Puerto Rico Creditors Seek Restructuring Amid Disaster

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Like we always do at this time of the day on Fridays, we are very lucky to have with us Joe Maisak, editor of the Bloomberg Brief that focuses on the municipop blom market uh and he is of course here in our Bloomberg eleven three oh studios. Joe, we have to

start with Puerto Rico for a lot of reasons. First of all, the disaster that is the aftermath of Hurricane Maria is ongoing, and there are still a lot of questions about how the island will get the aid it needs to even begin to get people potable water and the electricity. On little loan rebuild, I want to start the bondholders took this week as an opportunity to an extent or offer a one billion dollar dip loan right This is basically a debtors and possession. It's basically a

bankruptcy tool, financing tool. They offered to give Puerto Rico a one billion dollar loan in return for a deal that they had proposed previously. Basically, they're going to be first in line to get repaid. Can you give us a sense of what your take on this offer was, Well, you gotta hand it to him. Uh, this is what some creditors do. They have a very sharp elbowed bunch and they want to get everybody out of the way. Um.

But I'll tell you what we're looking at now. You know, before this, we were looking at the at the best bonds, the most highly secured bonds, at recoveries of between and it's in the dollar you're talking about these, the Puerto Rico Electric Power Authority bonds, right Rico Guos, Puerto Rico Electric Power Authority bonds, Cofina's sales tax the best of the bunch we were talking about, you know, pretty those

kind of of recoveries. And with the storm. Uh. Ted Hampton did a report this week of Moody's and uh, you know, he said, well, it could very well be that you're gonna the storm's impact will have an impact on those recoveries even less. So you're not going to have fifteen cent uh haircuts like the this this Loan programs was positing, you know. I just want to mention also to all of our listeners that we are awaiting

comments from President Donald Trump. He will be pushing for his tax reform proposal in giving a speech in front of the National Association of Manufacturers in Washington, d C.

We will bring you, of course, the important highlights. Uh. You know, Joe, one of the things I want to ask you about has to do with the bankruptcy because I understand that the Title three bankruptcy case, there's an omnibus hearing that was originally scheduled, and it was scheduled, I believe for like yesterday, but uh, District U S. District Court judge in the Southern District of New York,

Laura Taylor swain Um indefinitely postponed the hearing. Is that going to affect any of the reconstruction or indeed any of the financial issues that Puerto Rico is facing. I think that was a a sort of postponement out of almost good taste, you know, with such devastation on the island and the rescue taking place a few weeks here and there are really going to that's not going to

have much of an impact, Joe. My sense is, given the fact that there are so many problems even distributing goods to people in Puerto Rico from the ports, my sense is that the government is kind of a disarray, just trying to get their handle around the problem. When do you think that they will be more together and able to tackle both the island's financial issues as well as the debt negotiations once again, well, the debt negotiations were probably talking, you know, well into October before we

sit down again and start, you know, hashing that out. Um. But as far as the reconstruction of the island is going, there are a lot of people who have been sent to the island. There's a lot of material already there that hasn't been unloaded. And I thought, gosh, there was a story this week and it said they were having difficulties delivering a lot of the material it's been sent

because there was a lack of drivers. And I haven't heard or seen any estimates of how many people left the island before the storm or with the storm, and I I would suspect it's quite a lot, because they said, you know, if we were having a problem just finding drivers to you know, deliver the stuff. Joe, can I just follow up though on this the legal proceedings for just a second, because the President of the Puerto Rico House asked the Oversight Board to suspend all legal proceedings

against the Puerto Rican government. And there's even been a proposal that maybe they should just stop enforcing the plans measures for at least a year, maybe even over the next five years. Is that likely? I would find that extremely unlikely. Uh. The the the road to recovery is going um is going to um uh be paved, if you will, with the financial plan. And yeah, but why wouldn't they Why wouldn't they grant them? Why wouldn't they grant them

a postponement? You've got a situation whereas you just described, no one even really knows the extent of the damage, accept that it is catastrophic. Why wouldn't there be a sympathetic ear to the postponement of an austerity plan at a time when the island Commonwealth is trying to rebuild. Well, you know, they the Island is getting assistance right now. So it's not as though getting a recovery plan in place, which is what the board is trying to do, is

