Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moven news.
Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com Slash podcast. Another deal in the energy space, this time Chesapeake Energy. I'm going to buy Southwestern Energy for seven point four billion dollars in an all stock deal.
So I mean crazy, which means we get the opportunity to speak to our good friend Vince Piazza, senior industry analysts covering all the energy space for Bloomberg Intelligence. Of course, the highlight of his career, former sportscaster, talk show host at the famed WFUV radio station at Fordham University, which has launched so many legendary broadcasting careers, particularly in the sports biz. Vince, we'll talk radio at another time. Let's
talk about this deal here. What's going on in your business?
Here?
It is the consolidation is fast and furious, isn't it?
It really is?
And we talked about this in our outlook for twenty twenty four, the consolidation continues. You know, we have reached a maturity phase in this industry. We had the shakeout and now you have established players looking for increased scale and concentration. You're selling a commodity, there's little differentiation. The only way you can differentiate is by having more of it so that you can gain efficiencies, economies of scale,
better productivity. And this is a prime example, Paul. Right, So you have two very large players getting together to form the third largest natural gas producer behind Chevron and Exxon. So this is a globally relevant producer that will have access via its exposure to the Hainesville shale, to Gulf Coast markets, Seaborn markets, and being able to push those flows out there in the international marketplace, which allows for
greater diversification of selling hubs. You know, they're going to be exposed roughly twenty twenty five percent to that Seaborn market. They're going to have various selling hubs that they can push product through something like over two dozen. So the deal makes sense on paper. What I don't think most folks are really focusing on, and I invite you all to touch base with the Jennifer Reesho's our anti trust specialist.
This deal will get lots of scrutiny. I think a deal like EQT buying up Quantum assets for about four and a half billion, that deal took about a year to close. So this is a much larger deal. It's much more concentrated in two very important specific plays, and so I think that's going to get a lot more scrutiny. So this isn't a done deal, but on paper, it is a very rational approach to a commoditized marketplace.
Yeah, you read my mind, Vince, because I was going to ask you what does FTC think on these you know, large large gas and oil deals. I got to talk about this whole trend of consolidation. Are we going to see this continue into twenty twenty four? I mean, is this going to be a big part of all these companies gaining scale.
Yeah. As part of our outlook, we looked at gas in general relative to oil, and we have we have had all of these deals in the Permian, but gas deals have been rather quiet in twenty twenty three, and that's because of the way the benchmarks performed in twenty twenty three. We think that that gas the worst is the worst is passed that gas, we could see better
improvement in tighter markets for twenty twenty four. We think the market tightness will show itself in the second half, so we think we will have more consolidation in a natural gas space. This will likely set things off. How EQT responds, which was the largest producer, still is the largest producer until this deal closes. How they respond will be very important. And Taro and CNX have been relatively absent from the M and A game. How they respond
will be very important as well. So it will likely set off a mini way of decisions that many of these operators will have to make in order to gain that scale. The scale and concentration is very important when you're selling a commoditized asset.
So Vince, I see the stock of Chesapeake Energy is actually up about six percent. You don't often or always see that when you Acquier makes a deal here because there might be some delution concerns. Why do you think this stock is up here? Is just a good good valuation aside from the strategic side to it.
I think it's exclusively about the strategic rationale behind the deal. And when you think about the twenty twenty five strip, things should look better for natural gas, natural gas market, natural gas sentiment in general. So I think it's a vote of confidence about the deal, and I think it's a voted confidence for nat gas going forward. You want to have more assets in concentrated hands and more solid hands.
How fragmented vince Er does this natural gas and still remain Are there private players out there that can be rolled up? Or are we looking at a handful of public companies that just have to figure out who's going to go with who?
Yeah, So if you think about where Chesapeake came from and where Southwestern came from, even EQT, you saw public buying private as the pe firms monetize their legacy investments to regenerate that capital. What we're going to see now, I think is still a good amount of public buying private. But I think now we're going to see public on public mergers, mergers of equals, low premium consolidation as well, because I think the next step is investors still want
to see free cash flow. They want to see the return of excess cash. We had all this investment in the space during shale one point zero, where a lot of capital was sunk in the ground to prove up the assets. We now have these assets proved up. It is a manufacturing process now, and now we've hit the point of maturity where there's not a lot of growth capital.
