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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well

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Speaker 1: high yelled bonds has been an area that a lot

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Speaker 1: of investors have been hating for years, and yet it

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Speaker 1: has continued to deliver, with almost an eight gain last

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Speaker 1: year and on pace for a three point nine increase

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Speaker 1: just year to date. We're not even halfway through the year.

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Speaker 1: But now we have Peter Sheer, head of macro strategy

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Speaker 1: at Breen Capital, saying that it is important to start

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Speaker 1: being cautious on high yields, and I want to bring

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Speaker 1: them on to get a sense of why. Peter, thank

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Speaker 1: you so much for joining us. So at this time

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Speaker 1: when you don't have defaults picking up materially and you

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Speaker 1: don't necessarily see a recession within the next six month

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Speaker 1: horizon according to most forecasts, why is now a good

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Speaker 1: time to start getting barished on high yield You know?

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Speaker 1: I think there's two overriding themes. One is that spreads

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Speaker 1: are very tight, So credit spreads a contracted a lot,

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Speaker 1: you know, on the back of last year's rally and

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Speaker 1: what we've had so far this year, and overall yields

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Speaker 1: are pretty low given where treasuries are, so a lot

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Speaker 1: of these indices and index based products are kind of

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Speaker 1: giving you five and a half maybe six percent yields,

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Speaker 1: which is a little bit low for the risk. And

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Speaker 1: then the other big factor for me really is that

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Speaker 1: oil had been such a tale wind in the past year.

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Speaker 1: It had been very helpful to the whole industry and

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Speaker 1: story to the whole high yield portfolio. Right now, I

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Speaker 1: think oils, you know, stalled out. Peach here can we

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Speaker 1: read anything into this because spreads were below four in

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Speaker 1: mid two thousand seven, we know what happened then, and

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Speaker 1: then there was a decline in the high yield market,

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Speaker 1: and then spreads also were below in and after that

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Speaker 1: what happened drop in high yield is this said harbature

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Speaker 1: of things to come. I don't know that we'll see

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Speaker 1: that sort of drop, but I do think it is

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Speaker 1: a warning sign that the risk reward is now skewed

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Speaker 1: to the downside. People have to remember that how yield

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Speaker 1: does tend to when it sells off, it tends to

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Speaker 1: sell off fairly quickly and fairly aggressively. Two other little

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Speaker 1: warning signs that strike me as I look at some

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Speaker 1: of the high yield ets they have as much as

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Speaker 1: of their portfolio is technology and communications. If you go

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Speaker 1: back to right before the energy problems hit, energy sector

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Speaker 1: had to become a big part of these portfolios because

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Speaker 1: all these industries, they basically are based on the amount

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Speaker 1: of debt outstanding. So companies that need money tend to,

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Speaker 1: you know, issue a lot of debt become big parts

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Speaker 1: of these indusseries, and then they become very problematic if

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Speaker 1: that sector runs into a hiccup at all. So you're

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Speaker 1: talking about Sprint, for example, on the telecommunication side, and

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Speaker 1: then on the technology side, I mean, dell Is is

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Speaker 1: obviously the big example, and they're going to be selling

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Speaker 1: more debt to finance their l BO. So, UH, do

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Speaker 1: you think that we're going to see weakness in the

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Speaker 1: tech and the UH and the telecommunications areas in the

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Speaker 1: near term Because this has been a big question for

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Speaker 1: a lot of people because of what you're saying the

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Speaker 1: concentration in the index. And I'm not sure that we

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Speaker 1: will see weakness, but what I am fairly confident if

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Speaker 1: we see any weakness, it will be more than you

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Speaker 1: would expect otherwise, because the technicals will take over. Anytime

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Speaker 1: you get these big sectors have weakness, people are forced

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Speaker 1: to reduce exposure, and everyone already owns so much of

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Speaker 1: that it tends to, you know, create a clearing price

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Speaker 1: much lower than you would expect. So I think that's

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Speaker 1: why we're very susceptible to a larger sell off. And

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Speaker 1: it is a reason too. I think I would really

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Speaker 1: look to finding good managers that you like. You know,

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Speaker 1: there's a whole debate passive versus active, I think right

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Speaker 1: now in the high yield space in particular, you want

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Speaker 1: to find a good active manager. Are you seeing money

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Speaker 1: flow more to active managers as a result or P

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Speaker 1: or investors sort of ignoring the tile is showing that

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Speaker 1: that perhaps an active manager uh, And frankly, in high

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Speaker 1: yield I think they have outperformed UH passive pretty consistently,

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Speaker 1: particularly in hig yield bonds. Yeah, and I think that's

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Speaker 1: going to be an area that how yield the active

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Speaker 1: did suffer with this whole kind of wards passive I

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Speaker 1: think is people take a closer look, they'll realize this

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Speaker 1: is a sector where credit expertise, building the right portfolio,

