Distressed Specialist Aptior Sees Opportunity in Chaos

The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the day. "My fellow Americans, this is Liberation Day." Stories that move markets. "Chair Powell opened the door to this first interest rate cut." Impact politics. Change businesses. This is a really stunning development for the AI world and how you think about your bottom line. Listen to the Big Take from Bloomberg News every week day afternoon. On the iHeart Radio app, Apple Podcasts or wherever you get your podcasts. Hello and welcome to the Credit Edge, a weekly market's podcast. My name is Rulia Morpurgo and I'm a credit reporter at Bloomberg covering the stress that across Europe. Hello and I'm Tolu Alamo to a senior and this covering real estate at Bloomberg Intelligence. A quick note to listeners. This episode was recorded on April 2nd before the TARES. This week we are very pleased to welcome Rudy Singh, who is founder of AppTOH Capital, an investment firm that specialises in distress debt and rescue finance. How are you Rudy? I'm great. Thank you for joining us today. Rudy Singh is the founder of AppTOH. He founded a company in 2018 and he has been investing in special situation credit in Europe for nearly 20 years. He started his career managing proprietary distressed investments for Goldman Sachs through the global financial crisis and has also worked at Eastern Park. Let's just start with our questions for Rudy today. We've just left behind a quite interesting and volatile month of March. We've had lines dominated by TARES talks and the macroeconomic picture. But what is the impact that these outside factors have on the European IELD market if any at all? And how do you position yourself to trade them? Yeah, so it's certainly Europe is always interesting. And I think that the moment we're going through a period where decades are happening in weeks. I think for, you know, that's the US administration broadly is causing Europe to have to make changes in some cases are unprecedented speed in reaction to that. And investors are sitting up and noticing that because they clearly could be a lot of opportunities ahead. I think in Europe at least the growth outlook is too sided with on one hand tariffs, which I'll definitely come to. But you have to sort of really admire the Germans. We know from their engineering when they do something they do properly. And that's exactly what they've done with their defense spending announcements over the last month. And it's effectively the defense package and it's unlimited in time and scale given the debt breaks completely suspended. And you have a 500 billion infrastructure plan as well. So, you know, small economies think they could be one and a half to two trillion of spending there. That's just a very big number for Europe. Now, we've had to also deal at the same time with that which might cause a 50 to 100 basis point improvement in growth with tariffs, right? Which go the exact opposite way. I think on tariffs and the impact for the European higher market. I mean, the reality is is we are now seeing the US administration's full playbook when it comes to tariffs. Whereas maybe in 2018 we just saw the first few pages of that. That makes it very interesting to look at. The market, if you look at last time round in 2018, it was extreme volatility. European high yield gapped out about 200 basis points in 2018. And then in 2019 when the peak uncertainty was over because the tariffs stuck, it's not that they went away, you saw the market get back in. So there was a big whipsaw effect. And so I think what you're seeing in European high yield today is people don't want to be whipsawed again. And so certainly from a spread-winding perspective it's been measured so far compared to what we saw then, particularly given the scale. It's just a much bigger project than it was last time. One of the things you mentioned a lot of issues there, but one of the things that you said is that we've seen decades happening in weeks which I think most people would agree with. But you obviously started the fund in 2018 and it was also an interesting time for the high-yield market. You've pointed out one of the differences between then and now in terms of how investors are thinking about it. Do you think that there are other key differences between 2018 and now that people should be aware of or in the way that people are positioning themselves for the volatility? Yeah, I think the one big thing we're seeing from investors, from terms of LPs, communities versus investors have been very focused on North America and equities particularly tech equities. And I think the events of the last few months have kind of forced people to sort of re-evaluate their exposures to North America, their exposures to equities. And that is different to 2018. So we're getting a lot more inbound now from investors who have been global investors over a longer period of time reassessing whether they should be interested in doing business in Europe again. Right. So the US versus Europe toggle if you like. And I guess one of the issues in Europe has been a question of scale versus the US. Can those LPs get the size, etc., that they would like in Europe versus the US? Do you think that that's sort of the case now that they can get that scale? And how about other markets outside of Europe? Are they asking about that as well or is the focus primarily on Europe as an alternative to the US or potential alternative? Yeah, so looking at the first question on scale. So the European high-yield market across bonds, loans and also financials is actually very big now. So it's almost a trillion dollars equivalent