March 21, 2024 • 42 mins
Credit investors aren’t getting enough compensation for corporate credit risk, says Matthew Eagan, a portfolio manager and head of the full discretion team at Loomis Sayles & Co. “Judging from the spread levels, I think they’ve gone a bit too far,” Eagan tells Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Stephen Flynn in the latest Credit Edge podcast. He sees investment grade debt as an opportunity, given decent corporate earnings and the fact that debt costs are mostly locked in. Loomis likes BBB rated debt, as well as bonds issued by banks and media companies. Eagan also says ongoing concern about commercial real estate risk is not likely to hurt major banks, and should remain contained to smaller institutions. Also in this episode, BI’s Flynn analyzes improving credit prospects at Paramount Global and predicts a US election boost for iHeartMedia.
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Episode Transcript
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Speaker 1 (00:17):
Hello, and welcome to The Credit Edge, a weekly markets podcast.
My name is James Crumby. I'm a senior editor at Bloomberg.
This week, we're very pleased to welcome Matt Egan, co
head of the Full Discretion team at Loomis Sales. How
are you, Matt?
Speaker 2 (00:29):
Very well, Thanks James, Thank you so.
Speaker 1 (00:31):
Much for joining us today. We're very excited to dig
into your market views and the outlook. We're also delighted
to welcome back Bloomberg's Lisa Lee, covering credit markets from London.
Great to see you again, Lisa.
Speaker 3 (00:41):
Happy to be here, James, I'm.
Speaker 1 (00:42):
From Bloomberg Intelligence. Excellent to have back on the show.
Steve Flynn from Bloomberg Intelligence in New York. Welcome Steve.
Speaker 4 (00:48):
Thanks, great to be back.
Speaker 1 (00:50):
So let's start with you, Matt. It's great to have
you on the Credit Edge. But before I ask you
to explain to our listeners what full discretion actually means,
I wanted to just set the scene a little bit.
Credit market's a tree at very bullish levels, barn spreads
at the titus in two years, which means you're not
getting very compensated for the risk of borrowers not paying
you back. In addition, corporate bonds across the board are
(01:10):
very much in demand. There are even some signs of
froth in the marketplace, which I hope we'll get to
discuss a bit later. Meanwhile, there's this growing sense that
the US economy can avoid recession. Companies are just doing
fine with the much higher levels of borrowing cost and
that rate cuts just a matter of time, which will
juice the demand for yield. At the same time, we
(01:30):
see record levels of bond issuance. US companies have a
lot more refinancing to do this year, and they're taking
advantage of a window to sell a lot of bonds.
And there's a big boom going on in private debt
and asset based finance. So what's your take, Matt. There's
a long term participant in this market, credit markets offering
fair value relat to the risk. Is it all as
(01:51):
great as everyone's saying it is?
Speaker 5 (01:53):
I think when you look at credit markets and judging
from the spread levels, I think they've gone a bit
too far. They've compressed too much. We're fading them on
the margin. On the other hand, I don't see anything
worrisome regarding credit losses, So you know, It's interesting of
the last couple of years, investors have been a bit
fluwnox by credit spreads and where they've lived. And you know,
(02:17):
as an investor over looking at these markets over long term,
you really put credit markets they tend to live in
two different regimes. One is a distressed regime where there's
a spike in losses, and of course high yield spreads
in that environment will go to something like six fifty
or high or eight hundred, or you could live in
this more benign, non stressed environment where losses tend to
(02:42):
be at relatively low levels. I think we're in that
kind of market right now, and it tends to live
in a trading range. And right now we're in a
seasonally tight period of that trading range, just from a
seasonal calendar perspective, and so you want to be sort
of fading the tight end of that range, but within
the range, I think you want to stay invested in spreads.
(03:06):
You know, history shows during these types of mars markets
you want to harvest that extra risk premium and compound
it and that that carry is going to win for
you as an investor.
Speaker 1 (03:17):
So you mentioned high yield spreads are six fifty in
a typical most sort of recessionary environment. Now they're closer
to three hundred. What's the kind of fair value you're
looking at? I mean, you're fading it at the tights,
But what's the sort of fair value level do you think?
Speaker 5 (03:30):
I think you know, in the near the very near term,
they could kind of crack through three hundred on the
high yield uh basis that that's not unheard of if
you look back in history. Uh you know, just as
you mentioned, sort of the push to invest in that space.
The technicals are strong on the upper bound. You could
see high yield easily in a normal trading rate, could
(03:52):
easily go out to four hundred, maybe even four hundred
and fifty basis points, and you want to be a
buyer on those on those weaker ends of those market.
So it's almost like to me, it's a it's a
different kind of market than we've seen in a long time,
because you know, when you were in this sort of
this this you know, uh environment where you had the
GFC and an explosion and losses and then you had
(04:14):
the the worries regarding the pandemic or things like that,
you get some big volatility. This reminds me of more
of a pre GFC type of market, where you can
live in these uh modest ranges in your year, can
be made as a you know, as a professional investor
in short periods when you know you're at the trading
at the wider end of those markets.
Speaker 1 (04:34):
But only about eighteen months ago, we were all really
worried about a ton of distress defaults, you know, some
real problems in the market, given how high rates had
suddenly gone, and how you know, some of the companies
teddy with weak runnings, we're going to be maybe struggling,
but that never happened. What do you make of that?
Speaker 2 (04:50):
Right?
Speaker 5 (04:50):
This has been a very interesting cycle, and I think
a cycle that we could potentially see going forward, which
is you're going to see the credit markets the credit cycle,
and we're cycle based investors. The credit cycle gets a
bit more volatile and shortened relative to the so called
great moderation that we used to see. And I don't
(05:13):
think we're gonna get the kind of fed put that
we've gotten in prior markets.
Speaker 2 (05:18):
So you have to keep that in mind.
Speaker 5 (05:20):
And this current cycle that we are in is a
good example of that, you know, So if you look
back at let's just take the downturn.
Speaker 2 (05:29):
It was very quick and what it was.
Speaker 5 (05:32):
Related to the pandemic obviously, and the FED did use
its put for good reason during that period, so it
didn't last long. And then as you move into the
next phase of the cycle, that tends to be what
we call credit repair, that lasted, you know, only a
few months, and then you're right into the recovery that
that lasted a matter of months, and you're back into
(05:53):
what we call the longer phase of the market, which
tends to be we call it the expansion late cycle
that tends to run very long. But this time it
was short circuited by inflation and the worries about it
and of course the hawkish pivot from the FED, and
along with that, investors started pricing in a very high
(06:15):
probability and rightly so, of a potential downturn. But the
reason there were flamox by this is they were expecting
spreads to widen much more than they did, you know,
and we did get out to five hundred or so
in the in the highyal markets. Is the canary in
the coal mine as an example. But people were saying,
as we were talking about before where are we going
(06:36):
to go into a distress market where loss is going
to be even higher that would push you into that.
Speaker 2 (06:40):
More distress regime.
Speaker 5 (06:42):
We think, actually, when we this is part of our
philosophy of looking at credit spreads themselves, it's not so
much the actual spread spreads are actually a very poor
predictor of ford performance in the credit markets. What's more
important is thinging about what are the losses going to
be as an investor want to be exposed to in
(07:04):
terms of downgrades and in the case of high yield,
potentially defaults. So what we do is look at what
is we call the risk premium, and that's simply the
spread that you observe in the marketplace minus the forward
looking losses. And the trick to investing really in the
middle of twenty twenty two on through twenty twenty three
(07:27):
was to recognize that even though there was a higher
probability of a downturn, that losses, even in the case
of a downturn, we're going to remain unusually low, and
therefore your risk premium was actually abnormally wide, you know,
at above medium levels. Now fast forward to today and
(07:49):
because people have now bought into the soft landing that's
taken off the table, you know, a recession and their
view of losses. They've actually come rest that risk premium
to below medium levels, which is not inconsistent for late expansion,
but you're definitely below You're in the sort of the
(08:10):
lower end of the range for what we would call
it's a more accurate predictor, which is risk premiums.
Speaker 3 (08:16):
So when you look at the default expectations, do you
think the market has a correct or maybe it's a
little bit under waiting how much default there might be.
And also, can you speak about recoveries because it's not
just defaults. Recoveries have been really low in both high
yould bonds, but especially in leverage loans right.
Speaker 5 (08:34):
Well, leverage loans have been higher than high yield, and
I think there's an interesting sub theme going on there,
which is the convergence between bank loans and high yield.
Speaker 2 (08:45):
I think the market is correct to assume.
Speaker 5 (08:48):
That there won't be a lot of losses coming out
of the high yeal market. And for that matter, investment
grade now investment grade really talking about downgrades, but more
importantly sort of those fallen angel that the build up
of fallen angels there are not a lot of those
in the investment grade market, So I think investment grade
actually from a risk adjusted perspective, probably looks the most attractive.
Speaker 2 (09:10):
Then comes high yield. With bank loans.
Speaker 5 (09:12):
I'm a little bit more worried about excesses that had
been built up during you know, just prior to the
pandemic and during you know, the easy money of the
pandemic era. And what's interesting about bank loans and why
we think they're converging here, is that bank loans used
to be a double B average quality. High yield used
(09:33):
to be a single B average quality, So as a
higher level of market was secured, you tended to get
losses that were less than the high heal market and
recovery so much higher. That's shifted over the past several years.
Bank loan quality has dropped in average to from a
double B to a single B. More LBOs were financed there,
(09:57):
So the bank loan market today looks a lot like
the old high yal market, And in fact, the high
market actually went up in quality, and you just don't
see the amount of LBOs that you normally would get there.
