WEBVTT - Hurt People Hurt People: SBUX, LMEs, BofA 0:00:03.120 --> 0:00:10.760 Bloomberg Audio Studios, Podcasts, radio news, A little behind the 0:00:10.800 --> 0:00:14.160 scenes Money Stuff podcast. Here we are waiting for me 0:00:14.480 --> 0:00:16.520 to hit send on the Money Stuff email. 0:00:16.880 --> 0:00:18.959 A peek behind the curtain if you will. 0:00:21.320 --> 0:00:24.200 Hello, and welcome to the Money Stuff Podcast, your weekly 0:00:24.239 --> 0:00:28.400 podcast where we talk about stuff related to money. I'm 0:00:28.440 --> 0:00:30.360 Matt Levine and I heard the Money Stuff column for 0:00:30.440 --> 0:00:31.280 Bloomberg Opinion. 0:00:31.520 --> 0:00:33.920 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:33.960 --> 0:00:35.519 an anchor for Bloomberg Television. 0:00:35.880 --> 0:00:37.560 Katie, how was friends? 0:00:37.800 --> 0:00:41.000 Oh my god, Matt, it was the best. I went 0:00:41.040 --> 0:00:43.920 to the Olympics. As we said from the last time 0:00:43.920 --> 0:00:46.839 we did this, I went to the Olympics as a 0:00:46.920 --> 0:00:49.519 horrorse I did super good in my event, but in 0:00:49.520 --> 0:00:52.000 a more real sense, I went as a human and 0:00:52.360 --> 0:00:54.520 I went to go watch track and field. It's a 0:00:54.600 --> 0:00:56.800 huge bummer not being at the Olympics. 0:00:57.040 --> 0:00:58.200 I thought you were going to say it's a huge 0:00:58.240 --> 0:01:01.520 bummer that you didn't participate as a human. 0:01:02.000 --> 0:01:04.800 I mean, just in general, it is a huge bummer 0:01:04.840 --> 0:01:07.039 that I am not a horse, but also that I'm 0:01:07.080 --> 0:01:10.200 not a good enough athlete to compete at the Olympics. 0:01:10.200 --> 0:01:12.679 But then I think, actually, I have this podcast that 0:01:12.760 --> 0:01:15.399 I do every week with Matt Levine, So it's not 0:01:15.440 --> 0:01:15.920 that bad. 0:01:16.760 --> 0:01:17.720 Cats and apples. 0:01:17.720 --> 0:01:19.560 That's great, that's true. I get treats. 0:01:22.640 --> 0:01:26.880 This is the between vacations money stuff podcast because I'm 0:01:26.920 --> 0:01:29.680 going to be off next week going to the beach, 0:01:30.280 --> 0:01:34.480 and you're that's incredible. Yes. So it's almost like we 0:01:34.560 --> 0:01:37.480 could have just taken August off, but instead we're doing 0:01:37.480 --> 0:01:39.720 this one. I know here we are doing this one 0:01:39.880 --> 0:01:43.800 despite it being the mid August money stuff. There is 0:01:43.880 --> 0:01:44.399 some news. 0:01:44.760 --> 0:01:45.800 Should I tell you about it? 0:01:46.120 --> 0:01:47.320 Yeah? Why don't you tell me about it? 0:01:48.160 --> 0:01:50.800 Okay, We're going to talk about Starbucks and they're very 0:01:50.880 --> 0:01:54.600 expensive new CEO. Yes, we're going to talk about creditor 0:01:54.640 --> 0:01:58.680 on creditor violence, which is pretty exciting. And then we're 0:01:58.680 --> 0:02:01.559 going to talk about Bank of a America and the long, 0:02:02.320 --> 0:02:04.440 long hours that their junior bankers work. 0:02:04.640 --> 0:02:08.720 All right, So Starbucks, Starbucks. 0:02:08.720 --> 0:02:11.680 So this was a big one. Basically, Brian Nichols, he 0:02:11.840 --> 0:02:15.840 was the CEO of Chipotle. He's been CEO since March 0:02:15.880 --> 0:02:19.919 twenty eighteen. He's moving over to Starbucks as their chief 0:02:19.919 --> 0:02:23.400 executive officer but also as chairman of their board, which 0:02:23.880 --> 0:02:25.400 I mean there's so many different ways we could talk 0:02:25.440 --> 0:02:28.720 about this. From governance like you discussed in the Money 0:02:28.760 --> 0:02:32.640 Stuff newsletter. There's also just the sheer amount of money 0:02:32.800 --> 0:02:35.440 that he's making, which is a lot. And then there's 0:02:35.480 --> 0:02:38.680 also the fact that he's going to be a remote CEO, 0:02:39.080 --> 0:02:40.520 which is also super interesting. 