in size. That's clearly a big market. But it is a large market composed of many smaller issuers. So the average capital size is about a billion euros. And then when you look at capital structures that actually get into trouble where you can actually get, you can get good enough returns compared to equities, for example, you're looking at capital structures around 500 million notional. So there is only 300 to 400 million to put to work in any given situation. So that does mean you have to approach it differently to how you would maybe the US markets where the cap structures are bigger. So I think you've got to be careful how you do that. And some managers are set up to do that and to address Europe and up to us absolutely one of those. And others are obviously more global in their outlook. One of the other issues as well has been that we have 2023, 2024 work. I'd say decent years in terms of returns for the markets in general, credit markets in general. 2025 when we're coming into this year, people were thinking maybe returns might be a little bit moderated versus those two years. Would you say the same applies to special situation investing or do you think it's much more nuanced and you might still see high returns in that area? Yeah. So there's actually been a huge bifurcation in the market the last few years. So if you look at performing the performing part of the high yield market, their dollar prices are effectively troughed in at the end of 2022 and they've gone up ever since, which is generating those overall steady, decent returns for the market. If you look at what's called distress pricing, which is names with a spread greater than a thousand, actually there prices, they fell in 2022, they fell in 23 and they just about stabilized in 2024. So we have a very bifurcated market. We obviously focus on the lower dollar price component. We can get that convexity that gets you those equity like returns and we see a lot of opportunity there still. But ultimately, when you deal in that space, it's very specific to investments that you do. You can't just say blanket, we're going to go into that area. That would be dangerous. But if you have the right approach, there's always money to make. Can you give us any details on how, like from a proper trading ideas perspective, you've been navigating this first quarter of 2025? Can you tell us any details of, for instance, what's been your best trade so far? If you're willing to share some of it, the details at least. What I can talk about is I think the areas that we've been finding interesting and they have actually delivered in the first quarter. Because I think it overall demonstrates what's getting us excited about the European high-end markets. This market is big now, as we said. And so you're able to do things you probably can have done 10, 15 years ago in terms of picking the sectors and spaces. And what's been really exciting for us is, we're trying to get equity-like returns from largely secured credit. So where we've got effectively mortgage over the key assets of the business. And we've been able to do that in a cyclical sector for the last few years and indeed in Q1. We've been investing in different parts of healthcare, which is just a structural growth industry given where European aging is out there. aging is out. Also, different incumbent telcos and then also within real estate there's been positions in residential real estate or you know government-tended inflation index these are very good businesses and it really has been the old at age of good company bad cap structure we've been able to find and the good news is that we're still able to generate returns there and actually all this volatility it throws up even more opportunities in that space. So I mean you've mentioned equity like returns a couple of times so we definitely have to sort of dig into what that means is that more sort of high single digit or is it more into the teams what would what would you say is an equity like return in the current market. So at a position level what we're looking to do is find investments that can generate a 20% IRA and you know we do that in credit so how do we do that? In AppSew's case we are looking for attractive idiosyncratic risks right and so that tends to be looking at you know bonds that have that have low dollar prices and as I said we focus on secure credit so that those low dollar prices what they give you is they give you that downside protection but they also give you that upside convexity as well. Now you know there's not many ways to do that in credit the other two ways would be you could use portfolio leverage right or you could buy you know subordinated credit. We are very focused on downside protection and also on controlling you know being the masters of our indefinitely and so we prefer not to use those two and just go for where there's you know there's there's really idiosyncratic risk that the market's struggling to price. I wanted to kind of go back to the volatility because I think in the US a lot of it both in the equity and the credit markets has been exacerbated by you know mac reports that are having to sell out when they hit the risk limits. Obviously you're dealing with a completely different strategy with a different like structure of the fund so what does that mean for you? Is it a thing in Europe as much and how is there any opportunity that can arise from it really? Yeah so I mean this is definitely a factor in I think in all the big markets globally and you know as I said you're a busy big market so it does attract the big global the big global players to come to come and play. The reality is though is there's not