Speaker 2 (10:10):
So the excess in my excesses in.
Speaker 5 (10:11):
My mind have been underwritten in that space based on
the demand created by the colos. That's been a key
part of that, and the fact that the underwriters, particularly
the private side, like to bring their debt into the
bank loan market. So that's an area we're watching out
for for excesses and losses.
Speaker 3 (10:31):
And do you worry about some of these lender and
lender of violence that has become sort of we haven't
seen it a little bit less lately, but I think
people are getting gearing up to do those things, and
based a lot on the lack of covenance and weaker documents.
Speaker 5 (10:46):
Yeah, covenant, The value of covenants in our markets, both
in Highland bank loans have really diminished over my career,
and there's a lot of reasons for that. I think
passive plays a role in that nobody cares about you know,
where they're doing the underwriting initially, but that's really dropped
a way, and I think you've got to be very
(11:06):
particularly as a bond picker like we are, you have
to really understand what your protections are and over even
when covenants were better, I always found that you could
always find a good lawyer out there that would find
a way to kind of side steps of these these
restrictions and now they're even less so so yes, creditor
and credit credit or violence is alive, and well, uh
(11:27):
so we're seeing a lot of course of exchanges and
things like that. So you need to really understand that.
And I think what it means, like back to your point,
is that there's a possibility that that recoveries are going
to be lower than they otherwise would be. Now, recoveries
themselves tend to be cyclical, right when there's a lot
of distressed, recoveries are lower and vice versa. Uh, but
(11:48):
that creditor and creditor violence, you think you could have
a good, say second lean position or a good claim
even as an unsecured position, and then all of these
a sudden you find yourself being coerced out of that.
Speaker 1 (12:00):
On the investment grade side, Matt, on the bonds, you
know they're trading very tight. It's below ninety basis points
on the Bloomberg Index today, plus the new issue concession
is almost zero, and you're just seeing this ton of supply.
But you know, it just keeps keeps getting tight, and
yet you still see value. And I'd also say that
(12:20):
on a total return basis, you're not doing very well
because of the duration. How do you how do you
get the value out of it?
Speaker 2 (12:27):
Yeah, we'll leave it.
Speaker 5 (12:28):
We'll put aside the duration question because I think that's
more a case for the base rates.
Speaker 2 (12:32):
But you know, clearly there is a lot of duration.
Speaker 5 (12:36):
But just looking at the in the in the credit space,
but just looking at the spread component, I think again
it goes back to while spreads are relatively tight, losses
are going to remain very minimal in our in our view,
and really when you look at Corporate America or really
corporations around the world, they're in very good shape. Profits
(12:56):
are there was a bit of a propit correction, a
mid cycle correction, but they're recovering.
Speaker 2 (13:02):
Margins are fine.
Speaker 5 (13:03):
They tend to they seemingly have some pricing power here. Uh,
And then you know for a lot of them, and
you know, it's sort of like a if you're a
mortgage holder and you locked in your thirty year mortgage
and you know, the United States we have a thirty
year mortgage capability. You know, if you locked your mortgage
in at two or three percent, you're feeling pretty flush
right now. And I think the same thing for Corporate America,
(13:25):
they've locked in a lot of their they've fixed their
cost of debt at very low levels, so they're not
really feeling the pinch from rise and rates. Now over
time they're going to have to refinance that that debt,
but they're not feeling the effects of the tightening and
from the Fed. So all in all, investment grade metrics
(13:48):
fundamentals look very solid and they're supporting what you know
is is a tight market, yes, but one that which
which is also unlikely.
Speaker 2 (13:58):
To see a lot of us.
Speaker 5 (14:00):
So while you know you may be able to pick
up seventy basis points are more risk premium.
Speaker 2 (14:06):
Right, that doesn't sound like a lot, but.
Speaker 5 (14:09):
If you compound that over time, that's a significant pick
up over treasuries, and we think you lean into that
and you know you can go down into the triple
B market even and feel pretty comfortable in that space.
Speaker 1 (14:24):
And on rates, are you thinking more like three three
Fed cuts this year or is it going down to two?
And what what's your view?
Speaker 2 (14:32):
Yeah?
Speaker 5 (14:33):
I think cyclically we still see inflation bottoming here, We're
in a bottoming process and the Fed will be able
to cut rates. It's in a relatively good position and
I think if I had to, you know, make a choice,
I think it's more likely to be two cuts this
year because the economic data and inflation h you know,
(14:55):
in the last mile has been pretty resilient. So I
think the FED will will kind of slow walk it
relative to what the expectations are, but that's that's still easing.
And I think you're going to see on the margin
financial condition supportive of the credit markets.
Speaker 3 (15:13):
So given that you see this as a very sort
of a unique climate for credit, how are you shifting
your allocations? What are you buying, what are you selling?
What are you overweight underweight? And what do you like
and what do you not like?
Speaker 5 (15:25):
Sure, so we tend to live in that triple B
double B space, that's our We tend to tilt into
that from a risk premium perspective and compound that risk
bring me over time, and we'll extend further down that
quality spectrum when the timing is good. I think today's environment,
because of where spreads are and some of the uncertainties
(15:46):
that are out there, I think now is a good
time to you know, take a little bit of chips
off the table on the lower end side and stick
to that triple B double B area where you're getting
really kind of the sweet spot in terms of enough spread,
compensation and relatively low level of risk and pretty decent fundamentals.
So that's an aggregate where we're saying, so we're kind
(16:07):
of straddling in between the investment grade and high yield
space on the investment grade side. In terms of the
sectors that we favor on, we like really still like
the finance sector. We're overweight that and simply you get
more carry out of that space. Now, most of that
is in the banking sector, and I know, you know,
there's been a lot of trouble in the banking sector,
(16:29):
but we're really in the major banks where you know,
we're talking about the major money center banks both in
the United States and the champions in Europe. Those are
our main positions, you know, and I like them because
they've been deregulated, I mean, excuse me, regulated very harshly, right,
and that means higher capital ratues and really pristine balance sheets.
(16:52):
So they're in a you know, from a creditor perspective,
that's a that's a nice place to be and you
can pick up some extra spread there. I also like
the technology sector because the companies that are in there
tend to grow faster than GDP, and so in nominal terms,
are growing pretty well here and are able to easily
(17:14):
able to service their debt. Moving on into the high
yield space, really here it's more about item selection. So
there is a lot of dispersion within high yield, and
I think as a bond picker you can make hay
out of that. If I had a point to one
sector that I think is really interesting, its media and
(17:35):
communications on the cable TV front. This is a sector
that's sectors that have been really supremely disrupted.
Speaker 2 (17:44):
There will be winners and losers.
Speaker 5 (17:46):
You can see some of the areas that I think
are been unfairly punished.
Speaker 2 (17:50):
For example, be cable TV.
Speaker 5 (17:52):
I think people are derated that sector and are worried
about growth. I think it's over. They're too much worries
about that particular area. So we're putting some chips on
the table there. And then in terms of areas that
we're also looking at this securitized space, which we also
consider a credit space. Obviously, I like the higher end
(18:14):
of the COLO market, meaning the higher tiers. The triple
A level is the double AMENTS single a commercial and
consumer abs are still pretty good, pretty attractive yield for
the amount of duration that.
Speaker 2 (18:28):
You need to take.
Speaker 5 (18:30):
And then i'd watch out on commercial mortgage back security.
We're still bearish on commercial real estate. And you know,
alongside commercial real estate, I think one of our you know,
our uses that rates are going to remain higher for
longer here, and that also means a discount rate, right,
is going to remain higher the cost of capital, and
(18:51):
any entity that is really dependent on the cost of
capital coming down to save itself is going to be
in trouble, right, So a lot of real state projects
are like this. In the commercial real estate side, particularly
in the office space, there's going to be pain there.
I'd draw you back to the LBOs we were talking about.
There were initially funded at a sufur plus a little bit,
(19:14):
you know, so our sofa plus five hundred and sofur
being you know, only a tiny amount. They were funding
themselves at five or six percent. Today their cost of
capital on the DEA side is ten twelve. So those
companies are going to have difficulty going forward.
Speaker 4 (19:28):
Matt, this is Steve Flennagan from Bloomberg Intelligence. I understand
you said you favor cable media, both in triple B
and w B. I was just wondering, if you're concerned
about M and A in the space, if that could
be a good thing. There's obviously, you know, there was
a lot of speculation about Charter going after ALTCUSA, and
Charter is obviously a huge name both in investment grade
(19:48):
and is the biggest name in high yield, and some
nervousness about them going forward with a more levered ALTCUSA.
It's just wondering if your thoughts on the cable space,
if you think consolidation is good.
Speaker 2 (20:01):
I think consolidation is good for cable.
Speaker 5 (20:04):
They need to defend their market share, and I think
it's better for Charter to do something like that than
to spend it on growth, you know, you know, trying
to break into new markets through organic growth. I think
it makes much more sense to acquire and you know,
gain efficiencies through that means. You know, and they're getting
(20:27):
impinged on from you know, cable overbuilders as well as
from concerns about fixed wireless capabilities, which we think is overdone.
But by and large, a lot of these markets are
still oligopolies. They'll be giving up some to fix wireless,
but cable should be able to continue to grow some
on the top line in the market. It's treating them
(20:48):
like they're going to be no there's going to be
no growth or even negative growth.
Speaker 2 (20:52):
I think that's where the you.
Speaker 5 (20:55):
Know, sort of the the mistake is made in terms
of being too negative on those particular sets.