going to somehow handicap them. All Right, let's turn our attention now to education. Everyone wants it and particularly in developing nations and in China. And here to help us understand more about it. As Pingway, he is the chief financial officer of r y B Education and he's going to tell us a little bit about the company's initial

public offering. It The priced the on September seventh, on yesterday, Uh, I beg your pardon on Wednesday paying thank you very much for being with us, Thanks for having me great. You know, could you just describe for us to demand because people may not understand the demand and the perceived necessity of getting a great education and scoring well on

tests in China? Will Chinese traditionally really emphasis a lot of education and thanks to that, I think that, you know, we as long as we can get the high quality education, we grab those and our IB Education is an early chryhood education company based in China. We provide actually training for children aging six months to six years old through our pennor centers, and then we provide kindergarten and preschool services to children from two years to six years old.

And uh, you know, kindergarten in preschool is a neceaturday worldwide, not just in China, but China particularly so for private sector because we don't have a sufficient public infrastructure unlike that in the US. So in China about half of all kindergarten and preschool services are actually private owned. Um Our I b A is the largest or largest well in terms of revenue both on our PLC business to

Plan Learn Center business and our kindergarten side. Um so in terms of why it's a necessity our guests and the infrastructure aside, and the demand for high quality education side. I think there's another thing that is, you know, with the abolition of their one child policy in China, the birth rate has increased quite significantly. Give you some numbers. In twenty fifteen, there were about the sixteen point six

million kids born in China. By twenty sixteen, the first year after the two children policy was adopted, the birthday went up to seventeen point nine million kids in the year. And there's another number that points to an even higher number of eighteen points six men, and with so many children born, the need for childhoods for early childhood education also increased quite dramatically. Yeah, um, you know, pain, it strucks me. It strikes me as interesting that you chose

to do initial public offering in the United States. There's been a lot of questions about why there haven't been more I p O s in the US. What drew you to this market to raise money? Yeah, Well, in fact, if you look to the U S side, there are a few pretty good Chinese names here, New Oriental Tel Education both are sort of really high quality education companies from China. We really like the US market in a few reasons. One, it's the the US market investors are

so always sophisticated and well educated. Too, is the U S market has very um sort of a clear and transparent rules and which creates a sort of a level place there for all companies, so companies only need to focus on doing the right things for shareholders in creating value and not having to worry too much about other things. And thirdly, it's actually a good branding and good sort of an uh self governance per se for Chinese companies.

UH like. First of all branding side being able to listen in the US and sort of also a good US public market or capital market sort of uh, citizens is uh sort of endorsement of the quality of the company itself. And secondly, the sun stocks they act, you know, while it's a kind of cumbersome and then uh sort of a lot of work, it's actually a good way to force company to have good governance, and those good governors actually help company avoid a lot of sort of

system risk operation wide. Every company has this opting ups and downs. But the good God and is actually steals a company in right direction. That's what we believe. Pingwait, thank you so much for joining us. Pingway is a chief financial officer for r y B Education based in Beijing. Uh. This week, it priced an initial public offering in the US New York Stock Exchange, raising a hundred and forty four point three million dollars. We are awaiting President Donald Trump.

He is going to be speaking before the National Association and Manufacturers in Washington, d C. Of course, his topic is going to be his tax reform proposal. We'll, of course bring that to you as soon as it begins. Let's turn our attention now to combining two distinct groups billionaires, people with lots of money of course, and uh, there are companies as well as how to initiate strategic relationships

with other businesses with startups for example. And here to help us understand this particular situation is Dmitri our Geropolis. He is the founder and the chief executive of event Global and he joins us in our eleven three oh studios. Dmitri, thank you very much for being here. Tell people about

event Global what what is its purpose? You know, we take we take the best opportunities, uh, and we marry them with the best network that we have the you know, whether it's a startup or a very established company, our goal is really singular. We know how to put the right people together. What's the criteria? I mean because frankly, I mean everybody says we're only going to give you the best investments, and we're only going to get you the best investors. I mean, no one wants second place.

How do you do this? Can you give us an example? People don't understand how to build relationships, Uh that often as well as we do. That's all we've done for twenty years. We really we we build tremendous value by under identifying the inefficiencies in business and marrying the right people. But can you give us an example. So so for example, we you know, we recently identified a very UM unique UM consumer product in the Mediterranean and we locked up

that UM that agreement. We we got exclusivity on the product. We partnered up with the right distiller, We partnered up with the right distributor, and then we got the you know, one of the biggest spirits families in the world to back the deal. And we created a tremendous amount of

value by by putting all those pieces together. We did it with the largest UM cookie company in Germany and partnered with the largest co packer on the West Coast and created an organic cookie brand UM you know in one evening that's now launching UM with mass of distribution because the co packer has distribution in every major supermarket in America and the manufacturer doesn't have access to it, but he has one of the biggest factories in Europe

and has created a very unique product that the market hasn't seen. Dmitri, it sounds like you're a sorcerer. It's sort of the job of that used to be in banks and has moved increasingly to private equity firms and hedge funds of going out and finding opportunities that are off the grid and that may be smaller than the ones that are financed in public markets. Is that correct? Correct?

So what how do you go about? What's your process of trying to identify these opportunities other than just you know, hanging out and what people say. I think it's it's so important. You have to have value propositions that are equal or greater on both sides. If if if the person like the cookie guy the cookie factory didn't have access to the US, the guy in the US didn't have access to those unique ingredients and those qualities that that that cookie company had, they needed each other and

therefore you created something. You find the inefficiencies of what people don't have, and if you understand people's platforms, you bring in the biggest people were principal investors in the deals we do, and we do a lot of things in technology, and we do a lot of things in the consumer space. Those are really our areas, but we have done things in a lot of different areas. For example, we did a deal with the Boon Pickens, and we brought a billionaire from Asia who wanted to have access

to the energy industry. We helped t Boon divest of some assets, build a great international relationship which ended up being a massive transaction, and subsequently he was involved in a number of other deals with the Boon. Can you give us an idea of what is your participation in this? Do you take an equity stake? How do you make money? Were principal investors in all the deals that we do and we are we own a piece of the business.

So by bringing people together and creating the value from scratch, uh, we are. We we form a neukoe typically and that new code, we become a shareholder in that. And so we're long term. We have a long term view whatever we do because we believe in the people we were we're putting together. We're not we're not brokering introductions for five minutes of fees. We're doing it for the long term.

We've been doing it almost twenty years. So Dmitri, how have you established such a network of billionaires and business owners? That's a great question. I think part of it stems from, you know, just very early in my career, I was fortunate enough to intern for and volunteer for UM you know, the former President Clinton. I you know, UM, I was able to you know, I just it's just in my blood.

Networking was something I've always done since I was a young guy, and I had some great mentors from you know, the guy that helps start Motel six uh to you know certain well known business mavens in in California, to you know, being influenced by people like the former president and other global leaders uh, and really just learning how to build relationships and trust and not being in a rush to create something. Um. People that are so successful have a low um uh tolerance for people that are

quick to do stuff. If you have a long term approach and you can create real value and you demonstrate that time and time again, you build a great amount of trust with someone like that, which is something that they have a hard time believing with believing in people, because there's a lot of people that it's hard to

trust people. When you have everything, people always want something from your Well, I'm wondering, in as part as part of the act of building that relationship, have you found that you really only want to bring consumer deals to organizations or people that have a consumer background. You have people that are interested in perhaps in real estate, and they only have a real estate background, and is does

that characterize it? They stick to what they know, right, I mean, I I know a little bit about a lot of things, and as long as I understand how to put the value together and who to put together, it becomes very natural at doing almost doing this for twenty years. So right, but do they have but do they have to have expertise in that specific subject matter?

So for example, you know people who have a lot of money, let's say a family office that has a lot of money, they're not even though it might be a great deal, if they don't understand the business or they're not have you know, historical experience either with their

family or what made them wealthy. If they don't have that connection, do you kind of say that's not really gonna work, because you know, just because they have a lot of money doesn't really gonna you You want them to be strategic, of course, but sometimes you want also family officers to participate and if they believe in the track record of the people were putting together, they're they're they're investing or co investing with us because they believe

in the in that in that strategy, in their in their track record. Yeah, is there any anecdote that you could share that you can describe how long a deal takes to make? Because you talk about this idea of you know, not wanting to do a quick turnaround. How long can it take to see it the deal to make it happen. You mentioned one that happened overnight, but I mean it's got to be something that took it

a long time to you know, come pruition. I mean, you know, building trust is is something you have to have a long term view on and as long as you have a long term view on it, it will there's a very good chance that it will materialize over time if you continue to bring value. But I do not see, um, you know, deals that just happened like that unless the opportunity is there. And since you've built the trust though, and you've deposited that trust over time,

when something ripe happens, it happens very quickly. So I think my suggestion is have a long term view, be patient, don't be opportunistic, be because if you create value for people, it will naturally happen. Dmitriopolis thank you so much for joining us. Dmitri Janopolis is founder and chief executive officer of Avant Global, which is based in Santa Barbara. All right, now, what do CVS, Harley Davidson, Wells Fargo, and Bank of

America all have in common? Well, David Cats, the chief investment officer of Matrix Asset Advisors with more than seven fifty million under management, thinks that these companies will do pretty well regardless of whatever happens with tax reform. David, thanks for being with us. Nice to be here. So give us the thesis. Why are these companies CVS, pharmaceuticals, pharmacy benefits, Harley Davidson, of course, motorcycles, and the banking industry,

Wells Fargo, Bank of America? What makes them appear on your list of stocks that you think are going to do well? So we like these companies based upon favorable long term prospects, but most importantly based on their valuation. So they're good businesses, good outlooks, and they're all selling for well under our market multiple. But what makes them particularly interesting is if you're an investor and you're looking for things that are going to benefit by the new

tax plan. If it were to ultimately go through, all of them pay pretty high tax rates. They would get a lot of release relief from a new tax plan, uh, and it would be a significant kick to their earning. So you'd get an additional catalyst. David, how much can you really trade around a tax plan that is currently still in sketch form. That is a great question. We absolutely would not trade around the tax plan because there's

going to be a tremendous amount of changes. There's no assurance that it's going to ultimately happen, So we would not be using that as an ultimate driver for buying or selling stocks. We would not make any change to a portfolio. So when we recommend that these stocks, were saying we like these companies. We think they're going to do very well over the next six to twelve months regardless.

But if you're looking at buying something and a tax play, if the tax plan ultimately goes through, um, you get the icing on the cake. David, how much are you confident that the tax plan I'll be at a sketch of one at this point, could generate the kind of growth that Secretary Treasury Treasury Secretary Steve Nuchin and President Trump I been saying, well, realistically, we don't think that that's going to be the case. We think it's a

good thing for the economy. It provides a little bit of a tailwind, UH puts more money in consumers pocketbooks hopefully, although we don't have any clue about how that's gonna look. One thing that is clear, however, is it will lower corporate taxes. And if you lower corporate taxes, what that means is more goes to the bottom line, so you have a pickup and earnings, and then from a stock market perspective, higher earnings generally a lead to higher stock prices.

So we think it's ultimately good for the economy, but we don't have any confidence that the lower taxes are going to accelerate growth to appointment that it becomes tax neutral or revenue neutral. But we do think ultimately it's good for the overall economy if they can get something through. David tell us about the j C, I want to know what you think you think about specific stocks like Johnson Controls. So, Johnson Controls is an industrial company. They've

remade themselves in the last year with acquisitions. UH. The new management of the combined company has not done a particularly good job. So actually they disappointed this year that one of the few industrials that did, and one of their disappointments was they did a particularly poor job in terms of cash flow. Since then, they've changed the CEO.

We think the new CEO is very motivated, very competent, and we think that their focus is going to be on synergies from the combination that they made last year uh and making sure that the cash flow approximates or gets much closer to what they're earning stream is. And if that's the case, we think the stock easily has twenty five to thirty five percent upside over the next twelve months. David real quick, is there anything that you've

recently soured on as a potential stock? Well, not so much soured on, but one thing that we would strongly advise investors against is putting new money into utilities. Investors have been seeking yield, uh so utilities are interesting on that basis, But if you look at them on a valuation basis, many utilities are selling between eighteen and twenty one times earnings. They normally sell at fifteen times earnings. So if you've been fortunate, you've owned utilities we would

declare victory. Take some of that money off the table, and we'd prefer the baby are the telecom companies like a Verizon Um or a A T and T, which have a little bit higher yields but tell at twelve and thirteen times earnings rather than twenty times earnings. And even some consumer product companies where their yields are pretty competitive. You're paying a little bit more, but we think the prospects are pretty good for them. At Cats, thank you

so much for joining us. David Cats as chief investment Officer at Matrix Acid Advisors, which is based in New York City. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramoids one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.