that many big cap structures in Europe so crowding definitely is possible and what you see is you know for big cap structure does get into trouble then you know all these firms that they they have to look at it right because it's one of relatively few opportunities and that can lead certainly to sort of more squeezed pricing and positioning in those bases. For us we see it's opportunity right because it's just going to move prices more than they fundamentally should both both up and down and we've sized up to you to be able to address the whole European market so we absolutely do the large cap structures right when they when they come available so yeah that ability to be nimble is is helpful. You've mentioned Germany as one of the countries where there's been significant developments over the last few weeks would you say that there are other countries in Europe that are looking interesting because of an increase in infrastructure and other spending or because of other factors are there are other countries that you think are worth looking at at this point. So normally in Europe there's a few countries that are really driving what's what's interesting. The scale of these changes and impacts means that you know actually you're going to see interesting capital structures sort of across the continent from this so we've done work as you'd imagine already on to the impact of the defense infrastructure and the names that are coming out of our analysis they're really they're quite spread out across across the continent because it's just you know that's a it's a big supply chain that's going to have to that's going to have to deliver there so I say less so than it has been you certainly around the sovereign crisis and times like that when I was investing and you know that was very much focused in certain countries it's it is broader. The one country that has been quite dominant has been France in in the last few years which is a function of just very high starting corporate leverage there and a constrained sovereign as well. One of the sectors that you mentioned earlier that has been interesting to say the least is real estate. No I cover a real estate so I am obviously slightly biased when it comes to all things in that sector but within real estate now where would you say the best opportunities are is it in offices or malls or residential which is something that you mentioned where do you think people should be looking now. So on on real estate we've been pretty careful how we how we went there because there was quite a few cross currents going on at the same time right so you obviously had a rate across current and that was across the across the entire space but certainly with offices you had also this sort of are we in a postband pandemic different world and I think that's been felt probably stronger in the US than than in Europe so in general we've we've stuck more towards more towards residential and also try to stick to some of the bigger more institutional players as well. So just concentrating on residential I think one of the issues has been in some markets like in the UK there is obviously a scarcity of residential same thing in in Germany but then there are other markets like Finland where there's an oversupply so would you say that even in markets like Finland there might still be opportunities or are you focusing on those markets where there is that scarcity. We've generally focused on the on the scarcity from up to sox of it. I wanted to ask you about one specific space that you've invested in in the past which is UK hospitality and casual dining I think there have been a lot of question marks surrounding the outlook in the country right now and businesses are expected to feel the hit from higher employer national insurance contribution and a hike and the national living wage both policies of the of the Labour Party so how are you looking at the space would you still invested it now and under what conditions. Sure so it's definitely been tough going for the for the UK consumer and what's been interesting actually is that for quite some time now I think actually almost two years real disposable income has actually been increasing in in the UK but you're really not seeing that come through in you know how people should spend their money I think it's just because it took such a big hit in 2022 that even now people are still really feeling feeling the strain and I think particularly at the lower end the sort of lower court holds it is actually still lower so all the growth has been in the in the in the wealthy or court holds that makes it more difficult and we've you know got relatively low exposure at the moment compared to history there are as with everything you know nuances within that space right and so there are places where you actually may have quite good collateral in terms of real estate backing that can really that can really defend you and there are also there are also some businesses that have a history of actually picking up share in a recession so they tend to be the survivor and therefore you can also say well look historically they've tended to just continue to take market share and some of these business are very cash regenerative so you can you know you can see how from a particularly from our seat which tends to be firstly in creditor you know you're getting paid pretty handsomely here to wait for better times from the from the UK economy you mentioned your focus on secure debt and also talked about the level of return that you get that it's possible there so the 20% that you mentioned before is that on secure or would that generally be on on secured issues so it's a 20% IRA right