So it's really sucking out that excess cash, growing at a more modest space, controlling your expenses because you have that scale, because you have that concentration, and generating that free cash flow that right now in general is in the high to high a single digits to low team for the industry, and giving back that capital to the investor base. That is not really an issue, and a lot of the maturities have been pushed out, so leverage isn't merely a concern.
Haven's before you go, I have to ask APA's kal on purchase.
I read j aricle.
You said, it's not all it's cracked.
Up to be.
Yeah. So it's interesting because usually when you consolidate, and you consolidate for scale, you are buying up near acreage or near assets. In this case, the assets seem to be somewhat diffuse from where APA is historically located. So I think this that deal was done to generate cash flow. As a cash flow bridge for APA to get past this period of uncertainty when their longer term, their longer cycle assets come online.
Evin's always going to talk to you. That's a deal flow in your space. We appreciate you giving us some time here as we try to piece it all together. Vince Piazza, he's a senior energy analyst at Bloomberg Intelligence. Another deal in the natural gas space, the shale space. So we stay on top of it. The good analysts, the research channels go and keep on top of it as well.
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James Safer joins us here and this is the guy to speak to. He, along with Eric baltunis at Bloomberg Intelligence, the leading research on ETF's period for as long as we've been doing this at Bloomberg Intelligence, these are the folks that really are on top of it, and they've been on top of this Bitcoin ETF because it's such a big deal in the world of ETFs. James, thanks so much for joining us. I know you're super busy here today. When we have eleven new bitcoin ETFs hit
the market, I don't know what to look at. Which one should I look at? Which ones are important? What are you guys looking at?
So I'm looking at all of them, Okay, I want to see how all of them are doing. The thing is everyone's going to try to figure out what happened with flows right problem is we don't know what's happening with flows right now. I'm sure there's some trading desks and the authorized participants in the banks, that these brokerages, they know what's happening with flows, but we won't see it till after market clothes today that said, what we
can watch is volume, and that's what I'm watching. We're right around two billion dollars already and traded in all eleven of these ETFs. It's being led by GBDC from Grayscale, and then I BIT from black Rock, and then you have Fidelity and ARC are following suit. Now I think there's no what like I said, there's no way to know which way the flows are going in this volume. It's significant, this is a huge launch, but I have my guesses.
And the guess is we'll pay for the guests.
Yeah. Yeah, I'm fairly confident that this money. GBDC, they are trading with the tightest spread too. That's something else I'm watching, trying to see who's trading the tightest on that bidass spread. GBDC is trading very tight, So we're most of these other ones, there's no there's no one really trading out of line. But I think GVTC is seeing significant outflows. I've called for GVTC to see outflows in my research because they left their fee at one
point five percent. All these other guys are at zero, So there's significant capital in there. Might be locked up with cap gains, but there's a lot of it that's going to be leaving because they don't want to be paying that fee anymore.
So how much money are these eleven likely to generate?
How much money generate is in flows or it generates in revenue?
Yeah?
Coming in, I mean like we don't. Yeah, Like, are they gonna all go out there and start buying bitcoin kind of thing?
Yeah, I mean.
That's exactly what's happening, right, They are going to be They're gonna be buying bitcoin. This money that's coming in. It's the question is figuring out how much of it is new money buying bitcoin versus shifting around like we're
seeing likely right now with greyscale, money's pouring out. As far as how much money's being made, most the only one making real money right now is greys Scale, who's are charging I fee, but they're seeing money pour out everyone else for the most part, most of them are offering zero fee waivers, so it's literally free to hold these things for the next six months. So there everyone's doing everything they can to get assets for the long term play to keep those assets and then earn fees
on them. And even the fees of the long term they're really low. They're competitive with other ETFs in the US landscape.
How big is this for I mean you guys, you and Eric and your team, they have a team. I'm like, we have to have a team for ETFs and they're like, yeah, yes, so we built a team.
How big is this.
Bitcoin thing in the overall scheme of kind of ETFs.
So we we like to look at this and we like the media tends to cover like ninety five percent of what is in your Sorry, let me restart.
Yeah, the media tends to look at stuff.
It's five percent of your portfolio, but the media spends ninety five percent of it.
And that's what's happening here with bitcoin, right.
