Takeaway Tuesday #9

Happy Tuesday everyone. Its been a busy couple weeks post Reorg's FinDox announcement. Markets have been strange at best. I do think we are in an interesting period of alpha vs long risk. The Buffet 10 year bet (which Buffet won easily) could go the way of the active fund vs long S&P. Credit markets are still nearly closed, PE feels like its sitting on its hands and everyone is waiting for earnings estimates to come down. I would be remiss to not mention the absolute crazy of FTX and other crypto bankruptcies (there are more coming...). John Ray's declaration in FTX may be top 5 docket items I've seen in my career. FTX / Crypto were 9 out of Reorg's top 10 stories in the U.S. last week. Rightly so as this is this generation's Lehman / Enron and there are A LOT of claims out there for pennies on the dollar...

Reorg Content (subscription required):

• Performing / High Yield Content: All the work on Tenneco and Nielsen the teams did last week. Obviously a big test for the health of market (some wins, some losses). Remains to be seen how this affects the forward calendar going into the holiday season

• Distressed Coverage: Obviously FTX huge highlight last week. Removing that, the Copper Standard situation has fascinated me for the last couple of years. Its interesting to see and break down their TSA

Other Content You May Find Interesting

Only one link today because its one of the best reads in a long time: Notes from Todd Comb's conversation at the Graham & Dodd Annual Breakfast 2022. Run to read it...here are my four biggest takeaways:

1. "Combs goes to Buffett’s house on many Saturdays to talk, and here’s a litmus test they frequently use. Warren asks “How many names in the S&P are going to be 15x earnings in the next 12 months? How many are going to earn more in five years (using a 90% confidence interval), and how many will compound at 7% (using a 50% confidence interval)?” In this exercise, you are solving for cyclicality, compounding, and initial price. Combs said that this rubric was used to find Apple, since at the time the same 3-5 names kept coming up."
2. " Combs mentioned how his responsibilities are great, and his time is scarce, but if he was 150% dedicated to analyzing companies, he’d focus on delta reports, and see what management is changing from year to year. In 2005, Bear Stearns changed something very essential in their reports while saying something different to the street."
3. "Put together your view without looking at the market cap. Limit the pollution. Then think about the future of the company and pressure test your assumptions. "
4. "Combs focuses on fundamental unit economics. “First figure out CAC and LTV for GEICO. You know the data of where they live, the kind of car, and then there is the LTV of the customer. Combs thinks where people go wrong is where they think they know their CAC and LTV but it’s from too high a level. When you slice the data, there are really big pockets where the LTV is negative, and that is where the potential is to improve margins.”"

Something I Bet You Didn't Know You Could do on Reorg

Given the hyper focus this week on unsecured claimants, Reorg has definitively the best unsecured creditors database out there. You can pick ANY unsecured creditor and see what cases they are top claimants. 

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Takeaway Tuesday - Findox Edition

Hey everyone, 

I am trilled to announce that Reorg and Findox are joining forces. I've known Tejs for over a decade and he and Brian, his CTO, and other have built an incredible organization - our goals have always been very similar: To delight our customers and help them solve the problem of information transparency. The transaction is expected to close in December.

Here is the press release:

https://www.prnewswire.com/news-releases/reorg-and-findox-to-combine-to-offer-best-in-class-solutions-for-the-credit-markets-301673003.html

I couldn't be more excited! Please reach out to me if you have any question. Takeaway Tuesday will be back next week!

-Kent

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Takeaway Tuesday #8

 An incredible chart from JPM below...

The news that banks will hold Twitter debt and sell at a later date and private equity firms doing equity only deals are emblematic of the times. And as expected more creditor on creditor violence and aggressive capital structure management is happening as we speak. I would guess we are just in the first innings of that.