they were targeting at a position level so you know you're generating that from you know if that's not the coupon right you're generating that from the fact that it's at a very low dollar price whether that be it's not that low because secure also whereas 50 60 70 cents and then maybe it has a you know five six seven percent coupon and so if you get the if you if you have a near enough term catalyst maybe the next 12 or 18 months could you see that bond you know rally 10 15 points plus get the coupon that's going to generate you the 20% return going to another question in the word of the stress that I think the predominant topic in the last few years has definitely been liability management and this toolbox really that sponsors and companies can tap to stay a float sometimes at the expense of at least some of its existing creditors how much have you dealt with it in Europe and how much are you thinking about it when you're pondering whether to invest or not in a capital structure yeah it's the it's been it's been the buzzword and it's definitely come to Europe in a big way in in the last in the last year or so and you know as with a lot of things that come to Europe for the US so it's it's being done slightly differently here since we invest always with a distressed mindset looking at documentation in detail and looking at jurisdictions and jurisdictional risk is always has always been part of our process which has allowed us to actually be on the front foot here to to the extent you can be there are some quite big differences I'd say between the US and and Europe which are impacting how it works here which is that in the US it's US law documentation it's US statute it's a US bankruptcy court and a US bankruptcy judge if you compare that to say a argument say a German company here you'd be dealing with a still a US law credit agreement, per a UK law into creditor, and then you have to deal with German security laws or German mortgage laws if it's secured as well as direct duties based in Germany and German bankruptcy law. So whereas in the US it looks like a normal game of chess, right? It's complicated but you might be able to win. You've got three jurisdictions here in the mix quite often and that's making it a bit more like 3D chess. So what we've seen so far is that the weakness in the docks, which is it's just as bad here if not worse sometimes when we look at it, it's being used as a very strong negotiating position but it's much harder to know that you have a checkmate. So that's just rounding the edges of what's being done a little bit over here. But even the fact that it is a negotiating tactic does that make a difference because I'm thinking about situations for instance I mean the biggest restructuring that we've had over the last year, LTE's France, right? It started off with the owner saying I'm going to do this or I can do this and that and then in the end he kept control of the company. So how much does this negotiating tactic actually play into the that talks and how much is it successful for the company side? So it definitely plays in. It's a big stick, right? But ultimately actually even looking at LTE's France, some of the most aggressive maneuvers didn't actually end up happening. There was more that could have been done. So I think Craz has accepted something and I think Mr. Treyis also has also accepted something. So it absolutely plays in. And what it is doing and you've certainly saw it in the LTE's France structure is it's creating very big price volatility. At the times when it seems like there's going to be a skirmish around documentation and that's in every crisis as opportunity, right? One of the things you mentioned earlier was the doggy to focus on fundamentals which obviously we are focused on as well. But Julia has also alluded to the effect that personalities can have on outcomes of credit to negotiations and so on. And some of the more interesting restructuring or negotiations that we've had in Europe have been driven or influenced by companies that are owned or controlled by one individual. So you mentioned one of those companies. There's also SBB and so on. So when you were thinking about fundamentals, how driven then is your analysis by the fact that fundamentals may not be the key issue but it might be just that there's an individual that is calling the shots basically. It's actually a huge part of the process and since founding App2ior, I understand it. Right? App2ior is something the whole team here has put a lot of work into a lot of efforts. It's our baby, right? So someone was to come and say, hey, the spreadsheet says you should have this much and I should have this much. You're probably not going to get us a straight logical rational response. There's going to be an element of emotion to it. So we're actually quite used to dealing with the single owner because when you look at the average caps drug size, like I said, of what we deal with, which is more like 500, 600 million euros, that's often a family owned business. And you have to take into account those considerations. And I think we aim to be a collaborative partner, whether that's sitting on a credit's committee or equally with the company. We focus on IRRs, so we like to achieve something that is relatively gets done in a good time scale. So you absolutely have to take that into account. You mentioned that you want to have a seat at the table, being the driver seat, be a part of the credit or committee, but you also mentioned that in Europe, some capital structures can get quite crowded and you've got the huge players that are also coming in and not only they're coming in, they probably have to deploy at some amount of money to make their structures you work. So does that mean that the focus for you becomes the kind of medium to smaller cap structures? And if so, how do you then play the large ones? Yeah. So the analysis is effectively the same, whether it's a smaller or a large capital structure. We'll always look at, you know, effectively, how can we be hurt as the actual, how can our position and our investors be hurt in the downside case, particularly around LME? And so yeah, for a larger capital structure, the big difference is there is we know we're not going to be, you know, around the table on that one. So that has to go into how we think about the price that we'd invest in. Right? And so it will mean that there are going to be less large capital structures that we get invested in. But because of the crowding and the price fallacies that you can get, you can still find situations where, oh, it's actually the price is actually more than accounting for the fact that we won't be, you know, the main driver at the table. I think also, for better or worse, been doing this for almost 20 years. And so it's not like the big global payers are aliens to us, right? These are people that we know. And, you know, they're firms that we know, and we've seen them act in many situations. So we can also feed that into the process as well, which is, which is helpful to. Yeah. And one of the things that we talked about earlier with scale in Europe versus the US, but another scale issue that we've touched on in previous podcasts has been the asset management business as a whole or sector as a whole. What's your view then on consolidation in that sector given? I take your point that apture is very precious to you and the rest of the team. But what's your view on consolidation and what that might do in terms of being able to have a seat at the table and some of these larger capital structures that you talked about? Yeah. So look, what appears to be happening as a management space is a sort of, a bifurcation, right? I think if you're in the middle, that seems to be the most, the most difficult ground because investors are struggling to see what's being offered. I think if you're very large, then you're at a, you know, if there's a very big deal to be done, there's only a few phone calls that can be made and you're in that group. And so you can really dictate terms. And I think at the other end, we're going, you know, we're going back to where particularly the hedge fund model came from, right? Which is to be in your niche, right? And to be looking at things that, you know, the average market participant isn't looking at and taking advantage of those idiosyncrasies and the uncrowded nature of those assets. So look, app tools designed very much. It's very well adapted to European high-yield credit markets. And that's what we aim is focus on. Yeah, I think my next question was going to be and you've already touched upon a few things and a few factors, of course, but what's the best relative value right now that your fund can offer? Like, what's your edge? Yeah. So our edge is in this adaptation to the European home market. We built a business, you know, very specifically for that. And you want to cope with one big thing, but the reality is, you know, it's been said that big things, you know, don't come out of impulse, right? They're just a series of small things done well put put together. And so we really try to drive that internally, sort of doing the small things well every day has historically, you know, allowed us to generate, you know, good returns for our investors. The crucial part really is the team. The team has between us multiple decades of experience in Europe, which we all know is a slightly trickier restriction to invest in for, you know, many reasons. And, you know, that means that the level of insight, you know, I'm always surprised, actually, the level of insight and amazed by the level of insight we're actually able to get to by the time we invest because we are typically dealing with companies that are mid cap in size, given the nature of our market. You won't have heard of them, right? So that's, you know, it's great that they have that ability to do that and that experience. The other thing is scale, right? So our edge really in Europe is that we're the right size to look at the whole market. And so we don't have to go into, you know, just into larger, into larger names. So we have that ability to be nimble and be and be selective. I have another question and maybe that's something that also has come up in conversation with with your LPs as well. I think another, another trend right now is, you know, the kind of the the word of private credit, like everyone is getting to private credit, like even funds that started out, it's like pure credit at funds are now getting into private credit space. And you're obviously most focused on the public side of things. So how, how do you navigate that conversation? Do you feel like you're missing out on anything on the private side? So private credit is great, right? Like it's it's created a whole new avenue for announcing for companies. And obviously much more developed in in the US, but you know, more nascent here, but it is it is developing. It's interesting because in the US, there's actually now, it's been here long enough that there's broker researchers started to do, you know, try to compare returns. And so in the US, you see this clear benefit of private credit has outperformed public credit. In Europe so far, the last piece I read actually, public market still had their nose just in head. So there's not there's not the same level of of out performance. I think partially because Europe is a bank market, the large parts of Europe, which are actually over bank still. we know that because we do quite a bit in financials. So it's probably a bit more competitive and it's still finding its feet. From our perspective, we're quite excited about it because it's just another area where we'll be able to use our strategy and process. But private or public is, that doesn't matter that too much to us from that perspective. So yeah, we hope it continues to grow. - You mentioned that you do quite a bit in financials. So I guess you were talking specifically about banks. Would you say that you're looking more at the senior debt of those banks or have you looked at tier two, tier one as well? Where do you see the opportunity in the bank space? - So we have done learning financials historically, right? It's been probably a sector that you could not ignore as a special situation credit investor in Europe, given everything that's happened since, have we looking financials in some of the 2000s and some of those companies I still look at today, they're the same ones. So we've actually invested across the stack there. So Finns is probably the one place where we do go subordinated. We'll be in 81, we'll be in lower tier two. We're still looking at low dollar prices. It is a bit of a different regime, financials versus versus corporations because you're a regulator's business. But yeah, we've invested senior. We've done the whole gamut there because Europe has provided the whole gamut of opportunity. - And are you concerned, as you said, you've done it in the past, but are you concerned when you see financials or some corporates that have subordinated their outstanding, taking interesting views towards subordinated debt holders, maybe by not calling the instrument or on the corporate side we've actually had some of them defer the coupons on corporate hybrid. Is that something that concerns you about subordinated in general? - Yes, extension risk. It's a pretty crucial part of it. I think in the corporate space, there are good reasons not to extend. You really only do that if you don't wanna be IG. I think that's, although even that has been changing, how the rate of agencies have decided they're gonna treat non-calls in corporate hybrid, which has actually been pretty leading on that, which I think makes sense, but the market wasn't set that way. In financials and 81s, the documentation, we've very focused documentation, you just sort of understand that you have no, there's really no real incentive in place, other than how the back end coupon looks like. So it's just part of the analysis of the documentation and you feed that into the model. - Making a jump back to corporates, but always sticking with documentation. In post-restructuring, that documents we're seeing a lot of clauses being added, kind of anti-LME blockers. Do you think that that will actually be effective into preventing this type of moves in the future? Are we gonna see that coming into the primary side as well? And therefore kind of limit those, or is it just kind of a feature of this company has done it once we don't want it to do it again? And what it'll actually work? - That's a tough one, right. I think, you know, there's always enterprising lawyers. So, yeah, they will find a way to use, to use a clause in a certain way. So you do what you can to protect, but I think, you know, we're definitely not under any illusions that we write to pretty tight documents when we're coming out restructuring, but we know that there's always gonna be a risk that they could still be used in anger against us. So I think that's still to be seen, but you work with what you have. On the new issue market, obviously that's less of our, less of our day job, the interactions that happen there before, before issuance, but, you know, that does depend on the demand supply imbalance, right? We've seen it before, just if there's a lot of, if there's a lot of people chasing a limited amount of paper, then, you know, so be it, the documentation will be poor again. So I would love to say that the market will learn from this, but you definitely can't have seen that. - Okay, so where are you most contrarian on the market? Is there a trade idea that maybe you've been discussing with your peers and you thought, okay, no, here, we agree to disagree. Where are you going against the current, you think? - So I'll take that upper level because actually where we are most contrarian, and this is kind of in feedback with investors, is that we think that Europe's a great place to invest, right? I mean, so many people actually just don't look at it. So even just being very focused on Europe puts us in actually pretty contrarian versus where, versus where global trends have been. And then particularly we do like, you know, we think that special situation credit in Europe, it does have a lot of names are under cover, right? And we have major price dispersion, it's a spread dispersion at the moment, so there are lots of low dollar price opportunities. We do think that's a very attractive way to if you're thinking of like, hey, you know, how can I diversify? Well, you can actually generate some decent returns here from some very low dollar price and hence downside protected issuances. So I know we're all credit nerds in here, right? So we don't see that, but taking that scale back, it is not many people have exposure here. - So I mean, we've talked a little bit about tariffs, infrastructure spending, the whole gamut of macro issues that have been driving credit markets recently. But what would you say are there's one or two things that keep Rudy up