Like we think these bitcoin ETFs could get to something like one to two percent of overall ETF assets four or five years from now crypto ETFs in general. But that's it. That said, this is really interesting, it is fascinating. There's politics at play, there's a lot of money at play. There's a lot of big names at play. I mean I just mentioned black Rock my shares in Vesco.
Well, like one of the things that we've been talking about, like gold, how many gold atfs are there?
I mean gold is gold is gold?
How he differentiate one ETF versus another? So how many goldietfs are there? I don't know the exact number of the top of my head. It's somewhere around eight or nine, okay, so you'd be surprised.
And a lot of them.
So State Street is the main one they offer GLD, but Blackrock also one has one IAU and each of those have a sibling that charges a quarter of what the other one charges. So GLDM mini shares and IAU M also mini shares essentially, and they just undercut themselves because they have enough liquidity in the other products. And then they offer this cheaper portfolio diversifire that people can use and only charge like ten bases points to hold it.
My mind is blown, right, So the SEC approval, this is not the SEC giving that, you know, stamp of approval to bitcoin.
Correct?
Yes?
Correct?
I mean if you read the letters from some of the Democratic Commissioners yesterday after they approved this thing, and Chairman Gary Gensler he kind of approved this thing tongue in cheeks that the courts were forcing us. But at the end of the day, what they were saying is true. It's the reason why we've been saying the SEC shouldn't have been denying the Bitcoin ETFs in the most recent denials because the SEC is not a merit regulator. Their job is not to say whether an investment has merit.
Their job is to make sure that the proper disclosures are made and let investors decide whether it has merits. So they aren't supposed to be the ones dictating whether there's value here. Let the end investors choose, which is what's happening here and why I think it's right that these things are now trading.
So just to be clear, because Rich Truman, my intrepid producer, pointed out earlier, what did Gary Ginstler do from a vote perspective that Gary Ginster the chairman of the SEC. Did he vote for this against us? Did he vote for it with like a big asterisk next to it or what happened?
Yeah, I guess the way to think about it what he's voted with an asterisk. So the way that the SEC is set up is it's by a five member commission, right, so typically it's two Democrats, two Republicans and a chairman and the person who appoints the chairman as the president.
So typically, right now, it's run by the Democrats. Okay, so what happened here is the two Democrats dissented on this decision, the two Republicans agreed with it, and Gary Gensler was the deciding vote that got this pushed through.
I think it was all a political move.
The Democrats didn't want to have to do this, They didn't really have much of a choice as far as unconcerned, so by Gary being the siding vote saying yeah, I know we have to do this based in the courts and these other things, but we really don't like it.
We didn't want to do it.
I hate to get into politics when we're talking money, which is my preferred thing to talk about. But why would the Democrats not want this?
Yeah?
They, I mean Elizabeth Warren specifically is since she's raising an anti crypto army, she hates that.
She hates the cryptocrowd. I mean, I understand some of it.
There's been a lot of fraud, a lot of manipulation, a lot of bad okay bad at space, So I get why they don't like it, but that's not the entire space. And like I said, the SEC shouldn't be a merit regular that they shouldn't be deciding whether there's merit and an investment. They should worry.
The SEC was also saying we regulate securities and we don't think this is a security right. It's also one of their arguments.
Correct, but we have I mean, gold is not a security either, it's a commodity. So bitcoin technically is going to be regulated, is regulard by the CFTC. But still the bitcoin ETFs are regulated by the SEC because ETFs are securities.
Which brings me to another point.
One of the reasons why these are so important is many of these institutions they can't hold anything but securities or bonds, what have you.
This puts them in rapper.
That now institutions, advisors and more people can can play with bitpoint, they can't touch the underlying stuff for the most part.
All right, So you and Eric are gonna come out with some research tonight after the close that I have what what are you guys like really tracking what's going to be? I don't know what what's your call here? We're ten forty eight am. It's just been a good day for DTF biz and crypto.
It's been an obscenely good day.
I mean, we're probably I mean I haven't been at my desk for a while looking at the volumes, but I'm guessing we're over two billion in trading volume at this point. I mean, that is a monster day. That's not something you really.
That's a monster day for an ETF launch kind of how you're phrasing it.
Yes, exactly, it even still like for a brand new ETF. It's it's exceptionally well. I mean, even if you take GBTC out which is trust that was trading over the counter is now a ETF. These are still having very big trading days. Like even if these things were only trading this number two billion for the entire day after we take out Gradescale, I would say that's a successful day. I said, if they get over over a billion, over two billion, I think that's a pretty successful day.