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Speaker 1: finding the right bonds, being able to participate in the

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Speaker 1: new issues can offer a lot of values. So I

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Speaker 1: think the active you know, if we're gonna draw a

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Speaker 1: line in the stand where actives can be passes, maybe

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Speaker 1: it's the high yield and that message has to get

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Speaker 1: out there a little bit. So with respect to you

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Speaker 1: sort of barish view on high yield saying that there's

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Speaker 1: more downside than upside. Right now, what's the best way

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Speaker 1: to play that? Do you recommend that people try to

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Speaker 1: short this debt because it's notoriously very difficult to short. Yeah,

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Speaker 1: I think it's very difficult to short. I would say

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Speaker 1: probably the best way to play it right now is

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Speaker 1: if you can do it by some maybe puts on

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Speaker 1: some of the e t F So there's j n

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Speaker 1: K and h y G, which are two very large

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Speaker 1: and liquid etf that have pretty deep options more market

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Speaker 1: so that would probably be the easiest way to play it.

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Speaker 1: Beyond that, you know you could short, you I would

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Speaker 1: not recommend shorting individual issues. I think that's just too hard.

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Speaker 1: He Is there a way for an investor to get

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Speaker 1: this kind of yield without taking this kind of risk?

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Speaker 1: Who That's a tricky question. I think there are some

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Speaker 1: other areas people have been very successful. We've had, you

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Speaker 1: know best successful looking at the closed end fund arena.

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Speaker 1: I also still like leverage loans, where that's the loan

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Speaker 1: equivalent of the high yeld bond market, but it's senior

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Speaker 1: secured in this floating rate. So I'm more comfortable in

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Speaker 1: that space because I don't think it's going to have

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Speaker 1: quite the volatility the high yeld bond market, so you

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Speaker 1: give up a little bit of yield, but I think

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Speaker 1: that risk reward characteristic is much more in your favorite

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Speaker 1: to be in the leverage loan space rather than the

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Speaker 1: bond space, right even even with author of pricing, because

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Speaker 1: basically what happens when people are flooding into into the

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Speaker 1: leverage loan market is that the borrowers can go back

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Speaker 1: to the investors and say, you know what, we can

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Speaker 1: get this loan for a better deal, so we're gonna

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Speaker 1: cut the rate that we're gonna pay you, and they're

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Speaker 1: doing that at a record pace. Doesn't that sort of

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Speaker 1: create a downside. Well, that's the thing, it doesn't really

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Speaker 1: create a downside. I mean your income will be less.

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Speaker 1: So to me though high yield, the bond side has

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Speaker 1: much more upside typically than the loans, and right now

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Speaker 1: I don't see that upside for the bond market. So

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Speaker 1: you're not giving up as much, right because a lot

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Speaker 1: of the bonds not only do they have fairly low yields,

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Speaker 1: a good portion of these industries are now yield the calls,

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Speaker 1: so they're say, trading at a one eighteen dollar price

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Speaker 1: and are callable at one oh eight in two years.

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Speaker 1: So there's no upside in the bonds either. So that's

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Speaker 1: happening through time as those bonds become callable. So I

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Speaker 1: think that differential is less. I would agree. You know,

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Speaker 1: if you get a bit of a sell off, then

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Speaker 1: you're gonna want to high yield bonds and avoid that

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Speaker 1: repricing risk. Peter, are there investors or even professionals that

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Speaker 1: have gotten into the high yield business that shouldn't be

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Speaker 1: there and will be washed out when or if there's

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Speaker 1: a decline? You know, I'm not sure about that, but

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Speaker 1: I do think this whole friend towards index investing doesn't

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Speaker 1: work quite as well in the credit space or the

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Speaker 1: fixed income space, because there really does tend to be

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Speaker 1: a longer term disconnect. The companies that issue debt are

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Speaker 1: the ones that become dominant in these indices over time.

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Speaker 1: They tend to be not the companies that you want

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Speaker 1: to own the most of. So that's the big disconnect.

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Speaker 1: So I think in the fixed income space and the

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Speaker 1: credit space and some of these ets, we should see

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Speaker 1: a slowdown in et F and people look to managers

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Speaker 1: and look to building their own portfolios. Even Peter, this

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Speaker 1: is such a tough time. Imagine that when you talk

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Speaker 1: to investment managers, they say to you, you know this

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Speaker 1: is this is a boring market. I mean, we just

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Speaker 1: don't see a big catastrophe on the horizon, and nothing

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Speaker 1: looks that great either. Are people just like angsting to

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Speaker 1: you these days? Yeah? I think the industry of the

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Speaker 1: whole seems every it's frustrated, right, it's we've been churning.

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Speaker 1: I guess, for lack of a better word, we go

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Speaker 1: up a little bit, we go down a little bit.