Reorg Content (subscription required)

• Performing / High Yield Content: Conversations with Reorg: Changing Dynamics in The European Leveraged Loan Market And The Potential Impact of More Permissive Documentation On Restructurings: Reorg has been massively ramped up our Expert Views series. This was one of my favorites of recent past

• Stressed / Distressed Content: Mitel Executes Non-Pro-Rata Priming Exchange With $857M of New Debt Ahead of Existing Loans: And it begins. Given the amount of capital raised in drawn down structures from credit opportunity funds and the weakness of governing documents, there are going to be a lot of these

Other Content You Mind Find Interesting

• The Crypto Story: Matt Levine comes out with a MONSTER piece (I'm only 1/2 done) on everything (and I mean everything) crypto. For people ultra familiar with the space I think you'll learn something new from all the anecdotes and missives

• The $30 Million Lottery Scam: I think one thing people are underappreciating is how long it takes the excesses to unwind in the market. Yes the UK pension scheme sorta blew up and Madoff was uncovered months after Lehman filed - that said I think you are going to see many many more shoes to drop over the next two years

Something I Bet You Didn't Know You Could Do On Reorg

Lets say you are a lender to a company going through some challenges. And we know a lot of companies are going through challenges. There could be ideas on amendments floating around or an uptier exchange or covenant breaches etc. If lenders wanted to organize they may call a desk or speak to lawyers to see who else is involved. Well all that data is on Reorg. Lets use a topical one: Mitel:

We've recently rolled out some data initiatives to better display and link the data across Reorg's databases. You'll see more of this data in Reorg stories soon. To access the database you can go here: Reorg CLO Database

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Takeaway Tuesday #7

A couple weeks I noted how bad sentiment was...this was posted by @jasongoepfert "Last week, retail traders bought $19.9 billion worth of puts to open. They bought only $6.5 billion in calls to open. This is the first time in history that puts were 3x calls."

My prediction: We are going to have a bad recession, and the market will start discounting that 6-9 months in advance just like every time in the future. Multiples still generally high, rates are going higher (market has never bottom when rates were rising), and the credit market is awful. Reorg usage is up dramatically versus last year and everyone is gearing up for a big restructuring cycle in 2023. No one can catch the bottom though...

Reorg Content (subscription required)

• Performing / High Yield Credit - Carnival’s New Notes Issued By NonGuarantor Subsidiary Suggests Focus on Structurally Senior Debt Over Additional 1L, 2L Debt; Unlimited Transfers Within Restricted Group Permitted by All Carnival Debt Documents - Hot off the presses...The best trade for a while in the past couple of years was top of capital cruise lines. Structure and seniority still matters...

• Stressed / Distressed - Lots of content related to Bed Bath and Beyond (especially with the news today) - We wrote before the announcement about the advisors circling the company and bondholders. 

Other Content You May Find Interesting

• @the_red_deer Aggregating a Series of Credit Interviews the Past Couple of Weeks: I especially liked Boaz Weinstein's selling protection to the banks on IGs the need hedging given revolver capacity / worries of the market. Generally speaking sentiment was neutral / opportunistic for most of these interviews.

• How a Chinese American Gangster Transformed Money Laundering for Drug Cartels: Holy hell this was a crazy read. The reporting was nuts. Incredible piece by ProPublican

Something I Bet You Didn't Know You Could Do On Reorg

Our Docket / PACER technology is still one of the most used features on the site with thousands of users getting alerted to docket updates in real time. We applied a data science model to our millions of dockets to parse them down into what the actual dockets point to. So for instance if you were looking for backstop motions you can do that:

What's great is that you can then filter by Judge, districts, industry, time, law firm etc. Its incredible. And lots of associates are using it to help with docket research, writing motions, getting comps etc.

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Takeaway Tuesday #6

After last week's post and just limping in to what felt awfully bad Sunday night futures (Emergency Fed Meeting, rumors on CS, etc) the relief rally came right in the nick of time. Does anyone else feel like we are in the beginning of the beginning though? 

Reorg Content (subscription required)

• Performing/High Yield Credit - Sector Insights: European Supermarkets, Food Retailers Wrestle With Inflation Hit on Customer Purchasing Power, Balance Passing on Food Inflation With Protecting Market Share, Focus on Cost Initiatives to Offset Margin Squeeze; No Significant Near-Term Maturities Except for Casino - The consumer is weak and inflation is skyrocketing not just on this side of the pond but in Europe as well. Across European food retailers margins are declining, leverage is increasing and liquidity is running tight. 