We're only uh, we're only an hour and change into this day, so all.
Right, see how it goes. All right, we'll follow your research folks, big on the terminal for terminal users, get the research all on the EETF business James Seifert ETF research channels for Bloomberg Intelligence. Thanks for taking the time, but coming into our studio again. Some big ones I'm following, Grayscale, Bitcoin Trust, GBTC, the I shares one ib it. That's what I'm looking at.
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Let's talk about this market here. We're just talking with Jess mettin there, but let's think about kind of where we go in twenty twenty four after that stellar you know, ten eleven week run there. At the end of twenty twenty three, we got a professional in the Bloomberg Interactive Broker studio. Joe Mazzoli's a managing director of trader Education at Charles Schwab. Joe, again, that last finish we had there in twenty twenty three, I haven't seen anything. I've
been doing this a long time. I haven't seen anything like that in a while. What did you guys at Schwab make of that performance? You're so both in the equity markets and in the fixed income market.
You know, for me, there's one word rotation.
I think that that was a big change from what we saw basically all at twenty twenty three. When you think about the fact that in March of twenty twenty three yet you know, the financial meltdown if you will, that's when megacap just really caught a bit right. Everybody said, we want to move into companies that have high free cash flow. We feel a little bit more comfortable with that. I mean people are looking at these megacaps as almost like a I don't want to say a hedge, but
maybe a safe haven. And then as you get towards the end of the year, what happens. You get a dubbish fed if you will, you get CPI that's come down quite a bit, and then people say, hey, we can feel more comfortable rolling back into maybe some of the sectors that hadn't performed as well. And that's exactly what we saw from our clients.
Now, new Year, new things that you guys are launching. I want to get into that Schwab Trading Activity index. So what exactly does this offer?
What data comes out for December?
Yeah, it's a it's a cool name, stacks Y, right, people remember that one, stacks.
I like that one.
Basically, stacks is it's a behavioral index, right. So we're looking at kind of what our clients are doing. They're trading activity in their accounts. So what's interesting is we use like a you know, we have millions of clients, right, so we look at a sample size and we say where are the net buys versus what are the nets cells? And we use that to come up with a medium a median excuse me, sample, and that gives us a number,
generates a number. So right now, for December, we generated number forty four and a half and the range traditionally is around thirty to seventy thirty five to seventy, so it's actually a moderately low end, but it is a step up from what we saw in November. And interestingly enough, you know, you might have thought that given the strength that we saw in December, that would be higher. But I think when you look at the equities that were bought and that were sold, it makes it makes it different.
So we had net buyer, excuse me, we had net buyers, but the equities that were bought were Pfizer, Ali Baba really okay video and the ones that were sold, you know, these were the ones that were a little bit that had already moved up your apples, your metas you know these are, and even Tesla.
So there was a rotation.
And like I said, the rotation that we saw within our clients kind of mimicked what you saw in the overall market.
So what are you telling your clients these days? I mean, you know, Tom King has a nice expression.
The courage to be in the markets.
You know, what do you see from your retail clients? Are they in the market? You feel like they're fully invested their cash? I hear nothing I hear about is there's six train dollars of cash on the sidelines. What do you see at your place?
Is now you know we had you know, the old saying, right time in the market versus timing the market.
Yep.
That's hard for me because I'm a trader, right and for me, you know, I like to look at different indicators, and that's kind of how I look at the stacks.
Right.
If you're if you're a short term trader or you know, a day trader, stacks probably doesn't help you a lot by looking at sentiment. But if you're an investor and you think about, what are all the tools that I have in my toolbox? Right, you got your fundamental analysis, you got your technical analysis, Well now you have that sentiment analysis that helps. So you know what we're what we're telling clients right now is you know, be patient.
I think we expect some volatility throughout the year, and I think a lot of that has to do with the fact that you know, in the in the fixed income market send five or six cuts. We don't see that many. We see about three to four. So as you get closer to that March date, what's going to happen if it.
Doesn't look like the Fed's going to cut.
Does that start to creep volatility back into the fixed income market, which you saw last year in turn, you know, created equity volatility as well.
Joe, I got to touch on CPI on that came ount. Do you think from the from the figures that came out from it, I mean, is that showing that it's going to take a little bit longer for these rate.