Speaker 2 (21:01):
Actually they still amount of free cash flow.
Speaker 5 (21:04):
Oh yeah, I mean they're they're generating a lot of
extra free cash flow. Charter Is Autisa is a bit
more constrained because they're investing fiber to the home, and
of course they have more leverage. But underneath that, you know,
these companies on an on lever basis are generating a
significant amount of cash flow off of what I think
(21:26):
are very defensible assets over the long run.
Speaker 1 (21:31):
On the banks, Matt, you mentioned you like the banks,
A lot of people do, but they still trade wide
to the rest of investment grade. And also there's this
as you mentioned, commercial real estate, travel brewing. You know,
some people say it could wipe out hundreds of banks
in the US. Obviously they're the smaller ones, and maybe
the big banks will be beneficiaries potentially in the long term.
(21:51):
But I just find it hard to kind of believe
that you're going to get that level of distress throughout
banks and you're not going to get a negative impact
on on on all of the banks. How do you
kind of square those views?
Speaker 5 (22:03):
Well, this is uh, this is an interesting point in
one of which that there is some concern about the
financial industry from that perspective, the banking market and you
know with banks and financial always worried about systemic risks, right,
you know, we've gotten a couple iterations that over the
past you know, a decade or so here, you know,
(22:25):
I think number one is uh, I think that obviously
the biggest concern about commercial real estate exists in the
regional side, and the majors really have they don't have
any you know, uh exposure worth talking about, So we
don't think it's a risk for the larger banks.
Speaker 2 (22:43):
They'll continue to go on their merry way.
Speaker 5 (22:47):
When you get into the next tier of banks. There
are certainly commercial real state exposures grow in size, and
some have bigger ones than others. But I think, you know, again,
commercial real estate is a very broad sectoring includes multifamilies.
It concludes office space includes a lot of different types
of properties. Not all of them will go into distress.
(23:08):
And so as far as we can tell when we
look through the numbers, it shouldn't lead to significant pain
for the larger sized regional banks. There's you know, a
couple that could stub their toe in this area. But
you know, one we learned is NYCB. But that's a
little bit of a unique case. So I don't think
it's going to be a case where a commercial real
(23:31):
estate you know, decline leads to a systemic banking crisis
in the United States or elsewhere.
Speaker 2 (23:38):
I just don't think that will happen.
Speaker 5 (23:40):
Now, the FED will more than likely have to roll
up some smaller banks. You're going to need to see
consolidation in the banking system one way or another. That
can happen through m and A, or it can happen
through failures or other banks taking over a failed institution.
What what I think is the FED is very good
(24:01):
at handling one off situations. So if some you know,
mid size bank were to stumble and potentially to systemic
you know, linkages back to the banking system, they're very
good at kind of ring fencing that bank, absorbing it
and moving on. And I think that's what you know
(24:22):
the banker regular is designed to do now, and I
think that system will work, So I'm not going to
get too carried away with concerns about that. But clearly
we have to keep your eyes wide opened, particularly when
you're investing in the regional side, and really you're not
getting that big of a premium to jump from you know,
a premier money center bank to you know, a more
(24:42):
mid tier bank that might have more stresses in that area.
Speaker 1 (24:46):
And given how interconnected everything is, and also the loans
you know, from these banks to companies, you don't think
it's going to cause a broad a contagion.
Speaker 2 (24:55):
I don't.
Speaker 5 (24:56):
So last year you got a sense of the you know,
one of my first sectors that I covered as a
young analyst when I was beginning of my career was
the banking market, so I know it pretty well. And
with banks, what you need to worry about our holes
on the balance sheet, right, and we got.
Speaker 2 (25:13):
A glimpse of this last year.
Speaker 5 (25:15):
The hole in the balance sheet was really a marked
to market issue. And it wasn't that you know, the
treasuries or the mortage backed securities that those banks held
were going to default, but there was a mark to
market issue. That over time would have healed itself, but
the banks ran out of time because there was a
flight of depositors'.
Speaker 2 (25:34):
That's a different kind of risk.
Speaker 5 (25:35):
I think we're beyond that, particularly as the FED is
easy and it looks like the liquidity in the banking
system is recovered and looking quite fine. Then you wonder,
all right, are there are other holes on the balance
sheet of the banking system? And I like the only
thing we can look at is on the commercial realistic
(25:55):
state side, and those are just not big enough relative
to what's reserved already.
Speaker 3 (26:02):
Matt, you spoke about how your bonds and also bank
loans or what some people call leverage loans, and there's
now a third credible large market private credit. Can you
address what your thoughts about private credit is, especially the
direct lending part. I know they've been pairing a little
bit back with the banks coming really coming back to
foreign sale or creation increasing. But there is here to stay,
(26:24):
many people say, and what's your take on it?
Speaker 5 (26:28):
I think it is here to stay, and I would
go further and say that there's a graying between the
private in the public markets.
Speaker 2 (26:37):
And if you think of you think about how.
Speaker 5 (26:40):
Corporate credit is rationed out in the economy. The level
of credit rides along top of the economy.
Speaker 2 (26:48):
So of a long.
Speaker 5 (26:49):
History you could see if you looked at the pile
of credit, it's just grown with the economy at a
pretty consistent pace.
Speaker 2 (26:57):
And there's been disintermediation along the way.
Speaker 5 (26:59):
So so who holds that and where it's you know,
resides and what balance sheets changed over time. So obviously
it's gone from the banks. The banks are still huge
in your mediaries, uh, in the economy, but there obviously
was an investment grade corporate market, then a high yelled
corporate market. Then bank loans emerged and become even a
(27:20):
bigger market than high yield now on the back of
clos rising in prominence. And then on the other side,
private credit now has taken in much bigger share of
that total credit issuance, and their opportunity has come through
the regulation that we talked about on mainstream banks. So
regulation has kind of opened up a window for private
(27:43):
credit to come through. And when you think of private credit,
really it kind of mirror images what's on the public side.
By that, I mean you can have investment ray, private
credit and down equality leverage. Of course, leveraged loans that
are private or leverage high yield. You also can you
(28:04):
also have a club based market in the private in
the private sector, I think that's going to morph to
more of a syndication based market, and you have on
the private sector or something that's ill liquid, but I
think that is gaining liquidity over time, and I think
those trends are going to continue and private is just
going to continue to grow alongside. So I think if
(28:25):
you look out five to ten years, investors are going
to be comfortable invest in looking at both the public
and the private space. And I think you're going to
get increasing transparency into the private market. Interestingly, so this
notion of it being kind of opaque and not trading,
I think over time there's going to be enough interest
(28:46):
to actually pierce that veil and to actually make it liquid.
Speaker 2 (28:51):
And certainly the banks will, the Wall Street banks.
Speaker 5 (28:54):
Will love to make this liquid so they can trade it,
so it takes money doing so.
Speaker 1 (29:00):
It's just like the bank loan market, I mean syndicated.
I mean sounds exactly the same to me, just the
way we've got with credit exactly the same.
Speaker 2 (29:07):
Okay, it's exactly the same.
Speaker 5 (29:09):
I think there's the same rationale for how it develops
and what the uh sort of the impetus is for
it to change into something a bit more mainstream. I
think it's in a lot of people's best interests to see, well,
I shouldn't.
Speaker 2 (29:23):
Say a lot of people's best interests.
Speaker 5 (29:25):
I'm sure a lot of private asset managers will love
it to remain you know, opaque and ill liquid because
they can get a bigger, uh, you know fee for
doing that. And some clients like it, to be quite honesty,
they like the fact that. I have some institutional clients
that like the fact that it's not priced. It reduces
the volatility seemingly. But I think we're credit cycles and
(29:50):
the testing of the credit the private credit market through
credit cycles, I think you're going to run into a
situation where eventually there'll be a demand for more.
Speaker 2 (30:01):
Liquidity and more.
Speaker 5 (30:02):
Transparent transparency into that market. That's going to make it
a little less profitable for the asset manager, but I
think it's going to lead to a lot of opportunities
for investors.
Speaker 3 (30:11):
Does seem like there's nothing new on the sun. It's
just the old leveraged loan market. But if I could
switch you to the global opportunity. You're based in the US,
but you're visiting here in London. You're talking to investors
all around the world. When you look at investing, where
do you find the best opportunities? US, Europe, emerging markets?
Speaker 5 (30:30):
So I look at I still think the US is
probably the most attractive market. So you know, i'd say
that from a base rate perspective. You know, among development markets,
you're still getting very good growth. Uh you're getting above
average yields for the most part, and you know you're you've.
Speaker 2 (30:49):
Got a dubbish tilting fed and so on.
Speaker 5 (30:52):
So that sets up very well for investors, both in
the treasury market and in the risk assets for you
based investors. When you go to Europe, it's more or
less the same kind of track fundamentally. It's just you're
starting with a much lower yield to begin with, not
so much in the case of the UK, but certainly
when you start moving into the continental Europe. Japan's off
(31:14):
in his own, you know, as usual, up in its
own bubble, and you know, we may get a watershed
event tire where the Bank of Japan is.
Speaker 2 (31:24):
Going to move And I don't want to extrapolate forward, what.
Speaker 5 (31:28):
The Bank of Japan is going to do, or you know, well,
let's put it this away.
Speaker 2 (31:33):
To talk about the Bank of Japan.
Speaker 5 (31:34):
I think that there are some really important structural changes
taking place in Japan.
Speaker 2 (31:41):
It's just they're going to be glacial in nature.
