jon: welcome to "bloomberg markets". i'm jon erlichman. sonali: and i'm sonali basak. matt miller is up-to-date. the s&p is down 0.3%. the nasdaq is about 0.2% down on the day. the two-year and 10-both up on the day.

jon: you mentioned we have an overall s&p that is a little weaker after five straight winning months. sector by sector we are generally seeing underperformance. it has been a busy earnings day and a lot of investors are excited about the caterpillar story. it continues to flex profit muscle but you have uber shares off 7%, even though they showed operating profit. the revenue story was a concern. the ceo speaking with bloomberg earlier. you have beer sales not satisfying investors. those are off close to 4%. and there were high expectations for a cruise line operator for norwegian. that stock has had a huge run and the profit outlook falling short of expectations. sonali they sure are. our next guest says equity

investors should take cues from the lending market. he expects tightening credit and trouble on the horizon. richard byrne is the president of benefit street partners to talk about this. if you look at the market, it is feeling negative sentiment today. it is true we have seen default on the rise. what are the credit markets where the public credit markets are telling us things the equity markets are not seeing. richard: first of all, thank you for having me. yes, i think a lot of times equity investors should take cues from credit investors because there is so much going on. for example, everyone talks about the looming recession, soft landing, hard landing -- by the way, we think it is going to be soft -- but there is wars an supply chain problems. the real problem already occurred. it is the dramatic rise in interest rates and the impact of that is the reverberations just

being felt now and will continue to be felt. sonali talk more about what that looks like. you have some of the market calling all clear and waiting for cuts let alone more hikes. how long do people feel the pressure? sonali richard: definitely not all clear. we are a lender. when you get higher rates that's great, our net income rises because the loans we make are generally floating-rate and they rise with the higher rates. but it can only go so far without it breaking or there being a problem. the problem is with the underlying borrowers. those underlying borrowers can only withstand so much rate increase before the credits start to deteriorate. the average loan underwritten in our private credit business

across the market was about 2.5 times interest coverage. cash flow covered interest by 2.5 times. if you adjust for today's higher 5% versus 1% back then, it is now 1.5 times. 1.5 times credit is still not defaulting in theory, but boy, has the margin for error declined. that is why you will see higher defaults for the higher performing subset. jon: everybody has been trying to figure out what kind of market this is in history. having gone through so many different credit cycles in your career does this current environment remind you of any past chapters? richard: you know, that old saying that history does not necessarily repeat, it rhymes. you can take little bits and pieces of things. a lot of people compared to the global financial crisis, but i think this is more specific.

the percentage increase in rates is higher than anything we have seen -- i am not a historian -- but to go from year zero to over 5% on base rates is an infinity percent increase. as we talked about reverberations, reverberations are important but it is not just the negative that defaults rise and there are credit problems. there is also the positive side of it. markets are resilient. they correct to attack the problem. what is happening now is mna volumes are lower -- m&a volumes are lower, but also the way lenders are structuring deals is they are demanding better equity checks. for example, a leveraged buyout of 2020, 2021 vintage had 40% of

the purchase price was the check. that is up to something like 60% now. people talk about everything is bad, but to us, this looks like one of the best vintages of new deal flow that we have seen in -- maybe since the global financial crisis. deals are being restructured and there is demand for the deals. you are kind of getting the pick of the litter. there is certainly a bright side to that story. jon: let's look at it through the lens of commercial real estate, which is a market you know extremely well. for those deeply concerned about the outlook from here what would you say? richard: well, commercial real estate, i would say, to quote mr. dickens, is a tale of two cities.

they suffer from the same problem we identified with corporate lending in that rates are higher. that was a cataclysmic event in the market is just adjusting now. those companies are going to have to refinance floating loans. they are not worth as much as they were before because higher rates means higher cap which means lower property value. when you are refinancing all but the best-performing properties there is a missing piece of equity or something that will fill the gap. or maybe the borrower will hand in the keys. but that problem is bad enough. i see the graphic on the screen. office has become a four letter word. maybe they should slice off the "c" and the "e." but office has a secular problem where work from home and the well-publicized shows has talked about and that is making it

worse. just to finish that point, we said maybe the theme of today is credit market take your cues. one cue is even if for buyers that see value in office, who is going to lend the money to buy the building? if a lender looks at an office loan like us, we are going to want equity return because it is equity risk. most real estate investors like to use leverage. that makes the return expectation even higher if they cannot get it. sonali: speak to investors because you are running a rate that is facing pressure after reporting earnings. how much worse do things get before they get better and how are you managing this portfolio to make it through the storm? richard: we manage a commercial mortgage rate. we lend money to commercial properties. we are in a fortunate position of our rate is 77% multifamily

borrowers. unfortunately, some peers are heavily concentrated in the office sector. we only have 6% office. navigating the storm, thankfully, has been easier given the construct of our portfolio. we also do not have concentrated positions. the average loan size is less than 1% of our books. thankfully the waters are not nearly as choppy, but for the reasons we said, we are spending time looking at the portfolio and trying to head off problems before they arise. sonali: at what point do you think things get better in that world? talking about interest rates as it pertains to the equity market and companies in default but what about people looking to buy a house or whether any pressures in an elevated inflation cycle? richard: the work from home for all the reasons that office is suffering the residents became

more valuable. that is now their place of business or doubling as a home and office. we feel really strong about multifamily. remember, multifamily loans also have -- the loans we make are typically called transitional loans. a buyer of a building might upgrade the property before they get permanent financing. the government or freddie/fanny is the perfect business for this type of loan. there is a lot of liquidity you are just not seeing, certainly in office. sonali: fascinating. richard byrne, president of benefit street partners. coming up, overstock is now bed, bath & beyond. we discussed today's rebrand ceo jonathan johnson. this is bloomberg. ♪

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jon: this is "bloomberg markets" . i'm jon erlichman with sonali basak. overstock has a new online name, rebranding as bed, bath & beyond. it is part of the plan to grow its online retail presence. overstock acquired the rights to the brand out of bankruptcy and we have already seen overstock relaunch the bed, bath & beyond brand in canada. sonali: we are joined by jonathan johnson, ceo of bed, bath & beyond. when you look at this rebranding you have taken on for less than $22 million how much more like bed, bath & beyond are you going to become? jonathan: the legacy of overstock and bed, bath &

beyond, the product categories had great overlap. we were kind of the rest of the home. bringing it together creates the ability for customers to make their dream homes come true. there will be a lot of ways we are the same. the way we are primarily different is we will not have physical locations. jon: jonathan, with respect to the names, how should people think about bed, bath & beyond and overstock from here on out? jonathan: we are rebranding to bed, bath & beyond. if you go to the site today, it still says overstock so that legacy customers know we are still there. but we will end up being just bed, bath & beyond. sonali: one of the things bed, bath & beyond was known for his discounts.

the 20% discount coupons. overstock is also given great deals. how do you think about discounts moving forward given the trouble bed, bath & beyond had run into from that? jonathan: we will continue to be promotional and offer our own coupons. but when i think customers will see is that our pricing is a little sharper than bed, bath & beyond's has been. i will say as we come out of the gate there are huge promotions going on today as part of the relaunch. for example, if people download the mobile app, we are giving 815% off coupon -- giving a 25% off coupon. jon: we referenced you already rebranded in canada. early days but is there anything you can tell us about what you have seen so far? jonathan: right launch in the first month in canada. more direct traffic to the site

then we have seen in the past. our return on ad spend has been higher. when customers are on the site they are more likely to not just put something in the cart but hit submit. the conversion has been higher. all in all the experience we have had in canada very positive and made us want to hurry and rebrand and start today's rebrand in the u.s.. sonali: we were joking about dyson vacuums. are their luxury home items or high-priced home items that can now become available at a promotional price given the two brands put together? jonathan: since the deal has been announced we have had many name brands want to sell on the new bed, bath & beyond site. the last several weeks we have added over 600,000 new products, many namebrand, many small

appliances, kitchenware. customers who love shopping at bed, bath & beyond will feel very comfortable and find the same great product at even better prices. jon: one interesting trend we have seen on wall street the last couple of years is nostalgia around certain brands, including bed, bath & beyond, which had essentially become the so-called meme stock. as you embark on this journey do you think about that investment crowd as well and how they had perceived the brand these last couple of years? jonathan: we are really focused on pleasing the customer. we know when we please the customer performance will come. we did note before we bought the brand what outcry there was from customers upset that it was going away, that the coupons would go away, that may be there reward points would go away. as part of our promotional

relaunch, we are reinstating much of the welcome reward points that went away in the former bankruptcy. it is the customers we are focused on. we think the market will see the growth, top and bottom line, and reward us accordingly. sonali: what about the ticker? do you think the ticker changes to be more in line with the new brand? jonathan: people ask about our corporate name and the ticker. we intend to change both. we have mostly been focused on getting this rebranding done. i expect in the coming months we will have more to announce on the corporate name and the ticker. let's make sure we talk again then. jon: we will have more vacuum questions as well. stay tuned. jonathan johnson joining us, ceo of bed, bath & beyond on the rebranding. coming up, paul taubman with more on the hiring spree and the

outlook for deal activity. this is bloomberg. ♪

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sonali: this is "bloomberg markets". i'm sonali basak jon erlichman. paul taubman says any slogan is an opportunity to pick up new talent. that has helped him in the past decade. here's my interview with him from earlier today. paul: we see tremendous opportunity to grow. this is a conducive environment to grow. you need to see m&a slow down in order to hire the best m&a bankers. that is the ultimate paradox. the reason for that is because the switching costs are much lower when dealing with a low velocity environment. trying to get a best in class m&a banker to leave in the midst

of an m&a bull run when there loaded with mandates, the costs to extract themselves, they leave their clients in the lurch. we are advantage of the fact that even though the environment is challenging in the near term, we know it is going to come back. we want to continue to press forward and grow the franchise. sonali: how fast do you actually expect acquisitions to be coming back to the market? paul: the pace of activity and dialogue is picking up. we are looking at levels today we have not seen in more than a decade. m&a volumes today are not much greater than they were coming out of the global financial crisis. if you benchmark it relative to gdp or market capitalization, it is at lows we have not seen ever. i am not really going out on a limb saying it is going to get better from where we are today. sonali: it is going to get wares. paul: it cannot get worse.

you cannot get her jumping out of the basement. [laughter] the question is how quickly does it inflect? it is a pro= cyclical business. transaction activity begets more transaction activity. if your competitor is growing and investing, if another private equity firm in the alternative space is committed capital, it leads to more activity. i think we have the conditions that are nearly ripe for that and it would not surprise me if between now and the end of the year you see a very sharp inflection. sonali: there is one place things could get worse and that is restructuring. a whole bunch of forces that are pushing companies to either restructure or go bankrupt. how significant is this wave of distress going to be? paul: i think we are in for an extended wave of restructuring relative to where we are today.

but where we are today is at historic lows in terms of default rates. we are still feasting off of the easy money environment, relatively low interest rates, but there is a day of reckoning and we will see an uptick in restructuring activity. but that is relative to historic lows. i often get asked the question can an upswing in m&a coexist with an upswing in restructuring? my answer is simple. right now they are both at historic lows. historically low default rates and historically low m&a volumes. i think both of them can snap back more to traditional long-term levels and both start to be engines for our firm. sonali: it is a weird environment where you have mergers starting to come back. but you also have this uptick in restructurings. it is rare to see both at the same time and he is one of many

investment bankers seeing this happen. the question is do the companies that go into restructurings end in bankruptcy? or are they saved by private credit? [laughter] jon: big questions but also big opportunity. it was a great interview. to the points that were made it is not every day you can bring new teams on. when the larger firms have been going through their own restructurings that is an opportunity. we are also talking about renewable energy and ai where it seems like these companies want to be ready to pick up on that new business. sonali: it is crazy. as technology companies, as ai companies, the capital markets are not open to everybody so they are not hiring at scale. pjt did not exist 10 years ago and got 10,000 applications. wall street is back. maybe not quite yet. jon: we will be watching closely. and we are also watching the markets.

we are seeing softness as august kicks off after that five month winning stretch. most sectors still in the red. we will track the earnings stories. for sonali basak, i'm jon erlichman. this is "bloomberg markets". start your dna-powered health journey today with personalized insights from 23andme.

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romaine: a blockbuster july for u.s. equities giving way to a dog of a start to august. i'm romaine bostick. katie: and i'm katie greifeld. we are kicking you off to the closing bell. you look at how equities are doing on this first trading day of august. it is not pretty. the s&p 500 off about 0.3%. big tech index only doing slightly better. the nasdaq off about 0.2%. in the bond market, you are looking at quite the selloff.