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SpaceX, Private Credit, and COP28 · Bloomberg Intelligence

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Speaker 3: Malloy Smith Paul Sweeney live.
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Speaker 2: Here in our Bloomberg Interactive Broker's studio, streaming live on
1:00
Speaker 2: YouTube as well. We've been talking about SpaceX today, primarily
1:03
Speaker 2: about this potential tender offer that might value the company
1:05
Speaker 2: in one hundred and seventy five billion dollars. We touched
1:07
Speaker 2: on that earlier with Ed Ludlow Bloomberg News out in
1:11
Speaker 2: San Francisco. I want to talk about the actual rocket
1:13
Speaker 2: stuff that SpaceX is doing. SpaceX Starship sets the pace
1:18
Speaker 2: in race to build larger rockets. Elon Musk's latest rocket,
1:22
Speaker 2: the most powerful ever built, would offer better economics than
1:26
Speaker 2: conventional crash. We'll get into the nuts and bolts the
1:28
Speaker 2: space stuff here, and we do that with Lauren Grush.
1:31
Speaker 2: She's actually a space reporter. I can't you got to
1:35
Speaker 2: get that on your business cards and the coolest job.
1:37
Speaker 3: Hey, Lauren, thanks so much for joining us here.
1:39
Speaker 2: Talk to us about the actual rocket stuff that Elon
1:42
Speaker 2: Musk is setting up. Talk to us about these new
1:45
Speaker 2: rockets here.
1:46
Speaker 4: Well, really, it's just the one rocket that they're sending
1:48
Speaker 4: up in a space it's the Falcon nine, their workforce rocket,
1:53
Speaker 4: and what I touched on in our article is that
1:55
Speaker 4: it's really kind of the go to rocket at the moment.
1:59
Speaker 4: A lot of analysts have been sounding the alarm about
2:02
Speaker 4: there being a simple a monopoly by SpaceX on the
2:06
Speaker 4: launch market right now, just because other rockets have been
2:09
Speaker 4: taken offline, or other rockets that we're supposed to be
2:13
Speaker 4: ready have suffered from delays. So at the moment, the
2:16
Speaker 4: Falcon nine is really the only working rocket, mostly for
2:20
Speaker 4: customers of its size. But SpaceX is also famously working
2:24
Speaker 4: on it Starship rocket, which has had a couple of
2:27
Speaker 4: launches so far, but it's not ready to take satellites
2:31
Speaker 4: to orbit yet, but everyone's kind of bracing for when
2:34
Speaker 4: that day will come.
2:35
Speaker 5: Yeah, Lauren tell us about the competition in this market, Like,
2:39
Speaker 5: surely there've got to be other players out here who
2:42
Speaker 5: are making rockets, admittedly not successfully, not as successfully as SpaceX.
2:47
Speaker 5: But SpaceX is still a relatively new company, right I mean,
2:50
Speaker 5: we're still calling it a startup. There's got to be
2:52
Speaker 5: other ones out there.
2:54
Speaker 4: I was reading today the term startup being used for SpaceX,
2:58
Speaker 4: but it is such a wild thing to say for
3:00
Speaker 4: the company because it is such a backbone.
3:03
Speaker 6: For our space program.
3:05
Speaker 4: I mean, SpaceX is one of, if not the biggest
3:08
Speaker 4: partner for NASA right now. The company is responsible for
3:11
Speaker 4: taking astronauts to and from the International Space Station, and
3:15
Speaker 4: Boeing is trying to do that as well.
3:17
Speaker 6: But they're not there yet. So yeah, it's to.
3:20
Speaker 4: Call space a SpaceX a startup sounds counterintuitive, but I
3:24
Speaker 4: do understand.
3:24
Speaker 5: You know, they're still private, but especially with that evaluation,
3:28
Speaker 5: it's apparently like worth about as much as like what
3:31
Speaker 5: AT and T is worth. I mean, that's just crazy,
3:34
Speaker 5: these numbers. So it's I mean, how long has the
3:37
Speaker 5: company been around now you think it's time to retire
3:39
Speaker 5: that startup word.
3:42
Speaker 6: It hasn't been that has been about two decades.
3:44
Speaker 4: So I don't consider it a startup personally, but you know,
3:47
Speaker 4: like I said, they are still private, so I do
3:49
Speaker 4: understand that impulse. But yeah, I mean, it doesn't surprise
3:53
Speaker 4: me that their valuation is so high because of all
3:55
Speaker 4: the things I listen, you know they are. They are
3:57
Speaker 4: pretty much holding up the entire U commercial launch industry
4:01
Speaker 4: right now, and like I said, that nassaualize on them
4:04
Speaker 4: quite heavily for many of its space programs and for
4:08
Speaker 4: its deep space ambitions such as sending astronauts to the
4:11
Speaker 4: Moon this decade. So you know, it is a high valuation,
4:15
Speaker 4: but like I said, it does seem warranted.
4:18
Speaker 2: So Lauren, where are we with this uh starship rocket?
4:23
Speaker 2: Because I'm reading your reporting here it says it could
4:26
Speaker 2: you know, send up you know potentially you know, huge
4:29
Speaker 2: amount of cargo three hundred and thirty one pounds. Where
4:34
Speaker 2: are we in the development of that, because that seems
4:35
Speaker 2: like it would be a pretty big breakthrough, right.
4:38
Speaker 4: So, just recently they had their second test flight of
4:42
Speaker 4: Starship where they tried to send it to near orbit
4:47
Speaker 4: and it did get it get pretty far, especially compared
4:51
Speaker 4: to their first test flight of the vehicle, which cleared
4:53
Speaker 4: the pad but started spinning out of control and then
4:56
Speaker 4: SpaceX had to blow up the rocket. This time, the
5:00
Speaker 4: launch cleared the pad, all of its engines were working properly,
5:04
Speaker 4: and it did break apart as planned, a process known
5:08
Speaker 4: as stage separation.
5:10
Speaker 6: That didn't happen the first time.
5:12
Speaker 4: But Starship did blow up when it was embarking out over.
5:17
Speaker 6: The Gulf of Mexico.
5:18
Speaker 4: Did make it to space, but didn't reach those near
5:20
Speaker 4: orbital speeds as planned.
5:22
Speaker 6: But for SpaceX, that's just how they test, right.
5:25
Speaker 4: They weren't necessarily expecting a perfect launch. They'd just like
5:29
Speaker 4: to launch, see if they can get farther than they
5:32
Speaker 4: did before, and then use those lessons learned when they
5:35
Speaker 4: go on to the next flight. So for them, it
5:37
Speaker 4: was a victory because they had improved upon the first flight.
5:41
Speaker 4: But still it's going to be a minute before they're
5:43
Speaker 4: ready to actually take those satellites to orbit, like I mentioned.
5:47
Speaker 5: Yeah, you also mentioned Lauren, So this is I mean
5:49
Speaker 5: SpaceX being a huge partner to NASA here and getting
5:53
Speaker 5: up to the International Space Station. But if you ever
5:56
Speaker 5: see this could be a ship that a rocket ship
5:59
Speaker 5: that is that like a regular consumer could go on.
6:03
Speaker 6: Well, yeah, that's the plans.
6:04
Speaker 4: So obviously, you know, the things that get headlines are
6:08
Speaker 4: all of the big ambitions that SpaceX has for starships,
6:12
Speaker 4: so sending people to the Moon and Mars and things that,
6:15
Speaker 4: you know, sending tourists on deep space missions around the Moon.
6:19
Speaker 4: But the truth is, you know, SpaceX does have plans
6:22
Speaker 4: for it as simply an orbital rocket. I mean, one
6:24
Speaker 4: of the big things that they're going to use Starship
6:26
Speaker 4: for is to launch their next their bigger, next generation
6:29
Speaker 4: Starlink Starlink satellites. But the idea is also that it
6:34
Speaker 4: could be a vehicle for other customer satellites. So you know,
6:38
Speaker 4: Elon has talked about eventually just using Starship as a
6:41
Speaker 4: replacement for the Falcon nine and having it be the
6:45
Speaker 4: the go to rocket for SpaceX.
6:48
Speaker 6: We'll see if that actually happens.
6:50
Speaker 4: But there is plans beyond just making it a deep
6:54
Speaker 4: space vehicle there. They would hopefully make it, you know,
6:57
Speaker 4: an orbital vehicle as well. Whether or not custom will
7:01
Speaker 4: want that vehicle, whether or not it'll be as cheap
7:04
Speaker 4: and flying as rapidly as SpaceX says, you know, those
7:08
Speaker 4: are all variables that remain to be seen. But given
7:11
Speaker 4: the promises that SpaceX has made, it could be a
7:14
Speaker 4: bit of a game changer for the launch market.
7:16
Speaker 6: But like I said, we just we have to get there.
7:18
Speaker 2: Just to see where is and what is Boca Chica.
7:25
Speaker 4: Boca Chica is a town on the southern tip of Texas.
7:28
Speaker 6: Have been there a few times.
7:30
Speaker 4: It's where Starship is being built at SpaceX's star based facility.
7:36
Speaker 4: It's a great location for a company like SpaceX because
7:39
Speaker 4: it's right on the water. It's closer to the equator,
7:42
Speaker 4: which is helpful when you're launching rockets in terms of
7:44
Speaker 4: getting the right speed you need to get to orbit. So,
7:48
Speaker 4: uh yeah, it's definitely become a bit of a go
7:51
Speaker 4: to destination for SpaceX enthusiasts because you can.
7:54
Speaker 3: Does one get the rocket right there in front of
7:57
Speaker 3: Let's say I'm coming from New York.
7:58
Speaker 2: How do we get the Boca Chica.
8:01
Speaker 4: Well, you fly into either Dallas or Houston, and then
8:05
Speaker 4: you can either drive or take a small plane down
8:07
Speaker 4: to Brownsville and then drive.
8:09
Speaker 5: Sounds like you could maybe expense that.
8:10
Speaker 2: I can expense that I've got a new corporate card and.
8:14
Speaker 5: Just tell us Lauren as well, what are like the
8:16
Speaker 5: big space goals right now? I mean we've already you know,
8:19
Speaker 5: put people on the Moon, We've got, you know, a
8:21
Speaker 5: few rovers that have been to Mars. Like, what are
8:23
Speaker 5: like the big targets out there right now?
8:26
Speaker 6: Sure?
8:26
Speaker 4: Well, just a touch on you know, part of the
8:29
Speaker 4: article we're discussing too. You know, one of the big
8:31
Speaker 4: goals right now is to kind of break up SpaceX's
8:34
Speaker 4: dominance in the launch market right now, So a lot
8:36
Speaker 4: of companies, launch startups are either pivoting away from small
8:41
Speaker 4: launchers and building larger rockets to compete with the Falcon nine.
8:44
Speaker 4: Other companies have been trying to develop their Falcon nine
8:47
Speaker 4: competitors for a while, but have suffered from delays. So
8:51
Speaker 4: there's a hope that maybe that kind of vehicle will
8:53
Speaker 4: capture a good chunk of the launch market that SpaceX
8:56
Speaker 4: isn't servicing right now. And then you know there's all
8:59
Speaker 4: the real exciting stuff that NASA is working on with
9:02
Speaker 4: its commercial partners. You know, NASA has its Artemis mission
9:06
Speaker 4: to the Moon, which is hoping to send humans back
9:08
Speaker 4: to the learner's lunar service for the first time.
9:10
Speaker 6: In nearly or more than half a century.
9:13
Speaker 4: And SpaceX is a part of that. Jeff Besis is
9:16
Speaker 4: Blue Origin is part of that as well. So it's
9:18
Speaker 4: a very exciting time. And then you've got all these
9:20
Speaker 4: other industries that are starting up as well, you know,
9:23
Speaker 4: commercial habitats and lowerth orbit satellite servicing.
9:27
Speaker 6: Being able to fix satellites while they're in orbit already.
9:30
Speaker 6: There's there's a lot.
9:31
Speaker 4: Going on, and you know, work prices coming down, hopefully
9:35
Speaker 4: they can be achieved.
9:36
Speaker 3: And fortune.
9:36
Speaker 2: We have a space reporter, Lauren Brush. She has our
9:39
Speaker 2: space reporter Bloomberg News. She's based down in Texas, a
9:41
Speaker 2: great place to be.
9:43
Speaker 7: You're listening to the team Ken's are Live program Bloomberg
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Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot com,
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9:57
Speaker 3: We got this guy, John Author's in.
9:59
Speaker 2: He's smart, He's British, so he sounds probably a little
10:02
Speaker 2: bit smarter than he might be. But at the end
10:05
Speaker 2: of the day, my New York Yankees got Je Soto,
10:09
Speaker 2: John Ars. What did your Boston Red Sox do this offseason?
10:15
Speaker 8: You're talking about this in the past ten still the
10:19
Speaker 8: last I checked, there's another three months to go. We
10:22
Speaker 8: have a brilliant new GM who has the you know,
10:27
Speaker 8: intestines of steel necessary for his first big trade to
10:31
Speaker 8: be with the Yankees. So let's let's see where he
10:37
Speaker 8: goes with the Red Sox are not going to be
10:39
Speaker 8: competing for a championship next year. We do have quite
10:44
Speaker 8: a number of good prospects coming through. If you can
10:46
Speaker 8: make two or three deals, keeping a laser focus on
10:51
Speaker 8: getting good starting pitching, we will be fine. And those
10:55
Speaker 8: of us, because we've won four championships, we have in
11:00
Speaker 8: this century, more than anyone else, and we're not as
11:04
Speaker 8: entitled as certain fan bases one city. We can be patients.
11:10
Speaker 8: We can just enjoy progress, enjoy the excitement of the
11:14
Speaker 8: analysis that goes into building a great team and laugh
11:18
Speaker 8: at people who waste money on people like gen College
11:20
Speaker 8: and God, yes, there we go.
11:23
Speaker 2: Yep, there we get a good, good comeback companies, companies,
11:27
Speaker 2: you're not going to win on that one exactly, so
11:30
Speaker 2: too will be very good for you. Yeah, we're gonna
11:32
Speaker 2: have fun with him. Companies are going broke gradually, not suddenly.
11:34
Speaker 2: That says John Author's like a US recession or China's
11:38
Speaker 2: post COVID rebound. A wave of corporate defaults was anticipated
11:41
Speaker 2: this year but didn't happen. That doesn't mean it won't.
11:45
Speaker 2: What are we waiting for here? Rates are going up,
11:48
Speaker 2: I mean, I gotta make bond payments, I gotta make interest.
11:51
Speaker 8: Rates are actually beginning to go down, been going up
11:55
Speaker 8: steadily for two years, and there is still no particular
12:00
Speaker 8: wave of defaults. We also had a banking crisis, you know,
12:04
Speaker 8: not a major one, but a pretty significant one in
12:07
Speaker 8: the spring, which led to very sharp tightening of bank
12:11
Speaker 8: lending standards, which has you know, has always in the
12:17
Speaker 8: past been a good leading indicator for trouble ahead for credit.
12:22
Speaker 8: It's very surprising. I think the single biggest reason we
12:26
Speaker 8: don't have significant defaults to date is that is as
12:32
Speaker 8: we all know, rates stayed too low for too long.
12:36
Speaker 8: It's part of the argument for higher for longer. That
12:40
Speaker 8: leaving them down throughout twenty twenty one, which we I
12:44
Speaker 8: think everybody, including j. Powell now agrees with a mistake,
12:48
Speaker 8: made it much easier for people to lock in a
12:52
Speaker 8: very long term finance at low levels, which means that
12:58
Speaker 8: things are not coming to a head as quickly as
13:00
Speaker 8: they once would now.
13:02
Speaker 5: As mentioned then all the stimulus too rolled out in
13:04
Speaker 5: March twenty twenty.
13:05
Speaker 8: Yes, that is still there in the system. So when
13:09
Speaker 8: you look at the actual cash flows that companies are generating,
13:16
Speaker 8: you would think they would be moving towards zombie status
13:22
Speaker 8: or of needing to contemplate default. And thanks to the
13:27
Speaker 8: fact that they still have very very cheap, very unusually
13:31
Speaker 8: low debt service charges, they can get away with it.
13:35
Speaker 8: I do think. I cited one chart from Jim Reid
13:38
Speaker 8: of Deutscher in that column with the average age of
13:43
Speaker 8: all the high yield bonds all the junk bonds in
13:46
Speaker 8: circulation over time, So you know, if you take all
13:50
Speaker 8: the bonds out there, what is the average amount of
13:53
Speaker 8: time before they mature? And I was quite startled quite
13:57
Speaker 8: how short, it was, this is by far the shortest
14:01
Speaker 8: amount of time before people have to refinance that there's
14:05
Speaker 8: ever been.
14:05
Speaker 6: How much time.
14:08
Speaker 8: I think the average is now downcing like five years.
14:12
Speaker 8: I don't don't. The other thing that surprised me the Europe.
14:16
Speaker 8: At Europe is much more dependent on its banks, which
14:19
Speaker 8: is why it the you know why a less aggressive
14:23
Speaker 8: tightening there has had much more of a response because
14:26
Speaker 8: the banks are much more of a critical part of
14:29
Speaker 8: the transmission mechanism.
14:31
Speaker 3: There.
14:33
Speaker 8: The trend is actually even sharper in Europe. Like absolutely
14:37
Speaker 8: nobody in Europe has wanted to take on any new
14:39
Speaker 8: debt over the last couple of years, again exaggerating for EVCT,
14:42
Speaker 8: but nobody is. And the result is that the that
14:47
Speaker 8: there really is not much time at all if you've
14:50
Speaker 8: got a speculative loan, a speculative bond on your hands
14:53
Speaker 8: in the Europe before you need to refinance it, let's
14:55
Speaker 8: keep it in the US.
14:56
Speaker 5: You're saying here that this that this corporate wave of
15:00
Speaker 5: default still could happen, but as you just said, braids
15:03
Speaker 5: are now about to go down more likely than yep.
15:08
Speaker 5: Spreads are still pretty tired. I mean, Triple C's has
15:10
Speaker 5: probably been the best part of the market to be
15:12
Speaker 5: in in So where is this, uh, where could this
15:16
Speaker 5: wave of defaults come?
15:17
Speaker 8: I mean that that that latter factoid chill. It's true,
15:23
Speaker 8: it sends chills up and down.
15:24
Speaker 5: My doesn't get you excited to go buy some triple
15:27
Speaker 5: Sea bonds.
15:28
Speaker 9: No.
15:29
Speaker 8: I maybe I may be over applying the lessons from
15:33
Speaker 8: covering the credit credit crisis. But no, that that reminds
15:37
Speaker 8: me so vividly of what people were convincing themselves about
15:41
Speaker 8: about some subprime model. Yeah, but primal and sub primorgage.
15:46
Speaker 8: That that that sounds like it's certainly not as big
15:51
Speaker 8: as subprime was. But there's no way the scale of
15:54
Speaker 8: the problem is that great. But the underlying physics of
15:58
Speaker 8: what's going on are alarmingly similar. I think what we need.
16:06
Speaker 8: It ultimately comes back to the tired, over done debate
16:09
Speaker 8: about soft versus hard landing. If you genuinely get a
16:14
Speaker 8: very soft landing in which rates can come down without
16:17
Speaker 8: there being a recession, then companies will moddel through. If
16:22
Speaker 8: you don't, then you are going to have a lot
16:25
Speaker 8: of smaller company defaults. This is another thing. Instantly, if
16:29
Speaker 8: you're there is no problem with credit quality for the
16:32
Speaker 8: bigger companies like absolutely none. They're about as healthy as
16:36
Speaker 8: they've ever been. It's in high yield too, yes, but
16:40
Speaker 8: in high yield we're talking serious problems that you would
16:43
Speaker 8: normally associate with with a recession. If you have a
16:49
Speaker 8: wave of relatively small companies defaulting, that doesn't necessarily create
16:56
Speaker 8: severe losses for the for the markets, for financial mine,
17:00
Speaker 8: it's because they're not very big, as they tend disproportionately
17:04
Speaker 8: to employ more people. So you know, the magnificent tech
17:08
Speaker 8: stocks per unit of market cap don't employ many people
17:14
Speaker 8: your average high yield lender. Each time one of those
17:16
Speaker 8: goes bust. That really the possibility that this becomes a
17:22
Speaker 8: rolling effect on the economy is very serious, is very real,
17:27
Speaker 8: and I think that is one of the best reasons
17:30
Speaker 8: why the Fed might want to take some risks on
17:34
Speaker 8: letting inflation go take off again to ease earlier than
17:39
Speaker 8: they otherwise might.
17:40
Speaker 7: That there is a.
17:43
Speaker 8: Possibility that credit wants it bites will have quite a
17:46
Speaker 8: significant effect on the economy, even if it doesn't have
17:50
Speaker 8: that big an effect on the assets in the first instance.
17:54
Speaker 8: In the assets, we look at the asset prices, we
17:56
Speaker 8: look at.
17:57
Speaker 3: So you've got a good chart in here.
17:58
Speaker 2: It's from Fathom Consulting, where you kind of got bankruptcy candidates,
18:03
Speaker 2: companies that are bankruptcy candidates, companies that are borderline bankruptcy,
18:07
Speaker 2: and then companies that are strong slash healthy, And I'll
18:10
Speaker 2: just describe it for our listeners. The trending good. No,
18:14
Speaker 2: So is there a I guess the question is, are
18:18
Speaker 2: some of those bankruptcy candidates do we need a recession
18:23
Speaker 2: for them to be tripped into bankruptcy?
18:26
Speaker 8: You would think you didn't. Generally when there are more
18:29
Speaker 8: of them around, you know, a given percentage will hit
18:33
Speaker 8: the wall even in moderately good economic times. The big
18:37
Speaker 8: point to make about that that's based on Altzman scores,
18:40
Speaker 8: which is a model that's been used for some decades.
18:44
Speaker 5: Does the score yes, yeah, yeah.
18:45
Speaker 8: The issue with it is how will it accept how
18:51
Speaker 8: will it deals with intangibles. Intangibles are intangible. You can't
18:56
Speaker 8: actually measure them, but that doesn't mean they don't exist,
19:00
Speaker 8: So it may overstate the issue now that certain intangible
19:04
Speaker 8: issues matter more. However, the number of companies that are
19:10
Speaker 8: truly strong credits is tiny now, basically because so many
19:15
Speaker 8: have borrowed so much at low rates that affects the
19:18
Speaker 8: Altman's E scores. What are they going to do when
19:23
Speaker 8: they have to when the only way to refinance will
19:26
Speaker 8: be at significantly greater interest costs. That is a very
19:30
Speaker 8: legitimate concern that does come from that chart. Even if
19:33
Speaker 8: they don't go bust, it's going to affect their business
19:35
Speaker 8: model badly.
19:36
Speaker 5: A lot of companies have taken on that debt because
19:38
Speaker 5: there hasn't been that huge of a penalty. I mean,
19:40
Speaker 5: when you look at like the difference in spreads going
19:42
Speaker 5: from you know, single A to triple B, it's like,
19:45
Speaker 5: all right, who cares? You know, it's like a couple
19:47
Speaker 5: base points them as well.
19:50
Speaker 8: I think it's a little bit. I wrote a column
19:52
Speaker 8: about this a couple of years ago. One of my
19:55
Speaker 8: favorite pieces of classical music is Barely os is the
19:57
Speaker 8: Damnation of Faust, and there's the final scene is when
20:01
Speaker 8: Faust is taking is being taken by Mephistopheles to Hell,
20:06
Speaker 8: and the beat gets hot, what tiny, tiny little drum
20:10
Speaker 8: beats early on and it gets unauda And I think
20:14
Speaker 8: that's where we're the kind of themeboard in the credit model.
20:16
Speaker 3: We'll go with that.
20:17
Speaker 2: John Authurs, thank you so much for that literary musical
20:20
Speaker 2: reference Senior Editor Bloomberg Opinions.
20:23
Speaker 7: You're listening to the tape Cat's are live program Bloomberg
20:26
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
20:29
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
20:33
Speaker 7: You can also listen live on Amazon Alexa from our
20:36
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
20:42
Speaker 2: I want to bring in Mark Drman. He's a reporter
20:44
Speaker 2: obviously on the West Coast for Bloomberg News. Got some
20:47
Speaker 2: breaking news on Tesla, Mark.
20:48
Speaker 3: What do you got for us?
20:50
Speaker 9: Yes, So, Tesla has been working on a supercomputer code
20:53
Speaker 9: named Dojo. In this computer as a processor, it's very advanced.
20:58
Speaker 9: It competes with the high and processors that a lot
21:01
Speaker 9: of the companies like Apple, amb Nvidia, et cetera are
21:05
Speaker 9: working on right now. And this is allowing them to
21:08
Speaker 9: train the AI data necessary to repair the autonomous car
21:13
Speaker 9: functionality as they've been working on for their Tesla cars
21:15
Speaker 9: and adding over the past several years. And so the
21:17
Speaker 9: head of that program, someone who is a chip industry
21:21
Speaker 9: legend so to speak, named Ganesh Than Caironamon. He has
21:25
Speaker 9: left they have parted ways with him. They have put
21:28
Speaker 9: a new person in charge named Peter Bannon. He was
21:31
Speaker 9: a former mid level chip executive at Apple. He's now
21:33
Speaker 9: leading the program. And obviously when the head of the
21:36
Speaker 9: program leaves, that means there is some sort of strategy
21:39
Speaker 9: rethink going on, and it is a bit of a
21:41
Speaker 9: blow to the effort. So this is extraordinarily significant news,
21:45
Speaker 9: both within Tesla as well as in the modern processor
21:48
Speaker 9: and AI community.
21:49
Speaker 5: Yeah, this sounds like a very high level role here.
21:52
Speaker 5: I mean, what are your thoughts then, Mark on Peter
21:55
Speaker 5: Bannon and if he's going to be maybe just an
21:58
Speaker 5: interim position on lead this project or you really need
22:01
Speaker 5: to start winding the scope and look for somebody new
22:03
Speaker 5: to come in.
22:05
Speaker 9: Yeah, that's exactly right. This is an extraordinarily senior position.
22:09
Speaker 9: Not only the future of Tesla, but the future of
22:11
Speaker 9: all these car companies and all these technology companies we've
22:13
Speaker 9: been talking about is artificial intelligence and machine learning, and
22:17
Speaker 9: more so at this level, powered by what are essentially
22:21
Speaker 9: supercomputers based on the fundamental technologies that you're getting in
22:24
Speaker 9: chips and phones and tablets and computers at this point,
22:28
Speaker 9: laptops and stuff. So Peter Bannon is an expert in
22:31
Speaker 9: these ARM based processors, these custom by performance, low power
22:35
Speaker 9: AI driven chips, and so that Ban in my view,
22:40
Speaker 9: will be the long term fit here. He has an
22:42
Speaker 9: excellent reputation in both the chip and AI communities. He
22:45
Speaker 9: has the experience needed. Will they miss a beat in
22:49
Speaker 9: the short term, I would assume so, But in the
22:51
Speaker 9: long term I think this is a fitting replacement for Ganesh.
22:55
Speaker 2: Do we know why this person left Tesla.
23:00
Speaker 9: We are not reporting at this point the circumstances surrounding
23:04
Speaker 9: his departure. You know, there has been some strategy rethink
23:08
Speaker 9: in terms of where they're going to place the data
23:09
Speaker 9: centers that are pounding the back end of these chips.
23:12
Speaker 9: It's possible there was some sort of disagreement regarding the
23:14
Speaker 9: direction there. The chip has been running behind. This was
23:18
Speaker 9: originally introduced a few years ago. The first version was
23:22
Speaker 9: supposed to come to market. As with many things we've
23:25
Speaker 9: been Fintesla in the last few years, they promise certain
23:29
Speaker 9: timelines that have under delivered. This chip has been part
23:32
Speaker 9: of that. Certainly, this is super core to the future
23:35
Speaker 9: of the company, so certainly I think it has been
23:38
Speaker 9: you know, there has been some shakingess around in the project.
23:41
Speaker 9: And anytime they're shaking this around a project of the significance,
23:44
Speaker 9: you know, you may be in for some sort of
23:46
Speaker 9: leadership trancision.
23:47
Speaker 5: Yeah, tell us Mark a little bit more about this
23:49
Speaker 5: Dojo supercomputer project. This is what's behind the self driving efforts, right, Yes.
23:57
Speaker 9: This is behind the self driving efforts. This is to
23:59
Speaker 9: catch sure data using camera sensors on cars and other
24:03
Speaker 9: Tesla equipment. And then what this processor does. It inputs
24:06
Speaker 9: that information into the chips as well as selfware algorithms
24:09
Speaker 9: in cloud based data centers. It sort of chops that
24:11
Speaker 9: all up, mixes it together, so to speak, and creates
24:15
Speaker 9: training data for the cars to be able to understand
24:18
Speaker 9: what it has seen and be able to operate autonomously.
24:21
Speaker 9: So this is at the very core of that system.
24:24
Speaker 3: All right, Mark Dermin, thank you so much. We really
24:26
Speaker 3: appreciate it.
24:26
Speaker 2: Mark irmerann technology reporter for Bloomberg News on the West
24:29
Speaker 2: Coast bringing us this news. Tesla's Dojo supercomputer head exits
24:35
Speaker 2: in blow two efforts, so we'll keep on top of
24:38
Speaker 2: this story and bring you any additional reporting.
24:41
Speaker 7: You're listening to the tape can to our live program
24:43
Speaker 7: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
24:48
Speaker 7: the tune in app, Bloomberg dot Com, and the Bloomberg
24:50
Speaker 7: Business App. You can also listen live on Amazon Alexa
24:54
Speaker 7: from our flagship New York station. Just say Alexa play
24:57
Speaker 7: Bloomberg eleven thirty.
25:00
Speaker 2: COP twenty eight Dubai just ended, I believe yesterday day before.
25:04
Speaker 2: But that's where they all the folks, banks and companies
25:07
Speaker 2: and government folks get together and talk about sustainable energy
25:11
Speaker 2: on a global scale. Jonathan Maxwell was there. He's the
25:13
Speaker 2: CEO and co founder of Sustainable Development Capital. Jonathan, what
25:17
Speaker 2: was your takeaway from the COP twenty eight conference there?
25:20
Speaker 2: My takeaway with just one of them was the President
25:22
Speaker 2: of Biden did not attend, and I thought that was odd.
25:25
Speaker 2: Where other world leaders were there? What was your takeaway
25:28
Speaker 2: from your perspective?
25:29
Speaker 10: I think there are two main headlines this year which
25:33
Speaker 10: are a big deal. One of which is kind of
25:35
Speaker 10: what we've heard for many years, triple the renewable energy investing.
25:39
Speaker 11: I think.
25:39
Speaker 10: But what's interesting about this COP is a UN conference
25:44
Speaker 10: that happens every year. It happens a couple of weeks.
25:46
Speaker 10: Most private sector people go over the weekend that just
25:48
Speaker 10: happened because it's energy finance. But the big news was
25:51
Speaker 10: actually something that I've been here to talk about before,
25:54
Speaker 10: which is energy efficiency. So there were two headline objectives.
25:57
Speaker 10: They said, we've got a triple the rate of renew
26:00
Speaker 10: and double the rate of energy efficiency. And that's really
26:04
Speaker 10: important because this is this cop was being held in
26:07
Speaker 10: a petro state. Really, this is really the oil and
26:11
Speaker 10: gas industry, the big oil and gas industry saying to
26:15
Speaker 10: I think the renewable energy and the clean energy community
26:19
Speaker 10: you need us. We're here for the next two, three
26:21
Speaker 10: four decades, right, So how are we going to transition?
26:24
Speaker 10: How are we going to make and so efficiency became
26:27
Speaker 10: a big deal. As far as President Biden's concerned efficiency
26:32
Speaker 10: and renewables, He's put up what three hundred and seventy
26:35
Speaker 10: billion dollars of US YE incentives and capital. There is
26:39
Speaker 10: a question pulled about what more he can do right
26:42
Speaker 10: a year away from a contentious election. So I don't
26:45
Speaker 10: know what he would have done had he gotten there.
26:47
Speaker 10: I mean, John Carrey was there, yep. Bloomberg Green actually
26:51
Speaker 10: held an event on when was it on Monday, which
26:54
Speaker 10: John Kerry was superbly setting out. I think how important
26:59
Speaker 10: you know the transition is, but I think it's a
27:01
Speaker 10: reality check.
27:02
Speaker 2: You know, got all about you guys are I know
27:05
Speaker 2: a big focus of you guys is all about energy efficiency, inefficiency.
27:09
Speaker 2: And here's the day when I think of what you
27:11
Speaker 2: guys are doing. The world is wasting some seventy five
27:14
Speaker 2: percent of its energy, around half of its fuel and
27:17
Speaker 2: a third of its water.
27:18
Speaker 3: That's kind of that's that.
27:20
Speaker 2: When I first heard it, I was like, whoa.
27:21
Speaker 5: Yeah, where is all that going?
27:23
Speaker 7: Then?
27:24
Speaker 10: It's so crazy. It's such an extraordinary, huge dysfunction. I
27:29
Speaker 10: had to write a book about it. That's why it
27:32
Speaker 10: called the Edge. You know, instead of how we're pushing
27:34
Speaker 10: the world and its climate to the brink and what
27:35
Speaker 10: we do about it, where does it all go? In
27:37
Speaker 10: a nutshell? Right, about ten percent of energy gets lost
27:40
Speaker 10: just in producing it. It leaks and then you know
27:44
Speaker 10: you have to extract it and about it. The biggest
27:46
Speaker 10: piece of it is the way is because we build
27:49
Speaker 10: big energy centers in the middle of nowhere and we
27:51
Speaker 10: feed communities, industry and town a lot of it gets
27:55
Speaker 10: lost just in generating it because there's nothing you can
27:57
Speaker 10: do with the heat. If you put a gas molecule
27:59
Speaker 10: in which is how we make most energy. Half of
28:01
Speaker 10: that gas molecule's energy goes to electricity, the other turns
28:04
Speaker 10: into heat. And if there's nothing you can do with it,
28:06
Speaker 10: it just goes up in the air into space. They
28:08
Speaker 10: don't need it in space. And then the next section
28:11
Speaker 10: is once their electricity, say, is out of the power station,
28:14
Speaker 10: you've already lost sixty percent of the primary energy. You
28:17
Speaker 10: leads another ten percent getting it to the point of use.
28:20
Speaker 10: So this is what's happening just in getting energy into
28:22
Speaker 10: buildings like this in Manhattan. This is an excellent building.
28:25
Speaker 10: Mister Bloomberg's had this nailed for a really long time.
28:28
Speaker 5: You see the London office, right, it's.
28:30
Speaker 10: Amazing, But you know not not all buildings like that, right,
28:32
Speaker 10: So on average they waste twenty thirty percent of the
28:35
Speaker 10: energy they use. So that's how you get from seventy
28:36
Speaker 10: to seventy five percent. This is huge, it's catastrophic. We're
28:40
Speaker 10: we're fighting over this energy all over the world. It's
28:43
Speaker 10: costing a fortune. We've got cost of living crisis. We're building,
28:47
Speaker 10: by the way, for trillions of dollars. We spent six
28:50
Speaker 10: trillion dollars on renewables over the last twenty years, three
28:53
Speaker 10: trillion dollars on the grid and meanwhile we're.
28:54
Speaker 3: Wasting three quarters of the world's energy.
28:56
Speaker 10: I think it's a call out. And this is why
28:58
Speaker 10: I say we're wasting the energy. By the way, we're
29:01
Speaker 10: wasting half the food and the third of the water.
29:03
Speaker 2: And that's a problem I'm fully understood. And it is
29:06
Speaker 2: that a focus of action from the folks at Cup
29:09
Speaker 2: twenty eight.
29:10
Speaker 10: All right, So it depends who you are. So the
29:11
Speaker 10: fact that it's actually on now on the headlines. If
29:14
Speaker 10: you think about the clean energy train coming down the track,
29:17
Speaker 10: it's only really been one lamp on the front renewables.
29:20
Speaker 10: Right now you've got two lamps. It says you can't
29:23
Speaker 10: can't get there with renewables on its own. You have
29:25
Speaker 10: to be more efficient. So the UNNA sees this. I
29:29
Speaker 10: think the Department of Energy in the US at least
29:32
Speaker 10: twenty percent of the Inflation Reduction Act has gone into it.
29:34
Speaker 10: I think it should be.
29:35
Speaker 8: At least half.
29:36
Speaker 10: And in Europe there's a policy it's called and if
29:38
Speaker 10: it happened when Russia invaded Ukraine and we got cut
29:41
Speaker 10: off of gas in the Europe, as the forty percent.
29:44
Speaker 10: The Europeans came up with a policy. It's got three
29:46
Speaker 10: words energy efficiency first, not second, third, tomorrow maybe one day,
29:51
Speaker 10: energy efficiency first because they said, look for every unit
29:54
Speaker 10: of gas we don't use, it's two and a half.
29:55
Speaker 10: We don't need to buy from Russia. Why because we're
29:58
Speaker 10: wasting two thirds of it. So I think we've got
30:02
Speaker 10: We've been in the in the sort of business of producing, supplying.
30:06
Speaker 10: Now I think we're in the business of reducing. Being
30:08
Speaker 10: more official. I don't mean de growth, I just mean
30:11
Speaker 10: doing more with less. It's more competitive, more productive, it's
30:15
Speaker 10: better for security.
30:16
Speaker 5: So in these geopolitical risks, and you just mentioned Russian
30:19
Speaker 5: and Ukraine, I was wondering if at all that Israel
30:22
Speaker 5: came up during this. I know, like when the war
30:25
Speaker 5: first started, there was you know, some concern of the
30:27
Speaker 5: gas lines that go leaving out of Egypt and if
30:30
Speaker 5: those would be impacted, and of course the greater concern
30:33
Speaker 5: if the war would escalate involve Iran, what that would
30:36
Speaker 5: mean for oil. If you could tell us if that
30:39
Speaker 5: it all came up in the conference.
30:40
Speaker 10: Did you read my substack three weeks ago, It's exactly
30:42
Speaker 10: what it was. Well, I want you to tell me, yeah,
30:45
Speaker 10: it's a point. I mean, you know, I think this
30:47
Speaker 10: is the point. I mean, the Russia Ukraine nexus is
30:49
Speaker 10: really a lot about not all about, but a lot
30:51
Speaker 10: about energy, right, and Russia was using Ukraine to gas
30:56
Speaker 10: pipe gas into Europe. That game has come to an.
31:00
Speaker 3: Now in Israel.
31:02
Speaker 10: Israel had done a deal about a year ago with
31:05
Speaker 10: the European Union, and that was to send gas, which
31:09
Speaker 10: it's been exporting to Egypt, but liquefy it and send
31:12
Speaker 10: it to Europe. Europe needed that gas because of the
31:14
Speaker 10: Rush Ukraine invasion. And I'm not saying for one moment
31:20
Speaker 10: that's a cause of the Israel Hamas conflict, but it's
31:24
Speaker 10: definitely a match in the match box. I mean that
31:27
Speaker 10: Peymar gas field that exports gas from Israel to Egypt
31:32
Speaker 10: is off the coast of Gaza. The Leviathan gas field
31:37
Speaker 10: was actually decommissioned. It's now been restarted, but decommissioned because
31:41
Speaker 10: of security concerns from Hesbela. So there's no question that
31:45
Speaker 10: if you're the Israel and you're since twenty nineteen been
31:48
Speaker 10: exporting natural gas, clearly this is not going to be
31:53
Speaker 10: great news for Hamas or for Hezbula and Iran, who
31:56
Speaker 10: will look on with a dim view. Now I'm not
31:58
Speaker 10: saying that this is the cause of the war, but
31:59
Speaker 10: i am I'm saying that competition for resources looks beneath
32:04
Speaker 10: the Rush Ukraine crisis, it looks beneath the Israel Hamas crisis,
32:09
Speaker 10: and it's going to look unfortunately behind some other military conflicts,
32:13
Speaker 10: zones and flash points. And that's one of the points
32:15
Speaker 10: I make in my book. Look at the Arctic, look
32:18
Speaker 10: at the South China. See these are serious resource competition arena.
32:22
Speaker 2: At Cup twenty eight, what was the sense of global
32:26
Speaker 2: progress towards you know, the original Parish agreement of twenty fifteen.
32:30
Speaker 3: Where are we?
32:32
Speaker 2: Where's the industry? Where's the world in terms of kind
32:34
Speaker 2: of getting to where we need to be?
32:36
Speaker 10: All right, I start with the bad news.
32:37
Speaker 3: Okay, goodness, So the bad news.
32:40
Speaker 10: We're not doing great, right, We just had a This
32:42
Speaker 10: year is a record year for fossil fuels, carbon emissions
32:45
Speaker 10: are going up. It's not going well well. Temperatures, global
32:49
Speaker 10: temperatures record year. I mean, there is, by the way,
32:51
Speaker 10: all Nina. So let's just make sure that we understand
32:54
Speaker 10: that this is a five year cycle and we've got
32:55
Speaker 10: a particularly hot yeah, but all of these things are contributing,
32:58
Speaker 10: so we're not doing great. And the most important number
33:00
Speaker 10: for me is eighty two percent. Eighty two percent of
33:02
Speaker 10: the proportion of the world's energy that's all gas and coal,
33:05
Speaker 10: and that's hostantially hasn't changed since Paris, so use it.
33:09
Speaker 10: So I'm going to come onto the good news, the
33:10
Speaker 10: good news, and with a little bit of reference to
33:12
Speaker 10: the bad news. The good news is renewables are accelerating exponentially,
33:16
Speaker 10: which is fantastic, but they're not the bad news. They're
33:19
Speaker 10: not displacing fossil fuels yet. So you're just adding into
33:21
Speaker 10: this system, right, And that's why I've been advocating for
33:25
Speaker 10: fifteen years for energy efficiency, because it adding into this
33:29
Speaker 10: system isn't helping as much as not using so much
33:34
Speaker 10: energy to do the same job. But what happens if
33:36
Speaker 10: you don't use the energy. We don't need to waste
33:39
Speaker 10: all this energy, either at the point of views or
33:41
Speaker 10: getting it there. So if we do better, if we
33:43
Speaker 10: cut the amount of energy we need to do the
33:45
Speaker 10: same job, it has three huge, incredible benefits. I'm going
33:48
Speaker 10: to start with the economy because I'm here in the
33:50
Speaker 10: United States best one. Cutting energy cuts costs, you have
33:55
Speaker 10: to pay less for it. It's the biggest source of
33:57
Speaker 10: competitiveness and productivity. This country has the most incredible endowment
34:02
Speaker 10: for the next decade. It's energy independent. This wasn't the
34:05
Speaker 10: case before twenty nineteen. But don't waste it, right, use
34:08
Speaker 10: that energy, export it, use it here, but don't waste it.
34:12
Speaker 10: So that's the first point on cost and compressiveness. And
34:15
Speaker 10: if we do that in the United States, we're in
34:17
Speaker 10: a much better position. So second component is carbon By
34:21
Speaker 10: not using energy in the first place, that's the largest, fastest,
34:24
Speaker 10: cheapest source of greenhouse gas emissions. And then the third
34:27
Speaker 10: point coming back to energy security, is that there are
34:30
Speaker 10: military conflicts arising and they have been since the Second
34:33
Speaker 10: World War. Overall and gas and other resources. Going forward,
34:37
Speaker 10: I'm afraid we need lots of metals and minerals for
34:39
Speaker 10: the trick for the clean energy transition. We need to
34:42
Speaker 10: be more efficient by using them because competition for coveted
34:46
Speaker 10: resources creates conflict. So for those reasons, energy efficiency, resource
34:51
Speaker 10: efficiency is critical. I've only talked about energy today and food.
34:56
Speaker 10: How do we make food with energy?
34:58
Speaker 5: Time?
34:59
Speaker 2: For then you're nothing it's not passionate about this, so
35:02
Speaker 2: I think that is works for a positive outcome hopefully.
35:06
Speaker 2: Jonathan Maxwell, CEO and co founder Sustainable Development and Capital,
35:10
Speaker 2: and we appreciate getting some of his time.
35:12
Speaker 7: You're listening to the tape. Cat's are live program Bloomberg
35:15
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
35:19
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business app.
35:22
Speaker 7: You can also listen live on Amazon Alexa from our
35:25
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
35:31
Speaker 3: Tim Line. He's the CEO of in Terra's Capitol.
35:33
Speaker 2: I want to get right to him. He's in our
35:34
Speaker 2: Bloomberg Interactive Broker studio and Teris Capital is based in Chicago.
35:37
Speaker 2: One of my favorite talents anywhere, and he's now here
35:41
Speaker 2: in New York because why not because this is the
35:42
Speaker 2: global capital of the world.
35:44
Speaker 5: Because we got to be in the studio exactly.
35:46
Speaker 3: Hey, Tim, thanks much for joining us here.
35:48
Speaker 2: Sixty seven billion of assets on their management, that's what
35:51
Speaker 2: you guys have.
35:52
Speaker 8: Yes, we do, Paul, That is awesome, dude.
35:54
Speaker 2: All right, So talk to us about the private credit business.
35:57
Speaker 2: What's a typical type of deal. You guys like the
36:00
Speaker 2: look at like to invest.
36:01
Speaker 11: In sure so antires. We finance middle market North American businesses,
36:07
Speaker 11: So middle market would be companies generally twenty to one
36:11
Speaker 11: hundred and fifty million in EBITDA. We like companies that
36:15
Speaker 11: are recession resistant, companies that truly have a reason to exist,
36:20
Speaker 11: so there's something that they do that's proprietary, recurring revenue businesses.
36:25
Speaker 11: We love software businesses, a lot of healthcare businesses, business
36:28
Speaker 11: service it, some manufacturing businesses, but generally higher margin companies
36:36
Speaker 11: fifteen to twenty percent EBITDA margin and above and highly diversified.
36:41
Speaker 11: So we don't finance companies that have a major customer concentration.
36:45
Speaker 2: For example, does your deal flow come in from the
36:47
Speaker 2: private equity space and they're looking for a debt piece
36:50
Speaker 2: for the transactions, that's typically how your deal flow comes.
36:53
Speaker 11: In, exactly, Paul. So the idea is the company's been
36:56
Speaker 11: in existent. We started the company in nineteen ninety six,
37:00
Speaker 11: so we've been calling on these private equity sponsors for
37:04
Speaker 11: I mean, really twenty seven years, the ones that have
37:06
Speaker 11: been around that long, but we've established those relationships. We
37:10
Speaker 11: financed numerous companies for these sponsors over time, so it's
37:14
Speaker 11: kind of that long term relationship. We have the ability
37:17
Speaker 11: to source a lot of transactions and it allows us
37:21
Speaker 11: to be highly selective. So we only finance four percent
37:24
Speaker 11: of the deals that we see.
37:25
Speaker 5: Tell us about your portfolio right now and how these
37:27
Speaker 5: companies are doing in this higher rate environment.
37:30
Speaker 11: Sure, so we have four hundred and eighty five companies
37:33
Speaker 11: in the portfolio. Once again, the largest sectors would be software, healthcare,
37:39
Speaker 11: and business services. That's about fifty percent of the portfolio.