Cuts to happen.
Yeah, well, I mean, in my opinion, think about it this way. I don't think anybody ever thought that it was going to be a straight lined, down right straight line down to two percent.
It's a bumpy road, but we've.
Made a lot of progress, I think instead of you know, we're not talking deflation, we're talking disinflation. But it's gonna take some time. I noticed that on the FED watch tool, you know, you went from about a sixty five percent chance of a cut in March down to fifty nine percent or sixty percent. They're still pricing in a lot of cuts, and I just I just don't know if
you're gonna get that. Maybe you get that in March, but I think that the Fed's probably gonna say, if we make this cut in March, let's play wait and see and let's see what happens from there.
So the story today, Joe for us here at Bloomberg Radio and TV is the Bitcoin ETFs.
Yeah.
So as now there's eleven ETFs that if people want to get exposure to. I'm going to call it this asset class. I'm not sure what Gary Gensel would agree, but and ETFs have been such a growth story. I mean, nobody knows it better than the good folks at Schwab. How does what are your clients? How do you think they're going to react to this opportunity, this investment opportunity.
Yeah, I mean I think they'll be demand. I do.
I think they'll be demand for the ETF, especially when you think about client accounts. Right, if you want to trade futures, you have to have a certain level of you know, we call it level three, right, that gives you permission to trade futures. So if you have the ability to do that through an ETF. It opens up a lot more possibilities for IRA accounts, you know, for clients who don't have margin trading ability, So I think
there will be demand there. What I also question is, also, you know, where does bitcoin fit within an investment portfolio. I think this idea that in twenty two and twenty three it was meant to be, you know, a hedge, or it was meant to be an alternative asset. I mean, basically what it did was it became a levered asset of the Nasdaq. Right, So I don't know exactly where it fits, but you know, that's up to the clients to decide.
So speaking of where things fit, I mean, so we talk about CPI, we talk about bitcoin. We can't forget jobless claims came out today lower than expected. So where does the labor or get fit into the picture.
Well, it's interesting because even though you got a good print on last Friday for non farm payrolls, even though you got jobless claims below, look at the revisions. The revisions are actually moving in the wrong direction. So I think that's something to kind of keep an eye on. You know, you can look at that headline flash number and it and it paints a rosy picture. But when you look at the revisions and when you look at kind of the the the we don't look at just
that number. We look at the momentum, and we look at you know, what's happening over the last six months or so. You're starting to see the jolts. Numbers come down, right, job openings are less uh even, and even though you're getting jobless claims that are better than expected, it's still moving in a different direction. One thing I would keep an eye on. I'd absolutely watch this is the you know, the low, the low tick that we saw in unemployment
with three point four percent. If it gets to three point nine percent, when you get that, that that half a percent move, that's that that that trough to peak or peak to trough, whoever however you want to look at it, that's an indicator that maybe things aren't as rosy as we believe.
How about volatility? Real quick, I got the VIX here at thirteen. Are you surprised by the low vall shot? Yeah?
I mean it's interesting because with everything that we've seen in the market in twenty three and heading into twenty four, I would think, you know, given tomorrow you know, being kind of the big day for the bank earnings. Ye, you would have seen a lot more hedging in some of those names, or even in the XLF. Well, one of the things that I'm looking at right now is that XLF is trading at an implied volatility in like the tenth percentile, meaning ninety percent of the time it
trades at a higher ball. There's just not a lot of hedger stepping into the market. Could that have something to do with the zero DTE options. It's a possibility.
Yeah. Interesting. All right, I got to ask you, Loan Tree, Colorado. Are you based in loan.
Tree com Now I'm a Bay Area guy, you're a Bay Area A Bay Area guy live in Danville, California.
Okay, because I looked at it's just on the bio. Did they there's a schwab way in Loan Tree, Colorado?
There's a schwab way.
Yeah, so did they?
The SHWUB relocate some people from the Bay Area to Denver area.
So there's a big group in Denver. There's a big group down in Fort Worth. And you know, we still have our office in San Francisco.
That how San Francisco these days.
San Francisco.
San Francisco, you know, you're just not getting a lot of people come downtown anymore.
It's a little sad.