• Distressed Credit - LATAM Airlines - LATAM Airlines Anticipates Emerging From Bankruptcy in Q4; Proposed $1.5B Bond Debt Secured by Frequent Flier Program, Cargo Business, IP, Slots in US, UK - Feels like the end of an era on this one. I know its only been a couple lifetimes since the company filed but given where we thought we would be at petition data- its interesting to see this one come closer to exit

Other Content You May Find Interesting

• America's Throwaway Spies: How the CIA failed Iranian informants in its secret war with Tehran: This was a fascinating piece by Reuters Investigates. Given how much clandestine operations have been in the news combined with extraordinary reporting, I think you'll enjoy this one

• Mobile Homes, the Last Affordable Housing Option for Many California Residents, Are Going Up in Smoke (disclaimer: My wife works at Inside Climate News - you should read it!) - This is a harrowing piece and given our community and knowledge of PGE it sorta gave me the feels / anger

Something I bet you didn't know you could do on Reorg.com

We spent the last 18 months building the most comprehensive data lake for all things credit and restructuring related. Its the best thing we ever built.

Here is more information and awesome video: https://www.reorg.com/products/credit-cloud/

Want to know every time Kirkland and Evercore worked together and what DIP looked in terms of fees or carveouts or budget like or the KEIPs that got denied in Delaware or the companies whose loans dropped the most in the past month with the least amount of liquidity that is also more than 7x levered. Want to see dashboards that show what your competitors are advising or investing in or maybe the fees law firms are charging for pre-packs...its all there

Effectively what we are trying to build: If you can ask the question in credit, Credit Cloud can provide the answer.

Give it a try or reach out to me and I'll set you up with the right person.

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Takeaway Tuesday #5

The sentiment out there is bad. One of my favorite Twitter accounts to follow for sentiment is Sentiment Trader (@sentimentrader). They posted this chart earlier this week:

but admittedly it feels like we are teetering on an edge. When its hard for me to call in buy orders I know we are getting closer to a bottom.

Reorg Content (subscription required)

• Performing / High Yield Credit - Reorg Covenants Weekly: Citrix LBO Notes Include Aggressive, Possibly Unprecedented Buildup Basket; NortonLifeLock’s Credit Agreement Expands Unused Carryforward Flexibility; Opendoor, LendingTree Initiation; Hersha Hospitality, Ultra Clean, StoneMor, Sylvamo Updates; CNX Resources, Citrix Primary Review - The feedback on my post last week on ability to submit documents for loan review was met with overwhelming response. As you can see we are covering a lot in the space and this content is absolutely incredible and best-in-class.

• Distressed Credit - Everything and all Puerto Rico. We wrote a litany of stories on Puerto Rico last week and with the island being super topical given the struggles at the island (and Luma featured on John Oliver). Our most popular story of the week: Oversight Board Files PREPA Bond Litigation Schedule With Call to Continue Talks; Latest Bondholder, Oversight Board Restructuring Proposals Disclosed

Two Other Pieces of Content You May Find Interesting

• The Sordid Saga of Hunter Biden’s Laptop - Given the House is most likely going to swing to Kevin McCarthy's leadership if I could buy mentions of Hunter Biden's laptop as a stock, it would be a screaming buy. As a don't like to get political here, this piece laid it all out there
• Has The Zodiac Killer Mystery Been Solved (Again)? - An incredible piece by LA Mag. I lvoe this random guy taking it to the next level...

Something I bet you didn't know you could do on Reorg.com

Our App is incredible. Here in the link: Reorg App on App Store. Look at that 4.9 rating. Beautiful...Seriously though I read all of our content on the app and I think you will too

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Takeaway Tuesday #4

Don't look now - the 1 year T Bill is at 4% and banks are about to take a bath on everything from syndicated loans (Citrix...) to commercial real estate...everything is great out there...