0:02:41.080 --> 0:02:45.200 Also invented like Durrita's Locos tacos. He's like a marketing 0:02:45.200 --> 0:02:48.440 guy who came up at both Pizza Hut and Taco Bell, 0:02:48.919 --> 0:02:52.040 and I think they view him as a visionary of 0:02:52.080 --> 0:02:56.400 like funding products to market at food restaurants. So that's exciting. 0:02:56.520 --> 0:02:59.959 I kind of get more the inventor of the Daria 0:03:00.240 --> 0:03:03.440 Locos taco I hope I got that right. Going to Chipotle. 0:03:03.639 --> 0:03:06.560 Starbucks is a different animal. Starbucks has been in the 0:03:06.639 --> 0:03:09.679 hurt locker for a couple of years now. It has 0:03:09.720 --> 0:03:11.919 spawned a lot of good jokes on social media. I 0:03:11.960 --> 0:03:15.200 saw someone tweet that they're going to start charging for 0:03:15.400 --> 0:03:17.440 extra milk at Starbucks. 0:03:17.200 --> 0:03:20.240 Right, Chaps, Like main thing in pop culture is like 0:03:20.400 --> 0:03:23.440 portion sizes, and so yeah, well, I don't know how 0:03:23.520 --> 0:03:25.400 you carry that over to it's tart. 0:03:25.639 --> 0:03:28.600 Yeah, he did work magic over at Chipotle. At least 0:03:28.639 --> 0:03:30.600 when it comes to the stock price. I was looking 0:03:30.600 --> 0:03:33.200 at the numbers before I came to this little room 0:03:33.240 --> 0:03:37.320 to record this podcast. And since March twenty eighteen through 0:03:37.400 --> 0:03:42.080 Monday's close, Chipotle stock was up something like eight hundred 0:03:42.160 --> 0:03:46.360 percent versus Starbucks being up like fifty six percent over 0:03:46.360 --> 0:03:49.440 that timeframe, obviously underperforming the S and P five hundred 0:03:49.720 --> 0:03:54.440 and massively underperforming Chipotle. So it makes sense that the 0:03:54.440 --> 0:03:57.880 Starbucks board was like, Wow, things aren't going too well 0:03:57.960 --> 0:04:00.680 right now. Who's really crushing it the industry? 0:04:00.880 --> 0:04:03.560 Yeah, I mean it's like such a good illustration of 0:04:03.600 --> 0:04:06.280 the possibility of CEO talent, right, I mean, it's all 0:04:06.400 --> 0:04:08.600 it sort of seems abstract from the outside. But then 0:04:08.680 --> 0:04:11.040 like you see, like you know, there's two companies that 0:04:11.080 --> 0:04:14.880 are and you know, probably comparable businesses. One is doing 0:04:15.440 --> 0:04:20.080 really well, one is doing less well, and they picked 0:04:20.080 --> 0:04:22.080 the good CEO to run the bigger company, right, I mean, 0:04:22.120 --> 0:04:24.160 like you know, you talked about the money he's getting 0:04:24.160 --> 0:04:26.839 paid something like one hundred and thirteen million dollars, Like 0:04:27.000 --> 0:04:30.400 that's the valuation of his package to come from Chipotle 0:04:30.480 --> 0:04:34.839 to Starbucks. When they announced him, Starbucks stock was up 0:04:36.240 --> 0:04:39.480 twenty billion dollars, like it was up, you know, like 0:04:39.560 --> 0:04:42.159 twenty added like twenty billion dollars of market cap, which 0:04:42.200 --> 0:04:44.479 is like he's a bargain at one hundred million dollars, right, 0:04:44.560 --> 0:04:47.719 If the difference in CEO talent and CEO skill is 0:04:48.400 --> 0:04:51.360 twenty billion dollars of market cap, then like, of course 0:04:51.440 --> 0:04:54.440 it makes sense for him to move. Also, it's like interesting, 0:04:54.440 --> 0:04:57.080 you know, Chipotle lost like six billion dollars of market cap, 0:04:57.120 --> 0:04:59.400 so it was like an efficiency enhancing trade, right if 0:04:59.400 --> 0:05:01.680 you just go to this prices right, Like he had 0:05:01.720 --> 0:05:03.880 sort of done his work at Chipotle, he'd righted the ship, 0:05:04.240 --> 0:05:07.360 and him leaving Chipotle was sad, but not that sad, 0:05:07.480 --> 0:05:10.640 whereas him going to Starbucks was like extremely good for Starbucks. 0:05:10.720 --> 0:05:14.280 So you know, everyone's a sort of long term winner. 