Yeah, I mean, just you know, when people still a beautiful city and it's a great city. And I'm thinking, at some point, man, it's gonna turn. I don't know when that's gonna be, but I know there's a lot of issues there. But I always tell my friends that are coming in from overseas, you know, we're gonna come in for with the family for four or five weeks to see us. I say, Okay, you can go to New York and go to Bigas, go to mi Own, whatever. Have to go to San Francisco and have to go
to the Bay Area. Yeah, I still think that's a case. But it's amazing what happened there. I mean, so the commercial real estate, Like, we have issues here in New York City, but there's a lot of other states. But if you're in the Bay Area downtown, it's pretty dead.
Right, it's pretty dead. And it also depends upon what time you go down there. Right, I'm working market hours. I'm getting in at four thirty five in the morning. It's a different site than maybe you know, seven or eight when everybody else is getting in, so it looks a little bit different. You know, I have hopes. I have hopes for the Bay Area. You know, like I said, I live out there. It's beautiful area. It's just it it needs we need an influx of people. Promise people
are leaving California. Yeah, exactly.
Well you can dump a snow up in Tahoe, so I'm sure you're hitting up there all right, jims Ohl, thanks so much, thanks for joining. Sarah Jomzol is a managing director of Trader Education at Charles Schwab. They've got the Schwab Trading Activity Index stacks. It's launching this week and Schwap clients can access it under stacks on the Think or Swim platform.
How cool is that.
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So I'm very optimistic and I think the stock's always going up in that kind of thing. But I make a big exception to that with our next guest, Jody Lorii. She's a credit analyso Bloomberg Intelligence. She writes great research, good stuff, cool sector she covers, and we're glad to get a few minutes of her time. Hey, Jody Hurts, I did not see this coming. They say they're going to sell twenty thousand evs in a shift back to guess powered cars. What's going on there? What's it mean for.
The credit.
I'm so glad that you like me as an exception to credit analysts. So, yeah, Hurts is a name speaking of like dislike. I feel like Hurts is a name that people either love or love to hate. And so it really just depends on which side of the coin you're on. That said, it's sort of an interesting scenario. So you have a relatively new CEO who came in. They take a big stance of we're gonna buy a
ton of electric vehicles to outfit our fleet. We're going to invest in charging stations, we're going to make you know, the rental car system work for EV and you know, they had very aggressive sort of plans with that and hummed along, and then third quarter happened and they said, well, actually, the damage and collision related to EV isn't as efficient
as your traditional internal combustion engine cars. And so now they're backpedaling and they're saying, all right, we're going to sell off a third of our fleet, a global fleet. They didn't necessarily say from where, but we're going to sell it off over the next year, and we are going to take that money and put a portion of
it into internal combustion engine. So it is a little bit of a backtrack, kind of an interesting scenario, to say the least, not necessarily something that gives as much confidence from a bond perspective.
Now they're talking about because of elevated costs. That's a reasoning, but dig into to some of those costs and what are we talking about.
Sure, So they talked a little bit about it on the third quarter call, and then they mentioned it a little bit in their press release today that the damage and collision is a little bit higher than they expected, and so it's eating into and cash flows, and so to benefit from the cash flow generation that they're seeing because guess what, used car prices are still in general relatively high as compared to what they were a few
years ago. They aren't getting that same value when it comes to ev right, and I think part of that speaks to the fact that the EV market is so much younger. We don't really know how to model out appreciation the same way that we do for cars that have been around for fifty sixty years. And so I think that's really what it comes down to, is that they have this element of growing pains as a result
of the fact that it's still relatively new industry. They took a bold stance related to it, and something that we like to highlight. Both Hurts and Evis have been doing this over the past few years, more a function of their counterparties than necessarily them, but they've taken on more of what you call risk vehicles as opposed to
program vehicles. What risk vehicles are is the companies go and buy vehicles and take the risk of selling them in the aftermarket, as compared to program vehicles, where they work with a GM, a forward, you name it. They buy a certain amount of vehicles and then they have a commitment to basically put those vehicles back at a declared price, and so you don't have that put element as much for their fleet as they used to have. We've seen that sort of a road over time for both companies.
So what's the meaning for the credit here? I mean, I'm looking at the FA function quite frankly, the data is a little wacky. I'm not sure kind of give us a sense of where the leverage is and kind of, you know, kind of what the forecast is. What are the credit folks think about hurts credit?