Reorg Content (subscription required)

• Performing / High Yield Credit - Petco / Lenders Object to Petco’s Effort to Transition Senior Secured Term Loan to SOFR From LIBOR Without Credit Spread Adjustment - given the underlying issues with the loan market its good to see the buyside work together to keep overall total return high for their own investors. We noted "The loan’s margin is currently L+325 bps. A transition to SOFR from LIBOR without a credit spread adjustment would have, in effect, lowered the coupon on the loan, given that one-month and three-month LIBOR indexes are currently 2.68% and 3.17%, respectively, while one-month SOFR is currently 2.28% and three-month is 1.92%."

• Distressed Credit - U.S. Renal Care / Pimco, Other U.S. Renal Care Lenders Working With Milbank, Houlihan Lokey - We noted "Market participants are evaluating the possibility of certain lenders to the dialysis provider proposing and executing a transaction that involves funding new money to extend the company’s maturity runway while rolling up their debt holdings that would prime other lenders, known in recent years as creditor-on-creditor violence, the sources said." This is something I think we are going to see a continued massive increase over this cycle

Two Pieces of Content I Found Interesting

• The Great Buenos Aires Bank Heist - This is a WILD story. The article came out pre pandemic (so about 20 years ago) and is just a super fun / crazy read 

• AI Art: World’s First Bot-Generated Graphic Novel Hits the Market - My kids and I have spent far too much time on Midjourney. We are in the 1st inning of the application of AI Art and its absolutely incredible the progress in just a couple years

Something I bet you didn't know you could do on Reorg.com

At Reorg, we very much built our business around distressed debt and bankruptcies in the early years. While we have continued to invest and deepen our expertise there, I believe we currently have the best covenant product combining deep editorial research and data in both the U.S. and Europe.

And I bet you didn't know we analyze every single primary issuance (bonds and loans) in a fashion that blows away the competition. We do this in the pre-marketing / pre-syndication phase as well. 

If you are looking for an analysis of a new loan in particular, you can reach out to our Covenants team at this email: CovenantLoanReport [at] reorg-research.com and request a review. We push these to the platform for topical credits to make people more aware of the service

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Takeaway Tuesday #3 9/13/2022

After a lot of suggestion, we may be moving this to a substack of sorts. Apparently 2009 technology doesn't translate well to 2022...(yes the blog started 13 years ago - I had a lot more hair then)

Reorg Content (subscription required)

• Performing / High Yield Credit: Veritas Technologies has been one of the most searched names on Reorg in September after they reported results with EBITDA down 50% y/y. While the company seemingly has a tremendous amount of liquidity, its capital structure has traded down past results.

• Distressed Credit: Two of the most read stories last week on Reorg focused on two names familiar to distressed debt and event driven credit investors: Reorg was the first the to break the Second Circuit's reversal of SDNY decision in Revlon and Reorg did a huge number of stories on Cineworld which filed last week.

Two Pieces of Content I Found Interesting

• Johnson & Johnson and a New War on Consumer Protection: While most credit investors will be familiar of the situation, this article dives super deep on the history of J&J and its troubled history with asbestos

• Real Money, Fake Musicians: Inside a Million-Dollar Instagram Verification Scheme: As someone that has failed to get a blue check (THIS GUY), I found this article so entertaining. The reporting on the piece is incredible. And I really feel like the scheme game is at an all time level right now.

Something I bet you didn't know you could do on Reorg.com

Given inflation is the talk of the town, I bet you didn't know you could compare what law firms are charging their clients on Reorg, by level. Lets compare associates Proskauer and Latham, both huge players across many aspects of credit 

What we did was index EVERY final fee application over the past 5-6 years by law firm by position utilizing data science to break down these comp numbers.

Why is this important: 

• If you are a buysider and you are comparing pitches/engagement letters from law firms, you can use this data to keep law firms honest
• If you are a law firm BD, you can use this data to build marketing materials, comp sheets, and generally be more aware of the market
• And if you are a law firm recruiter: this has the data down to the named associate/counsel/partner which can be used for head hunting purposes.

Let us know if you have any questions!

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Takeaway Tuesday #2 9/6/2022

I hope you all had a great LDW. As always, any feedback on the format as it begins to shape up, please let me know.

Reorg Content (subscription required)

• Bausch Health's exchange offer was one of the most searched terms on Reorg last week. The Reorg analyst team put together an incredible exchange model that allows users to enter in their own assumptions. Our takeaway: "Assuming 100% participation...Reorg calculates that total debt would be reduced by $2.982 billion and that the net debt leverage ratio would decrease to 6.8x from 8x as of the end of the second quarter"

• Cineworld continues to be topical and one of the most searched companies on Reorg. The team put together a detailed waterfall recovery analysis. We are assuming a bankruptcy filing could occur before the end of this month. Given the complexity of the situation (Cineplex litigation) and capital/corporate structure, this is going to be a fascinating case.

Two Pieces of Content I Found Interesting

• The Humiliating History of the TSA - about 5 years ago, my oldest child had one of their toys taken away by a TSA officer in Chicago. In disgust, a letter was written to the TSA (utilizing the best 7 year old penmanship could offer). This article gives a detailed account of some of the crazy that goes on at the organization

• An Anatomy of Erasure: How a free and open Hong Kong became a police state - in 2019, I visited Reorg's Hong Kong offices two times. Once in June and again in November. Between those short couple of months, the world completely changed. We had numerous meetings cancelled in November because of tear gas in offices. It was so sad to see. 

Something I bet you didn't know you could do on Reorg

One thing that is just starting to get air in the mainstream media is spread widening of the direct lending market. New issues are coming much wider in terms of spread relative to this time last year - underwriting is tighter and its affecting everything from PE IRR calcs to cash flow to service debt etc. 

A couple years ago, Reorg built what I think is the best and most comprehensive database on the BDC market. We index every BDC that files with the SEC (both publicly traded and privately held) and updated their numbers and marks almost instantaneously when an SEC filing occurs.

On Reorg BDC's page, I can isolate all collateral in the BDCs that have been marked down or marked at a level that would signal distress. I could compare marks across various BDCs. I can see new loans coming in and loans that have exited to get a sense for how spreads have changed. And if I'm a lawyer or advisor, this helps me get in front of lenders / companies that may need an assist with liability management / formal restructuring. Or if I'm a lender, I can uncover companies that may need emergency capital to fend the current storm.

Give it a try and if you have any questions please reach out to your CSM at Reorg.

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Takeaway Tuesday #1 8/30/2022

Welcome to the inaugural Takeaway Tuesday (or Tuesday Takeaways...still haven't decided). As a reminder the format is:

• Two Reorg articles, one performing credit/one non performing credit
• Two articles I found interesting this week
• One thing I bet you didn't know you could do on Reorg

Reorg Content (subscription required)

• The incredible saga of 3M ($MMM) on both the combat litigation and the potential monsoon of issues from PFOA and PFOS designations...or how fast can $70B of market cap / or an IG rating get eliminated...

• Regulatory Coverage: EPA Proposes to Designate PFOA, PFOS ‘Forever’ Chemicals, Including 3M Products, as ‘Hazardous Substances,’ Enabling Government to Recover Cleanup Costs From Companies
• Aearo Bankruptcy Court Denies 3M Litigation Injunction Because Prepetition Funding Agreement Not Contingent on Injunction, Says Size of Mass Tort MDL Alone Insufficient to Justify Protecting Nondebtors
• Aearo Technologies Seeks Certification for Direct Review By Bankruptcy Court to 7th Circuit Court of Appeals of Bankruptcy Court’s Order Denying Extension of Injunction to 3M Combat Arms Earplugs MDL
• And many more...

• Diamond Sports, one of, if not the most topical name in stressed/distressed credit - Reorg penned a piece of hypothetical bankruptcy catalyst considerations. One takeaway we had: "If DSG were to reject certain unprofitable team rights contracts per section 365(d)(2), those teams would need to arrange for backup production capabilities, distributor relationships and advertisement deals. Such operational complexity while teams would need to fund their costs, such as payroll, might also place Diamond into a more favorable position to push back on its existing contract terms."

Two Pieces of Content You may Find Interesting

1. China on the tightrope - I learned so much from this article and admittedly I don't think people are talking about this enough. Global demand destruction for everything could have serious deflationary consequences
2. Google Doc on Conversation Starters - Put together by Rob Walker who writes The Art of Noticing. My favorite: If you did not have to sleep, how would you spend the extra 8 hours?