at this point? - So the two main things are my kids, but those two aside, absolutely, there's a lot of risk in the world at the moment. In general, we kind of like risk, right? When you're a distressed investor, your investment process just evaluates a much broader range of risks than a typical financial investor would have to. And these periods of high perceived risk of tenders we will make our best investments. However, there are definitely risks that we just can't even with that process can't get our heads around. I think at the moment, I'd say climate change, risks and AI. And the issue there is, you know, when we're looking very specifically at companies, these are risks that for certain companies are very large risks and they're hitting very quickly. So they're in scale and fast. And that makes it difficult. So, you know, if you look at, for example, the core center space, AI is clearly impacting, right? From everything you're seeing, from management teams in that space. And the speed at which it does so is probably fast and people thought it was gonna be even two or three years ago. So, you know, getting a handle on that trend is very hard. At the same time, these are businesses with very little assets. So even if you are in secured paper, what do you really have to fall back on if you get that core wrong? So that's a tough space. - AI has obviously been a huge phrase all over the market. What sectors have you been looking at, apart from core centers, where you think that the AI discussion will sort of drive returns. One of them has been, obviously, data centers. So I'd like to ask you have you on data centers and then on other sectors that you think people should look at, given the focus on AI. - Yeah. So the actual direct, I guess the most direct would obviously be in the technology space in Europe, which actually isn't a very big space, certainly compared to the US. And then in terms of the companies that tend to dominate the European high-yield market, there's gonna be, you know, got a good mix of manufacturing, cyclicals where it will have an impact. But again, it'll be much more case by case. And so not huge. And then you've also got, yes, you have a pretty big telecom space. Now, I think telecom and banking as well, probably the two where you've got a lot of people doing some quite repetitive tasks that could be very well suited for AI. Again, different speeds that are going on, and then, frankly, particularly in telecoms, there's probably bigger issues. Then, you know, then the upside they expect to get from their AI driven capex right now. And with the AI argument, I also have to ask, there is a view that perhaps valuations in the bond market have gone a little bit too far on some of those names that stand to benefit from the AI discussion. Do you think, would you share that view that maybe the benefit may not be as great as the market is assigning to some of those assures? - Difficult one, right. It is, as I said, a risk that we're, it is moving at a speed AI that it is, it's gonna have a bigger impact than we think in some places and in other places, you know, less so. So, you know, I think good luck to the person that goes in and invests on a, particularly a credit investor in Europe, who goes on and invests on like, look, this is gonna be the next big thing in due to AI. That's gonna be pretty hard to work out. - Time itself to valuations, Tolerbraddemap and the fact that you invest mostly on secured debt. How have recoveries been leveraged versus their historical levels, you think? - So, it's been less about actual recoveries, right? Because you're seeing both the markets been dominated by a distressed exchange. So you're seeing, you're just seeing paper rolled into a new piece of paper and you're looking at it. at looking at how that trades at the moment. We haven't seen a fundamental change actually in the returns that we're achieving on those structures. It is true for sure that secured what does secured mean anymore, right? Because from a perspective of what are the assets that you actually have underlying your security? And so we're very careful to make sure that when we are investing into your debt, there is something to actually take security on. One of the other issues that's come up this year has been a change in the view on the outlook for rates. So last year, credit did really well partly because people were expecting lots of rate cuts this year, not so much. So how does that affect your view of some of the higher, highly levered businesses that you're looking at, including real estate? Does that mean that you demand an even higher IRR or might you see more distress in those sectors just because rates stay higher for longer? Yeah, so I think in our space, and I'll give you some numbers, the rate tightening last year wasn't that helpful. So if you look at triple C's, the other market right now is about 15%, right? And the average coupon is 5% to 7%. So there's just a large part of triple C world that is going to struggle to refy whatever base rates are. And probably a function, the fact that we had this 10 years of QE, right? And a lot of lending was done that wouldn't be that wouldn't be permissible today. I think also that's what makes important to bear in mind, is that by definition going to be involved in the lower rate parts of high yield. And there what you see is that the spreads there are driven actually quite a lot by GDP growth. That's much more sensitive actually to GDP growth than whether people think there's going to be recession or not. This is as a cohort, right? Then they are by underlying rates. So if you think about what's happening in Europe now in