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