Something I bet you didn't know you could do on Reorg

When I was an analyst I would run redlines on anything from 10Qs vs last quarter 10Qs, to amendments to other disclosures. On Reorg you can do this under our SEC Filings technology

First click on a 10-Q...then click Compare Documents

Pick the document you want to compare your document to....(I did the most recent Q versus same quarter last year Q) and boom....

If you have any questions, you can always reach out to your Customer Success Manager at Reorg.

If you guys have any ideas on how to improve this format, please hit me up on Twitter (@ddinvesting) or my email. In future, I'll try to incorporate some video here as well. Thanks all

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Tuesday Takeaways Preview - we blast off tomorrow

The last couple of months have been busy. Feels like summer just getting started...

One thing I learned from the process (I'll figure out the best medium to discuss it at length in the future) is Reorg is still regarded as a stressed / distressed-only shop. While we built the company starting from hard core bankruptcies like Lehman, Madoff, etc, our coverage (and technology + product offering) now spans over 5,000 credits globally.

In other words, awareness is one of Reorg's biggest challenge. Not just coverage but technology and product wise as well.

And because I've never been more excited about the company or its prospects (no, I'm not riding off into the sunset), I thought I would work to bring that awareness to the forefront the good old fashion way: blogging. If my kids taught me to use TikTok I would do that too...

On most weeks I'll be posting "Tuesday Takeaways" (or Takeaway Tuesdays...?) - I'll post three things each week:

1. Two Reorg article links (one performing, one non performing)
2. Two non-Reorg articles I think you would find interesting
3. Something you may or may not know you can do on Reorg with screenshots

If you have feedback on this format, let me know and I'll incorporate as much as I can. Honestly, if you told me 10 years ago when I was first showing people the Reorg docket technology, we'd be where we are today I'd call you crazy - I can't begin to express my appreciation and gratitude to everyone that has supported us along this journey. And I am ever grateful to my incredible team of nearly 300 Reorgers around the world that work tirelessly to put out the best product possible.

See you tomorrow

Kent

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FTLive Reorg Global Alternative Credit Summit

Hey everyone - Wanted to keep you up on an exciting event Reorg is putting together with the FT on May 4th and 5th - I will be kicking off the NY event and hope to see you there!

As background on the idea: Private credit is booming with estimates suggesting the market is now worth more than US$1 trillion. Having moved to the mainstream, with many buyside firms establishing direct lending or private credit arms, this asset class is creating changes in the debt capital markets, as investors seek out steady and healthy returns, and borrowers opt for new non-bank sources of finance.

The market is already enormous and GROWING. There are interesting questions to consider though: Despite ample capital, there structures didn't really exist at scale during the GFC and as or if the global credit cycle turns what are the implications for recoveries and  how processes play out.

When thinking about the conference agenda, and speaking to participants, we wanted to tackle some of the below:

•  To what extent has it matured to meet the risk and return profile of an increasingly sophisticated pool of global investors? 
• Can current rates of return be sustained in developed markets, against a fast changing and uncertain macro-economic and geo-political background? 
• To what extent will Asia follow a similar growth path?
• As demand for direct lending, distressed debt, structured credit and leverage finance increases, where will new avenues for growth emerge?
• How concerned should investors be about warnings around systemic risks, market opacity, standards and illiquidity issues? 
• Where will the regulation of private credit come from?

In partnership with Reorg, FTLive's Global Alternative Credit Summit will tackle these and other major questions. The summit will bring together leading investors, borrowers, lenders, regulators and advisers from the US, EMEA and Asia. Our agenda looks at how private credit is evolving and shaking up debt markets, assessing the key drivers behind its current rate of growth, and where the industry will go from here within the backdrop of rising inflation, war in Europe and the aftermath of the global pandemic.

--------------------------------

When: Two days of streamed global content May 4-5, 2022, including in-person VIP sessions and networking in London and New York.

Register at https://alternativecredit.live.ft.com/home using the promotion code Reorg15 to access a 15% discount for all digital content.

I hope to see you all there!

Kent

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