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Speaker 1: There's been no clear trend. What seems to work one

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Speaker 1: day gets banged up by Washington the next day. It's

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Speaker 1: been a very tough and frustrating market. The strategies that

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Speaker 1: I believe are winning are doing well. Are people who

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Speaker 1: have moved to far less liquid bond given up some

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Speaker 1: liquidity maybe into more structured debt. But the bomb there

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Speaker 1: is they're making it through yield and his excess, you know,

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Speaker 1: interest margin that just takes a long time to show

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Speaker 1: up in the numbers. It's not like you buy a

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Speaker 1: bond and stuff eight points and you know everyone's high

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Speaker 1: five in each other. It's the steady grind and not

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Speaker 1: making mistakes. That's what we look for you to do.

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Speaker 1: Help us navigate those potential mistakes. Thanks very much, Peter Cheer,

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Speaker 1: head of macro strategy at Breen Capital. You can follow

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Speaker 1: him on Twitter at t F m k T s Now, however,

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Speaker 1: we want to get an update on what is going

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Speaker 1: on with auto sales and how the sales have been

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Speaker 1: slowing and used car resell values have been declining. How

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Speaker 1: long will this continue? Jamie Butters has that for us.

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Speaker 1: He's UUs autos reporter for Bloomberg News and he comes

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Speaker 1: to us from Detroit. So Jamie, you know, can we

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Speaker 1: just take a look, take scope of what's happened so far,

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Speaker 1: how much uh, you know, car sales have declined, and

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Speaker 1: how much more car executives think that they will continue

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Speaker 1: to decline. But you know, that's the that's the billion

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Speaker 1: dollar question, Lisa. You know, sales are down only about

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Speaker 1: you know, one and a half percent so far this year,

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Speaker 1: and they might follow by you know, out of a

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Speaker 1: seventeen and a half million market by two or three

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Speaker 1: hundred thousand for the year, which is all pretty manageable.

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Speaker 1: But the big, the big question, the big issue hanging

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Speaker 1: out you know, two or three years down the road

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Speaker 1: is is this, uh we can do a lot of

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Speaker 1: people are hoping and predicting that this is a plateaus

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Speaker 1: sales will say, around seventeen million, uh, near the near

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Speaker 1: the all time records, uh, and just kind of scuffle

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Speaker 1: along there. But uh, some other folks are looking at

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Speaker 1: and saying, this is not an industry that plateaus, this

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Speaker 1: industry that booms and bus and is this really the

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Speaker 1: start of a traditional cyclical contraction that would take a

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Speaker 1: few million units out of the market. So that's kind

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Speaker 1: of really the thing to keep watching. And Jamie, can

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Speaker 1: I interest you in a fifty dollar minivan is a

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Speaker 1: lovely minivan that is a really nice car. Tell people

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Speaker 1: the story of this minivan, this Chrysler Pacific. I think

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Speaker 1: it's a very cool product when you get into it.

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Speaker 1: But what is going on with a fifty dollar minivan?

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Speaker 1: I mean, it's it's like a entertainment center on wheels.

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Speaker 1: I was. I was just so amazed I got the

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Speaker 1: chance to drive this car and I and I got

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Speaker 1: in and I was like, wow, you know, this is

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Speaker 1: this is really nice. I had heard about and I

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Speaker 1: had read about. How you know, it's so much better

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Speaker 1: made than all the previous Chrysler's, which you know, are

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Speaker 1: traditionally not the highest quality, really among the among the

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Speaker 1: lowest quality, uh, in all the big surveys. But this

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Speaker 1: is a really well made vehicle. It's got great materials.

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Speaker 1: And then you get in the back seat and their

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Speaker 1: twin touch screens. You can play multiple videos on them,

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Speaker 1: you can play video games against each other. The third

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Speaker 1: row seats reclined. There's the the built in vacuum cleaner.

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Speaker 1: I guess if you spill your hundred dollar cheerios or something. Uh.

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Speaker 1: And it is just it is not at all, not

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Speaker 1: at all a traditional you know, kind of family holler,

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Speaker 1: it's more like a more like a luxury vehicle. It

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Speaker 1: was just fantastic, But then I look and it was,

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Speaker 1: you know, forty nine for fifty before taxes or license

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Speaker 1: or any of that, and it is. It just kind

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Speaker 1: of blew my mind at how we really keep reaching

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Speaker 1: into new levels of luxury and higher prices, because that's

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Speaker 1: of course where the automakers make their money. The higher

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Speaker 1: price tickets, higher price items they can sell you, the

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Speaker 1: bigger the margins are well and are there people out

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Speaker 1: there who have a robust demand and appetite for a

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Speaker 1: fifty minivan? Well, we'll see. I mean, it's certainly worth exploring.

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Speaker 1: Right if you're a Fiat Chrysler and you invented that segment.

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Speaker 1: They still have a lower end minivan, the Dodge Caravan

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Speaker 1: is still on the market, and and the range of

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Speaker 1: the Pacific as uh, you know, starts in the high

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Speaker 1: twenties and then reaches up. So we'll see. You know,

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Speaker 1: they have had they've given a lot of thought to

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Speaker 1: many vans over the years. Up at Auburn Hills, where

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Speaker 1: Chrysler is based has long been based and uh, and

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Speaker 1: there have been some who believe that it's really going

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Speaker 1: to be the vehicle of retirement, you know, for boomers

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Speaker 1: who drove them when they were uh young and had

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Speaker 1: young families, that they might might be what they want

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Speaker 1: in retirement. Is it's easier ingress and easier to get

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Speaker 1: in and out of than than a big suv h

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Speaker 1: But we'll see it's certainly it's a it's an exciting offering.

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Speaker 1: Anyone else going down the same road. We'll see, you know,

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Speaker 1: we're gonna see a new minivan from Honda, I believe

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Speaker 1: later this year, and we'll see how how far upscale

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Speaker 1: they go. Honda is has has gotten higher prices traditionally

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Speaker 1: for their Odyssey minivan than Chrysler got for the town

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Speaker 1: and country that the PACIFICA replaces. Whether they try to

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Speaker 1: go this far up, it'll be really interested to watch

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Speaker 1: that what the high end is on the new Odyssey.

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Speaker 1: We'll go for a ride with you. Jamie Butters are

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Speaker 1: US Autos reporter joining us from our Detroit bureau, and

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Speaker 1: you can follow him on Twitter at mitten hawk. That's

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Speaker 1: m I double t e n Hawk. Jamie Butters, thank

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Speaker 1: you very much talking about fifty dollar Chrysler minivans. We

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Speaker 1: want to take a moment to let you know about

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Speaker 1: something new from Bloomberg. Starting right now, you can use

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Speaker 1: our io s app or our new Google Chrome extension

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Speaker 1: to scan any news story on any website, instantly revealing

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Speaker 1: relevant news and market data from Bloomberg and other sources

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Speaker 1: related to companies and people you're reading about. So no

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Speaker 1: matter where you're reading the news, you can bring the

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Speaker 1: power of Bloomberg's news and data with you. It's pretty amazing.

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Speaker 1: Download our Io s app or search for the Bloomberg

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Speaker 1: extension on the Chrome Store to try it out. Learn

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Speaker 1: more at Bloomberg dot com slash lens. Well, we'd like

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Speaker 1: to find out what's going on in Washington, d C.

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Speaker 1: And there's no one better than Eric Watson are a

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Speaker 1: congressional reporter for Bloomberg. Eric, thanks for being with us.

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Speaker 1: Where do you want to begin the spending bill that

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Speaker 1: gets rid of some of Donald Trump's favorite programs, or

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Speaker 1: should we look internally at the White House and what's

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Speaker 1: going on between cabinet officials and White House advisors. Where

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Speaker 1: do you want to go? Well, I want to talk

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Speaker 1: about the spending bill that released that was released at

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Speaker 1: to eighteen in the morning. This is a typical practice

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Speaker 1: for Congress to drop a trillion dollars spending bill in

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Speaker 1: the middle of the night when no one's looking. Uh.

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Speaker 1: This deal is a real winner for Congressional Democrats. President

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Speaker 1: Trump was looking to make about eighteen billion dollars and

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Speaker 1: cuts to the budget for the bill that will fund

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Speaker 1: the government through September. Those cuts are not being made.

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Speaker 1: He was also looking for border wall money to build

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Speaker 1: the wall on the border with Mexico. That's also not

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Speaker 1: happening in this bill. Uh. Democrats were basically able to

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Speaker 1: get Republican leaders to go along under the argument that

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Speaker 1: if the government were to shut down, which it would

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Speaker 1: on Friday evening without another spending bill, that Democrats would

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Speaker 1: be would not be the ones blamed. Instead would be

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Speaker 1: Trump and Republicans because they control Congress. Well, Eric, what

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Speaker 1: does this particular bill that got passed say about Republican

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Speaker 1: support for President Trump's agenda? Well, I should mention, first

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Speaker 1: of all, it's it's not been passed yet, it was

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Speaker 1: released in the middle of the night. It's probably going

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Speaker 1: to be voted on Wednesday, and it will probably be

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Speaker 1: a biparson vote with Democrats and and and most Republicans

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Speaker 1: going for it Altho'll be a number of fiscally conservative

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Speaker 1: Republicans who won't be able to support it because it

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Speaker 1: does not cut spending. I think it shows at this point,

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Speaker 1: at least on spending bills which require Democrats, Republicans don't

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Speaker 1: have a sixty vote uh filibuster proof majority in the Senate.