Sure, So leverage is actually relatively low if you look at it as a company leverage or corporate leverage standpoint, you have to when you look at these companies, it's it's sort of complicated because they have their vehicles which are financed with asset b X securities, right, and then you have the corporate leverage which is financing other operations and other elements of business. And so Hertz's leverage is
relatively low, much lower than it was historically. It's blow two times, but it has been creeping up each quarter. And so you know, they come out of bankruptcy, they wipe the slate clean, they have a nice balance sheet, and they taped the det markets. They started to give back to shareholders and they did all this all the while that the used car market was particularly good, and
they had all these tremendous tailwinds. Now, used car prices have been going down, not two levels what they were in twenty twenty or earlier, but they have been going down. And those tailwinds that they benefited from in twenty twenty two, where they have record EBITAH levels, it's sort of eroding and so we don't necessarily see the top line activities. So the revenue element, the consumer piece of rental cars
being negative. We actually see that as a relatively big tailwind this year, particularly as there's more business travel at the same time. It's the sort of functions related to outfitting your fleet, getting rid of your fleet, rotating your fleet. That's always the piece that that can bring some troubles.
Now, I want to take this to the Paul. You're you're a travel guy in your jet setter, so I want to take this to the lead your outlook for travel. Have you ever done a cruisewall?
No, No, he's okay.
But apparently the rise in leading dire activity is helping the cruise market. Is that is that correct?
That is very correct? That is spot on. So you know, people like to joke rising tides lift all boats, but here I would say it's true. You know, the cruise lines are the names that I think there are a lot of people who sort of wrote them off for dead a few years ago. They've been this tremendous turnaround story, repaying their debt load, bringing you know, improving their balance sheets, focusing on credit quality and you know, ratings improvements, and
and they've been saying all the right things. They've been trying to time the market as they can. Some have been a little bit more successful than others in terms of pricing. But that said, they're all committed to deleveraging into this year, and we're seeing that booking rates are also still pretty positive. Consumers are latching onto the narrative around cruises, and so I think it's still there's still a lot of momentum around the cruise industry, at least going into this year.
Yeah, one of my clearest memories of the early days of the pandemic was the cruise companies rushing out to the corporate bond market, and because they knew probably better than anybody that their business was going to be shut down, they probably didn't know what, we'd shut down for this long, but they needed the cash does to survive. So just take for example, I'm looking at Royal Caribbean aid at the end of nineteen eleven point seven billion dollars a
total debt. By the end of twenty twenty h was twenty billion of total debts, almost double their debtload as they kind of loaded up. Where's the leverage of this cruise industry? Where is it now? Where are you guys in the credit space kind of think it should.
Be right, So where it should be. It's always you know, as a credit alland as you say, the lowest possible you can do while while being a good level of investment grade. So but that said, outside of that, I mean, you know, if you look at a name like Royal Caribbean or like a Carnival. So Carnival, they had their peak debt level was about thirty five thirty six billion. They've now brought it down to below thirty billion, and so that's a tremendous you know, sort of cut into
their debt load. And so it's less of an issue related to refinancing their debt to push out the maturities more so actually bringing down the debtload because what they have currently is not sustainable even with their large fleet. That said, you know, I think management is looking to get somewhere below three seventy five if I had to guess. The only reason why I say that is because that's where the raiders have guided historically what they need to
stay investment grade. Both Royal and Carnival have communicated that they want to be investment grade Royal by twenty twenty five, Carnival by twenty twenty six.
I think, you know, we've.
Modeled out all scenarios where they could make it there. They could take a little longer to get there. I think it's really dependent on a few things. Number one, the fact that the consumer still has an apptite to go on cruises. But more so, you know, geopolitical risks different sort of ways that there can be a monkey wrench in this whole process. And so provided they can still sort of maneuver these regional issues such as Russia.
You know, Saint Petersburg was a big port, and then you had Tel Aviv, which was a big port in Haifa, and so they had to sort of design around those situations and are constantly adjusting I mean they adjust for weather all the time, but now they're adjusting for weather and geopolitical risk.
Jody, always a pleasure to speak with you. Jody Lori credit analysts of Bloomberg Intelligence. She follows to travel, the leisure lodgeing, gaming restaurants from the fixed income perspective. She knows those industries backwards and forward. So we love chatting with her. And again, that news that kind of jumped out at a lot of people this morning was Hurts to sell one third of their EV fleet in a shift back to Guess powered cards.
Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm Faul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio