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Western Asset Adding Junk Bonds, Local Currency EM: Buchanan · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. As
• 0:33
  Speaker 1: stock traders freaked out and the Dow, SMP and NASDAC
• 0:38
  Speaker 1: all plummeted earlier this week, credit markets remained a picture
• 0:42
  Speaker 1: of tranquility, or almost so. The big question here is
• 0:47
  Speaker 1: is that truly a reflection of not a lot of
• 0:50
  Speaker 1: risk and steady as she goes? Or is this something
• 0:54
  Speaker 1: else and perhaps the calm before a storm? And here
• 0:57
  Speaker 1: to help us understand that is Mike buck And And
• 1:00
  Speaker 1: he's Deputy Chief Investment Officer at Western Asset Management Co,
• 1:03
  Speaker 1: an independent affiliate of Like Mason, which overseas four hundred
• 1:07
  Speaker 1: and thirty three billion dollars uh and he is based
• 1:09
  Speaker 1: in Pasadena, California, where he comes to us from. Mike,
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  Speaker 1: thank you so much for being with us. What's your
• 1:14
  Speaker 1: take here? Because we have seen a bit of spread widening,
• 1:18
  Speaker 1: particularly in high yield credit UH and yields are rising.
• 1:21
  Speaker 1: You are seeing some high yield bond deals getting pulled.
• 1:26
  Speaker 1: Are we Is this sort of the precipice before a
• 1:28
  Speaker 1: bigger weakness AILSA and thanks for having me on UM. Yeah.
• 1:34
  Speaker 1: I think our view is that, no, it's not the
• 1:37
  Speaker 1: precipice before some more meaningful fall. In fact, you know,
• 1:41
  Speaker 1: as we were watching all this volatility unfolding the equity
• 1:44
  Speaker 1: markets UH one, we maintained that it didn't seem like
• 1:49
  Speaker 1: this was a fundamental pullback. We couldn't find any real
• 1:52
  Speaker 1: evidence that, you know, fundamentals were the catalyst for what
• 1:55
  Speaker 1: was happening. It appeared to be technical. I think when
• 1:59
  Speaker 1: we got more clarity on the short ball funds and
• 2:03
  Speaker 1: how they were playing out in the market, it became
• 2:06
  Speaker 1: a little more clear what was driving that volatility. And
• 2:10
  Speaker 1: we came in yesterday morning really hoping to put some
• 2:13
  Speaker 1: money to work at UH meaningfully cheaper levels, and as
• 2:16
  Speaker 1: you pointed out in your introduction, didn't quite see that.
• 2:19
  Speaker 1: But we have seen some some weekending in price and
• 2:22
  Speaker 1: I think that's just creating a better opportunity in a
• 2:24
  Speaker 1: lot of these spread markets. So what are you buying
• 2:27
  Speaker 1: right now? Well, we're adding to high yield, and you know,
• 2:31
  Speaker 1: high yield still at you know, three d and sixty
• 2:34
  Speaker 1: basis points over if you look at just the generic index,
• 2:37
  Speaker 1: that's that's almost forty basis points wider UH than where
• 2:41
  Speaker 1: we were towards the end of January. And you know,
• 2:45
  Speaker 1: as you pointed out with with overall rates moving higher,
• 2:48
  Speaker 1: you know, that gets you to north of six percent.
• 2:51
  Speaker 1: And you know, as much as we wanted it to
• 2:53
  Speaker 1: go a little cheaper to add, we still think that's
• 2:57
  Speaker 1: a very good opportunity. We look at the fundamental backdrop
• 3:00
  Speaker 1: and seem very supportive credit fundamentals. UH fourth quarter earnings
• 3:05
  Speaker 1: are coming in very strong h so just a lot
• 3:08
  Speaker 1: of a lot of fundamental support for adding to that position.
• 3:13
  Speaker 1: UM also emerging markets. We think the real meaningful opportunity
• 3:18
  Speaker 1: and spread markets right now is in local currency emerging markets.
• 3:22
  Speaker 1: And again didn't really see you know, a meaningful sell off,
• 3:26
  Speaker 1: but UM saw a little bit of a backup, and
• 3:29
  Speaker 1: I think that just made it more attractive. Mike. If
• 3:32
  Speaker 1: yields increase, if interest rates increase, won't that put even
• 3:37
  Speaker 1: greater pressure on companies that have to go to the
• 3:39
  Speaker 1: high yield bond market. In order to finance their businesses. Yeah,
• 3:44
  Speaker 1: I think at the margin, that's that's accurate. Um. You know,
• 3:47
  Speaker 1: you do have a lot of below investment grade companies
• 3:50
  Speaker 1: that have accessed the floating rate market, and now that
• 3:54
  Speaker 1: short term rates libraar is essentially above all those library floors.
• 3:59
  Speaker 1: Every pick up in lieb or translates into you know,
• 4:02
  Speaker 1: higher interest costs for these companies. So you do have
• 4:06
  Speaker 1: to have a view on ultimately where you think rates
• 4:09
  Speaker 1: are going. Our view right now is that, um. You know,
• 4:12
  Speaker 1: if you look at what's priced into the market, you know,
• 4:15
  Speaker 1: three hikes this year, two hikes next year, that pretty
• 4:18
  Speaker 1: much gets you to the FEDS target their their terminal rate. Um.
• 4:23
  Speaker 1: So we we look at where rates are currently and
• 4:26
  Speaker 1: we think based on growth, based on inflation, Uh, there's
• 4:30
  Speaker 1: not a significant risk of meaningfully higher rates. Mike. I
• 4:36
  Speaker 1: want to talk about liquidity because you said that you
• 4:38
  Speaker 1: were hoping, you came in yesterday morning hoping to buy
• 4:42
  Speaker 1: some discounted bonds. Uh, there weren't that many opportunities because
• 4:47
  Speaker 1: people weren't necessarily selling them at such a big discounts.
• 4:49
  Speaker 1: And I'm wondering, you know, how concerned are you that
• 4:53
  Speaker 1: you really cannot move very big blocks of bonds. And
• 4:56
  Speaker 1: I know liquidity worries were all in vogue a couple
• 4:59
  Speaker 1: of years ago that people stopped caring, but I'm starting
• 5:01
  Speaker 1: to hear about it again around the margins. What's your
• 5:04
  Speaker 1: take on this, Well, I do think you have to
• 5:06
  Speaker 1: be very sensitive to um, you know, liquidity in the market,
• 5:10
  Speaker 1: and it's just a byproduct of of one the growth
• 5:14
  Speaker 1: in the corporate credit market, uh, combined with the amount
• 5:18
  Speaker 1: of risk capital that dealers have to commit to their
• 5:22
  Speaker 1: their inventory, and that was typically you know, the first
• 5:25
  Speaker 1: layer of of liquidity UM. And and just that dynamic
• 5:29
  Speaker 1: alone tells you there's less liquidity in this market, and
• 5:33
  Speaker 1: we operate with that assumption. When we're pricing out a bond.
• 5:36
  Speaker 1: We want to make sure that that we put a
• 5:38
  Speaker 1: little more of a liquidity premium than we did, you know,
• 5:41
  Speaker 1: let's say five or or ten years ago. UM. That
• 5:45
  Speaker 1: being said, Uh, what we found yesterday, and you know,
• 5:48
  Speaker 1: you only know this when you're kind of out in
• 5:50
  Speaker 1: the market and you're you're testing levels, is that UM,
• 5:54
  Speaker 1: the bids were actually very deep in the credit markets
• 5:58
  Speaker 1: and the e M markets. UM. You know, it seemed
• 6:01
  Speaker 1: like a lot of people had the same view or
• 6:05
  Speaker 1: or or we're trying to do the same thing that
• 6:07
  Speaker 1: we were, which was put money to work at more
• 6:10
  Speaker 1: attractive levels. So I do think if if, if we
• 6:13
  Speaker 1: had wanted to sell that, um, the bids were there,
• 6:16
  Speaker 1: albeit at maybe at lower prices, and we would have
• 6:19
  Speaker 1: been able to move substantial size. But to me, it
• 6:22
  Speaker 1: seemed like more more investment professionals were lining up on
• 6:27
  Speaker 1: the bidside, wanting to be buyers at lower levels as
• 6:29
  Speaker 1: opposed to wanting to sell it at higher levels. Where's
• 6:33
  Speaker 1: the biggest opportunity left in credit? I mean specific sectors
• 6:35
  Speaker 1: or even companies. Yeah, I mean I think there's there's
• 6:40
  Speaker 1: still a few within developed market credit. We do like
• 6:43
  Speaker 1: the high yield space, and I know that maybe a
• 6:45
  Speaker 1: little bit of a contrarian view, but our assessment really
• 6:49
  Speaker 1: is that ultimately fundamentals drive valuations, and fundamentals we see improving,
• 6:55
  Speaker 1: we see UH leverage metrics going lower, we see UH,
• 7:01
  Speaker 1: we see cash flow generation improving. We think tax reform
• 7:04
  Speaker 1: is going to be a little bit of an added
• 7:06
  Speaker 1: tail wind. And like I said earlier, at three sixty
• 7:09
  Speaker 1: basis points over treasuries, I think, um, that's that's that's
• 7:13
  Speaker 1: a reasonable. I mean not not a table pounder, but
• 7:15
  Speaker 1: a reasonable relative value anomaly. UM, I do think in
• 7:20
  Speaker 1: it within high yield. Uh. You know, you can focus
• 7:23
  Speaker 1: on some of the strong double bees that have a
• 7:27
  Speaker 1: a reasonable chance to move to investment grade. I think
• 7:30
  Speaker 1: in names like Freeport, McMoRan, H. Williams. You know, those
• 7:34
  Speaker 1: are names that UM, we think can definitely get to
• 7:37
  Speaker 1: I G. And if they do, you've you've got probably
• 7:39
  Speaker 1: another thirty to forty basis points of spread tightening there.
• 7:42
  Speaker 1: I just want to give you about twenty seconds that
• 7:44
  Speaker 1: you talked about emerging markets. What about Argentina, the Republic
• 7:47
  Speaker 1: of Argentina. We like Argentina. We think that UM, you
• 7:52
  Speaker 1: know that you're just you're starting with such a high
• 7:55
  Speaker 1: nominal rate almost fifteen percent on their local currency tenure.
• 8:00
  Speaker 1: UM that even when you factor in the inflation, and
• 8:03
  Speaker 1: by the way, we think inflation is trending lower there. UM,
• 8:07
  Speaker 1: you look at the real yield and that looks very
• 8:10
  Speaker 1: compelling when you compare it to the real yields that
• 8:12
  Speaker 1: you're getting in most developed markets. Thanks very much for
• 8:16
  Speaker 1: being with us. Mike Buchanan is Deputy Chief Investment Officer
• 8:19
  Speaker 1: for Western Asset Management. They are an independent affiliate of
• 8:23
  Speaker 1: leg Mason helping to manage more than four hundred and
• 8:26
  Speaker 1: thirty billion dollars. Joining us from Pasadena, California. Tesla a
• 8:45
  Speaker 1: company to surely draw some passionate responses, whether people are
• 8:50
  Speaker 1: afford it or against it. Here to talk about what
• 8:52
  Speaker 1: to expect for the earnings which we should get after
• 8:55
  Speaker 1: the bell. Today's Alan Boum Auto Analysts and principle Aboum
• 9:00
  Speaker 1: and Associates. Alan, thank you so much for being with us.
• 9:03
  Speaker 1: How much are we really going to learn about? The
• 9:05
  Speaker 1: burning question? And no, it is not the space rocket
• 9:08
  Speaker 1: that was launched yesterday. It is can Tesla actually produce
• 9:13
  Speaker 1: the cars they have promised? Yeah, I mean the answer
• 9:17
  Speaker 1: is they can. The obvious question is when, uh and
• 9:21
  Speaker 1: so uh you know, the the idea of are they
• 9:24
  Speaker 1: going to hit their goals at the end of this
• 9:26
  Speaker 1: quarter and at the end of the next quarter. Each
• 9:29
  Speaker 1: of those have been put off several times and obviously
• 9:33
  Speaker 1: that's the burning question as you as you mentioned for
• 9:37
  Speaker 1: the earnings called this afternoon because this is obviously a
• 9:43
  Speaker 1: future stock, you know, it's based on where this company
• 9:46
  Speaker 1: is going. Um, and so that's the issue, ar if,
• 9:51
  Speaker 1: that's the issue. Is it likely that they're going to
• 9:53
  Speaker 1: announce any management changes at Tesla because there has been
• 9:57
  Speaker 1: a rotating senior executive panel when it comes to actually
• 10:00
  Speaker 1: producing this model three. Yeah, there have been a lot
• 10:04
  Speaker 1: of changes, and actually I'm more interested in this probably
• 10:07
  Speaker 1: wouldn't get much coverage in the in the call today.
• 10:11
  Speaker 1: On the operational side. Uh, you know if some quarters
• 10:15
  Speaker 1: there even a year or two ago. Uh, Tesla brought
• 10:18
  Speaker 1: in some manufacturing experts. Uh that got them uh some
• 10:24
  Speaker 1: progress obviously, but those are the kinds of things that
• 10:28
  Speaker 1: that they need to do. UM. I've always said that
• 10:31
  Speaker 1: Tesla understood, unlike a lot of it startup EV competitors, UH,
• 10:36
  Speaker 1: that it was an auto company. UM. And it has
• 10:40
  Speaker 1: over a long period of time for AUDI in key
• 10:43
  Speaker 1: technical professionals. Uh, there's obviously been a fair amount of
• 10:47
  Speaker 1: churn there. Um. And uh what they're trying to do
• 10:51
  Speaker 1: is obviously very difficult. So they need that kind of
• 10:54
  Speaker 1: help and uh those kind of questions need to be answered. Allan,
• 11:00
  Speaker 1: I don't understand how anyone tries to actually value these shares.