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Speaker 1: Trump doesn't have the upper hand that he might have

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Speaker 1: on on tax or or healthcare, where they can use

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Speaker 1: special budget procedures in order to sort of ram bills

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Speaker 1: through Congress without democratic support. You know, Eric, you started

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Speaker 1: off by saying that the budget was delivered at two

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Speaker 1: in the morning. What was it to eighteen? That's right,

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Speaker 1: all right? So is there any possibility that the actual system,

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Speaker 1: the machinery of government has broken down to the point

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Speaker 1: where people just shrugged their shoulders when the federal government

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Speaker 1: threatens to shut down. I think it's it is interesting

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Speaker 1: the way that these things are done. You know, we

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Speaker 1: have a democracy, yet bills are often rammed through before

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Speaker 1: people really have a chance to read it. I think

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Speaker 1: a lot of people will be voting on this bill

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Speaker 1: on Wednesday, and they'll have really very little idea of

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Speaker 1: what's in it. We all hear at Bloomberg. We have

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Speaker 1: very good team at Bloomberg. Government as well are combing

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Speaker 1: through all the texts of this and there's a lot

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Speaker 1: of hidden provisions. Uh there. There's benefits from everyone from

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Speaker 1: home builders to mining companies in here, you know. But

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Speaker 1: the way these things are released it does raise questions

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Speaker 1: about democracy, I have to say that well. And not

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Speaker 1: only that, but also it only extends the deadline and

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Speaker 1: for one, government would get shut down until September, right,

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Speaker 1: I mean, we're gonna be doing this all over again

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Speaker 1: in a couple of months, that's right. We are already

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Speaker 1: seven months into the current fiscal year. There couldn't be

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Speaker 1: any agreement. Actually it's spending Panel members tried to come

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Speaker 1: up with an agreement in December, but President Trump, when

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Speaker 1: he was coming in said he wanted to weigh in

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Speaker 1: in order to influence the bills. But what's really striking

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Speaker 1: about it is the lack of influence that the administration

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Speaker 1: has on these bills. It's very much similar to the

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Speaker 1: deal that was on the table in December. One notable exception, though,

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Speaker 1: is a fifteen billion dollar increased to the Pentagon. Trump

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Speaker 1: had sought a thirty billion dollar increase in Pentagon funding

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Speaker 1: and he's going to get about half that well, and

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Speaker 1: he will get about a billion dollars and a half

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Speaker 1: for border security, but it can't use to be used

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Speaker 1: for the border wall or additional ICE officials, immigration and

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Speaker 1: Customs enforcement agents, right, I mean, so in other words,

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Speaker 1: it's sort of he kind of got more support for

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Speaker 1: some of his law enforcement push, but not really to

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Speaker 1: exactly back his initiatives. Correct, that's right. I mean Democrats,

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Speaker 1: many Democrats have been on record saying they support you know,

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Speaker 1: increased border security, better you know, technology along the border,

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Speaker 1: upgrades to existing equipment. They do not want to be

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Speaker 1: seen backing Trump's call for a quote, deportation force. So

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Speaker 1: that's why they put a restriction in the in this

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Speaker 1: bill on hiring additional ICE agents. And they also do

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Speaker 1: not want to fund a coast to coast border wall,

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Speaker 1: which they view as an incredible waste of money, and

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Speaker 1: they say that it would actually cost about seventy billion

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Speaker 1: dollars if you went through and built that. I was

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Speaker 1: looking at the reports about this legislation. It's over sixteen

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Speaker 1: hundred pages. Correct, that's right. And that's just the text.

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Speaker 1: There's also what's called explanatory statements where they explain or

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Speaker 1: have other hidden provisions. So there's just a lot of

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Speaker 1: paper that was was dumped on us in the middle

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Speaker 1: of the night. Okay. The reason I bring that up

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Speaker 1: is because I mean, has do you believe anybody has

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Speaker 1: actually read all sixteen hundred and sixty five pages. I

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Speaker 1: don't think there's one person I know there's Uh. The

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Speaker 1: way they do is they have teams of staff re

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Speaker 1: being through but that's that's broken up into eleven different subcommittees.

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Speaker 1: So yeah, as to whether the chairman or anyone who's

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Speaker 1: actually read the whole thing, I would tend to doubt it.

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Speaker 1: So Eric, is the fact that the House and Senate

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Speaker 1: Democrats and Republicans came to this agreement in itself representative

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Speaker 1: of actually somewhat of a truce between both members of

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Speaker 1: the different parties, I think so. I think it also.