Speaker 5 (31:44):
So the Bank of Japan will adjust their monetary policy,
but it'll be very very small increment, and it'll be
the caboose of yields going forward and remain the carry
trade funding currency of preference. I will say one thing
that's interesting from our perspective is the carry trades, you know,
(32:05):
speaking of the yen carry trades, the carry trades into
emerging markets. I think there's a really continues to be
a good setup for them. Again dubbish fed soft landing,
bottoming inflation. So I'll give you examples like someplace like Mexico,
which I think is interesting because it's benefiting a lot
tremendously from nearshoring. You're getting about a nine to ten
(32:29):
percent yield in that market.
Speaker 2 (32:31):
They're also easing.
Speaker 5 (32:32):
From a central bank perspective, that's a really attractive market
to earn, you know, good carry in an error in
a cyclical environment where carries becoming more scarce.
Speaker 3 (32:46):
So we're starting to see some diversions between and we
have for a while now, but in a more sharper way.
Inflation's starting to moderate, and you're starting to see a
little bit into Pand can you explain to us why
we haven't seen more inflation in Japan versus the rest
of the world, and what will happen to all that
cash that the Japanese investor is sitting on if with
(33:09):
monetary policy sort of diverging.
Speaker 5 (33:11):
So a lot of people follow closely Japan because they're
interested in whereas all of those excess savings going to
go around the world, they like to invest in it
overseas when it's more attractive. Of late, it hasn't been
attractive for an investor that needs to hedge back to
yen right, so the hedge costs has been too prohibitive
(33:34):
for a yen based investor to really buy heavily in
places like the US, for example, and the carry out
other characteris in em work for them, but not so
much in the In the US, I think Bank of
Japan moves are probably less important than what the FED
does if the FED comes down enough. But our crystal ball,
(33:55):
we don't see enough moves by the FED and enough
moves by the Bank of Japan to really change the
calculus significantly enough on the hedging cost. So unfortunately, I
like to see some of that money coming into the
United States, it is probably not, at least at this juncture.
You probably need to see something of a much more
(34:16):
steeper Yell curve globally to start to see some of
that money flow outside of Japan.
Speaker 2 (34:23):
And on the other hand, you know.
Speaker 5 (34:24):
On the long end of the JGB market, now you
can get two percent doesn't sound like a lot. Put
to a end based investor, they're probably going to stay home.
Speaker 2 (34:33):
And buy that.
Speaker 1 (34:36):
I'm surprised, Matt you didn't mention China in your will
to it just now. But you know, Chinese junk bonds
have done the best in the world, although a lot
of people have been telling us for a while that
they are uninvestable. I just wonder what you'll view on
that was well, China.
Speaker 5 (34:48):
Has been really underperforming relative to expectations for a while now,
and I think their ideology has trump sort of the capitalism,
if you will, And that's the biggest issue that I
think outside investors have about, you know, putting capital into
that market, and I think there are good reasons to
(35:11):
be concerned about that. I think fundamentally, I'm concerned about
China's long run growth potential because of these actions they've taken.
Now cyclically, last year, their economy, you know, was said
to grow what five percent whatever the target was, they
grew much less than that. This year they have an
(35:32):
ambitious target. I think they'll do better than last year
based on a relatively moderate amount of policy moves by
the government, both in monetary terms and through lending through
the lending channel and fiscal policy. So that allows growth
to kind of stabilize and maybe even have a bit
(35:53):
of a cyclical pop. But the long term trends don't
look super good to foreign investor to buy, you know,
and make investments into into that market. And you're seeing
a lot of flows from outside of the equity market,
you know, to leave the equity market there and to
also really shun Chinese say investment grate in high yield bonds.
Speaker 1 (36:19):
So if you had to pick one out of all
the things you look at every day, best opportunity for
this year, what do you think that.
Speaker 5 (36:26):
I think the best opportunities for this year are going
to come in terms of returns are going to come
from the carry trades in the emerging market space. That's
where you probably get your highest absolute return. In the
develop market space, I think it's going to be relatively boring.
But I think, you know, I think within the United States,
I think that coupled with some you know, bets in
(36:48):
the in the credit market, I think, you know, treasuries,
I think you're going to look like at a four
or five return with a chance of maybe a higher
single digit much less likely to get a negative return
in the treasure market.
Speaker 2 (37:03):
So let's call it mid to high single digit returns.
Speaker 5 (37:05):
And on top of that, if you can invest in
the spread sector, you're going to add about a couple
one hundred to two hundred.
Speaker 2 (37:11):
Basis points of return. That's not too shabby to when
you're thinking about investing.
Speaker 5 (37:17):
In, certainly relative to what we used to be expecting,
you know, during the GFC and you know the QE.
Speaker 1 (37:23):
Or Yeah, so maybe a five percent return on investment
grade US bunds.
Speaker 2 (37:27):
This year, I think that's a good bet.
Speaker 1 (37:30):
Okay, And what about the risks? I mean, what are
you most worried about? You sound very very optimistic and
other than the spreads being a little bit too tight.
But but you know, is there anything that keeps you
up at night worrying?
Speaker 5 (37:43):
Well, I'm an optimist, but I you know, also a
fixing investor, which means I've got to think about those downsides.
I think from a cyclical perspective they're twofold. One is
there are elections out there. I think I was reading somewhere.
I think seventy percent of the world has people'll have
some sort of election. So many many countries have elections
(38:05):
for a lot of cases their leaders here, and I
think as these elections take place, obviously they can lead
to some volatility. The most important one is the US
that has implications for the world in terms of geopolitics,
aside from important considerations domestically for US citizens.
Speaker 2 (38:29):
So that's something that I think could lead.
Speaker 5 (38:31):
To some more volatility as that as that election approaches.
Speaker 1 (38:36):
Thanks very much, let's think about that. Matt Egan, co
head of the Full Discretion team at Loomis Sales. Brilliant
to have you on the credit edge.
Speaker 2 (38:42):
Cheers, Thank you very much.
Speaker 1 (38:44):
Also want to say a big thanks to Lisa Lead
with Bloomberg News in London. Brilliant to see you again,
Thank you, thanks for having me read all of Lisa's
great scoops on the Bloomberg terminal and of course at
Bloomberg dot com. So Steve Flynn at Bloomberg Intelligence. As
we discussed you look at telecoms and media. There's some
great stuff on the terminal under your byline. But I
just wanted to ask, you know, we didn't mention it
(39:06):
in a conversation with Matt Egan Loomis, but Paramount, that's
a big story right now, isn't it. What's going on
there right right now? There's there's talk of a merger,
there's talk of it, you know, getting better, there's talk
of an opportunity. What's going on.
Speaker 4 (39:18):
Yeah, So it's interesting that Matt said he that he
likes media. One of the most interesting names is Paramount,
and it's one of the the widest UH name in communications.
In investment grade, the bonds trade very wide, and there's
a lot going on here. There's been NonStop speculation about
some sort of m and a event potentially between either
Paramount or it's controlling shareholder, National Amusements.
Speaker 5 (39:40):
UH.
Speaker 4 (39:40):
The companies also on the cusp of investment grade. It's
rated low trible b across the board. S and P
has placed their rating on review for a potential downgrade.
So if they do downgrade them, then you get another
one of the raiders to downgrade them. They would fall
bea fallen angel, they would fall out of investment grade
into high yield. So you know, there's a lot of
moving parts going on here. The company does have a
(40:01):
lot of cash. The company started the year with a
lot of cash. They just did a big asset sell
that's going to close hopefully by the end of this year,
and they should do some a modest amount of free
cash flow this year. A lot of people are expecting
media overall to do a little bit better this year.
It's a political year, right, There'll be a lot of
advertising dollars, so that should help Paramount and a lot
(40:23):
of the media names.
Speaker 1 (40:24):
One of the media names that sticks out there is
I Hunt Media. I've been covering them for years, but
mostly in the context of leverage distress bankruptcy. But your
latest note suggests that they could actually be doing better now,
and I'm very interested to hear that at least there
might be one potential beneficiary of this upcoming Trump button election.
What was that yeah, no, so.
Speaker 4 (40:44):
That definitely helps radio, right, And so iHeart is a
highly leveraged name. Twenty twenty four should be a better
year for them. They should have better earnings, better EBITDA,
better free cash flow, and so the leverage is high,
but it should improve this year. And the company did
a small asset sale. They'll have some decent free cash flow.
(41:04):
They'll benefit from political advertising, and I'd expect them to
continue to be aggressive buying back their unsecure bonds, so
those are their lowest dollar price bonds. They've been pretty
aggressive in the market over the past year and a half.
I expect them to continue to do so. So they
you know what's nice is they have good liquidity and
they have good near term runway. However, they do have
(41:25):
some larger maturities a couple of years out which they
will eventually have to target.
Speaker 1 (41:29):
But on this advertising thing around the election, don't we
always get that every four years? Why is this yet different?
Speaker 5 (41:34):
Now?
Speaker 4 (41:34):
I would say this years, it's not different.
Speaker 2 (41:36):
It does. It happens.
Speaker 4 (41:37):
You know every two years, you get a major election.
Every four years, obviously get a presidential election, so you know,
you do definitely see a big bump and you could
see it in a company like Iheart's ebatat right. So
even off for twenty twenty three wasn't great, twenty twenty
two was good, twenty twenty four is supposed to be
also good.
Speaker 1 (41:55):
Steve Flynn, Bloomberg Intelligence, thank you so much for joining us.
Check out all of Steve's research on the Bloomberg Terminal.
It's really great stuff, or you can contact him directly
if you need more information. And thanks again to Matt Egan,
co head of the Full Discretion team at Loomis Sales.
And to Lisa Lee from Bloomberg News. Read all of
Lisa's great scoops on the Bloomberg Terminal and of course
at Bloomberg dot com. And please do subscribe wherever you
(42:17):
get your podcasts. We're on Apple, Google, Spotify and all
other great providers of podcasts. Give us a review, tell
your friends, or email me directly at jcrombieight at Bloomberg
dot net. I'm James Crombie. It's been a pleasure having
you join us again. Next week on the Credit Edge,
Hello, and welcome to The Credit Edge, a weekly markets podcast.
My name is James Crumby. I'm a senior editor at Bloomberg.
This week, we're very pleased to welcome Matt Egan, co
head of the Full Discretion team at Loomis Sales. How
are you, Matt?
Speaker 2 (00:29):
Very well, Thanks James, Thank you so.
Speaker 1 (00:31):
Much for joining us today. We're very excited to dig
into your market views and the outlook. We're also delighted
to welcome back Bloomberg's Lisa Lee, covering credit markets from London.
Great to see you again, Lisa.
Speaker 3 (00:41):
Happy to be here, James, I'm.
Speaker 1 (00:42):
From Bloomberg Intelligence. Excellent to have back on the show.
Steve Flynn from Bloomberg Intelligence in New York. Welcome Steve.
Speaker 4 (00:48):
Thanks, great to be back.
Speaker 1 (00:50):
So let's start with you, Matt. It's great to have
you on the Credit Edge. But before I ask you
to explain to our listeners what full discretion actually means,
I wanted to just set the scene a little bit.
Credit market's a tree at very bullish levels, barn spreads
at the titus in two years, which means you're not
getting very compensated for the risk of borrowers not paying
you back. In addition, corporate bonds across the board are
(01:10):
very much in demand. There are even some signs of
froth in the marketplace, which I hope we'll get to
discuss a bit later. Meanwhile, there's this growing sense that
the US economy can avoid recession. Companies are just doing
fine with the much higher levels of borrowing cost and
that rate cuts just a matter of time, which will
juice the demand for yield. At the same time, we
(01:30):
see record levels of bond issuance. US companies have a
lot more refinancing to do this year, and they're taking
advantage of a window to sell a lot of bonds.
And there's a big boom going on in private debt
and asset based finance. So what's your take, Matt. There's
a long term participant in this market, credit markets offering
fair value relat to the risk. Is it all as
(01:51):
great as everyone's saying it is?
Speaker 5 (01:53):
I think when you look at credit markets and judging
from the spread levels, I think they've gone a bit
too far. They've compressed too much. We're fading them on
the margin. On the other hand, I don't see anything
worrisome regarding credit losses, So you know, It's interesting of
the last couple of years, investors have been a bit
fluwnox by credit spreads and where they've lived. And you know,
(02:17):
as an investor over looking at these markets over long term,
you really put credit markets they tend to live in
two different regimes. One is a distressed regime where there's
a spike in losses, and of course high yield spreads
in that environment will go to something like six fifty
or high or eight hundred, or you could live in
this more benign, non stressed environment where losses tend to
(02:42):
be at relatively low levels. I think we're in that
kind of market right now, and it tends to live
in a trading range. And right now we're in a
seasonally tight period of that trading range, just from a
seasonal calendar perspective, and so you want to be sort
of fading the tight end of that range, but within
the range, I think you want to stay invested in spreads.
(03:06):
You know, history shows during these types of mars markets
you want to harvest that extra risk premium and compound
it and that that carry is going to win for
you as an investor.
Speaker 1 (03:17):
So you mentioned high yield spreads are six fifty in
a typical most sort of recessionary environment. Now they're closer
to three hundred. What's the kind of fair value you're
looking at? I mean, you're fading it at the tights,
But what's the sort of fair value level do you think?
Speaker 5 (03:30):
I think you know, in the near the very near term,
they could kind of crack through three hundred on the
high yield uh basis that that's not unheard of if
you look back in history. Uh you know, just as
you mentioned, sort of the push to invest in that space.
The technicals are strong on the upper bound. You could
see high yield easily in a normal trading rate, could
(03:52):
easily go out to four hundred, maybe even four hundred
and fifty basis points, and you want to be a
buyer on those on those weaker ends of those market.
So it's almost like to me, it's a it's a
different kind of market than we've seen in a long time,
because you know, when you were in this sort of
this this you know, uh environment where you had the
GFC and an explosion and losses and then you had
(04:14):
the the worries regarding the pandemic or things like that,
you get some big volatility. This reminds me of more
of a pre GFC type of market, where you can
live in these uh modest ranges in your year, can
be made as a you know, as a professional investor
in short periods when you know you're at the trading
at the wider end of those markets.
Speaker 1 (04:34):
But only about eighteen months ago, we were all really
worried about a ton of distress defaults, you know, some
real problems in the market, given how high rates had
suddenly gone, and how you know, some of the companies
teddy with weak runnings, we're going to be maybe struggling,
but that never happened. What do you make of that?
Speaker 2 (04:50):
Right?
Speaker 5 (04:50):
This has been a very interesting cycle, and I think
a cycle that we could potentially see going forward, which
is you're going to see the credit markets the credit cycle,
and we're cycle based investors. The credit cycle gets a
bit more volatile and shortened relative to the so called
great moderation that we used to see. And I don't
(05:13):
think we're gonna get the kind of fed put that
we've gotten in prior markets.
Speaker 2 (05:18):
So you have to keep that in mind.
Speaker 5 (05:20):
And this current cycle that we are in is a
good example of that, you know, So if you look
back at let's just take the downturn.
Speaker 2 (05:29):
It was very quick and what it was.
Speaker 5 (05:32):
Related to the pandemic obviously, and the FED did use
its put for good reason during that period, so it
didn't last long. And then as you move into the
next phase of the cycle, that tends to be what
we call credit repair, that lasted, you know, only a
few months, and then you're right into the recovery that
that lasted a matter of months, and you're back into
(05:53):
what we call the longer phase of the market, which
tends to be we call it the expansion late cycle
that tends to run very long. But this time it
was short circuited by inflation and the worries about it
and of course the hawkish pivot from the FED, and
along with that, investors started pricing in a very high
(06:15):
probability and rightly so, of a potential downturn. But the
reason there were flamox by this is they were expecting
spreads to widen much more than they did, you know,
and we did get out to five hundred or so
in the in the highyal markets. Is the canary in
the coal mine as an example. But people were saying,
as we were talking about before where are we going
(06:36):
to go into a distress market where loss is going
to be even higher that would push you into that.
Speaker 2 (06:40):
More distress regime.
Speaker 5 (06:42):
We think, actually, when we this is part of our
philosophy of looking at credit spreads themselves, it's not so
much the actual spread spreads are actually a very poor
predictor of ford performance in the credit markets. What's more
important is thinging about what are the losses going to
be as an investor want to be exposed to in
(07:04):
terms of downgrades and in the case of high yield,
potentially defaults. So what we do is look at what
is we call the risk premium, and that's simply the
spread that you observe in the marketplace minus the forward
looking losses. And the trick to investing really in the
middle of twenty twenty two on through twenty twenty three
(07:27):
was to recognize that even though there was a higher
probability of a downturn, that losses, even in the case
of a downturn, we're going to remain unusually low, and
therefore your risk premium was actually abnormally wide, you know,
at above medium levels. Now fast forward to today and
(07:49):
because people have now bought into the soft landing that's
taken off the table, you know, a recession and their
view of losses. They've actually come rest that risk premium
to below medium levels, which is not inconsistent for late expansion,
but you're definitely below You're in the sort of the
(08:10):
lower end of the range for what we would call
it's a more accurate predictor, which is risk premiums.
Speaker 3 (08:16):
So when you look at the default expectations, do you
think the market has a correct or maybe it's a
little bit under waiting how much default there might be.
And also, can you speak about recoveries because it's not
just defaults. Recoveries have been really low in both high
yould bonds, but especially in leverage loans right.
Speaker 5 (08:34):
Well, leverage loans have been higher than high yield, and
I think there's an interesting sub theme going on there,
which is the convergence between bank loans and high yield.
Speaker 2 (08:45):
I think the market is correct to assume.
Speaker 5 (08:48):
That there won't be a lot of losses coming out
of the high yeal market. And for that matter, investment
grade now investment grade really talking about downgrades, but more
importantly sort of those fallen angel that the build up
of fallen angels there are not a lot of those
in the investment grade market, So I think investment grade
actually from a risk adjusted perspective, probably looks the most attractive.
Speaker 2 (09:10):
Then comes high yield. With bank loans.
Speaker 5 (09:12):
I'm a little bit more worried about excesses that had
been built up during you know, just prior to the
pandemic and during you know, the easy money of the
pandemic era. And what's interesting about bank loans and why
we think they're converging here, is that bank loans used
to be a double B average quality. High yield used
(09:33):
to be a single B average quality, So as a
higher level of market was secured, you tended to get
losses that were less than the high heal market and
recovery so much higher. That's shifted over the past several years.
Bank loan quality has dropped in average to from a
double B to a single B. More LBOs were financed there,
(09:57):
So the bank loan market today looks a lot like
the old high yal market, And in fact, the high
market actually went up in quality, and you just don't
see the amount of LBOs that you normally would get there.
Speaker 2 (10:10):
So the excess in my excesses in.
Speaker 5 (10:11):
My mind have been underwritten in that space based on
the demand created by the colos. That's been a key
part of that, and the fact that the underwriters, particularly
the private side, like to bring their debt into the
bank loan market. So that's an area we're watching out
for for excesses and losses.