0:05:14.360 --> 0:05:16.720 I guess, yeah, it was a good pair trade to make, 0:05:16.800 --> 0:05:20.560 specifically on Tuesday, with Starbucks stock up I don't know, 0:05:20.720 --> 0:05:24.440 a bazillion percent and Chipotle down by almost double digits. 0:05:24.839 --> 0:05:27.360 But I mean, it's going to be fascinating to see 0:05:27.880 --> 0:05:31.279 what he does at Starbucks. It is in the same industry. 0:05:31.400 --> 0:05:34.120 Coffee is different from burritos though, and also, as you 0:05:34.120 --> 0:05:37.440 wrote about in the newsletter, he has to contend with 0:05:37.880 --> 0:05:40.640 the former CEO as well the founder. His name is 0:05:40.640 --> 0:05:41.320 Howard Schultz. 0:05:41.640 --> 0:05:44.359 Yeah, he's been CEO I think three times now. He 0:05:44.680 --> 0:05:48.080 keeps going back after they're unhappy with other CEOs, and 0:05:48.160 --> 0:05:49.760 he's a big shareholder. He has like a lot of 0:05:49.880 --> 0:05:53.400 kind of retained influence over the board and like ability 0:05:53.480 --> 0:05:57.720 to kind of kibbets and Starbucks operations and send emails 0:05:57.760 --> 0:05:59.680 to the CEO. I Mean, one thing I wrote about 0:05:59.800 --> 0:06:03.000 is like Brian Nichol is going to have more power 0:06:03.240 --> 0:06:05.400 than the previous CEO did. Right, He's going to be 0:06:05.400 --> 0:06:07.159 the chairman of the board. He's going to be paid 0:06:07.200 --> 0:06:09.800 a bucket of money, and he's gonna work from home 0:06:09.920 --> 0:06:12.280 because I mean, he's not going to have to move 0:06:12.320 --> 0:06:14.560 to Seattle to their headquarters. He's gonna kind of set 0:06:14.600 --> 0:06:16.240 up a remote office by his house. 0:06:16.520 --> 0:06:18.360 And Newport Beach. Baby. 0:06:18.640 --> 0:06:21.159 Yeah. It like insulates him a little bit from the board. 0:06:21.160 --> 0:06:24.040 It gives him a little bit more like Imperial CEO power, 0:06:24.400 --> 0:06:26.840 and probably also insulates them a little bit from Harart Schultz. Right, 0:06:26.880 --> 0:06:29.359 Like I don't know what the conversations between him and 0:06:29.360 --> 0:06:31.039 the board were like, but I imagine they were like, 0:06:31.080 --> 0:06:32.880 you can't have that guy emailing me at all hours 0:06:32.920 --> 0:06:35.640 telling me what to do. Like, if you want the 0:06:35.680 --> 0:06:37.839 magic that I brought to Chappola, you have to kind 0:06:37.839 --> 0:06:39.600 of lead me alone and let me do it and 0:06:39.800 --> 0:06:41.719 have the leverage to ask for that. What I wrote 0:06:41.760 --> 0:06:45.080 is like, abstractly, like shareholders want good governance at public companies, right, 0:06:45.120 --> 0:06:47.479 And like one thing that good governance means is like 0:06:47.520 --> 0:06:51.080 there's an engaged board that supervises the CEO, and if 0:06:51.080 --> 0:06:53.200 the CEO isn't doing well, they get rid of him 0:06:53.240 --> 0:06:55.960 and get someone else. And that kind of looks like 0:06:56.000 --> 0:06:58.120 what happened here, right, I mean, there's an independent board. 0:06:58.520 --> 0:07:00.960 They talked among themselves and talked to the CEO. They 0:07:01.000 --> 0:07:02.520 were like, we don't like this guy. He's not doing 0:07:02.520 --> 0:07:04.800 well enough. We're gonna find someone else. And they went 0:07:04.800 --> 0:07:06.400 out and found someone else, and they found a guy 0:07:06.440 --> 0:07:09.120 who you know, made the stock up by twenty billion dollars. Right, 0:07:09.120 --> 0:07:11.360 So they've found someone who the market seems to think 0:07:11.440 --> 0:07:15.880 is a really good choice. But to get him, they 0:07:15.920 --> 0:07:17.440 have to give up some of that governance, right, Like, 0:07:17.480 --> 0:07:19.640 they built up some governance to sort of get to 0:07:19.640 --> 0:07:21.240 the place where they are, and then they have to 0:07:21.280 --> 0:07:23.880 spend some of that governance to get a really good CEO, right, 0:07:23.880 --> 0:07:25.680 because like they get a really good CEO, you're like, 0:07:25.920 --> 0:07:28.080 we're putting the company in your hands now. And you 0:07:28.120 --> 0:07:30.160 see that with like he's gonna be the chairman of 0:07:30.200 --> 0:07:32.040 the board. But also you see it with like the 0:07:32.080 --> 0:07:35.520 pay package and the not having to relocate. He's just like, 0:07:36.480 --> 0:07:38.239 this is gonna be a little bit more his company 0:07:38.240 --> 0:07:40.040 than it was the previous CEO's company. 0:07:40.160 --> 0:07:43.320 Yeah. I mean, he did agree to commute to Seattle 0:07:43.400 --> 0:07:45.560 as much as needed to do the job, and I 0:07:45.600 --> 0:07:47.600 do wonder what that will look like in practice. 0:07:47.840 --> 0:07:50.640 But he gets to decide, right, he's the CEO. I 0:07:50.640 --> 0:07:52.840 mean probably a lot, right, I mean, like he's not 0:07:52.880 --> 0:07:54.800 gonna be like lazy about it, but like, yeah, he's 0:07:54.800 --> 0:07:56.840 the CEO. Where is that gonna be checking up on 0:07:56.880 --> 0:07:57.600 him every week? 0:07:57.840 --> 0:08:00.480 Yeah? I do think it's interesting the juxtap issi that 0:08:00.840 --> 0:08:04.640 he will be in Newport Beach, California, and Starbucks required 0:08:04.640 --> 0:08:07.520 of their white collar employees that they need to be 0:08:07.560 --> 0:08:09.800 in the office at least three days a week at 0:08:09.840 --> 0:08:12.600 the beginning of last year. I feel like that might 0:08:12.640 --> 0:08:16.040 be harder to enforce when you have a remote CEO. 0:08:16.080 --> 0:08:18.560 But well, he might change the previous guy's policy. He 0:08:18.600 --> 0:08:21.280 might change the policy. Yeah, But it also reminds me 0:08:21.320 --> 0:08:24.160 of this story about David Solomon, the CEO of Colbyn. 0:08:24.360 --> 0:08:27.080 This is like two summers ago or something. He went 0:08:27.120 --> 0:08:30.320 around complaining that he was at a restaurant having lunch 0:08:30.400 --> 0:08:34.199 in the Hampton's and like associated Colbyn came up to 0:08:34.240 --> 0:08:36.040 him and introduced themselves and said, Hi, I work at 0:08:36.120 --> 0:08:39.800 Colvin too, you're the CEO. And Solomon was so offended 0:08:39.800 --> 0:08:42.880 because he's like, what are you doing having lunch at 0:08:42.880 --> 0:08:46.360 a restaurant in the Hamptons during the week, Like, shouldn't 0:08:46.360 --> 0:08:48.560 you be doing work? And he's like telling this anecdote 0:08:48.559 --> 0:08:50.560 to everyone and looks like a grieved tone. People are, well, 0:08:50.840 --> 0:08:52.920 you were there too, write like what what are you 0:08:52.960 --> 0:08:57.200 complaining about? I don't know. Also, like you know, one 0:08:57.240 --> 0:09:00.400 reason to follow the coming into the office policy is 0:09:00.440 --> 0:09:02.560 like you might run into the CEO there, and if 0:09:02.600 --> 0:09:04.920 he because while you're desking, you're not there, I'll get mad. 0:09:05.200 --> 0:09:07.520 But if he's not there, it's a little easier to 0:09:07.520 --> 0:09:08.319 not be there yourself. 0:09:08.920 --> 0:09:11.560 That's true. That's true. You kind of don't have the 0:09:11.600 --> 0:09:13.800 moral high ground there. So we'll see if he changes that. 0:09:14.080 --> 0:09:17.320 I do want to talk about the economy a little bit, 0:09:18.320 --> 0:09:21.960 if you'll indulge me. There's this great story on the 0:09:22.080 --> 0:09:26.199 terminal about CEO turnover. So there's one hundred and ninety 0:09:26.240 --> 0:09:28.880 one CEOs who have left companies in the Russell two 0:09:28.880 --> 0:09:32.360 thousand index this year. Stay with me. Seventy four of 0:09:32.400 --> 0:09:35.000 them were considered to be fired or forced out. That 0:09:35.120 --> 0:09:38.160 apparently is the most at this time of year since 0:09:38.200 --> 0:09:41.600 the beginning of this data set in twenty seventeen. So 0:09:42.120 --> 0:09:44.080 we are at a moment where it feels like a 0:09:44.080 --> 0:09:47.920 lot of CEOs are being fired, and I think that 0:09:48.200 --> 0:09:51.600 kind of says something about the economic environment that we're in. 0:09:51.760 --> 0:09:53.880 I don't know what exactly, but I'm putting the thought 0:09:53.920 --> 0:09:54.320 out there. 0:09:55.280 --> 0:10:00.920 I'm sorry, Okay, I need no, I'm sorry, I need 0:10:00.960 --> 0:10:03.640 to take one minute to send my newsletter. 0:10:06.360 --> 0:10:08.600 Let's leave this minute in here, of. 0:10:08.480 --> 0:10:11.559 Cour I think we're just like right, so we can 0:10:11.640 --> 0:10:13.680 leave both my asking for a minute and also the 0:10:13.720 --> 0:10:17.280 awkward silence and joke's during this minute, and like the 0:10:17.360 --> 0:10:20.439 cooking of the keys, like this is the behind the 0:10:20.480 --> 0:10:22.120 scenes money stef contact that you came for. 0:10:23.520 --> 0:10:26.120 Well, thinking more about the economy, you know, we are 0:10:26.160 --> 0:10:28.120 in the heart of earning season, and it just feels 0:10:28.120 --> 0:10:33.040 like there are a lot of idio syncretic issues that 0:10:33.120 --> 0:10:36.480 keep popping up earnings calls, like it's hard to paint 0:10:36.559 --> 0:10:39.320 any one industry with a broad brushtroke right now. And 0:10:39.320 --> 0:10:41.920 it just feels like at this moment, at least people 0:10:41.960 --> 0:10:45.920 on TV keep telling me that management really matters right now, 0:10:46.080 --> 0:10:50.560 because overall things are pretty good, but there are a 0:10:50.559 --> 0:10:58.760 lot of company specific issues to work through. Matter. I 0:10:58.800 --> 0:11:14.760 wish I was a horse. Creditor on credit or violence 0:11:14.760 --> 0:11:18.920 another very human story about basically trying to cut in 0:11:19.000 --> 0:11:22.920 line and extract value from other people who might have 0:11:22.960 --> 0:11:23.640 been ahead of you. 0:11:24.400 --> 0:11:27.400 Yeah, I'd never liked the phrase creditor on credit or violence. 0:11:27.559 --> 0:11:28.440 What would you call it? 0:11:28.679 --> 0:11:31.640 Well, the actual term that people in the industry mostly 0:11:31.760 --> 0:11:35.440 use is LMES, which is sense for liability management exercises. 0:11:36.000 --> 0:11:37.800 When I was a banker, there is a thing called 0:11:37.840 --> 0:11:41.120 liability management, which is like you have like bonds, and 0:11:41.679 --> 0:11:43.400 you like do a tender offer for your bonds, and 0:11:43.400 --> 0:11:45.079 you shoul just the new bonds of paper, Like you're 0:11:45.360 --> 0:11:48.760 you're managing your liabilities. You're like repaying your old debt 0:11:48.760 --> 0:11:51.240 and adding some new debt, or you're you know, sometimes 0:11:51.280 --> 0:11:55.480 trying to restructure your dot. But in the modern usage, 0:11:55.720 --> 0:11:58.959 there's like a bad association with that phrase because when 0:11:58.960 --> 0:12:02.960 people say liability management exercises, they mean calling up some 0:12:03.040 --> 0:12:07.120 of your creditors and saying, hey, we could use more money. 0:12:07.480 --> 0:12:09.760 If you give us more money, we will put you 0:12:10.040 --> 0:12:11.760 at the front of the line to be paid back, 0:12:11.960 --> 0:12:14.640 and all those other creditors who were ahead of you 0:12:14.679 --> 0:12:17.240 in line will get put behind you in line, and 0:12:17.880 --> 0:12:19.880 the creditors that way you can do that, and they'll 0:12:19.880 --> 0:12:22.439 say yes, because there's a loophole in our documents and 0:12:22.480 --> 0:12:24.760 like our credit agreement says that those guys are first 0:12:24.760 --> 0:12:27.480 in line, but actually we can do a thing that 0:12:27.559 --> 0:12:30.440 makes them second or third or tenth in line. People 0:12:30.559 --> 0:12:33.400 really dislike this for a lot of reasons. Why as 0:12:33.400 --> 0:12:35.520 they get like bumped out in line too. It's because, 0:12:35.559 --> 0:12:38.080 like you're a lender, you're sort