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Speaker 1: You know, the Trump has for for the next budget,

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Speaker 1: the one that begins in September, called for very big changes,

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Speaker 1: called for fifty four billion dollars and cuts to federal agencies,

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Speaker 1: and already is having places like the Environmental Protection Agency

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Speaker 1: and State Department prepare for a massive reductions in the

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Speaker 1: federal workforce. I think it shows that Congress has very

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Speaker 1: little appetite for that, and and those who work for

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Speaker 1: the federal government may rest a little bit easier tonight

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Speaker 1: that their jobs are more likely to be secure. Eric Wasson,

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Speaker 1: thank you so much for joining us. Eric Watson as

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Speaker 1: Congressional reporter for Bloomberg News based in Washington, d C.

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Speaker 1: Talking about the one point one trillion dollar are spending

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Speaker 1: bill that will likely be passed this week to stave

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Speaker 1: off a government shutdown. Definitely something we will keep you

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Speaker 1: up to date as we hear more details. Let's turn

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Speaker 1: to a potential media deal I want to bring in

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Speaker 1: Paul Swiney. Paul, of course, is our chief director of Research.

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Speaker 1: I guess us director of Research, a senior media Internet

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Speaker 1: analyst for Bloomberg Intelligence. He wears a couple of different

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Speaker 1: hats in that role. Great to have you, as always, Paul, Um,

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Speaker 1: what is this deal or not deal going to look like? Fox?

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Speaker 1: Century Fox maybe buying or teaming up with black Stone

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Speaker 1: Stephen Schwartzman's Blackstone in order to what purchased some TV

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Speaker 1: stations from Tribune even more, that's right, that's right true

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Speaker 1: Tribune as as a large TV station group owner, and

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Speaker 1: they've been you know, rumored to be for sale. Um,

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Speaker 1: I guess it. Really over the last several weeks, Sinclair

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Speaker 1: Broadcast Group, which is the largest owner of TV stations

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Speaker 1: in the US, has been widely reported to be talking

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Speaker 1: to them and trying to get a deal done maybe

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Speaker 1: in the high thirty dollars per share range that would

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Speaker 1: create an even bigger TV station group. And and just

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Speaker 1: most just over the last day or so, I think

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Speaker 1: Fox g maybe not so fast. Maybe we want to

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Speaker 1: take a look at these Tribune stations. And and I

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Speaker 1: think they were also looking for a financial partner to

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Speaker 1: come in and help them finance it and create maybe

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Speaker 1: a separate, standalone broadcasting company consisting of Fox stations, which

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Speaker 1: they own a lot of the big Fox affiliates in

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Speaker 1: the New York, l A, Chicago, the big markets, uh,

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Speaker 1: and combine that with the Tribune stations across the country.

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Speaker 1: So Blackstone is the one that supposedly is talking with

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Speaker 1: twenty one century Fox to make this bid four Tribune. Um.

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Speaker 1: And it sort of came as a surprise to me

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Speaker 1: that Blackstone is teaming up with twenty century Fox. I mean,

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Speaker 1: do they have a history of doing deals together Uh no,

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Speaker 1: they don't, per se. But the private equity business um

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Speaker 1: has has been a big fan of the broadcasting business

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Speaker 1: for decades, you have, believe it or not. The radio

433
00:22:04,840 --> 00:22:07,720
Speaker 1: and TV business, while it's not the fastest growing, sexiest

434
00:22:07,920 --> 00:22:10,600
Speaker 1: business in the world, it produces tremendous cash flow and

435
00:22:10,600 --> 00:22:13,560
Speaker 1: tremendous free cash flow which then of course can support

436
00:22:13,640 --> 00:22:17,720
Speaker 1: debt which drive equity returns. So we've seen TV stations, uh,

437
00:22:17,880 --> 00:22:20,600
Speaker 1: you know, being swapped in and out by the private

438
00:22:20,600 --> 00:22:23,920
Speaker 1: equity sector for really thirty or forty years. And so

439
00:22:23,960 --> 00:22:26,399
Speaker 1: this is another example of I think, uh, you know,

440
00:22:26,600 --> 00:22:29,159
Speaker 1: prop probably you know, the Blackstone folks coming in and

441
00:22:29,200 --> 00:22:32,879
Speaker 1: teaming up with obviously the great strategic partner in Century

442
00:22:32,880 --> 00:22:35,359
Speaker 1: Fox to invest money in the sector. So before we

443
00:22:35,400 --> 00:22:38,600
Speaker 1: get to what the potential gain would be for Century Fox,

444
00:22:39,080 --> 00:22:41,320
Speaker 1: I have to ask does Tribune have a lot of

445
00:22:41,359 --> 00:22:44,800
Speaker 1: debt and how much could they potentially add with this

446
00:22:44,960 --> 00:22:49,320
Speaker 1: partnership with Blackstone and Century Fox. So so the broadcasting

447
00:22:49,320 --> 00:22:51,600
Speaker 1: industry in general can support very high levels of debt,

448
00:22:51,720 --> 00:22:54,520
Speaker 1: you know, four or five times net debt the IBADA,

449
00:22:54,600 --> 00:22:57,920
Speaker 1: which is very good if you're private equity player. Tribune

