.680 --> 0:19:17.639 big trader in the secondary market. So it's really just 0:19:17.680 --> 0:19:22.240 that we're constantly ingesting information and getting signals you know, 0:19:22.320 --> 0:19:24.680 from the kind of investments that we're doing or or 0:19:24.680 --> 0:19:27.720 frankly investments that we choose not to do. And you know, 0:19:27.800 --> 0:19:30.520 that's what gives us that that sort of fundamental conviction. 0:19:31.200 --> 0:19:34.760 And you know, we're also relatively focused on you know, 0:19:34.840 --> 0:19:38.479 liquidity and you know, making sure that you know, something 0:19:38.600 --> 0:19:41.000 is you know, whatever it is that we're doing is 0:19:41.440 --> 0:19:44.280 appropriate in terms of liquidity for the strategy that we 0:19:44.359 --> 0:19:46.920 invest in. Yeah, and obviously we have a number of 0:19:46.920 --> 0:19:50.240 different buckets that we can use as investing vehicles. 0:19:50.520 --> 0:19:52.360 But the scale of these deals and you mentioned AI, 0:19:52.400 --> 0:19:54.480 I mean I've talked to an underwriter recently who said 0:19:54.520 --> 0:19:57.240 that quote, some of these issues wouldn't get out of 0:19:57.240 --> 0:20:00.000 bed for less than twenty five billion, which is a huge, 0:20:00.600 --> 0:20:03.480 you know evolution even compared to last year. And so 0:20:03.720 --> 0:20:06.679 like we're talking about massive, massive, you know, a multi 0:20:06.680 --> 0:20:11.440 trillion dollar investment cycle. How does a you know, relatively 0:20:11.600 --> 0:20:13.639 niche shop like Sonar participate in that. 0:20:13.920 --> 0:20:17.399 Well, I'm glad you asked that question, James, because I 0:20:17.480 --> 0:20:21.720 think we're everything other than niche in the world that 0:20:21.760 --> 0:20:27.320 we're in, you know, the and maybe touching a little 0:20:27.320 --> 0:20:31.320 bit on the on the kind of the AI CAPEX needs. 0:20:31.359 --> 0:20:34.640 So I think you know, people are banding around different numbers, 0:20:34.720 --> 0:20:36.959 you know, whether it's you know, eight hundred or nine 0:20:37.040 --> 0:20:40.640 hundred billion that needs to get financed in CAPEX next year. 0:20:41.160 --> 0:20:44.120 Now what that means is that the largest bar wars 0:20:44.160 --> 0:20:46.800 you know, in the investment grade bond market you know, 0:20:47.080 --> 0:20:51.679 are going to become you know, potentially the hyperscalers in 0:20:52.160 --> 0:20:53.960 uh you know, the course of you know, three to 0:20:54.040 --> 0:20:57.800 four years. But the investment grade bond market, you know, 0:20:58.040 --> 0:21:02.440 I unsecured that issue directly by the hyperscalers to finance 0:21:02.480 --> 0:21:05.320 the CAPEX is only a small part of the story. 0:21:05.680 --> 0:21:10.560 You know. It's everything from construction lending to GPU financing, 0:21:10.800 --> 0:21:16.560 to you know, HILD bonds, to various you know, securitization vehicles. 0:21:16.920 --> 0:21:18.639 You know, all of this is coming at us and 0:21:18.640 --> 0:21:22.320 that is what's creating you know, this incredible opportunity to 0:21:22.480 --> 0:21:26.920 invest money. And you know, for fund like us, I 0:21:27.160 --> 0:21:29.639 suppose we're niche in the sense that we are not 0:21:29.800 --> 0:21:34.600 managing a trillion, But you know what that also means 0:21:34.840 --> 0:21:38.959 is that for the opportunities that we pick to invest in, 0:21:39.359 --> 0:21:42.439 we can be very meaningful. And so you know, the 0:21:42.480 --> 0:21:44.440 reason we're so excited about what's going on in the 0:21:44.480 --> 0:21:48.520 world again, particularly in that space, is because the amount 0:21:48.560 --> 0:21:53.040 of opportunities that you get shown because banks, I mean 0:21:53.600 --> 0:21:58.080 a fundamental difference between bank and you know, debt financing 0:21:58.200 --> 0:22:04.440 equity financing generally is that banks and credit funds typically 0:22:04.520 --> 0:22:08.440 don't allow the kind of concentration that equity markets allow. 0:22:08.520 --> 0:22:11.560 So you have to have diversifications. So there's no institution 0:22:11.720 --> 0:22:14.679 on earth that could absorb, you know, all of the 0:22:14.720 --> 0:22:19.280 amount of debt requirements that that's coming. And so by 0:22:19.359 --> 0:22:22.560 having very strong sourcing relationships and you know, some of 0:22:22.560 --> 0:22:24.840 that edge that I mentioned, we're able to pick and 0:22:24.920 --> 0:22:27.960 choose the things that we really like, and you know, 0:22:28.040 --> 0:22:31.320 if there's something that we don't like, then you can 0:22:31.440 --> 0:22:34.400 just move on because you can be confident that next 0:22:34.440 --> 0:22:37.720 week someone else is going to show you a different 0:22:37.760 --> 0:22:40.000