of like expecting a 0:12:38.080 --> 0:12:41.080 certain amount of like stability and predictability, and you keep 0:12:41.120 --> 0:12:43.720 finding out that these documents that you negotiated that said 0:12:43.720 --> 0:12:45.880 that you had to be first in line actually mean 0:12:45.880 --> 0:12:48.240 you can be fourth on line. And so there's this 0:12:48.320 --> 0:12:50.480 real sense of like having the football pull out from you. 0:12:50.960 --> 0:12:54.080 Because people keep getting like surprised by new ways to 0:12:54.120 --> 0:12:56.920 get liability managed. The only reason people don't like it 0:12:56.960 --> 0:12:59.800 is because it is this like prisoner's dilemma where if 0:12:59.840 --> 0:13:05.040 you you don't like this happening to you, the thing 0:13:05.120 --> 0:13:07.960 that you have to do is do it to someone 0:13:07.960 --> 0:13:10.560 else first. Right, if there's some company that's in trouble, 0:13:10.880 --> 0:13:13.160 it's going to do this transaction. It's going to do 0:13:13.200 --> 0:13:16.520 some sort of transaction that puts some creditors ahead of 0:13:16.559 --> 0:13:18.360 other creditors, and you want to be the one who's ahead, 0:13:18.400 --> 0:13:20.360 not the one who's behind. So you will like go 0:13:20.400 --> 0:13:22.800 form a club with other creditors, and you will go 0:13:22.840 --> 0:13:24.480 to the company and say, hey, let's do a deal. 0:13:24.800 --> 0:13:27.560 And so there's the sense that like no one wants this, 0:13:27.600 --> 0:13:29.120 but everyone feels forced to do it. 0:13:29.120 --> 0:13:32.800 It's like hurt people, hurt people exactly exactly. 0:13:32.880 --> 0:13:36.760 Everyone is like, I don't mean to hurt the other people, 0:13:37.120 --> 0:13:39.720 otherwise they will hurt me. And they're very sad. But 0:13:39.760 --> 0:13:41.319 this is all answering the question what do you call it? 0:13:41.360 --> 0:13:44.000 And I think like the official term is liability management exercises. 0:13:44.360 --> 0:13:47.480 But what I loved in this Bloomberg News article is 0:13:47.520 --> 0:13:51.480 that there are like firms like credit hedge funds that 0:13:51.559 --> 0:13:54.880 are setting up businesses to I don't want to say 0:13:54.880 --> 0:13:58.080 do this, but they're called capital solutions businesses. And capital 0:13:58.160 --> 0:14:00.640 solutions is like you have like you go company, like, hey, 0:14:00.679 --> 0:14:02.160 we have a solution for your capital. We can give 0:14:02.160 --> 0:14:04.880 you money if and the if is always like if 0:14:04.880 --> 0:14:07.200 you stiff your other creditors. There's not always doesn't have 0:14:07.280 --> 0:14:09.040 to be like you could imagine, you know, a capital 0:14:09.080 --> 0:14:11.360 solution that has win win and just friendly. But like, 0:14:11.760 --> 0:14:14.280 in practice, a lot of the capital slutions seem to 0:14:14.320 --> 0:14:17.440 be taking money from some creditors to give to other creditors. 0:14:17.520 --> 0:14:18.800 I do like that name, right. 0:14:18.840 --> 0:14:21.920 All the other really benign names are the scary things. 0:14:22.120 --> 0:14:24.760 So is this good for the companies themselves, the companies 0:14:25.200 --> 0:14:28.040 where they're borrowing money from these lenders? 0:14:28.280 --> 0:14:30.920 Well, I always love it because it's like back in 0:14:31.000 --> 0:14:35.160 the day, a lot of trades like this didn't run 0:14:35.240 --> 0:14:38.640 through credit agreements. They ran through credit default swaps. What 0:14:38.680 --> 0:14:40.920 I mean by that is like there were some really 0:14:40.920 --> 0:14:46.120 cool trades where a lender would come to a company 0:14:46.120 --> 0:14:48.600 and say, we have bought a bunch of credit default 0:14:48.600 --> 0:14:50.760 swaps on you. If you just default on your debt 0:14:50.800 --> 0:14:53.120 for fifteen minutes, we'll make a ton of money and 0:14:53.120 --> 0:14:55.600 we'll give you half of it. Right, And the companies 