37:43
Speaker 11: The companies that were financed you know, in twenty twenty,
37:45
Speaker 11: twenty twenty one and a zero interest rate environment, we're
37:49
Speaker 11: done at seven six and a half seven times z
37:53
Speaker 11: bit da or more. The interest coverages and the fixed
37:57
Speaker 11: charge coverages that are definitely tight. Some of the companies
38:00
Speaker 11: have grown into the capital structure, but the ones that
38:03
Speaker 11: haven't are going to require and maybe in some cases
38:07
Speaker 11: we've already done this. The sponsor is stepping up with
38:10
Speaker 11: additional capital to fix the capital structure. Sometimes you know,
38:15
Speaker 11: will provide some changes to the deal as well. Some
38:18
Speaker 11: of those deals, there's a big opportunity for preferred stock
38:22
Speaker 11: to come in to kind of preferred then is used
38:26
Speaker 11: to pay down the debt to bring it down so
38:27
Speaker 11: that the company's interest coverage is more reasonable.
38:30
Speaker 2: So I see in your early in your career ge
38:33
Speaker 2: corporate finance, and I did a ton of business with
38:34
Speaker 2: those guys back in the day.
38:35
Speaker 3: Super good on the credit side.
38:38
Speaker 2: You guys knew your numbers back then and your good
38:41
Speaker 2: lenders here. What do you look for, Like you have
38:43
Speaker 2: a certain leverage threshold that you like the and coverage
38:47
Speaker 2: ratios and all those great credit metrics. Or as a
38:50
Speaker 2: company by company, sector by sector, how do you guys
38:52
Speaker 2: look at it?
38:52
Speaker 11: It's absolutely company by company, sector by sector. Now, generally
38:57
Speaker 11: in our deals, depending on the sector, the leverage Like
38:59
Speaker 11: software companies, you're basically the leverage will be higher because
39:03
Speaker 11: those are very much recurring revenue proprietary types of businesses.
39:07
Speaker 11: But every deal we analyze on a standalone basis. And
39:11
Speaker 11: the great thing is when a company comes in, let's
39:13
Speaker 11: say it's a packaging business. Well, we have four hundred
39:16
Speaker 11: and eighty five companies in the portfolio, and there might
39:19
Speaker 11: be fifteen to twenty other packaging companies, so we can
39:22
Speaker 11: immediately look at those companies revenue growth. What's been happening
39:27
Speaker 11: with margins what's the EBITDA margin, what's the cappax level?
39:31
Speaker 11: And do a quick comparison, which is helpful from a
39:34
Speaker 11: diligence standpoint.
39:35
Speaker 5: So private credit's been around for a while. I mean
39:37
Speaker 5: you just said, and Terry's founded back in ninety seven,
39:40
Speaker 5: ninety six, Okay, yeah, so even longer. Why is private
39:44
Speaker 5: credit now it seems suddenly becoming like this like the
39:47
Speaker 5: hottest asset really just blowing up this year?
39:50
Speaker 8: Why now?
39:51
Speaker 11: So it's a couple of reasons, mala. It starts with,
39:53
Speaker 11: in my mind, there's private equity penetration of US mintal
39:57
Speaker 11: market companies. McKinsey s it makes it's maybe twelve or
40:01
Speaker 11: thirteen percent of companies in North America. We think that's
40:05
Speaker 11: growing and it's going to grow pretty significantly, so more
40:09
Speaker 11: companies will be owned by private equity. Combine that with
40:12
Speaker 11: banks that have essentially had to exit the business. So
40:16
Speaker 11: the banks, with the regulations in place, it makes it
40:20
Speaker 11: difficult for them. It just sounds crazy for banks to
40:22
Speaker 11: lend money. It's to companies. So a lot of that
40:26
Speaker 11: has transferred to private credit. And so while some will say, oh,
40:31
Speaker 11: you know, private credit, is it a bubble? Should it
40:34
Speaker 11: be more regulated. At the end of the day, private
40:36
Speaker 11: credit is the industry that is providing liquidity to North
40:41
Speaker 11: American middle market companies.
40:43
Speaker 5: Because the banks are not.
40:45
Speaker 8: Correct, that is just crazy.
40:47
Speaker 3: That's frustrating to me.
40:49
Speaker 2: He used to starting my career lending money for a bank,
40:53
Speaker 2: and I wouldn't have lost business to you. I just
40:56
Speaker 2: weird chased.
40:57
Speaker 8: We didn't lose any not to anybody.
40:59
Speaker 2: H But now I see, I mean, it's such a
41:01
Speaker 2: great business here. So but I do am concerned that
41:05
Speaker 2: if one of your portfolio companies blows up. Sure, it's
41:10
Speaker 2: the people who pay people that bear that risk. Are
41:13
Speaker 2: your institutional investors invested in your funds? Yes, and they
41:16
Speaker 2: are all accredited investors.
41:17
Speaker 3: They know what they're doing. Sure, So that's kind of
41:19
Speaker 3: the self.
41:20
Speaker 2: That's the mechanism, right to just I mean, it's not
41:23
Speaker 2: really a retail investors, right. So the retail, like I'm
41:26
Speaker 2: trying to think, it feels like it should be more
41:27
Speaker 2: regulated just because it's been growing so quickly. But in reality,
41:31
Speaker 2: it's it's a private, institutional marketplace, correct.
41:34
Speaker 11: And that's by the way, the company is sec regulated ready,
41:40
Speaker 11: so and we're not taking customer deposits, so we're not
41:44
Speaker 11: a bank. We're not taking deposits that are ensured by
41:47
Speaker 11: the government. We're taking our capitals coming from We're owned
41:50
Speaker 11: by Canadian Pension Plan, which is a huge sovereign for
41:53
Speaker 11: five hundred billion a capital under management along with north
41:56
Speaker 11: Leaf Capital, another Canadian and management. And then we're raising
42:01
Speaker 11: money from very sophisticated institutional investors. I will say on
42:05
Speaker 11: the retail side, I think it is a huge opportunity,
42:09
Speaker 11: but a huge opportunity for us with high net worth
42:12
Speaker 11: and ultra high networth, so again, very sophisticated investors that
42:16
Speaker 11: are using a big investment bank to manage their money,
42:20
Speaker 11: and we set up a program with them, so it's
42:23
Speaker 11: not you know, mom and pop detail.
42:26
Speaker 2: Ye, fascinating business. Thanks for coming in. We appreciate it.
42:29
Speaker 2: Next Timmer in New York, let us know we'll get
42:30
Speaker 2: you back on because we absolutely love this business. It's
42:33
Speaker 2: really just a really interesting part of the capital markets
42:36
Speaker 2: system that when I started my career wasn't really a thing,
42:38
Speaker 2: but boy, it's going to become such a great source
42:40
Speaker 2: of capital for a lot of businesses. Timline, he's the
42:42
Speaker 2: CEO of and Terry's Capital. They are based in the
42:46
Speaker 2: Great City of Chicago.
42:49
Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can
42:52
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
42:56
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
43:00
Speaker 1: at Matt Miller nineteen seventy three.
43:02
Speaker 2: And I'm Paul Sweeney.
43:03
Speaker 3: I'm on Twitter at pt Sweeney.
43:04
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43:07
Speaker 2: Bloomberg Radio