• 11:05
  Speaker 1: I should just point out that the broad SMP index
• 11:09
  Speaker 1: is up lesson two percent, Tesla shares up about ten
• 11:12
  Speaker 1: and a half percent just so far this year, following
• 11:15
  Speaker 1: a forty game last year. How are you evaluating this company? Well,
• 11:21
  Speaker 1: clearly you can't do it on the fundamental This is
• 11:26
  Speaker 1: a momentum stock. This is an emotional stock. I'm not
• 11:30
  Speaker 1: gonna sit here and say, well, based on the expectation
• 11:35
  Speaker 1: of failed production profits, we're gonna see this. Um. The
• 11:40
  Speaker 1: market is determining this stock. And obviously that's the ridiculous
• 11:44
  Speaker 1: and true statement. Um. But the point being is how
• 11:49
  Speaker 1: can they move forward? As obviously they continue to miss
• 11:54
  Speaker 1: the targets. Now, the flip side of that is the
• 11:57
  Speaker 1: Model three is different, um. And what I mean by
• 12:01
  Speaker 1: that is, Um, you know, the bolt is out there,
• 12:05
  Speaker 1: the leaf has been redone and we're gonna have a
• 12:07
  Speaker 1: second version of it later this year. And I would
• 12:10
  Speaker 1: argue that just doesn't matter because the Model three, the
• 12:15
  Speaker 1: Model Esque, the Model X, they are viewed in a
• 12:18
  Speaker 1: different spectrum than those vehicles. Now, what does matter, perhaps
• 12:23
  Speaker 1: is as Audi as Poors, as BMW, uh as uh
• 12:29
  Speaker 1: as Daimler start to put out models. Um. And yes
• 12:33
  Speaker 1: those are luxury brands, and Tesla is trying to move
• 12:37
  Speaker 1: down market, if you will, But it's still viewed in
• 12:40
  Speaker 1: that luxury mill you and so the that has the
• 12:44
  Speaker 1: potential to be a problem. I just don't see the
• 12:47
  Speaker 1: bolts or the leaf uh as as a competitor. Really,
• 12:51
  Speaker 1: why not, because it's because of the way the product
• 12:56
  Speaker 1: is viewed. What Tesla has done is not only did
• 13:00
  Speaker 1: they create an electric car, obviously and and but they
• 13:04
  Speaker 1: created a good car from a from a non uh,
• 13:10
  Speaker 1: environmental perspective. It was is fun to drive the S
• 13:14
  Speaker 1: and the X, the three. It's obviously going to be different,
• 13:18
  Speaker 1: but it is still viewed within that that genre of
• 13:23
  Speaker 1: being Okay, this is something special and uh. Of course,
• 13:27
  Speaker 1: you know, if you can't make the car, or if
• 13:29
  Speaker 1: the quality isn't awful, then you're gonna lose some of
• 13:32
  Speaker 1: that specialness if you will. But I just see it
• 13:35
  Speaker 1: as still being has the opportunity to be viewed in
• 13:40
  Speaker 1: that positive light. Thank you very much. Alan Boum, auto
• 13:43
  Speaker 1: analyst and a principle at Boum and Associates, giving us
• 13:47
  Speaker 1: a preview of Testa the shares of trunk they are
• 14:04
  Speaker 1: higher right now by more than twenty six percent. After
• 14:08
  Speaker 1: agreeing to sell the Los Angeles Times for five hundred
• 14:11
  Speaker 1: million dollars, this begins a new chapter in the newspapers
• 14:15
  Speaker 1: one hundred and thirty six year old history. Here to
• 14:18
  Speaker 1: tell us about this another media events his Porter bib
• 14:20
  Speaker 1: managing partner Media Tech Capital Partners, and he can be
• 14:24
  Speaker 1: followed on Twitter at Porter three. Al Right, Porter, what
• 14:28
  Speaker 1: do you make of this sale to a local investor? And? Um,
• 14:32
  Speaker 1: the future of the San Diego Union Tribune and the
• 14:35
  Speaker 1: l A Times, Well, the l A Times and and
• 14:38
  Speaker 1: perhaps the San Diego Tribune, We're both going to implode
• 14:42
  Speaker 1: over the dysfunctional Trunk management. And so this is a
• 14:46
  Speaker 1: lifesaver for the papers and for the community, and having
• 14:49
  Speaker 1: a local owner is a huge benefit. The real issue, though,
• 14:54
  Speaker 1: is the price. Half of half a billion dollars is
• 14:58
  Speaker 1: twice what Jeff Be's was paid for the Washington Post.