450
00:22:57,960 --> 00:23:00,800
Speaker 1: does have some debt and even twenty or Century Fox

451
00:23:00,840 --> 00:23:03,800
Speaker 1: has some debt and they're also Century Fox is also

452
00:23:03,880 --> 00:23:07,000
Speaker 1: trying to close on a multibillion dollar acquisition of Sky

453
00:23:07,320 --> 00:23:09,560
Speaker 1: in the UK, so they're trying to keep their powder

454
00:23:09,640 --> 00:23:11,679
Speaker 1: dry a little bit there. So I think twenty one

455
00:23:11,800 --> 00:23:13,959
Speaker 1: Century Fox said, listen, we could go out and by Tribune.

456
00:23:14,000 --> 00:23:17,720
Speaker 1: It's only about a four billion dollar transaction value, but

457
00:23:17,760 --> 00:23:19,399
Speaker 1: there's a lot of debt that would be that we'd

458
00:23:19,400 --> 00:23:21,359
Speaker 1: have to assume, and that would, you know, constrain us

459
00:23:21,359 --> 00:23:23,400
Speaker 1: a little bit, uh in some of the other things

460
00:23:23,400 --> 00:23:25,080
Speaker 1: we want to do globally. So let's bring in a

461
00:23:25,080 --> 00:23:27,760
Speaker 1: financial partner in terms of black Stone. Uh. They love

462
00:23:27,800 --> 00:23:30,040
Speaker 1: the business, they understand the business, and we can then

463
00:23:30,320 --> 00:23:33,560
Speaker 1: you know, we will contribute our TV stations and black

464
00:23:33,560 --> 00:23:35,840
Speaker 1: Stone will contribute to cash, and that'll be a nice,

465
00:23:36,119 --> 00:23:39,920
Speaker 1: well capitalized company consisting of really a lot of big

466
00:23:39,920 --> 00:23:43,919
Speaker 1: Fox affiliates, uh, and some other stations around the country.

467
00:23:44,119 --> 00:23:47,159
Speaker 1: I want to understand that there's one radio station, correct

468
00:23:47,320 --> 00:23:50,280
Speaker 1: w g N, that's the big station that that is

469
00:23:50,320 --> 00:23:53,800
Speaker 1: currently owned by Tribune, and then there are forty three

470
00:23:54,240 --> 00:23:58,280
Speaker 1: additional television stations that are also up for grabs. Other

471
00:23:58,400 --> 00:24:01,639
Speaker 1: regulatory hurdles that twenty for Century Fox would have to

472
00:24:02,200 --> 00:24:05,040
Speaker 1: jump over. Yes, and and and what's driving this M

473
00:24:05,080 --> 00:24:08,280
Speaker 1: and A consolidation is we are, in fact getting a

474
00:24:08,280 --> 00:24:11,359
Speaker 1: lot of deregulation under the Donald Trump f CC. I

475
00:24:11,440 --> 00:24:13,320
Speaker 1: was just at in Las Vegas last week at the

476
00:24:13,440 --> 00:24:17,760
Speaker 1: National Association of Broadcasters conference, and the dominant discussion point

477
00:24:17,960 --> 00:24:21,080
Speaker 1: was M and A and consolidation. Uh. We've already seen

478
00:24:21,119 --> 00:24:24,040
Speaker 1: the FCC just in the last several weeks rollbacks some

479
00:24:24,400 --> 00:24:28,560
Speaker 1: ownership restrictions on the television industry. Uh, most investors feel

480
00:24:28,600 --> 00:24:31,720
Speaker 1: like we're going to get even more deregulatory moves coming

481
00:24:31,720 --> 00:24:34,719
Speaker 1: out of this FCC. If in fact we do that,

482
00:24:34,760 --> 00:24:36,920
Speaker 1: could then you know, help some of these deals get done.

483
00:24:36,960 --> 00:24:39,600
Speaker 1: Most notably twenty one Century Fox will need some more

484
00:24:39,960 --> 00:24:42,359
Speaker 1: deregulation than than what's already been ad been announced to

485
00:24:42,400 --> 00:24:46,000
Speaker 1: get this deal done. So Centric Foxes shares are down

486
00:24:46,080 --> 00:24:49,120
Speaker 1: almost per cent. I'm just wondering, what's the benefit here

487
00:24:49,160 --> 00:24:51,679
Speaker 1: for for that company? UM. I think the benefit for

488
00:24:52,320 --> 00:24:54,280
Speaker 1: Century Foxes there's probably a little bit of a balance

489
00:24:54,320 --> 00:24:59,119
Speaker 1: sheet uh improvement proformer for this deal by bringing in Blackstone.

