Goldman's Minnis on AI Investing, Credit Spreads, M&A

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00:00You obviously oversee a lot of these credit markets at Goldman Sachs and Acquisition Finance

00:04and what a year it has been especially recently with these big tech AI players coming in to look

00:11for this market for financing. The statistic is they've raised 70 percent the tech giants from

00:16what they issued in the same period last year. How does that change the contours of credit markets

00:21to have these tech titans so such large participants? Well the good news is the

00:26investor appetite is very strong as well and so when you look at investments in this infrastructure

00:32which is what this is around obviously AI most investors have an allocation of desire of like

00:39eight to nine percent and if you look at where they are they're only in the single digits. So

00:44number one you have an investor base that is very open to want to invest here. Number two you have

00:50you know great formation of capital in the private markets and in the public markets to support this

00:55need and we've all talked about large numbers 100 trillion by 2040 to support all the needs across

01:02AI infrastructure and compute and the good news is over that period of time our capital markets are

01:08there to support this demand. Are there some areas where we've gone too far and I just think of the

01:14oracle debt issuance for example that we had a few weeks ago where you have them issuing 40 year debt

01:20and the spread is something like 1.37 above treasuries. It's very very tight for a time period

01:27that is essentially who knows what the world's going to look like then. Does all of that make sense?

01:31I think you have to focus on supply demand as a technical right and I think that's a big element of

01:37why the markets continue to be so supportive. There's a lot of liquidity in the system and they

01:42need to stay invested. We did a transaction last week for a double B company and it came at a negative

01:49new issue concession and it's the largest senior unsecured note that's come in the last decade.

01:56A negative new issue concession. It just shows you markets are positioned to invest.

02:02Does that mean though that risks in some cases aren't appropriately priced?

02:06I think there's been a lot of discussion about what the appropriate risk premium is.

02:10One of the things that we're excited about around credit in general is the macro backdrop so far

02:17is set up what we almost call a Goldilocks scenario which is the economy is showing some

02:23of the macro factors that would suggest easing is in store which is good for credit and good for

02:28companies and good for cost of capital but it's also not so weak that people are concerned about

02:36growth. I think the US economy has been remarkably resilient we've spent a lot of time with our

02:41European clients they're seeing signs of growth also in Japan so there is a macro setup that would

02:49suggest credit has still room to run. And again you put on top of that the demand which you've been

02:56talking about I mean is there going to ever be a scenario that you can foresee where spreads

03:00widen materially and stay there for example April 2nd has spreads wide and they immediately snap back

03:06are we just in tight spreads for the foreseeable future? I would say you probably get some vol

03:12periodically like April and again what could really change the spread widening is real macro weakness

03:22but also tremendous amount of supply of new money and so we probably should talk about some of the large

03:27deals that are getting announced. Can we? I mean last week I know there's some specifics you can't

03:32exactly talk about because you've been involved some of them speaking of which the 55 billion dollar

03:37largest LP LBO with EA. One of the interesting things about that though was that it was entirely

03:42financed by JP Morgan. Is that a win for banking to say that banking is participating this and not private

03:48credit? Look I think in that scenario because we were the sole exclusive sell site advisor it was

03:54confidentiality was very important if you noticed the deal didn't leak until the very end yes well

04:00a large part of that is driven by sole financing provider sole sell side advisor right which we

04:07speak a lot about in our firm so I think it's a very good sign in a situation like that where the board

04:13wants certainty and speed and confidentiality and also I suspect knowing how that deal will likely be

04:20received in the markets it's been public about the size of the financing it's 20 billion I think my

04:26chair is sliding down here. Come back over. I don't know why it's moving but 20 billion dollars for an LBO

04:35seems large but we've worked with our colleagues to say that's very doable imminently financeable

04:41and it will go very well and while private credit I'm sure could have stepped in there and supported the

04:47deal I suspect the pricing of that debt when it comes into the market and we run a full auction

04:52for that paper will come inside what private credit would have been able to do. And just quickly

04:56Christina because we're almost out of time but I know you've been very bullish on the return of M&A

05:00do you expect more deals if they are of this size to have the same sort of structure and contours

05:05then just given the benefits that you're talking about? Yes I think we're going to see the return of

05:09large transactions we're already up the 10 billion dollar size transaction year to date is already up

05:13meaningfully and with sponsors the numbers up 80 percent and I think they're going to avail themselves

05:19of both private credit options and public options and we're as you know at Goldman Sachs we have the

05:25one of the largest credit private players in the world plus our agency we're agnostic.

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