0:14:55.600 --> 0:14:57.440 are okay, found we'll do that. We're desperate, and they 0:14:57.440 --> 0:14:59.680 would default on their debt for fifteen minutes and the 0:15:00.160 --> 0:15:01.400 to make a lot of money and give the company 0:15:01.480 --> 0:15:03.560 some of it, and then the company would like live 0:15:03.600 --> 0:15:05.480 to fight another day. And I always thought that was 0:15:05.520 --> 0:15:08.480 so cool that like a like zero sum bet between 0:15:08.520 --> 0:15:13.040 hedge funds could create funding for a real company. And similarly, 0:15:13.040 --> 0:15:16.119 here there's something kind of fun about like these companies 0:15:16.320 --> 0:15:19.800 can generate funding to like keep their actual business going 0:15:20.120 --> 0:15:23.440 by like sort of inter credit or fight among hedge funds. 0:15:23.680 --> 0:15:27.360 But mostly it's bad because first of all, these companies 0:15:27.400 --> 0:15:29.680 are not like you know, mom and pop businesses. They're 0:15:29.720 --> 0:15:33.080 like most traditionally owned by private equity firms who are 0:15:33.120 --> 0:15:35.320 like the sort of Sharbel Bode bars who are going 0:15:35.400 --> 0:15:37.600 to do this. But then secondly, you knew like a 0:15:37.640 --> 0:15:39.560 lot of these things end in bankruptcy anyway, and so 0:15:39.600 --> 0:15:42.000 it's just like who is first in line to be 0:15:42.000 --> 0:15:44.640 paid back in bankruptcy? And so it's like if all 0:15:44.680 --> 0:15:47.320 of these things like solved, that the company's problems and 0:15:47.360 --> 0:15:49.600 like made everything better. Then you'd be like, okay, so 0:15:49.640 --> 0:15:52.480 like a hedge fund lost money for you know, the 0:15:52.480 --> 0:15:55.480 greater good of the company. But in practice, it seems 0:15:55.640 --> 0:15:57.240 that a lot of the men in bankruptcy anyway. 0:15:57.520 --> 0:15:59.720 So I was thinking about this. I was reading the story. 0:15:59.760 --> 0:16:02.000 I was reading money stuff as I do to prepare 0:16:02.000 --> 0:16:04.880 for the podcast, and my naive thought was, is this 0:16:04.960 --> 0:16:06.040 going to lead to lawsuits? 0:16:06.200 --> 0:16:08.280 Oh my god, at least there's so many lawsuits. There's 0:16:08.720 --> 0:16:09.920 everyone on the leads a law suits. 0:16:10.040 --> 0:16:13.160 But here's the thing I was thinking about it when 0:16:13.200 --> 0:16:15.880 it comes to crypto, because there's that notion you know, 0:16:15.920 --> 0:16:19.840 it's in the code, and here it seems like you're 0:16:19.920 --> 0:16:25.960 exploiting an overlooked part of the documents, right, Like it's 0:16:26.040 --> 0:16:29.160 in the documents. Uh, and you just happen to find 0:16:29.200 --> 0:16:30.000 like this loophole. 0:16:30.560 --> 0:16:33.720 Yes, And this is like an interesting difference between debt 0:16:33.720 --> 0:16:36.480 and equity. I think like in general, companies are not 0:16:36.480 --> 0:16:39.840 supposed to treat their shareholders unfairly, right, and like even 0:16:39.880 --> 0:16:43.360 if like something in the you know, certificate corporation says 0:16:43.680 --> 0:16:46.640 you can do something if it's really unfair to shareholders, 0:16:47.000 --> 0:16:50.080 if it like treat some shaholders better than others. If 0:16:50.120 --> 0:16:52.560 it violence FORDU shared duties, you can't do it right 0:16:52.840 --> 0:16:55.600 beyond just like the language of the documents, Judges are 0:16:55.600 --> 0:16:58.640 going to say, you have to treat your shareholders fairly. Traditionally, 0:16:59.160 --> 0:17:02.320 debt doesn't work that. Traditionally you don't have fiduciary duty 0:17:02.440 --> 0:17:06.719 to your creditors. And traditionally, if your bond agreements let 0:17:06.760 --> 0:17:09.320 you do some wild thing, courts are going to let 0:17:09.359 --> 0:17:11.719 you do the wild thing. There's some exceptions to that. 0:17:12.280 --> 0:17:14.439 Some courts will look at the bond document and say, oh, 0:17:14.440 --> 0:17:16.480 I couldn't possibly have met that, so we're not going 0:17:16.520 --> 0:17:18.359 to let you do the wild thing. But in general, 0:17:18.880 --> 0:17:21.320 the rule is kind of like whatever the documents say 0:17:21.320 --> 0:17:23.439 you're allowed to do, you're allowed to do. And so 0:17:24.359 --> 0:17:26.800 there is much more of this sort of thing in 0:17:26.840 --> 0:17:29.719 de restructuring than there would be for like stock, because 0:17:30.480 --> 0:17:32.560 there is this traditional rule that you're allowed to do 0:17:32.600 --> 0:17:35.800 whatever you want to creditors because they're sophisticated people who 0:17:35.840 --> 0:17:37.679 negotiated a contract with you, and if they didn't put 0:17:37.680 --> 0:17:39.720 it in the contract, then they don't get the protection. 0:17:40.720 --> 0:17:43.680 I think there's some sense that like one thing that 0:17:43.720 --> 0:17:46.960 could happen. Is that could change, right, that courts could 0:17:46.960 --> 0:17:50.720 get less receptive to this sort of thing and say, 0:17:51.440 --> 0:17:53.760 you know, it's just like, as a policy matter, bad 0:17:54.040 --> 0:17:57.479 for companies to always go around posing their creditors and 0:17:57.560 --> 0:18:00.520 like treating some people more unfairly than others. And so 0:18:00.600 --> 0:18:02.399 we're not going to let them do that anymore, and 0:18:02.440 --> 0:18:05.880 we're gonna like apply some sort of like fairness standard 0:18:05.960 --> 0:18:08.280 or like what do people really want to reading these 0:18:08.320 --> 0:18:10.480 credit documents instead of just you know, reading what they say, 0:18:10.520 --> 0:18:13.280 and so they allow it. That's like one possibility. The 0:18:13.320 --> 0:18:17.760 other you keep reading about people like creditors trying to 0:18:18.080 --> 0:18:20.960 prevent this by you know, forming groups and sort of 0:18:21.720 --> 0:18:24.640 saying we're gonna knock this off or like demanding better 0:18:24.680 --> 0:18:26.840 covenants so they can't have this happen to them. And 0:18:26.880 --> 0:18:29.320 so you keep reading about these liability management exercises, but 0:18:29.320 --> 0:18:32.080 there's enough grumbling from like, you know, people who participate 0:18:32.119 --> 0:18:35.119 in them that like maybe the industry will find some 0:18:35.240 --> 0:18:37.960 way to reduce their frequency. 0:18:38.200 --> 0:18:40.600 Well that's all I have to say. Do you have 0:18:40.640 --> 0:18:41.280 anything more? 0:18:41.800 --> 0:18:43.040 The one thing I want to say, and this is 0:18:43.080 --> 0:18:46.280 I don't know where this goes in, but I talked 0:18:46.280 --> 0:18:50.159 a while back to a credit fund manager and they 0:18:50.200 --> 0:18:52.439 get this story slightly wrong. But like he said that, 0:18:52.440 --> 0:18:55.680 people would ask him as a lender, as a credit investor, 0:18:55.720 --> 0:18:58.199 do you look first at the assets or the liabilities? Right? Like, 0:18:58.280 --> 0:19:00.119 do you look at like what this company does but 0:19:00.200 --> 0:19:02.679 it has, like how much productive capacity it has to 0:19:02.680 --> 0:19:04.399 pay back loans? Or do you look first at like 0:19:04.440 --> 0:19:06.800 how many bonds it already has outstanding? And he's like, 0:19:06.880 --> 0:19:09.159 I was always an assets guy, and like, increasingly the 0:19:09.200 --> 0:19:12.760 business is a liabilities business. Like increasingly what you do 0:19:13.200 --> 0:19:16.640 as a credit investor is you look at the company's 0:19:16.680 --> 0:19:19.600 capital structure and you say, who can we hose here? 0:19:19.960 --> 0:19:22.960 What debt can we get ahead of? And as a 0:19:23.040 --> 0:19:25.840 lever of like complexity and nonsense, I enjoy that, but 0:19:25.920 --> 0:19:28.000 it seems kind of bad for like the world. I 0:19:28.080 --> 0:19:30.520 was reading somewhere like research analysts complaining about this, because 0:19:30.520 --> 0:19:32.760