this high pressure environment, right? There's a high amount of geopolitical risk. There's going to be higher rates curves steep and a lot. The bun curve in the last month. But hopefully there'll also be higher growth, right? So the impact on pricing in our particular corner of the market is nuanced from that perspective. So you mentioned triple C and the fact that you tend to invest in, I guess, somewhat lower rate parts of the high yield structure. But you also talked about the challenges that triple C's might be facing. So at what point do you think you might, or would you consider the sort of single B credits? Or do you think that there's not the return there to justify looking at higher rated ones? So single B is always part of what we do as well. But a triple C is about it bounces around, but it's about 5 to 10% of the market. And then you single B is another 20, 25% of the market. And the rest is double B. So single B is always part of what we do. So where we're considering ratings, where do you think the biggest opportunity is now is it going to be double B, single B, triple C? We don't really scream by rating and look at it, look at it that way. The way we operate and this is quite differentiated is we actually look for what we call errors with complexity. So we go looking for where we think there's going to be a secular change, there's going to impact a number of sectors. And then we'll look at the cap structures there. So for example, something like diesel gate, right? When we all found out that the OEMs weren't being so truthful on their diesel emissions, suddenly you saw Europe have to flip from really serving diesel engines to now going back to petrol. Now that had an impact on the OEMs, obviously, and the auto parts suppliers. But it had impacts in many other places. So leasing companies, for example, they had to, you know, they had a bunch of diesel cars in their balance sheet. Right? And now they may not be worth what they thought they were worth. And then even miners had had an impact in terms of palladium and platinum are the two different metals used in either a gasoline or a diesel exhaust. So you have these sectors where these changes where they're impacting multiple sectors. And that's really how we go searching. So whether it's double B, you know, single B or triple C is less relevant to us than is this capital structure going to be challenged over the next 12 to 18 months? That's helpful. I've already asked you what keeps you up at night. I have to also ask, what are you least concerned about now? Where do you think the market is maybe worried, but you think that the worry is misplaced? There is a lot to worry about. That is for sure. I think I think that we have seen a fundamental change in the European growth outlook. And I don't think that is being fully factored at this point in time. Because the one thing that we're looking at is that ultimately the course is set for Germany. Right, they've decided to do this. It is going to be complicated and it's never pays to be too too bullish nor too bearish on what Europe does, but that spending has to come through for all sorts of internal, German reasons that their auto sector is in trouble. Unemployment is rising there. So they're going to do that. And so that does look like a long-term trend. And that's very different to what's been before. Now, on the opposing side with the tariffs, well, when you look back at historical episodes with tariffs, actually a lot of the GDP hit that comes from tariffs comes from the uncertainty of tariffs. And we actually saw this in the 2018 episode. Right, we saw that when the uncertainty was high, high yield gapped out, but as soon as we got to a period where it looked like the escalation stopped and they were just going to now start talking to each other, even though the tariffs didn't go back down, the market came, the market came back in. So we see a positive tailwind that looks set to last for some time. And probably the worst impact of tariffs will be during this year before it starts to tail off. US exports are 3% of European Union GDP. Right, they can cause a hit, but Germany alone might spend 10 to 15% of European GDP. Right, so there's I think that is a place where we're we're we're very hopeful for Europe. Great stuff. Rudy Singh found there a vote to your capital. It's been a pleasure having you on the credit stage today. Many thanks. For more credit analysis, do go to BI Space Cred that C-R-E-D on the Bloomberg Terminal. Bloomberg Intelligence is the go to research on of Bloomberg with over 500 analysts and strategists working across all markets. The coverage includes over 2000 equities and credits, as well as outlooks on more than 90 industries and 100 market indices, currencies and commodities. Please do subscribe to the credit edge, whether you get your podcasts, whether that's on Apple, Spotify or any other great podcast providers including the Bloomberg Terminal itself. You can find all our podcasts on the terminal at B Pod Go, so do leave us a review, spread the word and do tell your friends about the credit edge. Thank you, Rudy, for being here with us. No problem. It's great to be here. I'm Toli Alamozi. It's been a pleasure having you. Join us again next week for the credit edge. The Big Tech podcast from Bloomberg News keeps you on top of the biggest stories of the day. By fellow Americans, this is Liberation Day. Stories that move markets. Chair Powell opened the door to this first interest rate cut. Impact politics, change businesses. Listen to the Big Tech from Bloomberg News every weekday afternoon on the iHeart Radio app, Apple podcasts or wherever you get your podcasts.