• 15:01
  Speaker 1: This is cash twenty in cash and pension liabilities. Yeah,
• 15:06
  Speaker 1: but he's a the buyer is a shareholder, major shareholder
• 15:11
  Speaker 1: in Trunk. So, Uh, he had to have some insight
• 15:15
  Speaker 1: into what he was doing. Um, I think if he,
• 15:18
  Speaker 1: if he is smart, and he lets the editorial and
• 15:22
  Speaker 1: management staff of the two papers, uh do their thing. Uh,
• 15:27
  Speaker 1: there's a great opportunity because clearly the l A Times
• 15:30
  Speaker 1: is one of the three great newspapers along with the
• 15:33
  Speaker 1: Washington Post in the New York Times that will survive
• 15:35
  Speaker 1: in the United States and globally. I think there's a
• 15:38
  Speaker 1: big question. And we've actually seen the Washington Post in
• 15:40
  Speaker 1: New York Times gain traction with getting subscribers actually pay
• 15:45
  Speaker 1: digital subscribed. That's what I'm saying, digital subscribers. I should
• 15:48
  Speaker 1: have said the digital parks. But but you know, the
• 15:51
  Speaker 1: actually pay for the content and the l a times
• 15:54
  Speaker 1: UH needs to provide. Yeah, they're they're offering a dollar
• 15:57
  Speaker 1: ninety nine for six months subscription. It's not that's not
• 16:02
  Speaker 1: one but one dollar nine. But with respect to subscriptions,
• 16:07
  Speaker 1: we also got results from Disney last night, and I
• 16:09
  Speaker 1: thought that it was interesting what they're doing with ESPN,
• 16:12
  Speaker 1: looking to create some kind of UH special service that
• 16:18
  Speaker 1: you can pay for almost five dollars a month for.
• 16:22
  Speaker 1: What is this and does that make ESPN more valuable
• 16:25
  Speaker 1: or is this just more noise? Well, ESPN, like everything
• 16:29
  Speaker 1: else on cable UH and and traditional television distribution UM,
• 16:36
  Speaker 1: the legendary media that we used to know UM, has
• 16:41
  Speaker 1: been losing customers. And when they lose customers or viewers
• 16:44
  Speaker 1: in this case, they lose advertising revenue. So the Disney
• 16:48
  Speaker 1: is adopting over the top two revenue stream. They want
• 16:53
  Speaker 1: subscription money and they want advertising, and they will do
• 16:56
  Speaker 1: that because an awful lot of people subscribe to cable
• 17:00
  Speaker 1: right now for two reasons. HBO and ESPN and all
• 17:04
  Speaker 1: the live sports that ESPN can provide on cable. And
• 17:07
  Speaker 1: if if you can save eight ninety d plus dollars
• 17:13
  Speaker 1: on your cable subscription and spend only five or ten
• 17:15
  Speaker 1: or fifteen for HBO and for ESPN, your way ahead
• 17:20
  Speaker 1: of the game. And that they're targeting the millennials who
• 17:22
  Speaker 1: are already over the top and not they're not cord cutters,
• 17:27
  Speaker 1: their cord nevers. And that's the future. Tell me about
• 17:31
  Speaker 1: the future of Viacom. They're going to be releasing their
• 17:33
  Speaker 1: results tomorrow before the market opens. Uh, tell me about
• 17:38
  Speaker 1: the challenges that Viacom faces and the h I guess
• 17:42
  Speaker 1: it's a maybe they could even make it into a movie.
• 17:44
  Speaker 1: Viacom and CBS and the red Stone Family that that
• 17:49
  Speaker 1: that's something Viacom could do, because Paramount could use some
• 17:52
  Speaker 1: some new down in their their film side. I think
• 17:56
  Speaker 1: we're not in an apocalypse, but we're in a sea
• 17:58
  Speaker 1: change train in sition period two thousand and eighteen is
• 18:02
  Speaker 1: going to go down as as the end of legacy
• 18:05
  Speaker 1: media and the real beginning of digital media. And Vehicom
• 18:10
  Speaker 1: has to combine with CBS. Not for any other reason
• 18:14
  Speaker 1: than that's what Sherry Redstone really wants to do. She's
• 18:17
  Speaker 1: put her foot down. Less moonves is is the stumbling
• 18:22
  Speaker 1: block because he wants unfettered, absolute control of the combined
• 18:26
  Speaker 1: companies or he won't play. He did try to buy
• 18:29
  Speaker 1: CBS three years ago and he couldn't persuade the Ridstones
• 18:33
  Speaker 1: to sell it to him. So he may or may
• 18:36
  Speaker 1: not be part of the picture going forward. But what
• 18:38
  Speaker 1: is is the next shoe to drop is Verizon steps
• 18:42
  Speaker 1: in and buys the combined Vehcom and CBS. And Sherry
• 18:47
  Speaker 1: knows that if CBS, which is Verizon's real target, um doesn't.
• 18:53
  Speaker 1: If CBS gets bought by Verizon, she'll never get rid
• 18:57
  Speaker 1: of Vehicom and it'll just die. I want to I
• 19:00
  Speaker 1: want to pick up on something that you said digital
• 19:02
  Speaker 1: media they need to transform to that. What is that
• 19:05
  Speaker 1: and what is the uh sort of premier model of
• 19:08
  Speaker 1: who's doing it right? Well, Disney has a good start,
• 19:12
  Speaker 1: but you have to give Netflix as the pioneer. They
• 19:16
  Speaker 1: have done it better than anybody. They've got a ninety
• 19:19
  Speaker 1: million subscribers in the United States right now. They've kept
• 19:22
  Speaker 1: the price low. If you remember three or four years ago,
• 19:26
  Speaker 1: Netflix tried to increase the monthly subscription and the bottom
• 19:31
  Speaker 1: fell out of their subscriber base. So keeping the price low. Uh,
• 19:36
  Speaker 1: That's that's half the secret. The other secret is having
• 19:39
  Speaker 1: terrific content and lots of it and refreshing the content.
• 19:42
  Speaker 1: That's why Netflix is spending eight billion dollars creating new
• 19:46
  Speaker 1: content this year. Twenty one century. Fox is going to
• 19:50
  Speaker 1: report their results after the market closes today. What are
• 19:53
  Speaker 1: your thoughts about the Murdoch empire. Well, Uh, Rupert has
• 19:58
  Speaker 1: one last team and that's to be the largest shareholder
• 20:02
  Speaker 1: in Disney, which he will be um he and his
• 20:06
  Speaker 1: family and his and his family trust when the Disney
• 20:10
  Speaker 1: Fox deal billion dollar deal, that's right, and and what
• 20:15
  Speaker 1: he will be left with is what he what he
• 20:17
  Speaker 1: knows and loves, which is news and sports. And by
• 20:20
  Speaker 1: the way, he's still trying to get control of Sky
• 20:24
  Speaker 1: in the UK and the government that the parliamentary regulators
• 20:28
  Speaker 1: have said there's no way, Jose. They want Disney to
• 20:32
  Speaker 1: buy those assets and to own all of Sky, which
• 20:35
  Speaker 1: Disney wants to do as well. Bob Iger mentioned that
• 20:37
  Speaker 1: in his earning school yesterday, So just a real quick
• 20:41
  Speaker 1: what's the m and a deal that hasn't happened yet
• 20:45
  Speaker 1: that we're going to be talking about later this year.
• 20:47
  Speaker 1: The real issue is what happens to the cable companies,
• 20:53
  Speaker 1: because they're going to lose the cable business over the
• 20:57
  Speaker 1: next five years. The flips eye of that whole story, though,
• 21:01
  Speaker 1: is that they are the largest Internet service providers and
• 21:04
  Speaker 1: they will get more and more entrenched in providing a faster, better,
• 21:10
  Speaker 1: and unfortunately more expensive access to the Internet. So in
• 21:15
  Speaker 1: other words, Verizon and others other Verizon already has that
• 21:19
  Speaker 1: Comcast Charter spectrum. The uh look, look what all Tiss
• 21:24
  Speaker 1: has come up with. This is the future of the
• 21:26
  Speaker 1: cable industry. They have eliminated the cable box. They've got
• 21:32
  Speaker 1: voice controlled. It've eliminated the remote control, so that you
• 21:35
  Speaker 1: can just say channel five verbally the way you would
• 21:39
  Speaker 1: to Alexa or Google Assistant, and that changes the channel
• 21:42
  Speaker 1: on your TV. That's the future of of the cable industry.
• 21:46
  Speaker 1: But it's really all targeted at Internet and over the top. Porter,
• 21:49
  Speaker 1: bb thank you so much for being with us. Always
• 21:51
  Speaker 1: a pleasure. Porter, managing partner at Media Tech Capital Partners
• 21:55
  Speaker 1: in New York, joining us here in our eleven three
• 21:58
  Speaker 1: oh studios. The shares of Win Resorts are hired by
• 22:14
  Speaker 1: nearly ten percent. The former chief executive of the company,
• 22:20
  Speaker 1: Steven Wynn, he owns a little bit more than eleven
• 22:23
  Speaker 1: and a half percent. Former wife Lane Win owning about
• 22:27
  Speaker 1: nine and a quarter percent. What's next for the company
• 22:30
  Speaker 1: that has his name on the door? Here to tell
• 22:33
  Speaker 1: us more? Brian Eggar are senior Gaming and Lodging analyst
• 22:36
  Speaker 1: for a Bloomberg Intelligence Brian, thanks very much for being
• 22:40
  Speaker 1: with us in coming in so all right, give us
• 22:42
  Speaker 1: the details about Win Resorts. When you've got someone whose
• 22:46
  Speaker 1: name is literally on the door uh and owns almost
• 22:51
  Speaker 1: twelve percent of the company, and he's no longer going
• 22:54
  Speaker 1: to be running it's next. So the successor CEO, a
• 22:58
  Speaker 1: guy named Matt Maddox, had previously been president. He was
• 23:01
  Speaker 1: chief financial officer before that. UH, fairly well known and
• 23:05
  Speaker 1: well respected by the street. Clearly not known for the
• 23:08
  Speaker 1: developing of all the UH of all the famous casinos
• 23:12
  Speaker 1: for which Win is known going back to the days
• 23:14
  Speaker 1: of the gold Nugget and mirage. Nevertheless, I think there
• 23:18
  Speaker 1: was some expectation that we'd see a succession here, given
• 23:21
  Speaker 1: the allegations that came out on February and the subsequent
• 23:25
  Speaker 1: scrutiny by both the Bord of Directors and Win itself
• 23:28
  Speaker 1: and several gaming regulators. So not entirely unexpected. Not expected,
• 23:33
  Speaker 1: but a lot of people were talking about the cult
• 23:36
  Speaker 1: of personality amid a lot of the allegations, and you
• 23:39
  Speaker 1: know he had that, so you know, will there be
• 23:43
  Speaker 1: something lost without that? I think you could argue there
• 23:47
  Speaker 1: is a win premium associated with the valuation and with
• 23:50
  Speaker 1: the stock having retreated from the low two hundreds before
• 23:53
  Speaker 1: this scandal broke two more recently mid one sixties today
• 23:57
  Speaker 1: back to the one seventies um much of at has
• 24:00
  Speaker 1: been taken to account of the way we do the math.
• 24:02
  Speaker 1: If you lob one multiple point off of the valuation
• 24:06
  Speaker 1: of the Ibadat cash flow in either Vegas or Macau,
• 24:09
  Speaker 1: it reduces the value of when by anywhere from three
• 24:12
  Speaker 1: percent to five percent. Much of that has happened. The
• 24:15
  Speaker 1: reason the stock is up today is with the resolution
• 24:19
  Speaker 1: of succession. Uh it does away some concerns that regulators
• 24:24
  Speaker 1: might have had about suitability of Mr Wynn himself and
• 24:27
  Speaker 1: perhaps reduces the risk associated with them pursuing their midnightteen,
• 24:31
  Speaker 1: mid twenty nineteen opening of a casino in Boston Harbor,
• 24:35
  Speaker 1: which is a really important project for the company. Brian,
• 24:39
  Speaker 1: why didn't the boards suspend Steve Win prior to this? Uh?
• 24:44
  Speaker 1: This announcement? I mean, you know, when the investigation was
• 24:46
  Speaker 1: going on, So basically the day this news broken was
• 24:50
  Speaker 1: originally discussed in the media when Resorts set up a
• 24:53
  Speaker 1: special committee of outside directors to investigate the allegations, parallel
• 24:58
  Speaker 1: to the investigations being done by gaming regulators in Massachusetts
• 25:02
  Speaker 1: as well as Nevada. Uh. And this is really the
• 25:04
  Speaker 1: outcome of of that that process of reviewing the allegations
• 25:08
  Speaker 1: and coming to them. But it wasn't made. If it
• 25:10
  Speaker 1: hadn't been made public and splashed across all of the media,
• 25:15
  Speaker 1: do you think they would really have been investigating. I mean,
• 25:17
  Speaker 1: it was a seven and a half million dollar payment, right,
• 25:19
  Speaker 1: one could argue, and we have looked at this in
• 25:21
  Speaker 1: our own written research that the board itself, from a
• 25:24
  Speaker 1: governor's perspective, has to be held to a greater dey
• 25:26
  Speaker 1: of accountability. We've looked at things like age, tenure, gender