Speaker 3 (10:31):
And do you worry about some of these lender and
lender of violence that has become sort of we haven't
seen it a little bit less lately, but I think
people are getting gearing up to do those things, and
based a lot on the lack of covenance and weaker documents.
Speaker 5 (10:46):
Yeah, covenant, The value of covenants in our markets, both
in Highland bank loans have really diminished over my career,
and there's a lot of reasons for that. I think
passive plays a role in that nobody cares about you know,
where they're doing the underwriting initially, but that's really dropped
a way, and I think you've got to be very
(11:06):
particularly as a bond picker like we are, you have
to really understand what your protections are and over even
when covenants were better, I always found that you could
always find a good lawyer out there that would find
a way to kind of side steps of these these
restrictions and now they're even less so so yes, creditor
and credit credit or violence is alive, and well, uh
(11:27):
so we're seeing a lot of course of exchanges and
things like that. So you need to really understand that.
And I think what it means, like back to your point,
is that there's a possibility that that recoveries are going
to be lower than they otherwise would be. Now, recoveries
themselves tend to be cyclical, right when there's a lot
of distressed, recoveries are lower and vice versa. Uh, but
(11:48):
that creditor and creditor violence, you think you could have
a good, say second lean position or a good claim
even as an unsecured position, and then all of these
a sudden you find yourself being coerced out of that.
Speaker 1 (12:00):
On the investment grade side, Matt, on the bonds, you
know they're trading very tight. It's below ninety basis points
on the Bloomberg Index today, plus the new issue concession
is almost zero, and you're just seeing this ton of supply.
But you know, it just keeps keeps getting tight, and
yet you still see value. And I'd also say that
(12:20):
on a total return basis, you're not doing very well
because of the duration. How do you how do you
get the value out of it?
Speaker 2 (12:27):
Yeah, we'll leave it.
Speaker 5 (12:28):
We'll put aside the duration question because I think that's
more a case for the base rates.
Speaker 2 (12:32):
But you know, clearly there is a lot of duration.
Speaker 5 (12:36):
But just looking at the in the in the credit space,
but just looking at the spread component, I think again
it goes back to while spreads are relatively tight, losses
are going to remain very minimal in our in our view,
and really when you look at Corporate America or really
corporations around the world, they're in very good shape. Profits
(12:56):
are there was a bit of a propit correction, a
mid cycle correction, but they're recovering.
Speaker 2 (13:02):
Margins are fine.
Speaker 5 (13:03):
They tend to they seemingly have some pricing power here. Uh,
And then you know for a lot of them, and
you know, it's sort of like a if you're a
mortgage holder and you locked in your thirty year mortgage
and you know, the United States we have a thirty
year mortgage capability. You know, if you locked your mortgage
in at two or three percent, you're feeling pretty flush
right now. And I think the same thing for Corporate America,
(13:25):
they've locked in a lot of their they've fixed their
cost of debt at very low levels, so they're not
really feeling the pinch from rise and rates. Now over
time they're going to have to refinance that that debt,
but they're not feeling the effects of the tightening and
from the Fed. So all in all, investment grade metrics
(13:48):
fundamentals look very solid and they're supporting what you know
is is a tight market, yes, but one that which
which is also unlikely.
Speaker 2 (13:58):
To see a lot of us.
Speaker 5 (14:00):
So while you know you may be able to pick
up seventy basis points are more risk premium.
Speaker 2 (14:06):
Right, that doesn't sound like a lot, but.
Speaker 5 (14:09):
If you compound that over time, that's a significant pick
up over treasuries, and we think you lean into that
and you know you can go down into the triple
B market even and feel pretty comfortable in that space.
Speaker 1 (14:24):
And on rates, are you thinking more like three three
Fed cuts this year or is it going down to two?
And what what's your view?
Speaker 2 (14:32):
Yeah?
Speaker 5 (14:33):
I think cyclically we still see inflation bottoming here, We're
in a bottoming process and the Fed will be able
to cut rates. It's in a relatively good position and
I think if I had to, you know, make a choice,
I think it's more likely to be two cuts this
year because the economic data and inflation h you know,
(14:55):
in the last mile has been pretty resilient. So I
think the FED will will kind of slow walk it
relative to what the expectations are, but that's that's still easing.
And I think you're going to see on the margin
financial condition supportive of the credit markets.
Speaker 3 (15:13):
So given that you see this as a very sort
of a unique climate for credit, how are you shifting
your allocations? What are you buying, what are you selling?
What are you overweight underweight? And what do you like
and what do you not like?
Speaker 5 (15:25):
Sure, so we tend to live in that triple B
double B space, that's our We tend to tilt into
that from a risk premium perspective and compound that risk
bring me over time, and we'll extend further down that
quality spectrum when the timing is good. I think today's environment,
because of where spreads are and some of the uncertainties
(15:46):
that are out there, I think now is a good
time to you know, take a little bit of chips
off the table on the lower end side and stick
to that triple B double B area where you're getting
really kind of the sweet spot in terms of enough spread,
compensation and relatively low level of risk and pretty decent fundamentals.
So that's an aggregate where we're saying, so we're kind
(16:07):
of straddling in between the investment grade and high yield
space on the investment grade side. In terms of the
sectors that we favor on, we like really still like
the finance sector. We're overweight that and simply you get
more carry out of that space. Now, most of that
is in the banking sector, and I know, you know,
there's been a lot of trouble in the banking sector,
(16:29):
but we're really in the major banks where you know,
we're talking about the major money center banks both in
the United States and the champions in Europe. Those are
our main positions, you know, and I like them because
they've been deregulated, I mean, excuse me, regulated very harshly, right,
and that means higher capital ratues and really pristine balance sheets.
(16:52):
So they're in a you know, from a creditor perspective,
that's a that's a nice place to be and you
can pick up some extra spread there. I also like
the technology sector because the companies that are in there
tend to grow faster than GDP, and so in nominal terms,
are growing pretty well here and are able to easily
(17:14):
able to service their debt. Moving on into the high
yield space, really here it's more about item selection. So
there is a lot of dispersion within high yield, and
I think as a bond picker you can make hay
out of that. If I had a point to one
sector that I think is really interesting, its media and
(17:35):
communications on the cable TV front. This is a sector
that's sectors that have been really supremely disrupted.
Speaker 2 (17:44):
There will be winners and losers.
Speaker 5 (17:46):
You can see some of the areas that I think
are been unfairly punished.
Speaker 2 (17:50):
For example, be cable TV.
Speaker 5 (17:52):
I think people are derated that sector and are worried
about growth. I think it's over. They're too much worries
about that particular area. So we're putting some chips on
the table there. And then in terms of areas that
we're also looking at this securitized space, which we also
consider a credit space. Obviously, I like the higher end
(18:14):
of the COLO market, meaning the higher tiers. The triple
A level is the double AMENTS single a commercial and
consumer abs are still pretty good, pretty attractive yield for
the amount of duration that.
Speaker 2 (18:28):
You need to take.
Speaker 5 (18:30):
And then i'd watch out on commercial mortgage back security.
We're still bearish on commercial real estate. And you know,
alongside commercial real estate, I think one of our you know,
our uses that rates are going to remain higher for
longer here, and that also means a discount rate, right,
is going to remain higher the cost of capital, and
(18:51):
any entity that is really dependent on the cost of
capital coming down to save itself is going to be
in trouble, right, So a lot of real state projects
are like this. In the commercial real estate side, particularly
in the office space, there's going to be pain there.
I'd draw you back to the LBOs we were talking about.
There were initially funded at a sufur plus a little bit,
(19:14):
you know, so our sofa plus five hundred and sofur
being you know, only a tiny amount. They were funding
themselves at five or six percent. Today their cost of
capital on the DEA side is ten twelve. So those
companies are going to have difficulty going forward.
Speaker 4 (19:28):
Matt, this is Steve Flennagan from Bloomberg Intelligence. I understand
you said you favor cable media, both in triple B
and w B. I was just wondering, if you're concerned
about M and A in the space, if that could
be a good thing. There's obviously, you know, there was
a lot of speculation about Charter going after ALTCUSA, and
Charter is obviously a huge name both in investment grade
(19:48):
and is the biggest name in high yield, and some
nervousness about them going forward with a more levered ALTCUSA.
It's just wondering if your thoughts on the cable space,
if you think consolidation is good.
Speaker 2 (20:01):
I think consolidation is good for cable.
Speaker 5 (20:04):
They need to defend their market share, and I think
it's better for Charter to do something like that than
to spend it on growth, you know, you know, trying
to break into new markets through organic growth. I think
it makes much more sense to acquire and you know,
gain efficiencies through that means. You know, and they're getting
(20:27):
impinged on from you know, cable overbuilders as well as
from concerns about fixed wireless capabilities, which we think is overdone.
But by and large, a lot of these markets are
still oligopolies. They'll be giving up some to fix wireless,
but cable should be able to continue to grow some
on the top line in the market. It's treating them
(20:48):
like they're going to be no there's going to be
no growth or even negative growth.
Speaker 2 (20:52):
I think that's where the you.
Speaker 5 (20:55):
Know, sort of the the mistake is made in terms
of being too negative on those particular sets.
Speaker 2 (21:01):
Actually they still amount of free cash flow.
Speaker 5 (21:04):
Oh yeah, I mean they're they're generating a lot of
extra free cash flow. Charter Is Autisa is a bit
more constrained because they're investing fiber to the home, and
of course they have more leverage. But underneath that, you know,
these companies on an on lever basis are generating a
significant amount of cash flow off of what I think
(21:26):
are very defensible assets over the long run.
Speaker 1 (21:31):
On the banks, Matt, you mentioned you like the banks,
A lot of people do, but they still trade wide
to the rest of investment grade. And also there's this
as you mentioned, commercial real estate, travel brewing. You know,
some people say it could wipe out hundreds of banks
in the US. Obviously they're the smaller ones, and maybe
the big banks will be beneficiaries potentially in the long term.
(21:51):
But I just find it hard to kind of believe
that you're going to get that level of distress throughout
banks and you're not going to get a negative impact
on on on all of the banks. How do you
kind of square those views?
Speaker 5 (22:03):
Well, this is uh, this is an interesting point in
one of which that there is some concern about the
financial industry from that perspective, the banking market and you
know with banks and financial always worried about systemic risks, right,
you know, we've gotten a couple iterations that over the
past you know, a decade or so here, you know,
(22:25):
I think number one is uh, I think that obviously
the biggest concern about commercial real estate exists in the
regional side, and the majors really have they don't have
any you know, uh exposure worth talking about, So we
don't think it's a risk for the larger banks.
Speaker 2 (22:43):
They'll continue to go on their merry way.
Speaker 5 (22:47):
When you get into the next tier of banks. There
are certainly commercial real state exposures grow in size, and
some have bigger ones than others. But I think, you know, again,
commercial real estate is a very broad sectoring includes multifamilies.
It concludes office space includes a lot of different types
of properties. Not all of them will go into distress.
(23:08):
And so as far as we can tell when we
look through the numbers, it shouldn't lead to significant pain
for the larger sized regional banks. There's you know, a
couple that could stub their toe in this area. But
you know, one we learned is NYCB. But that's a
little bit of a unique case. So I don't think
it's going to be a case where a commercial real
(23:31):
estate you know, decline leads to a systemic banking crisis
in the United States or elsewhere.
Speaker 2 (23:38):
I just don't think that will happen.
Speaker 5 (23:40):
Now, the FED will more than likely have to roll
up some smaller banks. You're going to need to see
consolidation in the banking system one way or another. That
can happen through m and A, or it can happen
through failures or other banks taking over a failed institution.
What what I think is the FED is very good
(24:01):
at handling one off situations. So if some you know,
mid size bank were to stumble and potentially to systemic
you know, linkages back to the banking system, they're very
good at kind of ring fencing that bank, absorbing it
and moving on. And I think that's what you know
(24:22):
the banker regular is designed to do now, and I
think that system will work, So I'm not going to
get too carried away with concerns about that. But clearly
we have to keep your eyes wide opened, particularly when
you're investing in the regional side, and really you're not
getting that big of a premium to jump from you know,
a premier money center bank to you know, a more
(24:42):
mid tier bank that might have more stresses in that area.
Speaker 1 (24:46):
And given how interconnected everything is, and also the loans
you know, from these banks to companies, you don't think
it's going to cause a broad a contagion.
Speaker 2 (24:55):
I don't.
Speaker 5 (24:56):
So last year you got a sense of the you know,
one of my first sectors that I covered as a
young analyst when I was beginning of my career was
the banking market, so I know it pretty well. And
with banks, what you need to worry about our holes
on the balance sheet, right, and we got.
Speaker 2 (25:13):
A glimpse of this last year.
Speaker 5 (25:15):
The hole in the balance sheet was really a marked
to market issue. And it wasn't that you know, the
treasuries or the mortage backed securities that those banks held
were going to default, but there was a mark to
market issue. That over time would have healed itself, but
the banks ran out of time because there was a
flight of depositors'.
Speaker 2 (25:34):
That's a different kind of risk.
Speaker 5 (25:35):
I think we're beyond that, particularly as the FED is
easy and it looks like the liquidity in the banking
system is recovered and looking quite fine. Then you wonder,
all right, are there are other holes on the balance
sheet of the banking system? And I like the only
thing we can look at is on the commercial realistic
(25:55):
state side, and those are just not big enough relative
to what's reserved already.
Speaker 3 (26:02):
Matt, you spoke about how your bonds and also bank
loans or what some people call leverage loans, and there's
now a third credible large market private credit. Can you
address what your thoughts about private credit is, especially the
direct lending part. I know they've been pairing a little
bit back with the banks coming really coming back to
foreign sale or creation increasing. But there is here to stay,
(26:24):
many people say, and what's your take on it?
Speaker 5 (26:28):
I think it is here to stay, and I would
go further and say that there's a graying between the
private in the public markets.
Speaker 2 (26:37):
And if you think of you think about how.
Speaker 5 (26:40):
Corporate credit is rationed out in the economy. The level
of credit rides along top of the economy.
Speaker 2 (26:48):
So of a long.
Speaker 5 (26:49):
History you could see if you looked at the pile
of credit, it's just grown with the economy at a
pretty consistent pace.
Speaker 2 (26:57):
And there's been disintermediation along the way.
Speaker 5 (26:59):
So so who holds that and where it's you know,
resides and what balance sheets changed over time. So obviously
it's gone from the banks. The banks are still huge
in your mediaries, uh, in the economy, but there obviously
was an investment grade corporate market, then a high yelled
corporate market. Then bank loans emerged and become even a
(27:20):
bigger market than high yield now on the back of
clos rising in prominence. And then on the other side,
private credit now has taken in much bigger share of
that total credit issuance, and their opportunity has come through
the regulation that we talked about on mainstream banks. So
regulation has kind of opened up a window for private
(27:43):
credit to come through. And when you think of private credit,
really it kind of mirror images what's on the public side.
By that, I mean you can have investment ray, private
credit and down equality leverage. Of course, leveraged loans that
are private or leverage high yield. You also can you
(28:04):
also have a club based market in the private in
the private sector, I think that's going to morph to
more of a syndication based market, and you have on
the private sector or something that's ill liquid, but I
think that is gaining liquidity over time, and I think
those trends are going to continue and private is just
going to continue to grow alongside. So I think if
(28:25):
you look out five to ten years, investors are going
to be comfortable invest in looking at both the public
and the private space. And I think you're going to
get increasing transparency into the private market. Interestingly, so this
notion of it being kind of opaque and not trading,
I think over time there's going to be enough interest
(28:46):
to actually pierce that veil and to actually make it liquid.
Speaker 2 (28:51):
And certainly the banks will, the Wall Street banks.
Speaker 5 (28:54):
Will love to make this liquid so they can trade it,
so it takes money doing so.
Speaker 1 (29:00):
It's just like the bank loan market, I mean syndicated.
I mean sounds exactly the same to me, just the
way we've got with credit exactly the same.
Speaker 2 (29:07):
Okay, it's exactly the same.
Speaker 5 (29:09):
I think there's the same rationale for how it develops
and what the uh sort of the impetus is for
it to change into something a bit more mainstream. I
think it's in a lot of people's best interests to see, well,
I shouldn't.
Speaker 2 (29:23):
Say a lot of people's best interests.
Speaker 5 (29:25):
I'm sure a lot of private asset managers will love
it to remain you know, opaque and ill liquid because
they can get a bigger, uh, you know fee for
doing that. And some clients like it, to be quite honesty,
they like the fact that. I have some institutional clients
that like the fact that it's not priced. It reduces
the volatility seemingly. But I think we're credit cycles and
(29:50):
the testing of the credit the private credit market through
credit cycles, I think you're going to run into a
situation where eventually there'll be a demand for more.
Speaker 2 (30:01):
Liquidity and more.
Speaker 5 (30:02):
Transparent transparency into that market. That's going to make it
a little less profitable for the asset manager, but I
think it's going to lead to a lot of opportunities
for investors.
Speaker 3 (30:11):
Does seem like there's nothing new on the sun. It's
just the old leveraged loan market. But if I could
switch you to the global opportunity. You're based in the US,
but you're visiting here in London. You're talking to investors
all around the world. When you look at investing, where
do you find the best opportunities? US, Europe, emerging markets?
Speaker 5 (30:30):
So I look at I still think the US is
probably the most attractive market. So you know, i'd say
that from a base rate perspective. You know, among development markets,
you're still getting very good growth. Uh you're getting above
average yields for the most part, and you know you're you've.
Speaker 2 (30:49):
Got a dubbish tilting fed and so on.
Speaker 5 (30:52):
So that sets up very well for investors, both in
the treasury market and in the risk assets for you
based investors. When you go to Europe, it's more or
less the same kind of track fundamentally. It's just you're
starting with a much lower yield to begin with, not
so much in the case of the UK, but certainly
when you start moving into the continental Europe. Japan's off
(31:14):
in his own, you know, as usual, up in its
own bubble, and you know, we may get a watershed
event tire where the Bank of Japan is.
Speaker 2 (31:24):
Going to move And I don't want to extrapolate forward, what.
Speaker 5 (31:28):
The Bank of Japan is going to do, or you know, well,
let's put it this away.
Speaker 2 (31:33):
To talk about the Bank of Japan.
Speaker 5 (31:34):
I think that there are some really important structural changes
taking place in Japan.
Speaker 2 (31:41):
It's just they're going to be glacial in nature.
Speaker 5 (31:44):
So the Bank of Japan will adjust their monetary policy,
but it'll be very very small increment, and it'll be
the caboose of yields going forward and remain the carry
trade funding currency of preference. I will say one thing
that's interesting from our perspective is the carry trades, you know,
(32:05):
speaking of the yen carry trades, the carry trades into
emerging markets. I think there's a really continues to be
a good setup for them. Again dubbish fed soft landing,
bottoming inflation. So I'll give you examples like someplace like Mexico,
which I think is interesting because it's benefiting a lot
tremendously from nearshoring. You're getting about a nine to ten
(32:29):
percent yield in that market.
Speaker 2 (32:31):
They're also easing.
Speaker 5 (32:32):
From a central bank perspective, that's a really attractive market
to earn, you know, good carry in an error in
a cyclical environment where carries becoming more scarce.
Speaker 3 (32:46):
So we're starting to see some diversions between and we
have for a while now, but in a more sharper way.
Inflation's starting to moderate, and you're starting to see a
little bit into Pand can you explain to us why
we haven't seen more inflation in Japan versus the rest
of the world, and what will happen to all that
cash that the Japanese investor is sitting on if with
(33:09):
monetary policy sort of diverging.
Speaker 5 (33:11):
So a lot of people follow closely Japan because they're
interested in whereas all of those excess savings going to
go around the world, they like to invest in it
overseas when it's more attractive. Of late, it hasn't been
attractive for an investor that needs to hedge back to
yen right, so the hedge costs has been too prohibitive
(33:34):
for a yen based investor to really buy heavily in
places like the US, for example, and the carry out
other characteris in em work for them, but not so
much in the In the US, I think Bank of
Japan moves are probably less important than what the FED
does if the FED comes down enough. But our crystal ball,
(33:55):
we don't see enough moves by the FED and enough
moves by the Bank of Japan to really change the
calculus significantly enough on the hedging cost. So unfortunately, I
like to see some of that money coming into the
United States, it is probably not, at least at this juncture.
You probably need to see something of a much more
(34:16):
steeper Yell curve globally to start to see some of
that money flow outside of Japan.
Speaker 2 (34:23):
And on the other hand, you know.
Speaker 5 (34:24):
On the long end of the JGB market, now you
can get two percent doesn't sound like a lot. Put
to a end based investor, they're probably going to stay home.
Speaker 2 (34:33):
And buy that.
Speaker 1 (34:36):
I'm surprised, Matt you didn't mention China in your will
to it just now. But you know, Chinese junk bonds
have done the best in the world, although a lot
of people have been telling us for a while that
they are uninvestable. I just wonder what you'll view on
that was well, China.
Speaker 5 (34:48):
Has been really underperforming relative to expectations for a while now,
and I think their ideology has trump sort of the capitalism,
if you will, And that's the biggest issue that I
think outside investors have about, you know, putting capital into
that market, and I think there are good reasons to
(35:11):
be concerned about that. I think fundamentally, I'm concerned about
China's long run growth potential because of these actions they've taken.
Now cyclically, last year, their economy, you know, was said
to grow what five percent whatever the target was, they
grew much less than that. This year they have an
(35:32):
ambitious target. I think they'll do better than last year
based on a relatively moderate amount of policy moves by
the government, both in monetary terms and through lending through
the lending channel and fiscal policy. So that allows growth
to kind of stabilize and maybe even have a bit
(35:53):
of a cyclical pop. But the long term trends don't
look super good to foreign investor to buy, you know,
and make investments into into that market. And you're seeing
a lot of flows from outside of the equity market,
you know, to leave the equity market there and to
also really shun Chinese say investment grate in high yield bonds.
Speaker 1 (36:19):
So if you had to pick one out of all
the things you look at every day, best opportunity for
this year, what do you think that.
Speaker 5 (36:26):
I think the best opportunities for this year are going
to come in terms of returns are going to come
from the carry trades in the emerging market space. That's
where you probably get your highest absolute return. In the
develop market space, I think it's going to be relatively boring.
But I think, you know, I think within the United States,
I think that coupled with some you know, bets in
(36:48):
the in the credit market, I think, you know, treasuries,
I think you're going to look like at a four
or five return with a chance of maybe a higher
single digit much less likely to get a negative return
in the treasure market.
Speaker 2 (37:03):
So let's call it mid to high single digit returns.
Speaker 5 (37:05):
And on top of that, if you can invest in
the spread sector, you're going to add about a couple
one hundred to two hundred.
Speaker 2 (37:11):
Basis points of return. That's not too shabby to when
you're thinking about investing.
Speaker 5 (37:17):
In, certainly relative to what we used to be expecting,
you know, during the GFC and you know the QE.
Speaker 1 (37:23):
Or Yeah, so maybe a five percent return on investment
grade US bunds.
Speaker 2 (37:27):
This year, I think that's a good bet.
Speaker 1 (37:30):
Okay, And what about the risks? I mean, what are
you most worried about? You sound very very optimistic and
other than the spreads being a little bit too tight.
But but you know, is there anything that keeps you
up at night worrying?
Speaker 5 (37:43):
Well, I'm an optimist, but I you know, also a
fixing investor, which means I've got to think about those downsides.
I think from a cyclical perspective they're twofold. One is
there are elections out there. I think I was reading somewhere.
I think seventy percent of the world has people'll have
some sort of election. So many many countries have elections
(38:05):
for a lot of cases their leaders here, and I
think as these elections take place, obviously they can lead
to some volatility. The most important one is the US
that has implications for the world in terms of geopolitics,
aside from important considerations domestically for US citizens.
Speaker 2 (38:29):
So that's something that I think could lead.
Speaker 5 (38:31):
To some more volatility as that as that election approaches.
Speaker 1 (38:36):
Thanks very much, let's think about that. Matt Egan, co
head of the Full Discretion team at Loomis Sales. Brilliant
to have you on the credit edge.
Speaker 2 (38:42):
Cheers, Thank you very much.
Speaker 1 (38:44):
Also want to say a big thanks to Lisa Lead
with Bloomberg News in London. Brilliant to see you again,
Thank you, thanks for having me read all of Lisa's
great scoops on the Bloomberg terminal and of course at
Bloomberg dot com. So Steve Flynn at Bloomberg Intelligence. As
we discussed you look at telecoms and media. There's some
great stuff on the terminal under your byline. But I
just wanted to ask, you know, we didn't mention it
(39:06):
in a conversation with Matt Egan Loomis, but Paramount, that's
a big story right now, isn't it. What's going on
there right right now? There's there's talk of a merger,
there's talk of it, you know, getting better, there's talk
of an opportunity. What's going on.
Speaker 4 (39:18):
Yeah, So it's interesting that Matt said he that he
likes media. One of the most interesting names is Paramount,
and it's one of the the widest UH name in communications.
In investment grade, the bonds trade very wide, and there's
a lot going on here. There's been NonStop speculation about
some sort of m and a event potentially between either
Paramount or it's controlling shareholder, National Amusements.
Speaker 5 (39:40):
UH.
Speaker 4 (39:40):
The companies also on the cusp of investment grade. It's
rated low trible b across the board. S and P
has placed their rating on review for a potential downgrade.
So if they do downgrade them, then you get another
one of the raiders to downgrade them. They would fall
bea fallen angel, they would fall out of investment grade
into high yield. So you know, there's a lot of
moving parts going on here. The company does have a
(40:01):
lot of cash. The company started the year with a
lot of cash. They just did a big asset sell
that's going to close hopefully by the end of this year,
and they should do some a modest amount of free
cash flow this year. A lot of people are expecting
media overall to do a little bit better this year.
It's a political year, right, There'll be a lot of
advertising dollars, so that should help Paramount and a lot
(40:23):
of the media names.
Speaker 1 (40:24):
One of the media names that sticks out there is
I Hunt Media. I've been covering them for years, but
mostly in the context of leverage distress bankruptcy. But your
latest note suggests that they could actually be doing better now,
and I'm very interested to hear that at least there
might be one potential beneficiary of this upcoming Trump button election.
What was that yeah, no, so.
Speaker 4 (40:44):
That definitely helps radio, right, And so iHeart is a
highly leveraged name. Twenty twenty four should be a better
year for them. They should have better earnings, better EBITDA,
better free cash flow, and so the leverage is high,
but it should improve this year. And the company did
a small asset sale. They'll have some decent free cash flow.
(41:04):
They'll benefit from political advertising, and I'd expect them to
continue to be aggressive buying back their unsecure bonds, so
those are their lowest dollar price bonds. They've been pretty
aggressive in the market over the past year and a half.
I expect them to continue to do so. So they
you know what's nice is they have good liquidity and
they have good near term runway. However, they do have
(41:25):
some larger maturities a couple of years out which they
will eventually have to target.
Speaker 1 (41:29):
But on this advertising thing around the election, don't we
always get that every four years? Why is this yet different?
Speaker 5 (41:34):
Now?
Speaker 4 (41:34):
I would say this years, it's not different.
Speaker 2 (41:36):
It does. It happens.
Speaker 4 (41:37):
You know every two years, you get a major election.
Every four years, obviously get a presidential election, so you know,
you do definitely see a big bump and you could
see it in a company like Iheart's ebatat right. So
even off for twenty twenty three wasn't great, twenty twenty
two was good, twenty twenty four is supposed to be
also good.
Speaker 1 (41:55):
Steve Flynn, Bloomberg Intelligence, thank you so much for joining us.
Check out all of Steve's research on the Bloomberg Terminal.
It's really great stuff, or you can contact him directly
if you need more information. And thanks again to Matt Egan,
co head of the Full Discretion team at Loomis Sales.
And to Lisa Lee from Bloomberg News. Read all of
Lisa's great scoops on the Bloomberg Terminal and of course
at Bloomberg dot com. And please do subscribe wherever you
(42:17):
get your podcasts. We're on Apple, Google, Spotify and all
other great providers of podcasts. Give us a review, tell
your friends, or email me directly at jcrombieight at Bloomberg
dot net. I'm James Crombie. It's been a pleasure having
you join us again. Next week on the Credit Edge,
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