490
00:24:59,280 --> 00:25:01,000
Speaker 1: But I think if you're any first Century Fox, you

491
00:25:01,040 --> 00:25:04,479
Speaker 1: really think of yourself as a global content player with

492
00:25:04,560 --> 00:25:07,240
Speaker 1: the movie studio and cable networks, and and you know

493
00:25:07,240 --> 00:25:10,080
Speaker 1: those are maybe faster growing, a little bit more sexier

494
00:25:10,119 --> 00:25:14,240
Speaker 1: businesses content in the digital world. Maybe the ownership of

495
00:25:14,280 --> 00:25:17,720
Speaker 1: local television affiliates around the United States isn't necessarily core

496
00:25:17,800 --> 00:25:20,880
Speaker 1: to your business. It's certainly core to your Fox network

497
00:25:20,920 --> 00:25:22,520
Speaker 1: in the United States, but maybe you don't need to

498
00:25:22,520 --> 00:25:25,200
Speaker 1: have full ownership of those stations. So I think it's

499
00:25:25,200 --> 00:25:27,159
Speaker 1: a little bit of strategic move on the part of

500
00:25:27,200 --> 00:25:30,639
Speaker 1: Fox to focus more on their faster growing global businesses,

501
00:25:30,960 --> 00:25:35,000
Speaker 1: including this pending deal for Sky in the UK. Uh.

502
00:25:35,000 --> 00:25:36,359
Speaker 1: And then it's also a way to for them to

503
00:25:36,359 --> 00:25:39,560
Speaker 1: give them some financial flexibility with their balance sheet. Just

504
00:25:39,640 --> 00:25:44,800
Speaker 1: comparing Fox to the other broadcasters, whether it's CBS or Comcast,

505
00:25:45,119 --> 00:25:47,920
Speaker 1: who's in the best position right now? Well, CBS is

506
00:25:47,920 --> 00:25:52,480
Speaker 1: is interesting. CBS really is a pure play US broadcasting company.

507
00:25:52,520 --> 00:25:55,240
Speaker 1: They own the CBS network, they owned Showtime, UH, they

508
00:25:55,240 --> 00:25:58,399
Speaker 1: own their big affiliates. They've pretty much gotten out of

509
00:25:58,400 --> 00:26:01,040
Speaker 1: a lot of their other businesses, including right now they're

510
00:26:01,040 --> 00:26:04,840
Speaker 1: trying to uh emerge their radio business with Intercom, So

511
00:26:04,840 --> 00:26:07,880
Speaker 1: they're really going to focus on their US broadcast and

512
00:26:08,280 --> 00:26:11,240
Speaker 1: premium channel, and they've their stock has done really well

513
00:26:11,280 --> 00:26:13,280
Speaker 1: over the last four or five years as Les Moonves

514
00:26:13,280 --> 00:26:15,960
Speaker 1: has been able to drive higher ratings at his broadcast

515
00:26:16,000 --> 00:26:20,240
Speaker 1: network and higher revenue from advertising and from retransmission fees.

516
00:26:20,359 --> 00:26:21,879
Speaker 1: Real quick, you think the sale is gonna get done

517
00:26:21,880 --> 00:26:24,320
Speaker 1: with twenty century Fox and Blackstone. I don't know there's

518
00:26:24,320 --> 00:26:26,399
Speaker 1: a big competitor out there that once this company and

519
00:26:26,440 --> 00:26:29,720
Speaker 1: that Sinclair Broadcast Group, but I think this Fox Blackstone

520
00:26:29,720 --> 00:26:32,480
Speaker 1: group is really the group to beat. Paul Sweeney, thank

521
00:26:32,480 --> 00:26:34,840
Speaker 1: you so much for joining us. Really an interesting development

522
00:26:34,880 --> 00:26:36,800
Speaker 1: and I'm sure there will be more consolidation to come,

523
00:26:37,080 --> 00:26:39,280
Speaker 1: as Paul was saying, because some of the regulation by

524
00:26:39,280 --> 00:26:43,400
Speaker 1: the FCC has been ruling back. Paul Sweeney as US

525
00:26:43,440 --> 00:26:46,840
Speaker 1: director of Research and senior Media and Internet Analyst for

526
00:26:46,920 --> 00:26:49,320
Speaker 1: Bloomberg Intelligence, and he is here with us in our

527
00:26:49,320 --> 00:26:55,480
Speaker 1: Bloomberg eleven three oh studio. Thanks for listening to the

528
00:26:55,520 --> 00:26:58,640
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen

529
00:26:58,640 --> 00:27:02,800
Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform

530
00:27:02,880 --> 00:27:06,800
Speaker 1: you prefer. I'm Pim Fox. I'm on Twitter at pim Fox.

531
00:27:07,080 --> 00:27:10,600
Speaker 1: I'm on Twitter at Lisa abramowits one before the podcast.

532
00:27:10,640 --> 00:27:13,240
Speaker 1: You can always catch us worldwide on Bloomberg Radio