• 25:30
  Speaker 1: of the board itself, so no doubt the board itself
• 25:32
  Speaker 1: will be subject to ongoing scrutiny. I admit Steve wins
• 25:37
  Speaker 1: resignation itself does not completely address what the board should
• 25:40
  Speaker 1: HULD not have been doing well. But on that point,
• 25:43
  Speaker 1: is there some kind of legal liability that's hanging over
• 25:47
  Speaker 1: the company as a whole since some of these allegations
• 25:51
  Speaker 1: were known inside the company, right? I think what needs
• 25:54
  Speaker 1: to be determined is what wet allegations were known, at
• 25:57
  Speaker 1: what time they were known, and I don't have the
• 25:59
  Speaker 1: answered to that. What I will tell you is that
• 26:01
  Speaker 1: what regulators were concerned about, and very much the board
• 26:05
  Speaker 1: I think has been responsive to the risk of regulatory
• 26:08
  Speaker 1: license UH being removed, is the suitability of Mr Wynn
• 26:14
  Speaker 1: in particular, or not only the allegations themselves, but whether
• 26:17
  Speaker 1: or not with respect to the legal settlement that he
• 26:20
  Speaker 1: had made with at least one individual, whether or not
• 26:22
  Speaker 1: that legal settlement was suitably disclosed. So the Massachusetts Gaming
• 26:26
  Speaker 1: Commission is going to continue to look at this. I
• 26:27
  Speaker 1: think you're actually having a meeting today and in the
• 26:31
  Speaker 1: process of doing this, they still have to um address
• 26:34
  Speaker 1: these issues. My assumption is that Win's departure goes a
• 26:38
  Speaker 1: long way towards addressing some of those concerns, but ultimately
• 26:42
  Speaker 1: the Gaming Commission itself still has to determine whether or
• 26:45
  Speaker 1: not it's comfortable with suitability. We think the likely is
• 26:48
  Speaker 1: they will proceed and the project will proceed, but I
• 26:52
  Speaker 1: think the everyone involved in that application process is still
• 26:55
  Speaker 1: going to be held accountable for what they did or
• 26:58
  Speaker 1: did not disclose. Any idea of what the role of
• 27:01
  Speaker 1: his ex wife, Elaine Win will play. At the time
• 27:05
  Speaker 1: of his departure, UH, Steve when himself had voting control
• 27:08
  Speaker 1: over the shares the nine percent of shares in when
• 27:11
  Speaker 1: resorts owned by Elaine Win. Steve Win, as you pointed out,
• 27:14
  Speaker 1: still owns twelve percent of it. Some of the details
• 27:17
  Speaker 1: surrounding his departure and the relationship with the company still
• 27:20
  Speaker 1: have to be worked out, but what we do know
• 27:22
  Speaker 1: is he has gone and Matt Maddox, former president, takes
• 27:25
  Speaker 1: over as CEO both of the Las Vegas operation and
• 27:29
  Speaker 1: the Becau operation, whether where there had also been concerns
• 27:32
  Speaker 1: about the renewal of a gaming license there which expires ino.
• 27:37
  Speaker 1: Is there some kind of way to handicap the monetary
• 27:43
  Speaker 1: value of any potential investigation, including the one that regulators
• 27:47
  Speaker 1: are meeting about today. I don't think that's something that's
• 27:49
  Speaker 1: readily quantifiable. What we have endeavored to quantify is both
• 27:54
  Speaker 1: the value of the wind premium multiple assigned to both
• 27:58
  Speaker 1: the Las Vegas and co operations, and also the value
• 28:02
  Speaker 1: of the Massachusetts property, which we estimate probably was probably
• 28:05
  Speaker 1: about tem per cent of the enterprise value of this company.
• 28:09
  Speaker 1: Uh And certainly, again, if you're ask me why is
• 28:12
  Speaker 1: the stock up today, for example, I would say that's
• 28:13
  Speaker 1: probably because the risk of a forfeiture of that license
• 28:17
  Speaker 1: is greatly mitigated, if not completely eliminated by When stepping down,
• 28:21
  Speaker 1: Brian Egger, thank you so much for being here with
• 28:24
  Speaker 1: us to sort of break down and understand the story
• 28:27
  Speaker 1: from a bigger picture point of view. Brian Egger, senior
• 28:31
  Speaker 1: Gaming and Lodging analyst with Bloomberg Intelligence, joining us here
• 28:34
  Speaker 1: in our eleven three oh studios. Thanks for listening to
• 28:41
  Speaker 1: the Bloomberg p m L podcast. You can subscribe and
• 28:44
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 28:48
  Speaker 1: platform you prefer. I'm PIM Fox. I'm on Twitter at
• 28:52
  Speaker 1: pim Fox. I'm on Twitter at Lisa Abramowits one before
• 28:56
  Speaker 1: the podcast. You can always catch us worldwide on Bloomberg
• 28:59
  Speaker 1: Radio bo