Investment Banking (Short Lip Service)

This is an interview (audio) Bloomberg did with Ken Moelis, Chairman of investment banking firm, Moelis & Co. ($MO) at Davos. We perked up when Mr. Moelis was asked the following, "Is it possible that a woman will be the next leader of Moelis & Co.?" "Oh, definitely," Mr. Moelis responded.

Possible, sure. Probable? Statistically speaking, no. 

Take a look for yourself: here is the "Senior Leadership Team" of Moelis. We count 9 women out of 156 Managing Directors. For the math-challenged, that's 5.7%. Which makes Moelis a quintessential investment banking dude-fest. "We don't do as good of a job at retaining them through the life cycle of becoming a managing director." Understatement much? If the "entering work force...is somewhere right around 50-50," that is clearly right. The word "good" shouldn't be anywhere in that sentence.

Tax Reform (Long Unhappiness & Therapy Bills)

Who is Advising Giancarlo Stanton?

If the bankers aren't happy, it must be worthwhile. Totally kidding. Ken Moelis of Moelis & Co. ($MO) has joined the ranks of Bridgewater Associates LP CIO Ray Dalioopposing the elimination of the SALT deduction and questioning to what degree there'll be unintended consequences. Indeed, people in Los Angeles, Chicago and New York are freaking the eff out about what the reform legislation will mean as a practical matter. As it relates to the loss of the mortgage interest deduction, a choice quote, "An analysis of the Senate bill by Moody’s Analytics concluded that home prices in Manhattan could fall nearly 10 percent in the coming years because of the bill. Some New York and New Jersey suburbs could be even more vulnerable because property-tax rates are higher there and prices are still recovering from the bursting of the housing bubble." Boom. Nothing like an instant 10% decline in your real estate value. But don't worry, New Yorkers. Allegedly, naysayers argue that the threat of flight for tax arbitrage purposes is overblown. Or is it? The IRS recently reported a "record loss of people" out of Illinois. Where did they go? Florida and Texas, of course. Apparently Giancarlo Stanton didn't get the memo.

Query whether the rise of the 1099-economy and the "remote-first" movement will interact with the new tax bill in odd ways. People today seem less and less tethered to a physical location. Doesn't that, in many ways, explain the rise of WeWork? If people can leave, they will. We hear Austin, Denver, Nashville, and the Research Triangle are all looking ripe for growth.  

Chart: Masters of the Universe 2.0 (Evercore/Moelis/Houlihan)

Evercore Partners & Moelis & Co. Show Increased Advisory Revenue

Like Houlihan Lokey, Moelis & Company Inc. ($MC) also reported earnings this week and revenues were up 13% in Q3 '17 relative to Q3 '16. Unfortunately, the bank doesn't break out restructuring revenue but the company noted that it expects restructuring activity to be"flattish." Evercore Partners ($EVR) also reported record revenue and a strong earnings rise; it didn't parse out restructuring revenue. Advisory fees, generally, however, seem on the rise. Read: it's a good time to be banker. That is, unless you're a junior banker and the group is led by a 45 year-old with no plans to retire for another 35 years. Or you work at Rothschild & Co., and, if rumors are to be believed, the restructuring group is on the verge of a massive splintering. You heard it here first. 

Source: Thomson Reuters, Moelis & Co. 

News for the Week of 2/12/17

• Coal. Prices have risen and Trump is promising assistance. Is this enough to offset sagging demand? China's new measures aren't helping. But the capital markets are, as Peabody Energy, Arch Coal, and Contura Energy are all taking advantage of cheap financing/refinancing options. Peabody shopped an upsized term loan (by $450mm) with revised company-favorable pricing; it also issued new notes and bonds. Amazing how quickly things changed with coal.
• Chicago. S&P is making threats. 
• Electric Vehicles. Something tells us that oil and gas management teams and their wildly astute restructuring bankers and advisors neglected to bake this element into their business plans. 
• European Debt. Increasing concerns about Italy and Greece. Meanwhile, in France, CVC Capital Partners' owned vehicle leasing firm Fraikin has hired Rothschild to restructure its 1.4 billion Euro debt. Lazard will represent the mezz debt.
• Moelis & Co. & Aramco. "Ken of Arabia"? C'mon, that's just dumb.
• Power. California has more power plants than it needs. After a slate of power-related bankruptcies, it looks like there is more hurt to come in this space. And big developments on the storage side probably won't help. And this new cooling tech won't help either - if it's legit.
• Retail. And people wonder why private equity is vilified...case and point: Rackspace. Speaking of private equity, Canada Goose's proposed IPO reeks of a dump-and-run on greater fools. Millennials don't spend money, but Bain Capital will have us believe that $900 fur-lined jackets are the exception to the rule. Riiiight. 
• Retail Part II. Organized Retail Crime = massive problem. 
• Retail Part III. Gander Mountain = toast.
• Retail Part IV. Amazon announced that the number of third-party sellers on its B2B site has reached 45k, up about 50% from the approx 30k sellers it had at the end of Q2...IN JUNE.
• Return of the Maturity Wall. Nothing gets restructuring professionals' juices flowing like sexy maturity stats. So, here it is: $2 trillion of corporate debt comes due in five years. And this is, in part, because the capital markets are definitely wide open right now in the face of soon-to-be rising interest rates. Take THAT wall, President Trump! 
• Sears. Everyone is looking at this oncoming trainwreck and wondering "when?", not "if." Nice recent CDS movements on it but then the company unearthed a remarkable $1b in cost savings. Like, out of nowhere. And, naturally, the stock soared 25+%.
• Spotify. Typically there are tremors before the earthquake. Perhaps Filip Technologies, Violin Memory, and Nasty Gal are the tremors foreshadowing a venture debt-backed reckoning on the horizon. It's unclear. But, in Spotify's case, the interest ratchets attached to $1b of debt get more and more expensive with each consecutive quarter sans IPO. A big "unicorn" is going to fail and fail big. Spotify may not be the one, but it ain't looking great. But that one IS coming (Zenefits anyone?). Along these lines, how the eff is Theranos not bankrupt yet? 
• Takata. Inching towards bankruptcy.
• Fast Forward: Most retail-focused restructuring pros emphasize "omni-channel," the latest retail buzzword that, practically speaking, means basically nothing in today's climate. Case and point: Neiman Marcus, which was downgraded this week with projected 10x leverage on $4.77b of debt. Most of the cap stack traded at new lows this week. Omni-channel ain't a panacea, it appears.
• Rewind I: This result for Relativity Media sure sounds positive.
• Rewind II: The grocery space is getting hammered so badly that now even Whole Foods is retrenching, shutting more stores than it's opening go-forward.
• Chart of the Week: